How does a $500 million company become a $1 billion company? The same way a $10 billion company turns into a $20 billion company: One dollar at a time. Investors have a lot of ways to count those dollars, or, more specifically, they have… Read More

When seeking out new investment ideas, I like to run stock screens to find companies that are inexpensive and relatively “safe.” Of course, one of the safest kinds of companies is one that is profitable, yet also has lots of cash on the books. In fact, some companies are so cash-rich that even after accounting for any borrowings, their cash can equate to 20%, 30% or even 40% of the entire company’s market value.  If you think about it, that also means these companies are fairly loathed by investors. Read More

When seeking out new investment ideas, I like to run stock screens to find companies that are inexpensive and relatively “safe.” Of course, one of the safest kinds of companies is one that is profitable, yet also has lots of cash on the books. In fact, some companies are so cash-rich that even after accounting for any borrowings, their cash can equate to 20%, 30% or even 40% of the entire company’s market value.  If you think about it, that also means these companies are fairly loathed by investors. It’s not just that they have so much cash, it also means their market value has slumped so low that the company isn’t really worth much more than that cash. All of the companies on the list above have real problems. Cisco Systems (Nasdaq: CSCO), for example, has seen its shares fall back to levels seen in 1998, as sales growth has slowed. And all of that cash can’t always buy happiness. Dell (Nasdaq: DELL) has made a half-dozen key acquisitions in the past two years, yet analysts still think sales will only grow 4% to… Read More

Gold is one of the most malleable and least reactive elements known to man. It’s used for both practical and symbolic purposes. Historically, gold has been one of the most common forms of monetary exchange throughout human history. Its secondary place to paper currency did not come about until the 20th century. And after continuously rising to new highs even after a multi-year bull market, one other thing can be said about gold: It can also make traders a lot of money… With gold rallying to… Read More

Gold is one of the most malleable and least reactive elements known to man. It’s used for both practical and symbolic purposes. Historically, gold has been one of the most common forms of monetary exchange throughout human history. Its secondary place to paper currency did not come about until the 20th century. And after continuously rising to new highs even after a multi-year bull market, one other thing can be said about gold: It can also make traders a lot of money… With gold rallying to record highs almost daily, it’s seen increasingly as a way to protect oneself against worldwide currency inflation. Inflationary worries were prominent news this trading week. China’s central bank raised its interest rates — for the fourth time since mid-October — to head-off price increases running at nearly 5% a year. The European Central Bank also raised rates for the first time in nearly two years, in order to curtail rising food and energy costs. In the United States, rising interest rates may… Read More

“Beat and Raise.” The pattern of beating estimates and raising forward guidance has been the key theme in each earnings season of the past two years. This time will be different. The “beat” part will likely hold as companies and the analysts that follow them continue to play the game of low expectations that then get exceeded. The “raise” part? That just got much trickier. Companies raise guidance when they have a lot of certainty about what the coming months will bring. Right now, few can say with certainty about how… Read More

“Beat and Raise.” The pattern of beating estimates and raising forward guidance has been the key theme in each earnings season of the past two years. This time will be different. The “beat” part will likely hold as companies and the analysts that follow them continue to play the game of low expectations that then get exceeded. The “raise” part? That just got much trickier. Companies raise guidance when they have a lot of certainty about what the coming months will bring. Right now, few can say with certainty about how the wide range of domestic and global events will play out. Here’s a checklist of the issues these companies face. Later on, I’ll look at the potential impact on specific sectors.   Oil prices bring caution. Expect a number of companies, especially those that are focused on consumers or have high transportation costs, to express real concern about surging oil. Stressed consumers are in no mood to help shoulder the burden. For example, airlines had successfully pushed through six fare hikes since the start of the year. On the seventh try, consumers appear to have balked and airlines had… Read More

