Costco Is Worth the Premium

There is no doubt about the fact that a sizeable chunk of the world population has been touched by the Internet and that people have now gone online for most things like shopping, medical help and even raising funds for start-ups. While this is definitely a positive step in terms of technology advancement, this shift to the online world has done reasonable damage to the offline retail industry comprising of huge retail chains like Wal-Mart (WMT), Target Corp (TGT) and Costco (COST). However, Costco has been above the rest in terms of delivering consistent results because of its robust membership model, high employee morale and effective cost management.

Reasonable Numbers

For the second quarter of 2014, Costco's earnings slid to $1.05 per share from $1.24 per share, a year ago. Though the company's last year earnings were impacted by a $52 million or $0.14 per share tax benefit, the current earnings are still a few notches below the prior-year period. Sales were up by approximately 6% in quarter two on an overall basis and 3% on a comp basis. As management pointed out, the four-week period between Thanksgiving and Christmas saw weak sales as compared to the previous year mainly because of a snowy weather prevalent at that time.

The Might of e-Commerce

Besides the large collection of items that online websites boast, these e-commerce websites have also introduced the customers to a plethora of discount deals and other membership benefits. As such, customers have become more focused on the value-for-money aspect with regard to their purchases and scouting for the best deals. Costco is a fantastic alternative in brick-and-mortar retail stores, whose membership model bestows privileged benefits to customers at reasonable cost and thus, matches up with the might of e-retailing.

Costco's Membership Model Is a Hit

The data for the second quarter shows the effectiveness of Costco's membership model. New membership signups in the second quarter company-wide were up 13% year over year while the overall membership fees were up by 4% yyear over year to $550 million. Also, the paid executive memberships stood to the right of 14 million in the quarter, approximately an increase of 2,00,000 since the end of first quarter; it is significant to note that this type of membership represents approximately two-thirds of Costco's total sales.

I have given all these numbers to highlight quite an important point that a major chunk of this retail giant's revenue comes from membership fees as compared to product sales, unlike other chains like Wal-Mart and Target Corp. This is one of the reasons that Costco's quarterly result is notches better than Wal-Mart, which reported a decline of 0.4% in same-store sales for 14 weeks ended on Jan. 31. The reason that Wal-Mart's earnings beat consensus estimates by a whisker was the fact that analysts had lowered their expectations after the announcement of guidance warnings made by the company.

Wal-Mart's Dividend Announcement Was a Shocker

Wal-Mart's performance was affected by similar factors as Costco including harsh weather conditions, fluctuation in currency and strengthening presence of online retail enterprises. However, the event that actually jolted the investor community was an increase of a mere 2% in annual dividend, a considerable aberration from Wal-Mart's strong dividend history. As per past data, this dividend increase is the smallest in the last 10 years and could imply a negative foreseeable future.

This being said, it should also be factored in that brick and mortar retailers faced certain generic unfavorable conditions in December and this poor performance could be a one-off case. It is actually impressive to see that Wal-Mart is at least stepping up its game in e-retailing, which is under its control and can be leveraged. For instance, this report points out the company's plans to push for an e-retailing business model in India similar to that of Amazon (AMZN) and eBay (EBAY). This is a significant step from the company considering the fact that it failed to establish brick and mortar stores in the country after hanging there for almost six years.

Final Words

It is evidently clear that Costco's strength revolves around it membership model and the ability to provide a no-frills shopping experience to its privileged members at a low price. Additionally, the retail giant is making strides in the organic foods business, a growing segment of the grocery industry. As Richard Galanti pointed out in the earnings call: The organic business is big and growing fast and will provide a robust revenue stream for the future.

To sum it up, Costco is an ideal candidate for investment for the following reasons:

1. The threatening growth of online retail business has already done good damage to the brick-and-mortar stores. However, Costco's strong membership model has enabled it to build and sustain its revenues, making it the best pick among all the retail chains.

2. For the quarter, comparable store sales grew by around 3%, in spite of a weak economy and unfavorable business conditions. The primary reason for this growth is the huge discount, i.e. around 55% that members can avail of by purchasing from warehouse clubs. Thus, low prices and commendable quality have been consistently upheld by the company through its warehouse purchase model, and it is going to be a key element of Costco's future growth.

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A Relative Strength Play With Big Insider Buying

DELAFIELD, Wis. (Stockpickr) -- The market continues to struggle today, and that weakness is most notable with technology stocks, or stocks that trade on the Nasdaq exchange.

>>5 Stocks Ready to Pop on Bullish Earnings

The Nasdaq Composite is trending lower right now by around 25 points, or by 0.5%, to just under 4,060. Traders continue to puke up technology stocks despite the recent strong earnings reports from iPhone maker Apple (AAPL) and social media giant Facebook (FB).

If you take a look at the chart for the PowerShares QQQ Trust (QQQ), an ETF that tracks the Nasdaq 100 Index, you'll see that it has been downtrending over the last two months, with shares moving lower from its high of $91.15 to its recent low of $83.28 a share. The QQQ recently bounced sharply off that $83.28 low right up to its 50-day moving average, but this technology ETF has started to fail at it 50-day and once again is heading lower. A test of the 200-day moving average on the QQQ at just below $83 seems likely now.

>>5 Stocks Poised for Breakouts

Since the Nasdaq is weak and clearing in a medium-term downtrend, I am doing my scans and looking for names that trade on that exchange that are showing relative strength and not going down today. These names could be the next stocks to make sharp moves higher since the bears are gaining little traction in taking them down in a weak environment. Relative strength is a momentum investing strategy that compares the performance of a stock with the overall market or the index it trades on.

One Nasdaq-based name that's showing relative strength today in the face of the index's weakness is Sears Holdings (SHLD), a retailer with 2,172 full-line and 1,338 specialty retail stores in the U.S. operating through Kmart Holding Corporation and Sears, and 500 full-line and specialty retail stores in Canada operating through Sears Canada, a 95%-owned subsidiary. Over the last three months, shares of SHLD have trended higher by 12% vs. the Nasdaq composite, which has dropped by 1.4%.

Shares of SHLD are trading higher today by 3.8% to just over $43 with decent upside volume. The volume so far has eclipsed 1.11 million shares, which is getting very close to its three-month average volume of 1.56 million shares. The relative strength performance is worth following here for shares of SHLD, but another thing that should make traders perk up is the recent large insider buy. Company director Thomas Tisch recently bought 475,000 shares, or about $15.9 million worth of stock, at $33.40 to $33.60 per share. Tisch holds about 3.7 million shares of SHLD, which makes him one of its largest shareholders.

>>5 Stocks Under $10 Set to Soar

Another reason that traders should put this relative strength name on their trading radar is due to the large short interest in the stock. The current short interest as a percentage of the float for SHLD is very high at 36.8%. That means that out of the 43.35 million shares in the tradable float, 15.59 million shares are sold short by the bears. That is a monster short interest on a stock with a relatively low tradable float. The shorts who're heavily involved in this stock have failed to take it lower during the recent weakness in the Nasdaq. That could be a signal that shares of SHLD are slipping out of the control of the bears and the stock is setting up to trend much higher.

Sears Holdings is not performing very well from a fundamental perspective. This company has reported 28 consecutive quarters of sales declines, with a loss of close to $1.4 billion last year. There doesn't look to a turnaround for Sears Holdings anywhere on the horizon, but the company and the stock might be attractive here for other reasons. Some speculation has entered the market that Amazon.com (AMZN) would be wise to buy Sears Holdings for its vast real estate assets and other retail synergies. I doubt that happens, but what's more likely to occur is that Sears Holdings continues to spin off and sell assets and real estate like it recently did with its Lands End (LE) unit.

>>5 Rocket Stocks to Buy for May Gains

From a technical perspective, shares of Sears Holdings have been uptrending strong over the last few weeks, with shares moving higher from its low of $31.26 to its recent high of $44.67 a share.

During that uptrend, shares of SHLD have been consistently making higher lows and higher highs, which is bullish technical price action. The recent run for SHLD has now pushed the stock back above both its 50-day and 200-day moving averages, which is bullish. This move is quickly pushing shares of SHLD within range of triggering a near-term breakout trade.

