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  • 01/14/12--04:00: The 5 Dow Stocks Every Dividend Lover Should Own (chan 1514216)

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    AT&TMillions of investors have discovered how profitable dividend stocks can be. But you don't have to work hard to find great companies for your dividend portfolio.

    Later on in this article, I'll give you the names of five stocks in the Dow Jones Industrials (^DJI) that I think you need to own if you're a true dividend investor. But first, I want to explain why your first instinct about finding the best dividend stocks is wrong -- and the better way to think about long-term dividend investing.

    Why Growth Is the Key

    The first thing that most investors look at with dividend stocks is their yield, because they give you a lot of income right now. Some dividend-payers yield as much as 20% or more right now.

    But big dividends often simply disappear. The reason some stocks have such high yields is that they've had big drops in price. Investors expect a future dividend cut, so they sell their shares before the bad news comes. Then, when the dividend gets cut, the yield falls to a more reasonable level -- thwarting yield-chasers who bought solely for the big payout.

    To avoid the disappointment of seeing your dividend go up in smoke, I recommend turning to companies that have long track records of solid dividends. In fact, a select group of stocks known as the Dividend Aristocrats hasn't just paid their investors year in and year out -- they've actually increased those payouts each and every year for at least a quarter-century, making it through financial crises and stock market crashes.

    The Best of the Best in Dow Dividend Stocks

    So which companies are among the cream of the crop for dividends? Here are the five stocks that combine those two attractive traits: high dividends and a consistent track record of gains.

    1. AT&T (T)
    Mobile giant AT&T is the top-yielding stock in the Dow, with a payout of almost 6%. But what many people don't know about AT&T is that it's boosted its dividend annually for 28 straight years. With another increase due to be paid Feb. 1, Ma Bell is poised to keep its place in the Dividend Aristocrats next year as well.

    2. Johnson & Johnson (JNJ)
    At some point during their lifetimes, just about everyone has used Band-Aids, baby shampoo, or Tylenol -- products that Johnson & Johnson has made for decades. Those products, along with medical equipment and other health-care needs, generate the huge sales volume that has allowed J&J to boost its dividend 49 straight years. And with a yield of 3.5%, the checks you get quarterly will mean no more tears when you open your brokerage statement.

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    3. Procter & Gamble     (PG)
    Like J&J, Procter & Gamble is a household staple, with Pampers, Gillette, and Tide among its best-known products. Yielding 3.2%, P&G has the longest dividend streak in the Dow at 55 years. And with its brand dominance in so many categories, P&G doesn't look like it'll lose its leadership role anytime soon.

    4. McDonald's (MCD)
    The family friendly fast-food giant has served generations of customers, and it's now a powerhouse with global reach, thanks to huge expansion in emerging markets like China. Paying 2.8% and boasting a 35-year record of annual dividend increases, McDonald's is a delicious addition to your dividend portfolio.

    5. Coca-Cola (KO)
    Nothing goes with a frosty beverage better than a 2.7% dividend yield. With nearly a half-century of annual payout increases behind the company, Coke is it for dividend investors as well as billions of thirsty customers.

    If you love dividends -- and you should -- then these stocks have what you're looking for. Especially as Social Security and other sources of retirement income are in danger, building your own reliable source of income for your retirement is more important than ever.

    Motley Fool contributor Dan Caplinger loves to see the money come in. You can follow him on Twitter here. He doesn't directly own the stocks mentioned in this article but has exposure to them through exchange-traded funds. The Motley Fool owns shares of Coca-Cola and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Coca-Cola, Johnson & Johnson, and McDonald's, as well as creating a diagonal call position in Johnson & Johnson.



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  • 01/15/12--22:05: What to Watch This Week: Banking, iPad Textbooks, Auctions, Search, and Big Blue (chan 1514216)

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    Chase JPMorganThere's never a dull moment on Wall Street, especially now that 2012 is tossing us into its first earnings season. Let's go over some of the items that will help shape the week that lies ahead.

    1. Banking on a Bounce: The banking sector got off to a shaky start when JPMorgan Chase (JPM) kicked off the earnings season with a disappointing quarterly report Friday.

    We'll get a clearer picture this week when the rest of the financial services heavyweights chime in.

    There's Citigroup (C) and Wells Fargo (WFC) on Tuesday. Goldman Sachs (GS) and Bank of New York (BK) check in on Wednesday. Bank of America (BAC) is Thursday's star on the earnings stage.

    No one is holding out for a monster showing from these companies. Savers are turned off by historic low interest rates. Tightening lending standards have made it harder for consumers and companies to borrow money. JPMorgan reminded us Friday that investment banking isn't where it needs to be. However, one of the hardest-hit sectors during the recent recession still has a chance to show us that it's taking baby steps in the right direction.

    2. Apple Wants to Rock Your School: Apple (AAPL) has sent out invitations for a media event Thursday.

    "Join us for an education announcement in the Big Apple," reads the invitation. A chalkboard outline of the New York City skyline is enhanced with the iconic Apple logo.

    This obviously won't be about the upcoming iPad 3 or the inevitable iPhone 5. Apple is hammering home the educational theme, leading most analysts to believe that Apple is finally going to come clean on its plans to replace old paper school textbooks with digital reads that can be conveniently stored on iPads.

    Your kids or grandkids -- the ones with backs aching from lugging heavy backpacks around -- will rejoice at the chance to digitally consolidate their textbooks. And if the move results in cheaper textbooks that can no longer be lost, parents will join the cheering.

    3. Google Yourself: It's only fitting that the world's largest search engine is also the top dog in online advertising. Search is where it's at, and Google (GOOG) has benefited from a healthy stream of traffic consisting of people who want to go somewhere else. Advertisers love that.

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    However, Google's numbers aren't the only things that will be on display when the dot-com giant posts its quarterly results Thursday afternoon. The company's starting to hire again in China, and that will lead analysts to ask about Big G's plans there. Twitter accused the search star last week of steering search traffic to Google+ results over the more prolific Twitter. Is this just good business on Google's behalf or a problematic step away from its "do no evil" mantra?

    There will also be the numbers, of course, and they should be solid. Analysts see earnings climbing nearly 20% higher to $10.46 a share.

    4. Santa eBay: A decade ago, eBay (EBAY) was a great place to find secondhand wares at great prices that just weren't available anywhere else. It really was one big virtual garage sale for collectors and deal seekers.

    Every passing year finds the leading auction marketplace transforming itself into more of a conventional online retailer. The emphasis on "buy it now" over the bidding process, and encouraging sellers to offer "free shipping" by building the cost into their prices really have turned eBay into more of a flea market than a garage sale.

    Thankfully, eBay also owns PayPal. However, the head of the popular payment platform just jumped ship to take the CEO job at Yahoo! (YHOO), so eBay is going to have plenty of questions to field when it reports its latest quarterly results Wednesday.

    5. Big Blue Is Not So Blue: One of tech's biggest success stories in recent years has been IBM (IBM). When the company sensed that the era of tech hardware had run its course, Big Blue shifted gears to make sure that it became a bigger player in the higher-margin enterprise services realm.

