The life of a Wall Street analyst can be vexing.  Hedge fund managers will take your call only if you have a can’t-miss idea to put in front of them. The analysts push their investment committees to help their cause by designating certain stocks as a top pick, or in the case of Goldman Sachs, they get the stock added to the Conviction List. Yet here’s the trouble with this back-and-forth between analysts and fund managers: If a stock pick doesn’t work out, they must yank it from the list and admit defeat. As an example, Goldman Sachs… Read More

The life of a Wall Street analyst can be vexing.  Hedge fund managers will take your call only if you have a can’t-miss idea to put in front of them. The analysts push their investment committees to help their cause by designating certain stocks as a top pick, or in the case of Goldman Sachs, they get the stock added to the Conviction List. Yet here’s the trouble with this back-and-forth between analysts and fund managers: If a stock pick doesn’t work out, they must yank it from the list and admit defeat. As an example, Goldman Sachs just gave up on its Conviction List rating for The Fresh Market (NYSE: TFM), a smaller and less established rival to Whole Foods Market (NYSE: WFM). Since TFM was first added to Goldman’s coveted group of Conviction List stocks in February, it has fallen 15% while the S&P 500 Index has risen 20%. The one-year performance for TFM has been even weaker. #-ad_banner-#​Yet it’s the reasoning behind the rating change that should spook any investors that are bullish on Whole Foods. “TFM’s expansion into more competitive markets will weigh on results, and rising… Read More

Imagine if Ford (NYSE: F) offered up its assembly lines to Chrysler. Or if Apple (Nasdaq: AAPL) started building computers for Microsoft (Nasdaq: MSFT).#-ad_banner-# Well, semiconductor giant Intel (Nasdaq: INTC) is pursuing just such a move. The chipmaker has built up so much excess manufacturing capacity that is now looking to make chips — for other chipmakers.  The Wall Street Journal recently reported that “Intel’s fabs would be open ‘to any company able to utilize our leading-edge silicon.'” It’s a painful but necessary move. Intel has spent billions on its various fabrication plants (“fabs,” for… Read More

Imagine if Ford (NYSE: F) offered up its assembly lines to Chrysler. Or if Apple (Nasdaq: AAPL) started building computers for Microsoft (Nasdaq: MSFT).#-ad_banner-# Well, semiconductor giant Intel (Nasdaq: INTC) is pursuing just such a move. The chipmaker has built up so much excess manufacturing capacity that is now looking to make chips — for other chipmakers.  The Wall Street Journal recently reported that “Intel’s fabs would be open ‘to any company able to utilize our leading-edge silicon.'” It’s a painful but necessary move. Intel has spent billions on its various fabrication plants (“fabs,” for short) and simply can’t afford to let them sit idle. Trouble is, it’s a crowded field. Firms such as Taiwan Semiconductor Manufacturing (NYSE: TSM) and Samsung already operate chip foundries for firms such as Apple and Broadcom (Nasdaq: BRCM) that choose to go “fab”-less (that is, outsource their production). To help snag customers, analysts think Intel will need to beef up its sales proposition by offering the ability to design and test chips — a key series of steps before production can actually begin. And that has put the spotlight on the leading players in field known as electronic design… Read More

In today’s energy market, investors often try to distinguish between oil plays and natural gas plays, but the distinction is often moot — most of today’s wells produce a healthy amount of both. The key to finding winning investments is to focus on the relative productivity of a firm’s well. #-ad_banner-#Let’s focus first on natural gas (we’ll shift the discussion to oil in a moment). The natural gas market appears to have settled into long-term equilibrium. You’ll surely see short-term spikes in prices when the weather gets especially cold (as increasingly appears to be the case… Read More

In today’s energy market, investors often try to distinguish between oil plays and natural gas plays, but the distinction is often moot — most of today’s wells produce a healthy amount of both. The key to finding winning investments is to focus on the relative productivity of a firm’s well. #-ad_banner-#Let’s focus first on natural gas (we’ll shift the discussion to oil in a moment). The natural gas market appears to have settled into long-term equilibrium. You’ll surely see short-term spikes in prices when the weather gets especially cold (as increasingly appears to be the case this winter). But unless we have strongly overestimated that amount of untapped oil and gas remaining in our shale regions, then supply increases will be the likely result of any upward move in natural gas prices.  As a result, gas prices may move into the $4 to $4.25 per thousand cubic feet (Mcf) area, but much more upside than that is unlikely. In fact, the natural gas futures market doesn’t anticipate a move up above the $4.50 mark until January 2019. To be sure, gas prices in the $3.50 to $4.50 range explain why share prices of many… Read More

As we head into the final weeks of 2013, European central bankers are on pins and needles. They’re hoping the fourth-quarter economic data reveal signs that the Continent is truly on the mend.#-ad_banner-# An early November report from the European Commission sees signs of that upturn coming. The report’s main takeaway: “The signs of hope that we saw last spring have started to turn into tangible positive outcomes. After six consecutive quarters of stagnation or contraction, the EU economy has posted positive growth in the second quarter of 2013. The recovery is expected to continue, and… Read More