Traders should look for long-biased trades in SHLD if it manages to break out above some near-term overhead resistance at $44.67 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.56 million shares. If that breakout materializes soon, then SHLD will set up to re-test or possibly take out its next major overhead resistance levels at $52.50 to $56 a share. Any high-volume move above those levels will then give SHLD a chance to make a run at its next major overhead resistance levels at $62.57 to its 52-week high at $67.50 a share.

Market players can look for long-biased trades in SHLD off weakness as long as it's trending above its 200-day at $39.22 or its 50-day at $37.05 a share. One could also look to buy SHLD off strength once it takes out $44.67 a share with volume and then simply use a stop that's a comfortable percentage point from your entry.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>3 Stocks Breaking Out on Unusual Volume

>>4 Hot Tech Stocks to Trade (or Not)

>>5 Mega-Cap Stocks to Trade for Gains

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

10 Best Bank Stocks To Buy Right Now

10 Best Bank Stocks To Buy Right Now: HSBC Holdings PLC (HBC)

HSBC Holdings plc (HSBC), incorporated on January 1, 1959, is a global banking and financial services organizations. As of December 31, 2010, it provided a range of financial services to around 95 million customers through two customer groups, Personal Financial Services (PFS), including consumer finance, and Commercial Banking (CMB), and two global businesses, Global Banking and Markets (GB&M), and Global Private Banking (GPB). Its international network covers 87 countries and territories in six geographical regions; Europe, Hong Kong, Rest of Asia-Pacific, the Middle East, North America and Latin America. As of December 31, 2010, the Company had an international network of some 7,500 offices in 87 countries and territories in six geographical regions; Europe, Hong Kong, Rest of Asia-Pacific, the Middle East, North America and Latin America. PFS incorporates the Company's consumer finance businesses, which include HSBC Finance Corporation (HSBC Finance). In April 2011, the Company closed its retail banking operation in Russia. In July 2011, the Company sold its unsecured written-off personal loan and credit card portfolio to J M Financial Asset Reconstruction Co. Pvt. Ltd. On May 20, 2012, HSBC Holdings PLC's wholly owned subsidiary HSBC Bank USA, N.A. and other wholly owned subsidiaries, sold 195 retail branches to First Niagara Bank, N.A. (First Niagara). In May 2012, the Company's 70.03% owned subsidiary, HSBC Bank Malta plc, sold its card acquiring business to HSBC Merchant Services Ltd. In June 2012, the Company's indirect wholly owned subsidiary, HSBC Iris Investments (Mauritius) Ltd, sold its 4.73% interest in Axis Bank Limited and 4.74% interest in Yes Bank Limited. In July 2012, its subsidiary, HSBC Europe (Netherlands B.V.), sold its 100% interest in HSBC Credit Zrt, to CentralFund Kockazati Tokealap. On March 31, 2013, Enstar G! roup Ltd's subsidiary completed the acquisition from Household Insurance Group Holding Company of HSBC Insurance Company of Delaware and Household Life Insur! ance Company of Delaware, as well as its three subsidiary insurers.

The Company's principal banking operations in Europe are HSBC Bank plc in the United Kingdom, HSBC France, HSBC Bank A.S. in Turkey, HSBC Bank Malta p.l.c., HSBC Private Bank (Suisse) S.A. and HSBC Trinkaus & Burkhardt AG. Through these operations it provides a range of banking, treasury and financial services to personal, commercial and corporate customers across Europe. HSBC's banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited and Hang Seng Bank Limited.

The Company offers a range of banking and financial services in the People's Republic of China, mainly through its local subsidiary, HSBC Bank (China) Company Limited. It also participates indirectly in the People's Republic of China through its four associates. Outside Hong Kong and the People's Republic of China, it conducts business in 22 countries and territories in the Rest of Asia-Pacific region, through branches and subsidiaries of The Hongkong and Shanghai Banking Corporation, with coverage in Australia, India, Indonesia, Malaysia and Singapore.

In the Middle East, the Company has network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates. Its North American businesses are located in the United States, Canada and Bermuda. Operations in the United States are conducted through HSBC Bank USA, N.A., which is concentrated in New York State, and HSBC Finance, a national consumer finance company based near Chicago. HSBC Markets (USA) Inc. is the intermediate holding company of, inter alia, HSBC Securities (USA) Inc. HSBC Bank Canada and HSBC Bank Bermuda operate in their respective countries.

The Company's operations in Latin America consists of HSBC Bank Brasil S.A.-Ban! co Multip! lo, HSBC Mexico, S.A., HSBC Bank Argentina S.A. and HSBC Bank (Panama) S.A. In addition to bankin g services, it operates insurance businesses in Brazil, Mexi! co, Argen! tina, Panama and a range of smaller markets.

Personal Financial Services

PFS offers the Company's products and services to customers based on their individual needs. Premier and Advance services are for customers who value international connectivity and benefit from its global reach and scale. It offers a range of banking products and services reflecting local requirements. In addition, it issues card globally, offering HSBC branded cards, co-branded cards with selected partners and private label (store) cards. Its customer offerings include personal banking products, including current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services, and wealth management services, including insurance and investment products and financial planning services.

HSBC Premier provides preferential banking services to high net worth customers and their immediate families with a rela tionship manager, wealth advice and solutions. Customers can access emergency travel assistance, telephone banking and an online global view of their Premier accounts globally with free money transfers between them. HSBC Advance provides a range of preferential products and services customized to meet local needs. With a telephone service, access to wealth advice and online tools to support financial planning, it gives customers an online global view of their Advance accounts with money transfers between them. Wealth Solutions & Financial Planning process designed for global individual customer needs to help its clients to protect, grow and manage their wealth through investment and wealth insurance products manufactured by in-house partners, including Global Asset Management, Global Markets and HSBC Insurance, and by selected third party providers. During 2010! , PFS pro! vided 92 million individual and self-employed customers with financial services in over 60 markets globally .

Commercial Banking

The Company ! segments ! its CMB business into Corporate, to serve both Corporate and Mid-Market companies, and Business Banking, to serve the small and medium-sized enterprises (SME's) sector. It provides support to companies as they expand both domestically and internationally, and ensures a focus on the business banking segments. It offers a range of financing, both domestic and cross-border, including overdrafts, receivables finance, term loans and syndicated, leveraged, acquisition and project finance. Asset finance is offered in selected sites, focused on leasing and instalment finance for vehicles, plant and equipment. It is a provider of domestic and cross-border payments and collections, liquidity management and account services globally, delivered through its e-platform, HSBC net. It provides international trade products and services, to both buyers and suppliers, such as export finance, guarantees, documentary collections and forfeiting to improve efficiency and help mitigate risk throu ghout the supply chain.

CMB customers are volume users of its foreign exchange, derivatives and structured products. Capital markets & advisory is raising capital on debt and equity markets and provide advisory services. Commercial cards issuing helps customers enhance cash management, credit control and purchasing. Card acquiring services enable merchants to accept credit and debit card payments in person or remotely. CMB offers key person, employee benefits and a range of commercial risk insurance, such as property, cargo and trade credit. Direct channels include online and direct banking offerings, such as telephone banking, HSBCnet and Business Internet Banking.

Global Banking and Markets

GB&M provides tailored financial solutions to government, corporate and institutional clients and private investors globa! lly. Mana! ged as a global business, GB&M operates a long-term relationship management approach to build a understanding of clie nts' financial requirements. Sector-focused client service! teams co! nsisting of relationship managers and product specialists develop financial solutions to meet individual client needs. GB&M is managed as four principal business lines: Global Markets, Global Banking, Global Asset Management and Principal Investments.

Global Markets operations consist of treasury and capital markets services. Products include foreign exchange; currency, interest rate, bond, credit, equity and other derivatives; government and non-government fixed income and money market instruments; precious metals and exchange-traded futures; equity services; distribution of capital markets instruments, and securities services, including custody and clearing services and funds administration to both domestic and cross-border investors. Global Banking offers financing, advisory and transaction services. Its products include capital raising, advisory services, bilateral and syndicated lending, leveraged and acquisition finance, structured and project finance, le ase finance and non-retail deposit taking; international, regional and domestic payments and cash management services; and trade services for large corporate clients.