    The move has paid off, and IBM has managed to grow even during the darkest recessionary stretches. You actually have to go back nearly five years to find the last time that IBM didn't beat Wall Street's quarterly profit target, and that obviously bodes well when assessing where it will land come Thursday as analysts see a profit of $4.62 a share.

    Bet on the over. It's elementary, Watson.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of JPMorgan Chase, Google, Yahoo!, Citigroup, International Business Machines, Bank of America, Wells Fargo, and Apple. The Fool has created a covered strangle position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Google, eBay, The Goldman Sachs Group, Yahoo!, and Apple. Motley Fool newsletter services have recommended writing puts in eBay. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.


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  • 01/17/12--07:50: The 10 Most Important IPOs to Watch in 2012 (chan 1514216)

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    FacebookThe initial public offering market in 2012 is likely to be much stronger than many anticipate. Despite lingering economic uncertainty and the underperformance of many of 2011's popular IPOs, this year may see some exciting activity from the more than 200 companies hoping to go public.

    24/7 Wall St. has evaluated dozens of candidates to find the top IPOs to watch in 2012.

    Facebook, with its expected $100 billion valuation, is just one of many potential IPO debutantes whose shares will be in high demand. A new stock exchange, a host of online media outfits, a casino powerhouse, big name retailers, and a private-equity firms are all among those looking to have successful IPOs in 2012.
    Sponsored Links
    You don't have to be an accredited Second Market account holder or a venture capitalist to have a stake. Investors in 2012 can invest through business development outfits like GSV Capital (GSVC), which owns shares of Facebook and Twitter, and Keating Capital. These pre-IPO funds weren't available ahead of many of the big offierings of 2011. There's even the FirstTrust US IPO Index Fund (FPX), designed to mirror the performance of the 100 biggest IPOs.
    Below is a detailed review of what 24/7 Wall St. sees as the best upcoming IPOs. Included are details on the finances, backers, related entities, financial terms, the size of the offering, and even the underwriting groups.

    And beyond these, there are many other potential IPO candidates waiting in the wings. Media companies Univision and Clear Channel, and energy company TXU, for example, are in the hands of private equity right now: When their owners are ready, and the market will accommodate them, the could be popular offerings. Likewise, such companies as the fashion-deal site Gilte Groupe, video game maker Rovio (best known for Angry Birds), could enter the stock market fray.


    Gallery: IPOs to Watch in 2012

    1. BATS Global Markets2. Caesars Entertainment3. The Carlyle Group4. Facebook5. Glam Media





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  • 01/17/12--09:15: 3 Investing Mistakes You Can Outthink (chan 1514216)

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    3 Investing Mistakes You Can OutthinkBy Terry Savage, MoneyShow.com

    If you want to be a successful trader (or simply manage your personal finances wisely) you need to recognize the importance of "mind over money." All the knowledge in the world won't help you become successful if you lack knowledge and self-discipline.

    You've all heard the ordinary instructions about managing your money and investing successfully. Think rationally. Don't behave emotionally. Be disciplined.

    Well, it's easier said than done. Maybe that's why most people kick themselves for selling at the bottom, and rue the day they bought at the top of the market. Or why the post-holiday hangover of credit card bills makes you wonder what you were thinking that last week of shopping.

    You've heard the rules before -- and later in this column, I'll give you three basic money mistakes to overcome. But first, there's a new book out with a fascinating approach to dealing with the emotions of money management.

    Denise Shull, author of Market Mind Games, is an internationally recognized pioneer in the new psychology of risk and uncertainty. She's the founder of ReThink Group, Inc., a New York-based consulting firm that helps increase performance by using the science called neuroeconomics, an interesting approach to behavioral economics.

    Basically, what Shull advises is not that you try to beat down all your emotions so they don't impact your investment performance. She says that's not only impossible, but counter-productive. Every decision includes an emotion.

    So instead, Shull advises that you recognize the impact of those emotions -- the meaning they are imparting to your thinking. After all, it isn't the emotion that needs controlled, it is the actions you take that need to be directed.

    Shull says you need to feel, acknowledge, and deal with your emotions in order to gain the advantage -- and trade or invest successfully. The feelings themselves become "data" to be incorporated into your decision making process.

    Market Mind Games reads more like a mystery romance novel than a psychological dissertation. It is must-reading for anyone who intends to do more than just invest a regular amount monthly into a diversified 40l(k) portfolio.

    That's not to say that a regular dollar investment is a bad idea. In fact, for most people, who have neither the time nor the self-discipline to read this book, a long-term monthly investment plan is truly a better solution.

    Then again, you might want to read this book just for the knowledge of how your emotions rule your brain -- and to learn how to recognize the urge to dump your plan -- and your stocks -- in a moment of panic.

    Now, if you're looking to do things differently this year, here are the three big money mistakes you probably made last year -- and how to make sure you don't' make them again this year!

    Money Mistake No. 1: Closing Our Eyes

    No one wants to hear bad news. And these days, you're likely to find bad news when you open your bank statement, credit card bill, or your 40l(k) or IRA statements. There are some people who simply toss their stock market investment envelopes in the drawer and never open them!

    But things will never get better if you don't open your eyes, take a close look at the details...and then get the big picture. And this is the right time of year to do it, because you're getting your year-end statements.

    Make lists of what you own (your investments), of what you owe (your bills), and of your goals. Open your eyes to face reality. Like it or not, this is you -- and you need to know where you stand in order to change things. And if you can't figure out how to do that on your own? Seek help.

    Which brings us to the second mistake.

    Money Mistake No. 2: Being Stubborn

    If you've "always done it this way" and it's still working, that's fine. But if you don't like your current financial situation, you have to change!

    Sponsored Links
    Change is difficult for everyone -- some more than others. We're talking about being open to change everything, from how you pay your bills, to what credit cards you carry in your wallet, and even to changing the mutual funds in your IRA or 40l(k).

    Ask yourself why you're doing things this way -- and then ask around or do some online research to see if there is a better way of doing things. Values and principles don't change -- but time and technology change techniques and opportunities.

    You have to be open to change as well. Especially if you want different results.

    Money Mistake No. 3: Making Emotional Decisions

    There are two emotions that confront you whenever you make financial decisions: fear and greed. (Although greed may be better defined as the "fear of missing out.")

    Think about it. You never deal with those emotions when you're deciding what movie to see, or what dress to buy. But money decisions bring out these two motivators, and they often override common sense.

    We all know how dangerous greed is -- it makes you think home prices or stock prices will rise forever. But fear can be equally dangerous, because it paralyzes you, and can keep you from taking appropriate risk.

    The trick is to know when fear is a good risk management signal and when it is something else. Making that decision requires you to stop before acting, and to think rationally about the issue.

    You can't stop these emotions from appearing, but you can recognize them and resolve never to act out of panic, without thinking through the consequences of each financial decision.

    Unless you're perfectly happy with last year's results, do at least one thing differently this year. At least you won't be bored! And that's The Savage Truth.