Between 1970 and 1975, a quarter of companies in the U.S. railroad industry were forced to file for bankruptcy protection. There were simply too many competitors and they could not handle the high levels of government regulation, volatile fuel costs and the billions of dollars it took to maintain thousands of miles of track, locomotives and freight cars. Since that time, the remaining competitors have steadily merged and there are only seven leading players today. The leading players now have the size and scale to justify high capital expenditure costs and can effectively compete with the trucking… Read More

Between 1970 and 1975, a quarter of companies in the U.S. railroad industry were forced to file for bankruptcy protection. There were simply too many competitors and they could not handle the high levels of government regulation, volatile fuel costs and the billions of dollars it took to maintain thousands of miles of track, locomotives and freight cars. Since that time, the remaining competitors have steadily merged and there are only seven leading players today. The leading players now have the size and scale to justify high capital expenditure costs and can effectively compete with the trucking industry. A government report stated that railroads have seen productivity gains that have far exceeded the gains seen in other industries and the economy as a whole. In perhaps the biggest vote of confidence the industry could ever receive, Warren Buffett announced he would spend $26 billion to acquire Burlington Northern Santa Fe, one of the largest companies in the space, in late 2009. Railroads have become great investments. But I’m not interested in railroads as an investment. I’m more interested in the next sector to follow in their footsteps:… Read More

New income investors sometimes make the mistake of looking no further than a stock’s current dividend yield. After all, a stock such as biotech firm PDL BioPharma (NASDAQ: PDL) looks mighty enticing, based on its 10% yield. But looks can be misleading. A closer look at PDL reveals a dividend that may be in trouble. The company’s net income fell by more than 50% last year, and PDL paid out more in dividends than it earned as income. The company earned $92 million, but paid $130 million in… Read More

New income investors sometimes make the mistake of looking no further than a stock’s current dividend yield. After all, a stock such as biotech firm PDL BioPharma (NASDAQ: PDL) looks mighty enticing, based on its 10% yield. But looks can be misleading. A closer look at PDL reveals a dividend that may be in trouble. The company’s net income fell by more than 50% last year, and PDL paid out more in dividends than it earned as income. The company earned $92 million, but paid $130 million in dividends. When earnings decline sharply, even blue-chip companies can sometimes find their dividends in danger. A good example is General Electric (NYSE: GE), which was forced to trim its dividend by two-thirds during the economic downturn. Quarterly payments dropped from $0.31 to just $0.10. [See: “Forget GE, Buy These Stocks Instead”] Another high-profile casualty of the downturn was oil refiner Valero Energy (NYSE: VLO). Valero cut its quarterly dividend from $0.15 to $0.05, which is where the dividend remains today. So how do you protect yourself… Read More

While most energy-driven headlines today deal with $100-plus oil, dirty coal, dangerous nukes or solar dreams, one cheap, plentiful and clean fuel is usually left off stage out of the spotlight — natural gas. That’s odd, because Americans use about 62.5 billion cubic feet of natural gas a day, with some 2.1 quadrillion cubic feet in reserve. (One quadrillion is a thousand trillion.) It supplies 65 million households, 5.3 million commercial users and nearly 200,000 industrial-scale customers. Natural gas is critical to electrical power production and its importance in this area is growing dramatically. Read More

While most energy-driven headlines today deal with $100-plus oil, dirty coal, dangerous nukes or solar dreams, one cheap, plentiful and clean fuel is usually left off stage out of the spotlight — natural gas. That’s odd, because Americans use about 62.5 billion cubic feet of natural gas a day, with some 2.1 quadrillion cubic feet in reserve. (One quadrillion is a thousand trillion.) It supplies 65 million households, 5.3 million commercial users and nearly 200,000 industrial-scale customers. Natural gas is critical to electrical power production and its importance in this area is growing dramatically. In the past 15 years, the amount of U.S. electricity provided by natural gas has grown from 13.2% to 23.2%. The total number of kilowatt hours attributable to natural gas is up 102.3%. And there are two reasons this trend is going to accelerate in coming years. First, gas is super efficient; it can approach 60% efficiency, nearly twice that of coal, which makes it an easier and more cost-effective way to generate power. Second, natural gas is far less polluting than coal, which is similarly cheap and abundant, and is… Read More