Global Asset Management offers investment solutions to institutions, financial intermediaries and individual investors globally. Principal Investments includes its relationships with third-party private equity managers and other investments. GB&M is a global business, which provides financial solutions to government, corporate and institutional clients globally.

Global Private Banking

GPB works with the Company's high net worth clients to offer ways to manage and preserve wealth. HSBC Private Bank is the principal marketing name of its international private banking business, GPB. GPB works with its clients to offer both ways to manage ! and prese! rve wealth while optimising returns. GPB accesses six advisory centers in Hong Kong, Singapore, Geneva, New York, Paris and Lon don. Private Banking services consist of multi-currency depo! sit accou! nts and fiduciary deposits, credit and specialist lending, treasury trading services, cash management, securities custody and clearing. GPB works to ensure that its clients have access to other products and services available in HSBC, such as credit cards, Internet banking, corporate banking and investment banking.

Private Wealth Management consists of both advisory and discretionary investment services. A range of investment vehicles is covered, including bonds, equities, derivatives, options, futures, structured products, mutual funds and alternatives (hedge funds, private equity and real estate). Corporate Finance Solutions helps provide clients with solutions for their companies, working in conjunction with GB&M. Private Wealth Solutions consist of planning, trustee and other fiduciary services to protect wealth and preserve it for future generations. Its expertise includes trusts, foundation and company administration, charitable trusts and foundations, in surance, family office advisory and philanthropy.

Other

The Company's Other contains the results of certain property transactions and unallocated investment activities. It also includes centrally held investment companies, movements in fair value of own debt, HSBC's holding company and financing operations.

Advisors' Opinion:

• [By Sara Sjolin]

  Banks posted some of the biggest gains in London, with Barclays PLC (UK:BARC)   (BCS)  up 1.6%, Royal Bank of Scotland Group PLC (UK:RBS)   (RBS)  rising 1.1% and sector heavyweight HSBC Holdings PLC ! (UK! :HSBA)   (HBC)   (HK:5)  0.7% higher.

• [By Sara Sjolin]

  Banks were among major decliners, playing a part in dragging the FTSE 100 index lower. Shares of Barclays PLC (UK:BARC)   (BCS)  fell 2.7%, Royal Bank of Scotland Group PLC (UK:RBS)   (RBS)  dropped 2.9%, Lloyds Banking Group PLC (UK:LLOY)   (LYG)  gave up 2.3% and sector heavyweight HSBC Holdings PLC (UK:HSBA) (HBC)   (HK:5)  erased 1.3%.

• [By Sara Sjolin]

  Banks led the benchmark lower, with Société Générale SA (FR:GLE)  down 2.1% in Paris, HSBC Holdings PLC (UK:HSBA) (HBC)   (HK:5)  off 1.4% in London, and Banco Santander SA (ES:SAN)   (SAN)  1.6% lower in Madrid.

source from Top Stocks Blog:http://www.topstocksblog.com/10-best-bank-stocks-to-buy-right-now-2.html

Chevrolet dealer’s vintage cars auctioned off

PIERCE, Nebraska — A handful of barely driven vintage Chevrolets has fetched more than half a million dollars at an auction that drew thousands of car buffs from around the world to a small northeast Nebraska town.

Bidders and gawkers crowded shoulder-to-shoulder for the auction in a muddy field just west of Pierce, a town of about 1,800. Spectators in helicopters and airplanes circled overhead as the lead auctioneer, Yvette VanDerBrink, inched down the auction line on a wooden platform hauled by a pickup.

Event organizers said an estimated 10,000 people traveled from as far as Norway and Brazil to see the sale in person, and more than 3,800 had registered online to bid at an auction website by mid-day Saturday.

The auction of more than 500 old cars and pickups was expected to continue on Sunday. Organizers said they hadn't yet totaled the bids for the roughly 50 most high-profile, low-mileage classic cars and trucks, which were auctioned on Saturday. As of midday, six of the most valuable models had sold for a combined $545,000.

The collection belonged to Ray Lambrecht and his wife, Mildred, who ran a Chevrolet dealership in downtown Pierce for five decades before retiring in 1996. Unlike most dealers, Ray Lambrecht stashed many of his unsold cars in a warehouse, at his farm and other spots around town if they didn't sell in the first year.

The first vehicle sold — a sky-blue, 1958 Chevy Cameo pickup driven 1.3 miles — secured the largest bid at $140,000. Another bidder spent $97,500 on a red and white 1963 Impala with 11.4 miles (18.4 kilometers) on its odometer, the manufacturer's plastic on the seat and a yellow typewritten window sticker displaying its original price: $3,254.70.

Lyle Buckhouse, a retired farmer from Hankerson, North Dakota, poked his head Saturday into a 1963 Chevy Corvair with 17.2 miles (27.7 kilometers) on the odometer. Moments later, the self-proclaimed "Corvair guy" was hunting eagerly for the bidder-registration tent.

"This is a ! once-in-a-lifetime opportunity," Buckhouse said. "That's why I came down here. You just don't know what you're going to see."

Bob Esler, the owner of Bob's Garage in Westfield, Indiana, bought a four-door 1964 Bel Air station wagon for $30,000. The car had 326 miles (525 kilometers).

"This is one of the cars that I had my eyes on," Esler said, as he leaned against his new purchase. "I want to use it to haul all of my customers around."

"How are you getting it back home?" a friend asked.

Esler shrugged. "I haven't figured that out yet," he said.

Preparations for the two-day auction began in June. VanDerBrink, the auctioneer, said she took calls from as far as Iceland, Singapore and Brazil before the event.

The two least-driven cars, a 1959 Bel Air and a 1960 Corvair Monza, had one mile (1.6 kilometers) on their odometers. The oldest vehicle with fewer than 20 miles (32 kilometers) dates to 1958; the newest is a 1980 Monza with nine miles (14.5 kilometers).

Some bidders used the auction to hunt for rare parts for their collector cars and trucks, while others came to watch the spectacle.

Ray Lambrecht opened the downtown dealership with his uncle in 1946, on the corner of Main Street and Nebraska Highway 13. The U.S. Army veteran quickly established himself as an unusual salesman: He gave his lowest price up front, without negotiation, and encouraged hagglers to try to find a better deal elsewhere.

The most valuable vehicles were stored for decades at a nearby warehouse, until a heavy snow collapsed the roof. Some were damaged, but many were saved and moved elsewhere. The models at the dealership were among the best preserved, even as the building gave way to bats and holes in the roof.

Ray and his wife, Mildred, retired in 1996. Ray, 95, and Mildred, 92, still live in Pierce, but their health has declined. They decided to sell the collection so others could enjoy the cars and pickups, said their daughter, Jeannie Stillwell, who lives in Florida.

Cal-Maine Left With Egg on Its Face

Here's something to get a little bit eggs-cited about: Cal-Maine Foods (NASDAQ: CALM  ) agreed to settle a class action price-fixing lawsuit for about $28 million. The country's largest fresh egg producer clucks that it did nothing wrong, but rather that it has agreed to put the matter behind it in the interests of its shareholders.

Under the apparent guise of giving their chickens better living conditions, Cal-Maine and other egg producers represented by the United Egg Producers trade group -- which accounts for approximately 95% of all the egg-laying hens in the U.S. -- allegedly hatched the idea to raise prices by killing off their flocks and limiting the supply of eggs. The supposed scheme succeeded by inflating prices by as much as 40% in 2008.

But the chickens came home to roost for the cartel when food service giant Sodexo squawked that the producers were a bunch of bad eggs. Having bought some $250 million worth of eggs from them over an eight-year period between 2002 to 2010, Sodexo weighed in with a lawsuit in 2011, followed later that year by other consumer goods companies, including Kraft, General Mills, and Kellogg, which also had their feathers ruffled by the higher prices.