    More from MoneyShow.com

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  • 01/17/12--13:28: Dow Rises Despite Europe's Woes (chan 1514216)

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    Dow Rises Despite Europe's WoesLast Friday, it looked like this week would be an ugly one. Standard & Poor's had just downgraded the credit ratings of France and a number of other European countries, an act that many saw as simply the latest domino to fall in Europe's slow-motion economic train wreck.

    But at least in the U.S., the stock market shrugged off that news. After rising as much as 150 points earlier in the session, the Dow Jones Industrials (^DJI) was still up 59 points to 12,481. The Nasdaq Composite (^IXIC) jumped about 17 points to 2,728, while the S&P 500 (^GSPC) rose a more modest 4 points to 1,293.

    About three stocks in the Dow rose for every loser, with United Technologies (UTX) and Merck (MRK) among the biggest gainers in the average. Positive economic news from China suggested that the emerging nation might be able to sustain its growth longer than many had expected, helping prospects for United Technologies and other industrial manufacturing stocks within the Dow. Meanwhile, Merck continued its strong run over the past several months, with the shares jumping almost 30% since the beginning of August as investors apparently got more comfortable with the looming patent cliffs that most big drug companies face.

    Sponsored Links

    On the other hand, bank stocks got hurt badly. JPMorgan Chase (JPM) fell sharply on the heels of Citigroup's (C) earnings report this morning, in which Citi reported a big drop in profits from levels a year ago.

    Despite the fact that the eurozone is still holding itself together for now, continuing stresses weigh not only on the European financial system but on banks around the world as well. Any resolution to sovereign debt problems on the Continent could create a big rally for bank stocks both in the U.S. and elsewhere.

    Motley Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. You can follow him on Twitter here. The Motley Fool owns shares of Citigroup and JPMorgan Chase.



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  • 01/18/12--03:45: Why Does Wall Street Hate Netflix? (chan 1514216)

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    Why Does Wall Street Hate Netflix?"If you have nothing nice to say, don't say anything at all" is a mantra that's alive and well on Wall Street. Analysts prefer to cover stocks for which their sentiment is bullish. Apple (AAPL), for example, is a market darling. A full 50 of the 55 major firms with published analysis on the tech giant have it as a "buy" or "strong buy" rating. This series looks at the few stocks about which Wall Street is generally bearish.

    Everyone seemed to love Netflix (NFLX) just six months ago. The all-you-can-eat video service was a hit with couch potatoes, offering a cost-effective way to consume the latest releases on DVD and a growing catalog of digital content as streams.

    These days Wall Street isn't feeling a whole lot of love for Netflix: Just 17% of the 35 established analysts tracking Netflix have it tagged with a "buy" or "strong buy" rating.

    Fall From Grace

    How did a dot-com darling become a dot-com dud?

    Netflix's downfall has been well documented. First, the company alienated subscribers this past summer when it revealed that it would raise its monthly rates by as much as 60%.

    Analysts originally loved the move, waxing bullish on the margin-widening potential of meatier subscription revenue. But Wall Street and CEO Reed Hastings underestimated the resistance. As a result of the price hike, which kicked in for active customers during their September billing cycle, Netflix closed out the third quarter with 800,000 fewer domestic subscribers than it had when the quarter began.

    In a few weeks we'll get the full report on the company's fourth-quarter performance, but no one should be surprised if Netflix had another crummy quarter.

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    We also had the Qwikster fiasco. Just as investors were reeling from the harsh response to the price hike on subscribers to Netflix's dual plans -- those receiving optical discs and streaming video -- the California company announced it would be splitting its operations into two distinct websites. Netflix would remain the streaming hub, but folks renting DVDs and Blu-rays would be migrated over to Qwikster.

    The already-tender subscribers were outraged. Why should they have to manage two independent queues on two different sites? Wasn't it bad enough that they were already paying more?

    Subscribers who may have been on the fence likely bolted in droves at that point. Netflix did the right thing -- killing off Qwikster just three weeks after it was announced and before the operations were actually split in two -- but the damage was done.

    Netflix's reputation went from golden to checkered. Analysts -- realizing that fewer incensed subscribers paying more wasn't going to be a very compelling model -- changed their bullish tune.

    Netflix went from loved to loathed just like that.

    Misunderstood Intentions

    Netflix was never as evil as the subscribers taking a battering ram to the company's reputation may have made it seem.
    Netflix was too good to be true at $9.99 a month for an unlimited DVD rental service with an expanding digital catalog that was proving to be expensive to maintain. Studios were demanding more money out of Netflix for stream licensing rights, and Netflix had been offering that at no additional cost to subscribers on unlimited DVD plans since 2007.

    The plan seemed fair. Streaming was no longer supportable as a "free" bonus for DVD subscribers. Netflix chose to drop the monthly price of the unlimited DVD service to as little as $7.99, but customers wanting access to the growing streaming catalog across an equally growing array of devices would have to pay $7.99 a month as well. This leap -- from $9.99 to $15.98 a month -- is why folks began decrying the 60% hike, but in reality, customers who were fine with just DVDs were actually treated to a price cut.

    Qwikster was a bad idea. It was indefensible and poorly thought out. However, Netflix's willingness to add video games to Qwikster -- something that was abandoned when the split was shelved -- was never rightfully applauded.

    The Long Road to Redemption

    Shares of Netflix would have to more than triple to regain their summertime highs, and that's unlikely to happen in the near term. Netflix is now bracing investors to expect a loss for all of 2012. Rolling out in the U.K. and Ireland earlier this month will naturally be a drag on profitability, but the company has conceded that its stateside business is also in a funk.

    Let's face it: Wall Street isn't going to renew its love affair with Netflix until it begins turning a profit and starts growing its subscriber count again.

    It won't be easy. Competition is brewing for Netflix in 2012. Amazon.com (AMZN) has been growing the number of streaming titles available to Amazon Prime shoppers, and unlike Netflix, it doesn't charge more for the perk. Coinstar's (CSTR) Redbox and even FiOS parent and wireless darling Verizon (VZ) have been reportedly linked to launching streaming smorgasbords later this year.

    The one thing working in Netflix's favor is that it takes time and money to amass the kind of digital vault that the company has built over the years. Stability in Netflix's subscriber count should kick in as soon as this new quarter.

    Analysts have every right to be skeptical. Netflix has packed a corporate lifetime's worth of boneheaded decisions into just a few months. However, Netflix did kick off 2012 with back-to-back weeks of hearty stock gains.

    Someone's apparently ready to believe in Netflix. Wall Street will probably be the last to know.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Netflix, and Amazon.com, as well as creating a bull call spread position in Apple.



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  • 01/18/12--08:20: 3 Top Dividend Stocks for 2012 (chan 1514216)

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    McDonald's a Top Dividend Stock For 2012By Gregg Greenberg , TheStreet.com


    Just because the economy is growing does not mean investors should abandon high-paying dividend stocks in favor of growth names, says Oliver Pursche, co-portfolio manager of GMG Defensive Beta Fund (MPDAX).

    "No one is saying you shouldn't own growth stocks. The point is that dividends are a key component of total return, so investing in high-quality, high dividend paying stocks that also have growth characteristics should do very well in 2012, just like it did in 2011," says Pursche.