For the past five months, I’ve grown increasingly concerned about the steady surge in oil prices. Back in November,I noted that several sectors could be affected if oil moved past $100 a barrel. With oil now approaching $110 a barrel, you can forget that qualified statement. Oil will affect various swaths in the economy. Here’s why…   Some market watchers suggest oil has only temporarily moved onto a higher plane and that prices will eventually come back down. Then again, they’ve been saying that for the past six… Read More

For the past five months, I’ve grown increasingly concerned about the steady surge in oil prices. Back in November,I noted that several sectors could be affected if oil moved past $100 a barrel. With oil now approaching $110 a barrel, you can forget that qualified statement. Oil will affect various swaths in the economy. Here’s why…   Some market watchers suggest oil has only temporarily moved onto a higher plane and that prices will eventually come back down. Then again, they’ve been saying that for the past six months. It’s increasingly hard to see why oil prices will suddenly pull back. “The turmoil in the Middle East is unlikely to be resolved quickly or easily, meaning that oil market volatility is likely to remain high,” analysts at Merrill Lynch say. At this point, the only major catalyst to bring oil prices back down (besides a sudden resolution to all of the Middle East’s troubles) would be a slump in demand. And demand would only fall because oil prices rose so high that they choked off economic activity. Read More

During their baby phase, investors are totally in love with them. The newborn is absolutely perfect and the stockholders will coo and brag, and throw money at their pride and joy regardless of price. During the toddler phase, although the company may display poor behavior in not doing what it’s told and destroying everything in its path, including shareholder wealth, investors are still convinced they’ve got a real long-term winner. They forgive and shrug this phase off as just a part of growing up. As the company hits the elementary and middle school years, investors are still… Read More

During their baby phase, investors are totally in love with them. The newborn is absolutely perfect and the stockholders will coo and brag, and throw money at their pride and joy regardless of price. During the toddler phase, although the company may display poor behavior in not doing what it’s told and destroying everything in its path, including shareholder wealth, investors are still convinced they’ve got a real long-term winner. They forgive and shrug this phase off as just a part of growing up. As the company hits the elementary and middle school years, investors are still supportive — although not as forgiving as in the toddler years. Poor performance doesn’t go unpunished and the severity increases as the years progress. By the tumultuous high school and slacker college years, investors, like parents, often throw up their hands in frustration. The stock apparently can’t figure out what it wants to be or which direction its going. Sometimes, after this turbulent period, something wonderful often happens, but unfortunately many investors have lost patience and miss the metamorphosis. By this time, the company has grown into a mature, consistent, responsible adult. Giant chip maker Intel (Nasdaq:… Read More

This past week, two highly-respected investment publications opined that this stock is a top turnaround play. Barron’s touted that there is “hope, at last” in this name, even though its stock has fallen by more than 50% in the past decade to trail the S&P 500 and a number of archrivals badly. In this same period, the market is about flat, while rivals have returned between 75% and 150%. The Financial Times offered an analysis that was a bit more skeptical, but still concluded the CEO is making a big bet… Read More

This past week, two highly-respected investment publications opined that this stock is a top turnaround play. Barron’s touted that there is “hope, at last” in this name, even though its stock has fallen by more than 50% in the past decade to trail the S&P 500 and a number of archrivals badly. In this same period, the market is about flat, while rivals have returned between 75% and 150%. The Financial Times offered an analysis that was a bit more skeptical, but still concluded the CEO is making a big bet on “fresh growth” that relies on beefing up sales to emerging markets, reemphasizing key divisions that focus on infrastructure, and returning to research and development to drive innovation in the coming decade. Those statements are all well and good, but the historical numbers show that General Electric (NYSE: GE) has lost its way and needs a turnaround to return to the growth heyday it experienced while under the fearless leadership of Jack Welch. The truth is that current CEO Jeff Immelt has had an uphill battle since taking the helm in 2001, as Welch saddled… Read More