They contended that not only did the egg producers kill off their flocks and not replace the layers with new ones as quickly as they otherwise might, they were so cock-sure of themselves that if a producer tried to fly the coop they'd dissuade retailers like Wal-Mart and Albertsons from buying from them by withholding the UEP's certification stamp, which is viewed as a stamp of quality. 

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For its part, Cal-Maine says those who ended up suing are giving a cock-and-bull story, as they were well aware and supportive of the industrywide animal welfare guidelines it was following. Moreover, it claims that the Agricultural Department was aware of the strategy it was pursuing as well.

The problem is that the number of commercial-size egg producers -- those with flocks of 75,000 or more hens -- has shrunk from 2,500 companies in 1987 to a little more than 200 by the time the complaint was filed. The price-fixing scheme also followed on the heels of the collapse of the Atkins Diet and other low-carb fads that saw egg producers profiting from the high-protein binge. Cal-Maine's stock went from less than $2 a share in the early part of the last decade to more than $20 a stub by the end of 2003 before giving investors a big goose egg when its stock fell back to around the $6 level.

Yet unlike Humpty Dumpty, the egg producer was able to put itself back together again, supposedly through the higher prices engendered by the alleged price-fixing scheme, and today Cal-Maine rules the roost and trades north of $50 a share.

Such blatant attempts to control the market might be rarer than hen's teeth, but the settlement, which at $28 million isn't chicken feed, serves as a reminder to investors not to put all their eggs in one basket. 

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Healthcare companies scale up

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This was a big week for the global pharmaceutical industry. First, rumors of one deal suggested a possible return to the industry’s old self-destructive ways. But then two other transactions were announced that signaled continuation of a newer trend that’s much healthier for shareholders.

On Monday, it was reported that New York-based Pfizer Inc. (NYSE: PFE) had been in talks to acquire AstraZeneca PLC (NYSE: AZN), headquartered in London, for over $100 billion. The companies apparently broke off the discussions.

If such a transaction were to occur, it would be the latest in a long series of megamergers that characterized the corporate strategies of Pfizer, Swiss drug giant Novartis AG (NYSE: NVS) and others in the 1990s and 2000s. Back then, the aim was to acquire rivals in multibillion-dollar deals that broadened the buyers’ businesses to cover more diseases and new health-care areas.

The catalyst for this buying binge was the so-called patent cliff, in which some of the sector’s biggest drugs faced the loss of patents that protected them from competition, resulting in reduced revenues and earnings.

Since then, however, the patent cliff problem has waned because many of those patent expirations have already occurred. And the bigger, combined companies generally have come up short on development of new blockbuster drugs. Also, excessive diversification has brought weak competitive positions in some niches.

But the current industry trend is for companies to focus more on their core strengths instead of diversifying. Pfizer, Bristol-Myers Squibb (NYSE: BMY), Johnson & Johnson (NYSE: JNJ) and Abbott Laboratories (NYSE: ABT) have made such moves over the last few years in order to focus on what they consider higher-grow! th prospects.

Tuesday brought more of the same. Novartis and UK-based GlaxoSmithKline (NYSE: GSK) announced more than $20 billion in deals. Novartis is to sell its animal-drugs business to Eli Lilly (NYSE: LLY), a U.S. company, for $5.4 billion; and most of its vaccine business to Glaxo for $5.2 billion. Novartis also will buy Glaxo’s cancer-drug business for $14.5 billion.

Then on Wednesday came another announcement. Allergan (NYSE: AGN) is the target of an unsolicited takeover offer. The suitor is Valeant Pharmaceuticals International (NYSE: VRX), which has teamed up with activist investor William Ackman. If successful, the $46 billion deal would create a global giant in the eye-care and skin-care drug industries.

Montreal-based Valeant’s core strategy is to buy companies for their products, cut away research spending and then boost revenue by moving the products through Valeant’s sales force. This approach focuses more on cost savings and tax benefits than on seeking growth through scientific advances. Valeant said it sees this deal producing at least $2.7 billion in cost savings. The combined company also would benefit from a much lower tax rate than Allergan currently pays.

Before the announcement, Ackman’s Pershing Square Capital Management built a 9.7 percent stake in Allergan, valued at about $4 billion. Pershing Square is expected to maintain a stake in the combined company for at least a year. Unlike the week’s first deal, California-based Allergan is expected to oppose the offer and try to seek other alternatives. So it’s uncertain whether the transaction will occur and how long it will take.

But Valeant’s proposed deal and those involving Novartis, Glaxo and Lilly share a key theme: Focus on specific sectors where you believe you have the size and expertise to generate significant sales growth, be a market leader and build economies of scale.

Yet another healthcare deal that was announced on Thursday also emb! races tha! t approach. Zimmer Holdings, Inc. (NYSE: ZMH) agreed to buy privately held Biomet Inc. for $13.35 billion in cash and stock. Both companies are leading providers of  orthopedic, surgical and dental products. The deal strengthens Zimmer’s hold in the global hips and knee market, while placing it second in the overall orthopedic market to Johnson & Johnson. Achieving synergies from this transaction will be aided by the fact that both companies are headquartered in Warsaw, Indiana.

This trend in the healthcare industry of “scaling up” is expected to continue as companies deal with expected price pressures from the Affordable Care Act and other factors. This may well prove a plus for shareholders. But with fewer players and less competition, drug development and other medical innovation could suffer.

The "Earnings Beat" That's Perfect for This Market

Editor's Note: Bill Patalon's readers enjoy inside access to his regular consultations with Money Map Press editors. We're sharing this conversation with you today because the subject happens to lie at the intersection of several high-profit trends now. Here's Bill...

Last Wednesday, the Milpitas, Calif.-based SanDisk Corporation (Nasdaq: SNDK) reported first-quarter results that smashed analyst expectations, and the company's shares shot up 6% in after-hours trading.

But our Chief Investment Strategist Keith Fitz-Gerald saw that beat coming and put readers out in front of it.

He talked to me about its recent stellar performance...

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"One of the arguments that I've advanced in recent weeks is that American companies are far more resilient than Wall Street would have us believe - which is why I watched the sell-off with a feeling of opportunism, and not apprehension," Keith told me. "In the specific report you referenced, BP, I agreed with your assessment that we're moving into a 'stock-picker's market,' and listed three companies that I believed investors should be taking a look at. SanDisk's great first-quarter numbers affirm that assessment."

Keith also recommended ABB Ltd (NYSE: ABB) and Abbott Laboratories Inc. (NYSE: ABT). ABB and Abbott are both earlier Private Briefing recommendations. SanDisk was a brand-new recommendation, but one I like a lot; Keith and resident tech guru Michael Robinson also each like the stock.

One reason it's kind of a cool investment play is that you probably use its products. At minimum, I'm betting you have at least one of its USB Flash Drives. You might also have a SanDisk Micro SD card (the kind you use in a digital camera). And I also have several SanDisk MP3 players; I download "audiobooks" from Audible.com to keep me company during my hour-long commute (one-way) each day.

When you take all of this together, SanDisk "is a great place to start if you're just joining in or have a little extra cash you'd like to put to work at the moment," Keith says.

The company's first-quarter results bear that out.

Revenue totaled $1.51 billion, an increase of 13% on a year-over-year basis. It was $20 million more than analysts were expecting.

Profits came in at $1.44 a share - a 71% gain from the same period a year ago and a full 19 cents better than the Wall Street crowd was expecting.

"We delivered record first quarter results, driven by 61% growth in our SSD (solid-state-drive) revenue and strong retail performance," said Sanjay Mehrotra, SanDisk's president and CEO. "We are excited by the momentum we are building in our business as we continue to execute on our growth initiatives."

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SanDisk is hitting its own growth targets by tapping into some of the hottest growth trends - including data centers, the Mobile Wave, and Cloud Computing.

Indeed, the company has recently introduced innovative products in three categories:

A line of "CloudSpeed" enterprise SSDs for data-center and Cloud-Computing storage solutions.

A line of high-performance "iNAND Extreme" embedded flash drives for Android-based smartphones.

And a 128-gigabyte SanDisk Ultra microSDXC" UHS-1 card, which the company says is the world's highest-capacity mobile storage offering.