    The $20 million fund, which launched in August 2009, has dropped 3.4% over the past 12 months, ranking it in the 66th percentile of Morningstar's (MORN) multi-alternative investment category.

    Pursche specifically points to McDonald's (MCD) as a company that fits his growth plus dividend criteria, as the fast-food purveyor continues to expand internationally without skimping on its dividend, now yielding 2.8%. The company's stock is up more than 35% in the past year, compared with domestically oriented Wendy's (WEN), for example, which is up only 2% and yields 1.5%. And Pursche sees more room for Mickey D's to grow in 2012 even with a slowing Europe.





    "They are ramping up revenues, store sales and everything else a growth business needs to accelerate. So it's a great example of a company that's exhibiting all of the qualities of a great growth stocks but has high yields and a strong balance sheet to support it," says Pursche.

    Another Dow stock that is one of Pursche's prime picks is chipmaker Intel (INTC), which soared 24% over the past year and is now yielding 3.3%. Not bad compared to competitors AMD (AMD) and Texas Instruments (TXN), which have fallen 38% and 8% over the same period.

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    "Intel is best of breed. It has a very strong balance sheet, high credit quality, good growth prospects and an attractive yield over 3% so it's giving investors the best of both worlds," says Pursche.

    Finally, in the energy sector, Pursche likes Royal Dutch Shell (RDS-A), which yields 4.6%, as an alternative to American-based oil majors Exxon Mobil (XOM) or Chevron (CVX), which yield 2.2% and 3% respectively.

    "When you look at Royal Dutch's balance sheet and its business model, it's not much different than Exxon Mobil," says Pursche. "However, since it's based in Europe, it's gotten beaten up a little more, so you are getting a lot more yield, and you should take advantage of that as an investor."


    More on TheStreet.com



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  • 01/18/12--12:20: 'Zumba Fitness' Maker Majesco Hits the Wall (chan 1514216)

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    ZumbaMajesco Entertainment (COOL) isn't living up to its ticker symbol.

    Shares of the video game developer and publisher got crushed on Tuesday after the company posted disappointing quarterly results.

    After three blowout quarters, fiscal 2011 came to a close with a whimper. Revenue inched 8% higher in the final period, a far cry from the 66% growth spurt that Majesco mustered for the entire year. More important, the company behind the Zumba Fitness and Cooking Mama gaming franchises posted a widening deficit of $0.07 a share. After it kicked off the year with three robustly profitable quarters, analysts were holding out for earnings of $0.04 a share.

    An Unwelcome Surprise

    One of the easiest ways to find winning stocks is to stick with companies that routinely blast through Wall Street's profit targets. Until this week's implosion, that was Majesco.
    EPS est.
    EPS
    Beat
    Q1 2011
    $0.11
    $0.20
    82%
    Q2 2011
    $0.07
    $0.13
    86%
    Q3 2011
    ($0.02)
    $0.03
    250%
    Q4 2011
    $0.04
    ($0.07)
    (275%)
    Source: Capital IQ.

    What went wrong? Zumba Fitness continues to sell briskly on all three video game consoles. Zumba Fitness 2 -- which came out on the Wii shortly after the end of Majesco's fiscal fourth quarter -- has already sold a million units.

    Majesco points out that Zumba Fitness 2 hit the million-unit mark ahead of the original a year earlier. The strong start and a healthy slate of releases scheduled for this year would seem to make fiscal 2012 another year of heady growth.

    Unfortunately, Majesco's outlook isn't that aggressive. After posting $125.3 million in revenue this past year, the small gaming company is targeting $125 million to $140 million in revenue. After delivering adjusted net income of $0.28 a share in fiscal 2011, Majesco's guidance calls for profitability on that basis to clock in between $0.25 and $0.35 a share. There's a lack of growth on the low end of the range, and only a modest uptick on the high end.

    Blame the Industry

    Media tracker NPD Group's data for December wasn't encouraging at all. Industry sales fell 21%, as retail sales of new software suffered a 14% decline.

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    We can argue that NPD's data is incomplete. It doesn't track online sales, app downloads, and other digital downloads. However, the news sent shares of leading video-game maker Activision Blizzard (ATVI) and retailer GameStop (GME) lower.
    Majesco is lucky in retrospect. Its stock more than tripled during the 2011 calendar year. Its new fitness franchise is making the most of the growing popularity of motion-based controls that make workout titles more attractive.

    However, you can only disappoint Wall Street once. Majesco will have to get back on track, hoping that it can grow its existing franchises or launch another sleeper hit this year. If Majesco wants to be worthy of its ticker symbol again, it's just what it will have to do.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of GameStop and Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard and writing covered calls in GameStop. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard.




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  • 01/19/12--05:30: The 10 U.S. Companies That Will Be Most Profitable in 2012 (chan 1514216)

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    IBMEach January, 24/7 Wall St. makes its predictions about which publicly traded U.S. companies it feels will have the highest profits in the year ahead. Last year, Apple (AAPL) intermittently edged ahead of Exxon Mobil (XOM) for the highest market capitalization in the Fortune 500, and in 2012, Apple is likely to pass Exxon Mobil as the most profitable corporation. The market appears to anticipate Apple will keep up a rapid growth rate comparable to that it has enjoyed for the past two years. The stock has repeatedly hit new highs recently and now trades at $425, up nearly 25% in the past year.

    Most of the largest U.S. companies won't produce large year-over-year earnings swings, with the notable exception of financial firms. Most banks and investment houses will suffer earnings declines in 2012 due to poor trading results and bad loans, notwithstanding the fact that JPMorgan Chase (JPM), arguably the best-run bank in America, made our most-profitable list, as did Wells Fargo (WFC). Corporations like IBM (IBM) and Procter & Gamble (PG) have such huge customer bases worldwide that they can hardly outperform the global economy. What differentiates them is their ability to manage their operations better than peers as they keep expenses low and take all the advantages they can of their significant market shares.

    24/7 Wall St. looked at the top 200 companies in the Fortune 500 based on revenue in the past reported year. We then reviewed earnings and earnings forecasts from Thomson/First Call. There were some cases in which earnings appeared to be too low or too high because they failed to reflect more recent events. We took those into account when we produced the final numbers.

    Gallery: Prediction: The Most Profitable Companies of 2012

    12. (tie) Wells Fargo12. (tie) Proctor & Gamble12. (tie) Johnson & Johnson9. Berkshire Hathaway8. IBM



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  • 01/19/12--06:37: Kodak Files for Chapter 11 Bankruptcy (chan 1514216)

    • Filed under: ,

    Kodak Files for Chapter 11 Bankruptcy ROCHESTER, N.Y. -- Photography icon Eastman Kodak (EK) has filed for Chapter 11 bankruptcy protection, as it seeks to boost its cash position and stay in business.

    The move comes as the ailing company has failed to find a buyer for its trove of 1,100 digital imaging patents. Kodak said in November that it could run out of cash in a year if it didn't sell the patents, for which it hoped to fetch billions.