As we head into the final weeks of 2013, European central bankers are on pins and needles. They’re hoping the fourth-quarter economic data reveal signs that the Continent is truly on the mend.#-ad_banner-# An early November report from the European Commission sees signs of that upturn coming. The report’s main takeaway: “The signs of hope that we saw last spring have started to turn into tangible positive outcomes. After six consecutive quarters of stagnation or contraction, the EU economy has posted positive growth in the second quarter of 2013. The recovery is expected to continue, and to gather some speed next year.” Indeed, while the European economic region likely contracted a bit in 2013, these economists predict GDP will likely grow 1.5% in 2014, and perhaps 2% in 2015. And where will that strength come from? “Domestic demand is expected to take over as the main engine of growth,” they predict. If they’re right, then it’s useful to make sure you have European exposure in your portfolio. Heading into Labor Day, my colleague David Goodboy profiled the Vanguard FTSE Europe ETF (NYSE: VGK). A quick look at a five-year chart of this ETF against the S&P… Read More

The first rule of running a biotech company: Don’t run low on cash. Once investors smell a cash squeeze coming, they’ll hammer shares mercilessly. That was the painful lesson learned by the executives at Dynavax Technologies (Nasdaq: DVAX). Though DVAX was pursuing the development of a very promising new vaccine, the company was burning through more than $15 million in cash every quarter and was at risk of not making it to the FDA finish line. Shares, which traded around $5 in October 2012, skidded all the way to $1. The good news is that the company shored up its… Read More

The first rule of running a biotech company: Don’t run low on cash. Once investors smell a cash squeeze coming, they’ll hammer shares mercilessly. That was the painful lesson learned by the executives at Dynavax Technologies (Nasdaq: DVAX). Though DVAX was pursuing the development of a very promising new vaccine, the company was burning through more than $15 million in cash every quarter and was at risk of not making it to the FDA finish line. Shares, which traded around $5 in October 2012, skidded all the way to $1. The good news is that the company shored up its balance sheet late last month, and shares have finally begun to rebound. And, with a few breaks, DVAX looks poised to rise from a recent $1.45 to $3, $4 or even $5. Little Company, Big Target Market DVAX has spent years developing Heplisav, which is a vaccine for hepatitis B, a disease that currently afflicts 240 million people around the world, according to the World Health Organization.#-ad_banner-# Though there are existing vaccines on the market, DVAX believes that Heplisav offers the promise of earlier and better protection with fewer doses than current vaccines. It appeared it was going… Read More

Dividend investors crave predictability. Once they lock onto payment streams, they don’t want to hear about any interruptions. And if a company dares to withhold a quarterly dividend payout, then many investors simply head to the exits. I discussed this phenomenon recently with regard to Carl Icahn and his big stake in CVR Refining (NYSE: CVRR).#-ad_banner-# As I noted earlier this month, CVR had a big hiccup with its third-quarter dividend, but it appears positioned to pay out $3 or $4 per unit in dividends next year. Shares trading around $22 don’t begin to reflect that potential income. Amazingly, a… Read More

Dividend investors crave predictability. Once they lock onto payment streams, they don’t want to hear about any interruptions. And if a company dares to withhold a quarterly dividend payout, then many investors simply head to the exits. I discussed this phenomenon recently with regard to Carl Icahn and his big stake in CVR Refining (NYSE: CVRR).#-ad_banner-# As I noted earlier this month, CVR had a big hiccup with its third-quarter dividend, but it appears positioned to pay out $3 or $4 per unit in dividends next year. Shares trading around $22 don’t begin to reflect that potential income. Amazingly, a virtually identical scenario has just played out with another oil refiner. And the setup is every bit as compelling. A series of technical problems at a key refinery led to a sharp drop in output for Alon USA Partners (NYSE: ALDW), the master limited partnership (MLP) of Alon Energy (NYSE: ALJ). In fact, the quarterly production was so weak that Alon USA Partners didn’t simply make less money — it lost money. And though investors were bracing for a smaller than usual dividend, they got nothing. Shares of ALDW, which traded up toward the $30 mark in the spring, are… Read More

For many market strategists, the Federal Reserve’s multi-trillion-dollar stimulus program has had one huge drawback. The Fed’s massive quantitative easing (QE) programs have rendered what’s known as the yield curve utterly useless — and that’s left everyone in the dark as to just how healthy or weak the U.S. economy remains.#-ad_banner-# The good news: The Fed’s looming retrenchment from stimulus will let the yield curve take its natural shape again, helping investors to better navigate a confounding market environment. (Surging stocks and weak economic data do no typically go hand in hand.) You’ll be hearing a… Read More