These are all sound strategic moves, says a recent report from stock-researcher Trefis.com.

"With user data increasingly moving to the Cloud, storage demand from data centers is increasing," the report states. "Over the next few quarters, the company expects the contribution of SSDs to go up to around a quarter of its net revenue due to the expected growth in enterprise storage demand and its new products. If the company meets its expected target, it would provide a substantial boost to earnings."

Late last year, SanDisk upgraded its "Flashsoft" software because it wanted to target the accelerating demand for software-defined storage - a growth market we told you a lot about in a recent report on EMC Corp. (NYSE: EMC).

And the way SanDisk pulled this off means its Flashsoft software makes it possible for a standard SSD to be used as high-speed caching memory for enterprise-level storage devices. With such flexibility, SanDisk aims to capture the attention of information-technology (IT) departments that are contemplating the switch to flash arrays. Although flash arrays are gaining traction in the industry, switching to arrays is still costly. Even so, Trefis analysts say this represents a new market for SanDisk, meaning lots of long-term growth should come from software-defined storage.

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Wall Street currently has a one-year target price of $81.93 on SanDisk shares - which is about 8% above Keith's recommendation price of $75.69. Of course, we see much bigger gains ahead in the long term.

And after the great "earnings beat," look next for investment-banking analysts to start upgrading SanDisk and boosting their target prices for the stock. That will serve as a nice catalyst in the near term - and will jump-start the long-term appreciation we see for this stock.

We'll keep you posted...

3 Ways to Save Money on Your A/C Bill

We're heading into peak air conditioning season, and that means electricity bills will be at their peak, squeezing consumers. But there are a few easy ways to save on your energy bill and some good investments to make that profit from high energy costs. Let's start with some easy ways to save money this month.

Adjust your thermostat
Turning your set temperature up when you leave the home can save money without sacrificing comfort. This can be done manually, but a programmable thermostat can be set to lower energy use while you're at work during peak energy times and turn your air conditioning back on before you get home. Honeywell (NYSE: HON  ) sells thermostats that can not only be programmed by day and time, but you can also access them through a smartphone app. Adjusting your home's temperature to 78 degrees during the day versus 73 degrees can save 30% on your energy bill, so this is a quick fix that you may not even notice.  

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Throw out old light bulbs
Replacing old incandescent or halogen light bulbs with CFL or LED lights can also save you money in two ways. They use less energy to light a room, but they also generate far less heat than traditional bulbs. In fact, 90% of the energy used by old bulb technology generates heat, not light. Energy Circle did a test of three types of lights, finding that halogen lights ran at 327 degrees, CFLs were 167 degrees, and an LED light was 107 degrees. The cost savings of replacing light bulbs goes far beyond the lower wattage in the bulb itself; it puts less stress on your air conditioner as well.  

Move that furniture
Finally, rearranging furniture can save you money on air conditioning without costing you a dime. Vents can often wind up under a sofa or beneath a dresser, which keeps those items nice and cool but wastes energy cooling your home. Check where your vents are and make sure they allow free air flow and you'll save a few dollars on your next electric bill.  

Investing in energy
If you're even more ambitious than making these small changes there are a few other ways to you can save money, or even make money when energy costs are high. The first is by going solar. Sunrun, SunPower (NASDAQ: SPWR  ) , and SolarCity (NASDAQ: SCTY  ) have wide networks of installers that will install solar panels on your roof for $0 down and at a lower cost than your electricity rate. In short, for nothing more than some rooftop space you can save money on your electricity bill every month.

Another way to profit from high electricity usage is to buy companies that profit from electricity prices by owning power-generating assets. NRG Energy (NYSE: NRG  ) has both utility and power generation assets and is one of the largest solar power owners in the world. Exelon (NYSE: EXC  ) is another power generator that pays investors back with a solid 4% dividend yield. As power usage rises and prices go up these companies make money for those who own their stocks.

The U.S. is also going through a transformation by producing more of our energy domestically rather than importing it. In fact, we may become a net energy exporter in the next decade. Find out which three companies are leading the charge, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Airlines rank below IRS in customer satisfaction

Airlines receive the lowest customer satisfaction ratings among all travel-related industries, according to a new report released Tuesday.

For the second year in a row, airlines earned a score of 69 out of 100 points, according to the American Customer Satisfaction Index travel report. That is among the lowest of any industry or agency, hovering above only the IRS, subscription television providers and social media sites.

The survey found that passengers appreciate that airlines are mishandling fewer bags and a check-in process that's been made simpler by technology. But the flight itself is making some passengers unhappy, with seat comfort and in-flight service particularly dissatisfying.

"In the middle is where airlines are having some problems,'' David VanAmburg, managing director of the ACSI, said of the flying experience. "Unfortunately, both for the airlines and the traveler, that's the most important part.''

Seat comfort scored 63 out of 100 points, while in-flight service rated an index score of 67 points.

"While we're on the plane, most of what we're doing is sitting, and we're not generally comfortable doing it,'' VanAmburg says. Meanwhile, "the beverage service, the customer service, the entertainment ... are not rated very high either.''

Fliers were most satisfied with lower-cost carriers. JetBlue, with a score of 79 points, came out on top among airlines for the third year in a row, and Southwest followed close behind with a score of 78. But both carriers saw their scores drop, from 83 and 81 respectively, in 2013.

United was at the bottom with a score of 60 points out of 100. And though American, US Airways, and Delta, saw their scores rise, the series of mergers that have swept the airline industry may be generally dampening customer satisfaction, VanAmburg says.

"We've seen the best (scoring) of the big legacy airlines, Delta, doing better now but just a couple years ago they were way down in the mid-50s,'' VanAmburg said of the carrier! which merged with Northwest in 2008.

United and Continental, which joined together in 2010, and Southwest which bought AirTran in 2011, have also had struggles as they integrate, he says. "When you're trying to merge loyalty programs and reservation technologies and so on, there tends to a much greater chance that things will go wrong for a significant portion of their customer base, and that will be reflected in less satisfaction.''

Victoria Day, spokeswoman for the industry trade group Airlines For America, said "U.S. airlines continue to do a great job for their customers despite many circumstances beyond their control, including historically severe weather and air traffic controller furloughs. We are in the safest period of aviation, air travel remains a bargain, and airlines are investing back into the business at a very high level, including new planes, new seats, Wi-Fi and other amenities."

Still, the airline industry's overall score was its best in nearly two decades, likely helped by fliers' ability to tap into technology to find, book and check into flights.

"It's certainly much easier now to self-service an airline experience,'' VanAmburg says.

Hotels, which had a three-year streak of record-high satisfaction scores, took a slight dip in the index from 77 points in 2013, to 75 points this year. VanAmburg says the decline may be due in part to travelers seeing hotel prices go up as the economy gets stronger, but not seeing a similar uptick in the quality of amenities.

"When you feel like you're seeing an increase in price, but nobody is throwing more goodies into the bag . . . that will tend to dampen satisfaction a bit,'' VanAmburg said, noting that during the recession hotels were offering discounts and perks to entice guests through the door.

Marriott, with a score of 81, was the highest ranking hotel company, followed by Hilton and Hyatt, with 78 points each. Wyndham ranked lowest with a score of 72.

Online travel sites saw their overall cus! tomer sat! isfaction score inch up to 77 points this year. But some consumers found those sites hard to navigate, and were inclined to use online travel agencies to shop for deals but then go to the actual hotel or airline website to book a room or ticket.

As for airlines, VanAmburg says the uncomfortable seating that's turning off some passengers may not change any time soon, as carriers ensure their planes fly full by not offering more seats than they can fill.

"They're not going to go back to more spacious seating that's going to knock 30 passengers off the plane,'' he says.

The travel index's findings were based on interviews with 7,445 travel consumers between Oct. 21, 2013, and March 11.

Don't Get Too Worked Up Over American Railcar Industries's Earnings

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 American Railcar Industries (Nasdaq: ARII  ) , 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, American Railcar Industries burned $81.9 million cash while it booked net income of $69.8 million. That means it burned through all its revenue and more. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

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).