    Eastman Kodak Co. said early Thursday that it has secured $950 million in financing from Citigroup (C), and expects to be able to operate its business during bankruptcy reorganization and pay employees. The Rochester, N.Y.-based company, which was pummeled by foreign competition and then severely shaken by the digital revolution, has invested huge sums in new lines of inkjet printers that are finally on the verge of turning a profit.

    CEO Antonio Perez said in a statement that the bankruptcy filing is "a necessary step and the right thing to do for the future of Kodak."

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    The company and its board are being advised by Lazard, FTI Consulting Inc. and Sullivan & Cromwell LLP. Dominic DiNapoli, vice chairman of FTI Consulting, will serve as chief restructuring officer. Kodak expects to complete its U.S.-based restructuring during 2013.

    On its website, Kodak assured customers that the nearly $1 billion in debtor-in-possession financing would be sufficient to pay vendors, suppliers and other business partners in full for goods and services going forward. The bankruptcy filing in the Southern District of New York does not involve Kodak's international operations.

    The Chapter 11 filing had been rumored for weeks. Multiple directors have resigned from Kodak's board and the company last week announced that it realigned and simplified its business structure in an effort to cut costs, create shareholder value and accelerate its long-drawn-out digital transformation. Since the start of the year, Kodak said it now has two business units -- commercial and consumer -- instead of three.

    Previously, Kodak's business segments were divided into its traditional film and photo paper products, consumer digital imaging and graphic communications, which included printing equipment. Home photo printers, commercial inkjet presses, workflow software and packaging are viewed as Kodak's new core. Kodak has said it hopes the printer, software and packaging businesses will more than double in size by 2013 and account by then for 25 percent of its revenue, or nearly $2 billion.

    Kodak did not announce job cuts as part of the bankruptcy protection filing. The company's payroll has plunged below 19,000 from 70,000 a decade ago.

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  • 01/20/12--05:45: 5 Reasons You're Not Buying Video Games Anymore (chan 1514216)

    • Filed under: , , , ,

    Video gamesThe latest news on the video game front isn't pretty.

    Media tracker NPD Group's data reveals that industry sales plunged 21% last month. I guess Santa wasn't leaving too many Nintendo 3DS devices in stockings this holiday season.

    The news is bleak, but that's pretty much how it has been with the monthly NPD metrics through most of the past three years. Folks aren't buying new games or new systems at the retail level.

    It's important to remember that NPD doesn't take a complete snapshot of the industry. While the research group posts that hardware sales plunged by a steep 28% in December -- with software sales falling by a still problematic 14% -- the data only covers traditional retail sales. The metric does not include digital downloads, online sales, and the resale of used games and gear.

    However, it's pretty clear that we're not consuming video games the same way we were just a few years ago. The industry is changing, and it's important to know why.

    1. Games Last Longer

    In the old days, a game was a good escape for a few days or weeks. Once the player beat the game, it was time to save up for a new title.

    Online connectivity and gamer networking have changed that. It's hard to put out a blockbuster without a viable multiplayer gaming component. Microsoft (MSFT) now has 40 million Xbox Live users delving into simulated battle campaigns and sports matches with their virtual playmates.

    Activision Blizzard (ATVI) is still setting sales records with every annual update of its Call of Duty franchise. However, gamers keep playing the title until the next installment comes out. It's a climate in which the biggest titles fare well, but the market below that has dried up.

    2. Used Games Are Easier to Swap

    GameStop (GME) revolutionized the industry by allowing customers to trade in used games and gear for credit at its stores. GameStop then resells the games to penny-pinching bargain seekers. This has actually been a higher-margin business for the retailer than its new games and hardware.

    The competition is starting to notice. Best Buy (BBY) and Amazon.com (AMZN) have started accepting trade-ins. Best Buy is hungry for foot traffic at its stores, while Amazon is so aggressive on trade-ins that it will cover shipping costs.

    The result is that there are a great number of places to buy or swap used games. Unfortunately for the game developers and publishers, they don't see a penny of the subsequent sales.

    3. Social Gaming Eats Up the Clock for Casual Gamers

    Zynga (ZNGA) going public last month at a market cap similar to traditional gaming software legend Electronic Arts (EA) turned heads. Through Facebook, Zynga has attracted a growing audience of casual gamers fleshing out their virtual farms in FarmVille or playing online Scrabble through Zynga's Words With Friends. This has turned the leading social-game maker a profitable juggernaut.

    Diehard gamers will cringe at the mere mention of social gaming. CityVille can't touch Skyrim. However, the time that folks are spending on free ad-supported games or those that require cheap in-game purchases to make more interesting is clearly eating into a larger audience who used to fire up their consoles when they needed to play a game.

    4. Apps Are the Main Course

    If Facebook is nibbling at the video game industry on one end, smartphone apps are taking more bites on the other.

    Sponsored Links
    Again, no one will compare Angry Birds to L.A. Noire. Smartphone and tablet downloads are quick diversions that can entertain someone who's waiting at a dentist's office or in line to buy movie tickets. However, the growing availability of free and nearly free games is readjusting the value proposition of traditional games. If a 99-cent game will deliver weeks if not months of diversion, what will a $60 console game have to do to earn its worth?

    Apps have also leveled the playing field. The barriers to entry are much lower in developing Android and iOS games than for traditional console titles, forcing prices to be competitive.

    5. Your Console Is a Multimedia Device

    Even hard-core gamers may not be playing as many games anymore. Microsoft updated its Xbox Live platform last month, giving cable providers and networks the opportunity to stream to their subscribers.

    A console isn't just for games anymore. It's an appliance for streaming video, surfing the Web, and listening to music.

    Games? Who needs that?

    That last question is rhetorical. Of course die-hard gamers still enjoy their favorite games. However, all of these factors have combined to create a difficult climate for the gaming industry that shows no signs of reversing.

    The game's afoot, gamers -- and it's out the door.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Amazon.com, Best Buy, Microsoft, GameStop, and Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard, Amazon.com, and Microsoft. Motley Fool newsletter services have recommended writing covered calls in Best Buy and GameStop, creating a bull call spread position in Microsoft, and creating a synthetic long position in Activision Blizzard.



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  • 01/20/12--08:05: Will Yang's Yahoo Departure Appease Angry Investors? (chan 1514216)

    • Filed under: , , ,

    Yahoo JerryYahoo's (YHOO) embattled co-founder Jerry Yang is gone from the board, but for Third Point LLC, that's not good enough. The disgruntled Yahoo investor is aiming to take down company Chairman Roy Bostock and potentially three other directors. From Third Point's perspective, it's one down, one to go, and three more would be a bonus.

    Let's look at how this fight may play out and who's likely to get beaten and bruised.

    Fight! Fight!

    Bostock has already received a tongue-lashing from Third Point, which holds a 5.2% stake in Yahoo. In November, Third Point called for Bostock and Yang to resign, citing conflicts of interest in the company's alleged pursuit of "sweetheart" deals with private-equity firms. These deals, Third Point alleged, would allow the current management and board to remain "entrenched" by selling only a slice of the company, rather than the entire operation at a higher premium.