For many market strategists, the Federal Reserve’s multi-trillion-dollar stimulus program has had one huge drawback. The Fed’s massive quantitative easing (QE) programs have rendered what’s known as the yield curve utterly useless — and that’s left everyone in the dark as to just how healthy or weak the U.S. economy remains.#-ad_banner-# The good news: The Fed’s looming retrenchment from stimulus will let the yield curve take its natural shape again, helping investors to better navigate a confounding market environment. (Surging stocks and weak economic data do no typically go hand in hand.) You’ll be hearing a lot about the yield curve in 2014, so to better understand its looming implications, let’s brush up on the concept now. What Kind Of Slope? Bond investors typically demand a higher interest rate for longer-term securities. After all, in an uncertain world, longer time horizons bring a greater chance that something can go wrong. (And if we’re talking about bonds, then we’re talking about the corrosive effects of inflation or an expectation of much higher bond issuance by Uncle Sam and others.) So a yield curve is simply the slope of interest rates on short- to mid- to long-term… Read More

$388.5 billion is a staggering figure. It’s more than the entire economy of Thailand, Denmark, Colombia or the United Arab Emirates. And it’s how much operating cash flow was generated by America’s top 12 companies in 2012. Source: Thomson Reuters Of course, the old adage “It takes money to make money” applies. Many of these companies need to spend billions of dollars in research, infrastructure and other areas to generate that cash flow, and their actual take-home pay is a lot less. Exxon Mobil (NYSE: XOM), for example, spent more than $34 billion on capital expenditures last… Read More

$388.5 billion is a staggering figure. It’s more than the entire economy of Thailand, Denmark, Colombia or the United Arab Emirates. And it’s how much operating cash flow was generated by America’s top 12 companies in 2012. Source: Thomson Reuters Of course, the old adage “It takes money to make money” applies. Many of these companies need to spend billions of dollars in research, infrastructure and other areas to generate that cash flow, and their actual take-home pay is a lot less. Exxon Mobil (NYSE: XOM), for example, spent more than $34 billion on capital expenditures last year, sapping a considerable chunk of its $56 billion in operating cash flow. As a bit of silver lining, these companies spend much of that on goods and services offered by other companies, creating a virtuous circle of corporate spending. Here are the top 12 capex spenders of 2013. Source: Thomson Reuters The number of oil and gas firms in this group explains why an energy services provider like Schlumberger (NYSE: SLB) sports a $120 billion market value, but is not truly a household name. The True Measure Unfortunately, even as many Wall Street analysts wisely… Read More

Years ago, as I was strolling on a beachside boardwalk, I looked around and realized I was the only person in my area not wearing Crocs (Nasdaq: CROX), the somewhat ugly plastic shoes that had become all the rage. Clearly, these folks were not alone: Sales of Crocs soared from $14 million in 2004 to $355 million in 2006. Even though sales would rise another 139% in 2007 (to $847 million), investors who bought in while growth remained above 100% learned a terrible lesson. All fashion fads end — sometimes very badly. #-ad_banner-#Yet every few years, investors repeat… Read More

Years ago, as I was strolling on a beachside boardwalk, I looked around and realized I was the only person in my area not wearing Crocs (Nasdaq: CROX), the somewhat ugly plastic shoes that had become all the rage. Clearly, these folks were not alone: Sales of Crocs soared from $14 million in 2004 to $355 million in 2006. Even though sales would rise another 139% in 2007 (to $847 million), investors who bought in while growth remained above 100% learned a terrible lesson. All fashion fads end — sometimes very badly. #-ad_banner-#Yet every few years, investors repeat this classic mistake, assuming strong growth can continue for a very long period. Even the best retail brands eventually cool off. Sales at Nike (NYSE: NKE) for example, have risen just 7% annually since 2005, despite a compelling international expansion strategy and a broadening line of products. The reason for Nike’s recent phase of slower growth: The company’s brand is no longer a fad, and management has had to work hard to play up the performance attributes of its products. It was a logical response for that phase of the company’s growth cycle. That’s also a strategy deployed by Under… Read More

“There’s no shame in holding cash.” It’s a refrain you hear from many fund managers these days after witnessing the market grind ever higher. And no hedge fund manager has uttered that phrase more than Baupost Capital’s Seth Klarman. The legendary value investor has actually started returning money to clients, finding few real bargains in this market.#-ad_banner-# But when Klarman does spot an investment opportunity, he goes big. Lately, he’s been building sizable stakes in a pair of young companies that few would consider to be deep value plays. They are contrarian plays from a contrarian investor. Idenix: A Blockbuster… Read More

“There’s no shame in holding cash.” It’s a refrain you hear from many fund managers these days after witnessing the market grind ever higher. And no hedge fund manager has uttered that phrase more than Baupost Capital’s Seth Klarman. The legendary value investor has actually started returning money to clients, finding few real bargains in this market.#-ad_banner-# But when Klarman does spot an investment opportunity, he goes big. Lately, he’s been building sizable stakes in a pair of young companies that few would consider to be deep value plays. They are contrarian plays from a contrarian investor. Idenix: A Blockbuster Or A Blowup? An estimated 150 million people are infected with hepatitis C, making it one of the most widespread diseases in the world for which current treatments are considered to be inadequate. Though there are current treatments such as Interferon, a recent Wall Street Journal article noted that “a growing number of people infected with hepatitis C are putting off therapy, choosing instead to roll the dice and wait for a new generation of drugs to become available.” First out of the gate is Gilead Sciences (Nasdaq: GILD) and its sofosbuvir drug, which got… Read More