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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 American Railcar Industries 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 38.4% of operating cash flow coming from questionable sources, American Railcar Industries investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 32.2% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures.

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.

Can your retirement portfolio provide you with enough income to last? You'll need more than American Railcar Industries. Learn about crafting a smarter retirement plan in "The Shocking Can't-Miss Truth About Your Retirement." Click here for instant access to this free report.

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

Add American Railcar Industries to My Watchlist.

The Coolest Innovations in Global Commerce

On this day in economic and business history...

The dog days of summer are here, but most of you will be reading this where the temperature is almost always in the mid-70s (or about 22 degrees Celsius, for our international readers). If that's the case, you can thank Willis Carrier, an air-conditioning pioneer who founded the Carrier Engineering Corporation on June 26, 1915. Carrier was not the first person to develop air conditioning -- prototypes had been displayed at the St. Louis World's Fair and installed in the New York Stock Exchange building a decade earlier -- but his contributions are widely credited with the development of modern air-conditioning systems, which can accurately control temperature, humidity, circulation, and air quality through mechanical means.

Willis Carrier first developed a humidity-control system in 1902, and this first invention, patented in 1906, helped inform later work on air-conditioning systems. Carrier made a critical breakthrough in understanding humidity in 1906, the same year he received his first patent. This discovery formed the basis of his first true air-conditioning patent (granted in 1914), as well as his discipline-defining 1911 research document on psychrometrics, an engineering discipline primarily concerned with humidity that informs both air conditioning and meteorology.

Carrier and his business partners gained a number of contracts within months, as temperature and humidity control were essential in the manufacture of advanced munitions for the European forces fighting World War I. Carrier Engineering continued to grow after the war, its international expansion no doubt aided by the recognition and goodwill generated by its wartime work. Four years after the war's end, Carrier unveiled the breakthrough that eventually brought air conditioning to billions of homes and offices around the world. The Carrier Engineering history site has the details:

In May 1922, Willis Carrier unveiled his single most influential innovation, the centrifugal refrigeration machine (or "chiller"). Over the next decade, the centrifugal chiller would extend the reach of modern air conditioning from textile mills, candy factories and pharmaceutical labs to the revolutionary work of ensuring human comfort in theaters, stores, offices and homes.

Powered by these innovations [including an advanced heat exchanger as well as the chiller], Carrier launched its own version of "the Roaring Twenties" in 1924 with the first in a series of historic installations. The J.L. Hudson Company, Detroit's largest department store, installed three, 195-ton centrifugal chillers. Officially classified as comfort air conditioning, Willis Carrier noted, the installation was also designed "to meet an emergency as temperatures soared on basement bargain days -- people fainted." Other sophisticated retailers in Seattle, Boston, Cincinnati, Dallas and New York City soon followed.

By the late 1920s, Carrier had brought comfortable cool to movie theaters, skyscrapers, banks, office buildings, Naval warships, and even a few well-to-do households. The Crash of 1929 did not leave Carrier unscathed, but the allure of air conditioning was simply too powerful to let the company sink. In time, many of the world's buildings and automobiles would be equipped with air conditioning. Carrier became part of United Technologies (NYSE: UTX  ) in 1979. Today, as the key component of United Technologies' climate and security segment, Carrier contributes nearly 30% of the company's annual revenue. Between its Carrier and Otis Elevator businesses, United Technologies is likely the one component of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) most responsible for enabling today's modern high-rise office culture.

Big "G" for the first time
Google (NASDAQ: GOOG  ) placed an official mark on its long-assumed search dominance in two ways on June 26, 2000. First, the company announced a partnership with Yahoo! that replaced Yahoo!'s search technology with its own. Second, Google announced that it had become the world's largest search engine by indexed pages, beating out competitors that had been operating for years longer. Google, officially founded only two years earlier, had already indexed more than a billion links and had become the search engine of choice for more than 70 major online portals around the world. The first era of the Internet was over, and the Age of Google had begun.

The national banking alternative
President Franklin D. Roosevelt signed the Federal Credit Union Act into law on June 26, 1934. Credit unions had been first established in New Hampshire in 1909, but until the 1934 Act there had been no national system of chartering and oversight for the nonprofit, community-owned bank alternatives. The Act created the Bureau of Federal Credit Unions for these purposes, and this agency operated until 1970, when it was replaced by the National Credit Union Administration. Today, there are more than 6,800 federally insured credit unions, managing $1 trillion in combined assets, for 94 million members across the United States.

The code of commerce
The first Universal Product Code was scanned from a pack of Wrigley's chewing gum at a supermarket in Troy, Ohio on June 26, 1974. It was the culmination of nearly three decades of development and an intense competition between rival tech firms, and it would bring to a close the era of inefficient and imprecise retail inventory control.

Bar codes, as they're popularly known, were first devised in the late 1940s by Drexel graduate students Bernard Silver and Norman Woodland. Their great breakthrough came on a Florida beach, when Woodland scratched out a form of Morse code on the sand. By elongating the dots and dashes, he arrived at a simple, elegant way for optical readers to quickly scan codes from many angles. The pair eventually developed an early prototype that, after patenting, almost wound up in IBM's (NYSE: IBM  ) hands before being sold to RCA.

Neither company could do much with the bar code for years until the underlying technologies caught up to the concept, but by the early 1970s both were hard at work on the problem. By this point, the Silver and Woodland patent had expired, leaving IBM free to develop a similar system without fear of a lawsuit. Both companies had commercial systems available by 1973, but it was the IBM system that wound up in Troy for that first scan.

As a result, IBM became one of the leading vendors for retail bar-code equipment during the early years of the technology's adoption. However, that first system was almost prohibitively expensive: The checkout counter and scanner combined to cost $14,000, which comes to nearly $60,000 when adjusted for inflation. Network effects eventually placed UPCs on just about everything sold in retail stores, and the popularity of the code combined with technological advances to push the costs of scanning to a small fraction of what it cost that Troy supermarket to install the first IBM system.

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Today's 3 Worst Stocks

Monday's market, following a bullish Friday session that saw the S&P 500 Index (SNPINDEX: ^GSPC  ) tack on 1.3%, was far more subdued, even after positive developments in the outlook for the U.S. economy. Ratings agency Standard & Poor's upgraded its outlook on the nation's credit rating from "negative" to "stable," just days after a Labor Department report detailed a steadily improving job market. While the S&P lost less than a point, ending at 1,642, three of its components managed to pile on losses.

Video game retailer GameStop (NYSE: GME  ) slumped 4.8% Monday, on the heels of Friday's massive 6.2% gain. Shareholders had bid up the stock after Microsoft announced used games would still function on the new Xbox One console. Still, the broader market's skepticism with the future of physical, used games remains visible: Last week, GameStop shares were the second-most shorted in the entire 500-stock index. 

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IT and consulting services company Cognizant Technology Solutions (NASDAQ: CTSH  ) saw shares stumble 3.7% Monday. The stock, which had posted back to back gains around 2% before today's sell-off, is nearly 30% more volatile than the S&P, and shares have dipped below $65 after hitting highs above $80 in April. Despite its recent woes, the underlying business remains sound: Having posted four straight years of earnings-per-share growth above 20%, it's one of the fastest-growing IT outsourcing businesses in India.

Finally, American Tower (NYSE: AMT  ) slipped 3% Monday. As a REIT that operates thousands of towers enabling wireless communications, shares have amply rewarded longer-term investors in recent years as the demand for wireless devices has surged. But as American Tower's share price shot higher, its valuation got more and more expensive -- to the point where they currently fetch more than 50 times trailing earnings today.

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Citigroup Inc (C) Q1 Earnings Preview: Too Many Parts Heading South

Citigroup Inc (NYSE:C) will issue its first quarter results via press release at approximately 8 a.m. (ET) on Monday, April 14, 2014. At 11 a.m. (ET), results will be reviewed via live webcast and teleconference.

Wall Street anticipates that money center will earn $1.14 per share for the quarter, which is $0.09 less than last year's profit of $1.23 per share. iStock expects C  to miss Wall Street's consensus number. The iEstimate is $1.13, a penny less than expected.