    Third Point wanted Yang and Bostock to turn their board seats over to two Third Point representatives. It's worth noting that Yahoo has yet to name a board replacement for Yang. It could be keeping the seat vacant should it strike a settlement with Third Point.

    Yahoo may already realize that engaging in a fight to keep Bostock would be fruitless, given his lackluster support at the last annual shareholder meeting, when 20.1% of investors voted to kick Bostock out. That's nearing a dangerously high level, say proxy advisers.

    "When you get to 30% of votes cast in opposition, that's typically high enough were you begin to see some response from the company to deal with the issue," said Patrick McGurn, executive director at Institutional Shareholder Services, which advises institutional investors on how to vote their proxy cards.

    Since Yahoo's 2011 meeting, the stock has largely traded at the same level, and the company removed CEO Carol Bartz, who failed to grow revenues. Investors panned her recent replacement, PayPal executive Scott Thompson. What's more, Yahoo's strategic plan to enhance shareholder value via a sale of its Asian assets, though reportedly getting closer to fruition, has yet to materialize.

    Who else is in Third Point's sights?

    In its initial letter to Yahoo directors in September, Third Point said it also wanted to dump directors Art Kern, Vyomesh Joshi, and Susan James and present its own slate of replacements.

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    But unseating these three directors may prove more difficult than ousting Bostock. In the last shareholder meeting, Kern had only 5.2% of investors vote against his re-election to the board, while James was less at 4.9% and Joshi 4%, according to Yahoo's filing with the Securities and Exchange Commission.

    "A lot of these fights settle out before it comes to a shareholder vote," McGurn says. "As the parties begin to see the early returns on the proxies, it creates a game of chicken."

    Other proxy advisers agree: When a company and dissident shareholders name opposing slates of directors, the reaction in the stock market alone can set the tone for a potential settlement.

    Yahoo has played this game before, reaching a settlement with major shareholder activists and billionaire investor Carl Icahn several years ago. Icahn went as far as to name a competing slate of Yahoo directors, after the existing board rejected the Microsoft (MSFT) buyout bid for $33 a share, claiming it didn't appropriately value the company. In the end, Icahn and the struggling Internet pioneer struck a deal whereby Icahn received a board seat and the right to appoint two directors.

    The Chickens Come Home to Roost

    Assuming Yahoo isn't sold before the company's next shareholder meeting, it wouldn't be surprising to see Third Point and Yahoo strike a deal for the hedge fund to gain representation on Yahoo's board. But if Third Point's board representatives don't get a seat at the table on any committee tasked with selling Yahoo or seeking ways to increase shareholder value, Third Point may soon lose interest in the company.

    However, in dealing with PDL BioPharma in 2007, Third Point sought board representation and got it, according to research from FactSet Research Systems.

    On 10-1-2007, the company announced in a press release that its board of directors had decided to actively seek a sale of the company as a whole or of its key assets. The company also announced that Mr. Mark McDade resigned as the company's CEO and director. ... Third Point applauded the board's decision to seek a sale of the company but was disappointment that the sales process was being led by a board that did not include one of its representatives. In light of the company's continuing refusal to give Third Point a board seat to oversee the sales process, it reduced its ownership stake to 5.1%.

    On 11-9-2007, Third Point reported that it had sold its entire ownership stake and no longer had beneficial ownership of the company's shares.

    Third Point a Short-Timer?

    Suppose Third Point does win a Yahoo board seat and the company is still in the strategic review process and exploring its options. If Third Point got shut out of a prized strategic committee seat, that could be enough for it to walk away from its Yahoo stake.

    On the other hand, none of this speculation matters if Yahoo moves forward and finds a buyer before the next shareholder meeting. Don't forget that Yang is still out there. He's no longer encumbered with having to live by a fiduciary duty to recuse himself as a Yahoo board member from any buyout discussions he may wish to participate in. And he has the benefit of historical knowledge of all the various options the company has entertained up until this past week.

    It's not unreasonable, then, to think that Third Point may not be relevant to Yahoo and its investors down the road.

    Motley Fool contributor Dawn Kawamoto owns no stock in the companies mentioned. The Motley Fool owns shares of Microsoft and Yahoo. Motley Fool newsletter services have recommended buying shares of Yahoo and Microsoft and creating a bull call spread position in Microsoft.



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  • 01/20/12--10:00: Elected Insiders: Why the STOCK Act Matters to You (chan 1514216)

    • Filed under: ,

    Getty Imageso. Salary of rank-and-file members of the U.S. Congress: $174,000.
    o. Average annual Civil Service Retirement System benefits for retired members as of 2007: $63,696.
    o. Profits legislators can make by trading on inside information: Priceless    .

    For more than five years, Congress has been looking into alleged conflicts of interest on Capitol Hill, investigating whether its members are trading stocks on "inside information" that they acquire while doing the people's business.

    Four times in that period, lawmakers in the House have introduced the Stop Trading On Congressional Knowledge Act to bar members from investing based on knowledge they gained in the course of their duties.

    Three times, the proposed STOCK Act has died in committee. Will the fourth time be the charm? We'll find out soon when the Senate returns to work and joins the House of Representatives, which went back into session this week.

    Something's Rotten in the District of Columbia

    A lot of people have a lot to lose if this bill becomes law.

    Late last year, 60 Minutes ran a report on the phenomenon of insider trading in Congress. Among the allegations leveled were suggestions that then-House Speaker Nancy Pelosi (D-Calif.) received preferential access to the Visa IPO -- just before the House began considering laws to regulate the credit card industry. The report also suggested that current Speaker John Boehner (R-Ohio) traded health-care stocks in 2009, even as his party was actively fighting a new law to reform health care. Meanwhile, The Wall Street Journal reports that rank-and-file members, and their staffers, were actively shorting U.S. Treasury bond funds in the middle of the financial crisis.

    Two studies conducted by professor Alan Ziobrowski of Georgia State University suggest this problem has been going on for years.

    The original study, published in 2004, found that stock market investments made by U.S. senators outperformed returns on the S&P 500 by 12 percentage points annually. A more recent study of trades made by U.S. representatives found a 6-point outperformance among House members -- less impressive than their senatorial brethren, but equivalent to what you might find among corporate officers trading shares of their own companies' stocks.

    Rep. Louise Slaughter, co-author of the STOCK Act, explains: "If a congressman learns that his committee is about to do something that would affect a company, he can go trade on that because he is not obligated to keep that information confidential." There's no law that explicitly permits this, mind you. But there's no law that forbids it, either.

    Barring censure by the House itself for acting "unethically," there's currently nothing anybody can do about it.

    There Ought To Be a Law

    This, in a nutshell, is why the STOCK Act is important. As matters stand, when you log onto your discount brokerage account and place an order to sell shares of ExxonMobil (XOM), for example, it's entirely possible that the guy buying them from you is a congressman who knows there's an oil and gas industry lobbyist making the rounds on Capitol Hill seeking tax breaks for Exxon. Or you may find yourself buying shares of Google (GOOG) -- from some senator who's working on the Stop Online Piracy Act.