Sales, like earnings, are expected to slip, dropping 5.5% year-over-year (YoY). Citigroup's consensus revenue estimate for Q1 is $19.37 billion, lower than last year's $20.49 billion.

[Related -JPMorgan Chase & Co. (JPM) Q1 Earnings Preview: Regulation Costs To Trim Guidance?]

Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

It's possible that C might do worse than the iEstimate as 2013's strongest unit in terms of growth, the bank's trading group, is suffering to start 2014. According to team Citigroup, trading will be down in the "high mid-teens" year-over-year (YoY). Meanwhile, another pillar, mortgages are slowing as well due to rising rates.

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According to CNBC, "Refinance activity has been falling steadily since the rate rise early last summer. Applications to refinance fell 5 percent last week [March 31 – April 4] from the previous week and are now at their lowest level since the end of 2013."

That's a one-two punch.

Watch out for the left hook as consumer credit via credit cards declines in the first two months of the years so says data from the Federal Reserve's Consumer Credit - G.19 report. For February, the central bank reported, "Revolving credit decreased at an annual rate of 3-1/2 percent."

Three of the financial giant's biggest margin businesses are under pressure as 2014 gets rolling. And, we haven't even mentioned higher cost and expenses in terms of technology and manpower to meet the challenge of complying with new, 2014 banking regulations.

That's not a good combination for the bottom line; falling revenue and higher expenses. Perhaps that's why nine analysts lowered their profit outlook for Citi in the last 30 days; however, three upped their view during the same timeframe.

Another major issue management will have to address is the Federal Reserve giving Citi's the thumbs down for its 2014 Comprehensive Capital Analysis and Review (CCAR) i.e. upping the dividend and stock repurchase program.

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Overall: There are so many parts moving in the wrong direction for Citigroup Inc (NYSE:C) that it is hard to find a path to a bullish surprise. In fact, the iEstimate might prove to be attractive compared to actual results come Monday morning. 

We see many of our C concerns coming to life in today's JPMorgan Chase & Co. (NYSE:JPM) earnings announcement.

Little-Known Billionaire's Book is the Holy Grail for Investors

Daniel Acker/Bloomberg via Getty ImagesBillionaire Seth Klarman. Among the tattered cookbooks and celebrity biographies at thrift stores and yard sales, you might find financial books whose advice on investing once seemed relevant but now just seems silly. However, the next time you find yourself in this situation, take a closer look, because you might also find the Holy Grail of investment books. Boom and bust cycles in the economy and the stock market often give rise to short-sighted investing theories which financial writers try to exploit. Perhaps the best example is "Dow 36,000," written by Harvard-educated journalist James K. Glassman in 1999 at the height of the dot-com bubble, which predicted a 300 percent rise in the market within 10 years. We're still waiting, James. 'Margin of Safety' It is very rare to find an investing book that stands the test of time, and perhaps the rarest of the rare in that category is "Margin of Safety," written in 1991 by billionaire investor Seth Klarman. Long out of print, less than 5,000 copies of this hardback book exist, and used copies regularly go for $2,500 or more online. The book is divided into three sections: "Where Investors Stumble," "Value Investing Philosophy" and "The Value-Investment Process." He explains his motivation in the introduction:

Investors adopt many different approaches that offer little or no real prospect of long-term success and considerable chance of substantial economic loss. Many are not coherent investment programs at all but instead resemble speculation or outright gambling. Investors are frequently lured by the prospect of quick and easy gain and fall victim to the many fads of Wall Street. My goals in writing this book are twofold. In the first section I identify many of the pitfalls that face investors. By highlighting where so many go wrong, I hope to help investors learn to avoid these losing strategies. For the remainder of the book I recommend one particular path for investors to follow -- a value-investment philosophy.

Warren Buffett Is a Fan If you think that some of this sounds familiar, you might be right. Klarman, 56, is often called the "Warren Buffett of his generation," and Buffett is said to have a copy of "Margin of Safety" on his desk. But the connection between Klarman and Buffett doesn't stop there. Both run multibillion-dollar funds; both use the concepts pioneered by legendary value investor Benjamin Graham when evaluating their investment portfolios; and Klarman's name has long been floated by Berkshire Hathaway shareholders as a potential successor to the Oracle of Omaha. Klarman has had an impressive financial career which, unlike Buffett's, has largely gone unnoticed by the public and financial media. A product of Cornell and Harvard, where future CEOs, GE's (GE) Jeff Immelt and Jamie Dimon of JPMorgan Chase (JPM), were among his classmates, Klarman initially worked for Franklin Templeton Funds before starting Baupost Group in 1982. Baupost manages more than $25 billion in client funds and has an astounding performance record, averaging 20 percent annual returns since its inception. Numbers like that consistently rank Klarman in the top 25 highest-earning fund managers by Forbes, with his total compensation for 2013 coming in at $350 million and net worth estimated to be $1.3 billion. How much of that net worth is comprised of unsold copies of "Margin of Safety" is unknown, but fortunately, you don't have to have big bucks in order to read it, as it's available online in PDF version for free.

Funding for Boeing's Phantom Eye Quadruples

At first glance, the $6.8 million contract that Boeing (NYSE: BA  ) just won from America's Missile Defense Agency probably sounds more like a rounding error than an actual, material event in the life of this $75 billion company. But it could become material in time.

On Wednesday, the Pentagon announced it was quadrupling the size of Boeing's original $2.2 million contract to do "instruments and payloads" work on an unnamed "experimental prototype aircraft." The Pentagon's contract also specifies that Boeing will "gather, analyze, and report flight test data to characterize potential payload environments" over the next five months.

All of this is very early-stage work, though, on a plane that Boeing hopes will one day vault it into contention with larger players such as General Atomics and Northrop Grumman (NYSE: NOC  ) in the unmanned aerial vehicle space. This is because the "experimental prototype aircraft" in question is the Boeing Phantom Eye, a planned high-altitude, long-endurance -- or HALE -- aircraft that could compete with Northrop's RQ-4 Global Hawk for government contracts in the future.

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Source: Boeing Media Room.

Boeing describes Phantom Eye as an unmanned, propeller-driven HALE powered by hydrogen-powered internal combustion engines. Once up and running, Boeing hopes the Phantom Eye will be able to fly for up to four days straight without refueling, at altitudes of up to 65,000 feet and speeds approaching 200 knots.

Bernstein Upgrades Citi To Buy Amid ‘Increasing Confidence’ In Its Execution

Citigroup (C) was gaining ground again Tuesday, following its Monday rally on better-than-expected first-quarter earnings, thanks to an upgrade from Sanford Bernstein.

Analyst John McDonald and his team upped their rating on the stock to Outperform from Market Perform, and increased their target price by $5 to $57. They write that the move comes as they have increased confidence in Citi's ability to improve core efficiency and get on track to achieve a 0.9% return on assets—and on their belief that the firm has addressed the Fed's concerns, which puts it on the path to increasing the amount of cash it returns to shareholders.

They note that investors will need some patience to see all this happen, but see downside limited by growing book value and the company’s modest valuation. They applaud Citi's upbeat first-quarter, which they believe demonstrated "progress on core expense controls, largely stable credit (ex-known items in Mexico), and continued growth in capital levels and book value per share."

Read more highlights from the note below:

Credit costs decline sequentially on lower losses and steady reserve release. Citigroup’s provision declined by ~$100m q/q to $1.97b due to a decline in net charge-offs by roughly the same amount, as reserve release remained flattish to slightly up vs. last quarter. Adjusting for charges in 1Q related to the  PEMEX Mexico supplier fraud and a 4Q change in loss treatments at CitiFinancial and Mortgage, NCOs declined 4% q/q to $2.28b mostly on improved mortgage losses in Holdings, while Citicorp losses increased slightly on LatAm portfolio growth and seasoning. Consolidated net reserve releases of $646m remained steady q/q, with Citicorp’s net reserve release of $320m coming in bigger than expected on a ~$200m release from N.A. consumer (card). Looking ahead, we model some additional room for consolidated NCOs to fall further, driven by US mortgages, partially offset by seasoning in International consumer. However, we model all-in provision expense to increase modestly ahead as reserve releases in US card and mortgage tail off. We have total reserve release shrinking from $646m in 1Q to $422m in 2Q and down to $179m by 4Q14.