    The chances of this happening are small, to be sure. But just knowing -- or even suspecting -- that when you invest in stocks, you may be playing a rigged game against a government official in the know, could shake confidence in the stock market.

    What America needs, and what Americans deserve, is a level playing field. We need to know that the laws Congress writes apply to them, and not just to us.

    A Bit of Good News

    Now here's the good news: For the first time since the STOCK Act's first introduction five years ago, there's a chance that this law will pass. Bipartisan conflicts among House leaders notwithstanding, the STOCK Act has one advantage working in its favor: tripartisan support.

    And no, that's not a typo. In the Senate, STOCK Act legislation is sponsored by both Republican Scott Brown of Massachusetts, and Democrat Kirsten Gillibrand of New York. Last month, the two senators' bills went into the Homeland Security Committee and came out with support from, among others, Independent Sen. Joe Lieberman of Connecticut. The bill might actually make it to the Senate floor for a vote. And in the House, the STOCK Act has attracted support from both sides of the aisle -- and an astounding 246 co-sponsors -- a 56% majority in its favor, before the bill even comes up for a vote.

    Of course, this still means there are 189 House Representatives who still need convincing. Is your representative one of them? Find out -- and tell them what you think.

    The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google and Visa. Motley Fool contributor Rich Smith does not own shares of any company mentioned above.


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  • 01/23/12--09:00: 6 Growth Stocks from an Investing Master (chan 1514216)

    • Filed under: ,

    StocksBy John Reese, Founder and CEO, Validea.com and Validea Capital Management
    MoneyShow.com

    Generally, my Guru Strategies have a distinct value bias. The majority of these models -- ranging from my Benjamin Graham approach to my Warren Buffett model to my Joseph Piotroski strategy -- are focused on finding good, often beaten-down stocks selling at bargain prices. That is, they target value stocks.

    But that doesn't mean that all of my gurus were cemented on the value side of the growth/value pendulum. In fact, the guru we'll examine today, Martin Zweig, used a methodology that was dominated by earnings-based criteria. He looked at a stock's earnings from a myriad of angles, wanting to ensure that he was getting stocks that had been producing strong growth over the long haul and even better growth recently -- and that their growth was coming from the right sources.

    Zweig's thoroughness paid off. His Zweig Forecast was one of the most highly regarded investment newsletters in the country, ranking number one for risk-adjusted returns during the 15 years that Hulbert Financial Digest monitored it. It produced an impressive 15.9% annualized return during that time.

    Zweig has also managed several mutual funds, and was co-founder of Zweig Dimenna Partners, a multibillion-dollar New York-based firm that has been ranked in the top 15 of Barron's list of the most successful hedge funds.

    Before we delve into Zweig's strategy, a few words about the man himself. While some of the gurus we've looked at in recent Guru Spotlights -- Buffett and John Neff in particular come to mind -- lived modest lifestyles, Zweig put his fortune to use in some pretty fun, flashy ways. He has owned what Forbes reported was the most expensive apartment in New York City, a penthouse atop Manhattan's Pierre Hotel that was at one time valued at more than $70 million.

    He's also an avid collector of a variety of different kinds of memorabilia. The Wall Street Journal has reported that he's owned such one-of-a-kind items as Buddy Holly's guitar, the gun from Dirty Harry, the motorcycle from Easy Rider, and Michael Jordan's jersey from his rookie season with the Chicago Bulls.

    A Serious Strategy

    Zweig may spend his cash on some flashy, fun items, but the strategy he used to compile that cash was a disciplined, methodical approach. His earnings examination of a firm spanned several categories:
    • Trend of Earnings: Earnings should be higher in the current quarter than they were a year ago in the same quarter.
    • Earnings Persistence: Earnings per share should have increased in each year of the past five-year period; EPS should also have grown in each of the past four quarters (vs. the respective year-ago quarters).
    • Long-Term Growth: EPS should be growing by at least 15% over the long term; a growth rate over 30% is exceptional.
    • Earnings Acceleration: EPS growth for the current quarter (vs. the same quarter last year) should be greater than the average growth for the previous three quarters (vs. the respective three quarters from a year ago). EPS growth in the current quarter also should be greater than the long-term growth rate.

    These criteria made sure that Zweig wasn't getting in late on a stock that had great long-term growth numbers, but which was coming to the end of its growth run.

    While Zweig's EPS focus certainly puts him on the "growth" side of the growth/value spectrum, his approach was by no means a growth-at-all-costs strategy. Like all of the gurus I follow, he included a key value-based component in his method.

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    He made sure that a stock's price-to-earnings ratio was no greater than three times the market average, and no greater than 43, regardless of what the market average was. (He also didn't like stocks with P/Es less than 5, because they could be indicative of an outright dog that investors were wisely avoiding.)

    In addition, Zweig wanted to know that a firm's earnings growth was sustainable over the long haul. And that meant that the growth was coming primarily from sales -- not cost-cutting or other non-sales measures. My Zweig model requires a firm's revenue growth to be at least 85% of EPS growth. If a stock fails that test but its revenues are growing by at least 30% a year, it passes, however, since that is still a very strong revenue growth rate.

    Like earnings growth, Zweig believed sales growth should be increasing. My model thus requires that a stock's sales growth for the most recent quarter (vs. the year-ago quarter) to be greater than the previous quarter's sales growth rate (vs. the year-ago quarter).

    Finally, Zweig also wanted to makes sure a firm's growth wasn't driven by unsustainable amounts of leverage (a key observation given all that's happened recently). Realizing that different industries require different debt loads, he looked for stocks whose debt/equity ratios were lower than their industry average.

    Buffalo wild wingsLast year, the Zweig portfolio posted positive returns (1.7%) while the S&P was flat. The model tends to choose stocks from a variety of areas. Here are some of the portfolio's current holdings:
    • Buffalo Wild Wings (BWLD)
    • Cash America International, Inc. (CSH)
    • Discover Financial Services (DFS)
    • Synovis Life Technologies, Inc. (SYNO)
    • Altisource Portfolio Solutions S.A. (ASPS)
    • American Public Education, Inc. (APEI)


    As you might expect with a growth strategy, the Zweig portfolio tends not to hold on to stocks for a long time. Usually it will hold a stock for a few months, though it is not averse to longer periods if the stock continues to be a prospect for more growth.

    What I really like about the Zweig strategy is that, while it certainly would qualify as a growth approach, it doesn't look at growth in a vacuum. As you've seen, it examines earnings growth from a variety of angles, making sure that it is strong, improving, and sustainable.

    In doing so, it allows you to find some fast-growing growth stocks that are not paper tigers, but instead solid prospects for continued long-term success.


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  • 01/23/12--10:15: Battle of the Athletic Gear Makers: Nike vs. Under Armour vs. Lululemon (chan 1514216)

    • Filed under: ,

    AthleticBy Will Ashworth, InvestorPlace Contributor


    OK -- without looking at a chart, guess which company's stock is nearest its all-time high:

    1. Under Armour (UA)
    2. Nike (NKE)
    3. Lululemon (LULU)

    If your guess was Nike, you'd be right. The global footwear and apparel giant is within a dollar of its all-time high of $101.97. But Lululemon and Under Armour are within 6.8% and 16.5% of their all-time highs, respectively, as well.