Continuing to build capital and book value, and consume DTA. The company’s Basel III capital grew 30bps sequentially to 10.4%, as a $6.3b build in Basel III capital more than offset $27b of RWA growth. Citi reduced its DTA by ~$1.1b in the quarter, providing further proof that this asset can consistently help build regulatory capital. The company also reported strong growth in its Basel III supplemental leverage ratio, which was up 20bps sequentially to 5.6%, well above the 5.0% proposed regulatory minimum for 2018. Management estimates that the adoption of the Fed’s recently announced SLR rules would have a flat to modestly positive impact on the 5.6% ratio. Citi’s TBV grew ~2% in the quarter from $55.31 to $56.40 and we model tangible book value to end 2014 at $60.50 and 2015 at $66.52.

Management declares CCAR issues fixable, and sets its sights on 2015 return. Management indicated, based on its initial discussions with the Fed, that the regulator’s rejection of Citi’s 2014 capital plan is neither a reflection of a problem with its business model nor its ability to generate capital, but relates more to deficiencies in Citi’s models and processes around stress testing. As expected, the company could not comment further on the precise details of what it needs to fix, as it has not received the detailed written feedback from the Fed explaining its rejection and it is currently engaged in an ongoing confidential dialogue with its regulators. That being said, management did note that it is focusing 100% of its attention on getting the right people, processes and models in place to create a permanent, “industrial strength” solution that will lay the groundwork for many years of capital return, beginning with its 2015 submission. We continue to model for the company to maintain its current $0.01 per quarter dividend and its annual buyback run-rate of $1.2b through CCAR year 2014 (i.e. until 1Q15) and then ramp up capital return to $6b in share repurchases and a $0.12 per quarter dividend in CCAR year 2015, representing a ~9% dividend payout ratio and a ~40% total payout ratio.

Citi Soars As Q1 Beat Overshadows Recent Troubles

Citigroup (C) was jumping nearly 4.5% in morning trading Monday after its better-than-expected first-quarter earnings report.

For the quarter, Citi said it earned $3.94 billion, or an adjusted $1.30 a share, 15 cents ahead of analysts' average estimates. Revenue slipped 0.6% to $20.12 billion, but that was also ahead of the $19.46 billion consensus.

The quarter's upbeat results are of course a welcome respite for Citigroup, which has been hurt in recent weeks by the Federal Reserve's rejection of its capital plan, a government investigation into possible fraud in its Mexico operations, and downgrades from analysts.

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Although fixed-income trading revenue fell 18% year-over-year to $3.85 billion, it is a volatile business, and Citi's slide is less than the 21% suffered by JPMorgan (JPM), which reported disappointing first-quarter results last week.

Lower mortgage originations, which were less than a third of year-ago levels, also dragged on the quarter, as with other banking peers, as with peers. Consumer banking as a whole dipped 4.6% to $929 billion.

The firm reduced its deferred tax asset—which stem from debts incurred during the financial crisis–by $1.1 billion, which Citi highlighted noted was more than any other quarter since recession.  Expenses also fell 1%.

Analysts reactions are just starting to trickle in: S&P Capital IQ's Erik Oja reiterated  a Hold rating on the stock and lowered his price target by $4 to $52, noting that while Citi's EPS were ahead of the consensus, they fell a penny shy of his own estimates. "Our caution is based on our view of continuing poor results in C’s Global Consumer Banking, 50% of Citicorp’s Q1 revenues, down 4.6% as all global regions post declines."

Credit Card Giants, Big-Box Retailers Prepare for Battle

A long-standing dispute between credit card issuers Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) and the businesses that accept consumer payments via those instruments is heating up again, as a flurry of lawsuits filed on both sides over a prior settlement regarding interchange fees jump-start the hostilities all over again.

What once seemed settled, really is not
The settlement reached last summer over swipe fees at first looked like a win for all, putting to bed scores of existing lawsuits on the issue, once and for all. But, soon after the announced pact, retail behemoths Walmart (NYSE: WMT  ) and Target (NYSE: TGT  ) began to voice their opposition to the terms.

Now, both retailers have joined with other businesses that have opted out of the settlement in filing their own lawsuit against Visa and MasterCard. A little over one week ago, Walmart, Costco, (NASDAQ: COST  ) and Starbucks (NASDAQ: SBUX  ) filed suit with 16 others alleging that the settlement abridges their rights to bring future actions against card issuers for colluding on the setting of interchange fees, and does nothing to prevent fee hikes by the card companies and banks that issue the cards.

Last Friday saw Target and a slew of others, such as JCPenney (NYSE: JCP  ) and Office Depot (NYSE: ODP  ) , file their own lawsuits, citing the same complaints as the Walmart crew. In response, Visa and MasterCard have sued right back, requesting a judge to rule in favor of the card issuers' fee structure and implementation practices.

A big headache for card issuers
Big banks like Bank of America (NYSE: BAC  ) and Wells Fargo (NYSE: WFC  ) were also listed, along with the card companies, since they are the actual recipients of these disputed swipe fees. Settlement of this issue would be nice for the banks, of course, but the whole conflict has become a gargantuan pain in the neck for the card issuers. Getting a court to make moot the very foundation upon which the two retailer groups are suing would take a great weight off of their shoulders, and allow a much tidier resolution to a problem that has been an annoying sideshow for the past several years.

As for the opting-out retailers, they will not have access to the more than $6 billion that the card issuers agreed to pay last summer, though they will have to abide by the new rules negotiated for the agreement. If the card companies and banks prevail in this latest suit, these retailers will likely be forced to accept the original terms of the pact in their entirety. If the issuers lose, all parties will surely be mired for many more years in the long-lived legal battle over interchange fees.

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Herbalife: That’s Criminal?

Shares of Herbalife (HLF) plunged nearly 15% today after reports that the FBI and Justice Department are investigating the multi-level seller.

CNBC has the details:

The US Department of Justice and the FBI are investigating Herbalife, the multi-level marketing company that hedge fund manager Bill Ackman has alleged is a pyramid scheme, according to people familiar with the matter.

The criminal investigation by the FBI and US attorney’s office in Manhattan raises the stakes for Herbalife, which is already facing civil inquiries from multiple government agencies that are looking into the Los Angeles-based company and its associated network of independent distributors.

The inquiry may not lead to any charges. Herbalife has not been accused of any wrongdoing.

Herbalife told CNBC that it had no knowledge of an investigation.

Shares of Herbalife fell 14% to $51.48, while Nu Skin (NUS) dropped 3.6% to $79.46 and Usana Health Sciences (USNA) declined 8.1% to $72.90.

Why Petroleo Brasileiro Petrobras (PBR) Stock Is Up Today

NEW YORK (TheStreet) -- Petroleo Brasileiro Petrobras (PBR) was gaining 1.8% to $13.95 on news that it expects to receive the first or eight new pipe laying support vessels (PLSVs) this month.

The ships should help Petroleo Brasileiro Petrobras boost crude oil production by allowing it to connect new wells to existing platforms more quickly. The company expects crude oil output to increase by 7.5% in 2014, up from 1.93 million bbl/day in 2013.

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STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings team rates PETROBRAS-PETROLEO BRASILIER as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation: "We rate PETROBRAS-PETROLEO BRASILIER (PBR) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself." Highlights from the analysis by TheStreet Ratings Team goes as follows: Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.8%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. PBR's debt-to-equity ratio of 0.76 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.98 is weak. Net operating cash flow has decreased to $4,734.00 million or 16.58% when compared to the same quarter last year. Despite a decrease in cash flow of 16.58%, PETROBRAS-PETROLEO BRASILIER is in line with the industry average cash flow growth rate of -23.34%. The gross profit margin for PETROBRAS-PETROLEO BRASILIER is currently lower than what is desirable, coming in at 28.99%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 7.75% is above that of the industry average. You can view the full analysis from the report here: PBR Ratings Report STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Stock quotes in this article: PBR