    It's a sporting trio if I ever saw one. The question now is whether one or more of them can keep the surge going. Rather than pick an outright winner, let's look at the pros and cons of each, and you can make up your mind from there.

    Under Armour

    Business is good for the Maryland company. In late October, it raised its 2011 outlook for net revenues and operating income. On January 26, we'll likely see that it increased revenues in the past year by at least 37%, to $1.46 billion, and operating income by at least 42%, to $159 million. These are definitely solid numbers.

    A couple of things stand out in its 2011 performance: Apparel sales will likely hit the $1 billion mark for the first time in the company's history, and its accessories business is booming, with $95.6 million in revenue for the first nine months of 2011, an increase of 228.2%. It should be noted that this big jump is due to bringing the accessories business in-house as of January 1, 2011. Doing this boosted the accessories unit's gross margin, which is now higher than footwear's, making accessories an equally important part of the company's overall business strategy.

    The cons? There are three concerns: First is that markdowns of Under Armour's products seem to be cropping up at Dick's Sporting Goods (DKS) and Sports Authority as well as online and at the company's own stores. Inventory levels are rising as UA explores new sales channels. Markdowns mean lower margins. With a high earnings multiple on the stock, anything less than flat margins in the fourth-quarter results could mean a big hit to the share price.

    Second: The company lacks a presence beyond North America. For the first nine months of 2011, UA's international revenues were just $63.4 million, or 5.9% of sales. If it ever wants to challenge Nike, it will have to pick up the pace globally.

    Third: Since the end of fiscal 2008, UA hasn't released a separate figure for women's apparel sales versus men's. This decision could have been made for many reasons, but you have to wonder why the company would do that if the women's business were flourishing. If UA wants to be an international success, it will have to pull up its socks in the women's market.

    Nike

    While speaking at the product launch of Nike's FuelBand, which measures your wrist movement and overall activity, CEO Mark Parker indicated that Nike isn't seeing a slowdown in any of its biggest markets. Fighting higher input costs with price increases, Parker expects incremental gross margin increases for the next several quarters into fiscal 2013. Nike has maintained consistently high margins over the years - both gross margins and operating margins. Since 2003, its gross margins have always been higher than 40%, and only once did operating margins drop below 10%.

    Consistent margins translate into consistent profits. Investors can rest easy knowing that the Portland powerhouse will produce the goods. Since Nike does business globally, it's always interesting to see where it's going next. China continues to be a big priority for the company, with sales rising 35% in the second quarter, ended November 30, and now represent 11% of Nike's overall sales. Considering that most of the world's population growth, not to mention growth of the middle class, is happening in Asia, Nike's numbers there will continue to grow for years to come.

    My first concern with Nike is opposite of that for Under Armour in that Nike's footwear business, which has lower margins than apparel, represents 64% of overall revenues. That's not quite the imbalance found at Under Armour, but if Nike could move that closer to 50/50, its bottom line would look that much sweeter.

    Second, there's the Phil factor. What happens after Phil Knight retires? Even though Mark Parker is in charge now, Knight is still chairman and founder. Does the culture remain once he's no longer around? It's impossible to answer this, but it's a concern nonetheless. Frankly, it's tough to pinpoint any real weakness in Nike's business.

    Lululemon

    This is the new kid on the block. Lululemon went public in July 2007 at a split-adjusted price of $9 a share. Since its IPO, the stock is up 568%, versus 92% for Nike and 44% for Under Armour. The company is most associated with yoga wear is doing a good job of expanding beyond its original market. Running apparel now accounts for one-fifth Lululemon's overall sales, and cycling apparel looks to be the company's next target.

    While Lululemon designs great products, its retail stores are what drives its business. In the third quarter, ended October 31, 2011, same-store sales increased by 16% on a constant dollar basis. More impressive is that sales per square foot were $1,880 -- higher than any other retailer in North America, with the possible exception of Tiffany & Co. (TIF).

    Sponsored Links
    Although Canada is likely nearly saturated, with 45 stores, the U.S. has just 106. Since America's population is 10 times Canada's, there's no telling where the expansion ends. That's a good problem to have, especially with the kind of sales numbers each store generates. Finally, Lululemon now has five Ivviva stores in Canada, which cater to kids aged 6 to 12. Some suggest the U.S. could support as many as 50 of these stores. I suspect that number is conservative.

    It's hard to argue with a brand that's been this successful. However, the biggest concern with Lululemon is growing too quickly and losing control of its business. You don't generate $1,880 in sales per square foot without enthusiastic brand evangelists. Getting sloppy and simply slapping up stores without paying attention to customer service and product quality will do nothing but turn off the faithful.

    That's something Lululemon has already faced in recent quarters as it deals with inventory issues. At different times in the past year, the company has had both inventory shortages and excesses as it tries to find the perfect balance. It likely never will.

    The other issue, which all three of these companies face, is an imbalance in sales between the sexes. In Lululemon's case, it's a matter of not attracting enough male customers. But if that's the worst problem the company has, it's very lucky indeed.

    The bottom line: All three of these companies have bright futures. Interestingly, each has high insider ownership. Is this a coincidence? I doubt it.

    As of this writing, the author did not own a position in any of the stocks named here.

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  • 01/23/12--11:40: What to Watch This Week: Trains, Baby Formula, iPhones, Netflix, and Lattes (chan 1514216)

    • Filed under: , , , , , ,

    CSX trainsThere's never a dull moment on Wall Street, especially now that 2012 is tossing us into its first earnings season. Let's go over some of the items that will help shape the week that lies ahead.

    1. I've been working on the railroad: It's hard to get investors excited about railway operators. Even in a friendly game of Monopoly, who gets excited about owning the four railroads?

    However, the shortcomings of consumer rail aside, the railroads remain a cost effective way to move bulky goods around the country.

    Investors will get a great snapshot of Dagny Taggart's throwback industry as CSX (CSX), Kansas City Southern (KSU), and Norfolk Southern (NSC) all report their latest quarterly results early in the week.

    Don't laugh. There's a reason why Warren Buffett made a big bet on rail in acquiring Burlington Northern Santa Fe a couple of years ago. All three rail companies are expected to post healthy gains in profitability.

    2. Raising a baby has no instant formula: Mead Johnson Nutrition (MJN) received the worst news possible for an infant formula maker last month: A 10-day-old baby had died from a bacterial infection, and the only thing that he had been ingesting was the company's Enfamil Premium Newborn formula.

    Mead Johnson Nutrition's name was cleared a week later when tests conducted by the Food and Drug Administration showed that Enfamil did not cause the newborn's death.

    This doesn't mean that it's return to business as usual for the company. Even though the stores that initially pulled the product from its shelves are back on board, consumers make take longer to be convinced.

    We'll hear more from Mead Johnson Nutrition on the subject when the company reports on Thursday. Its actual numbers won't shed much light on the situation: The unfortunate event broke toward the end of the reporting period. However, the company should talk about how shipment trends are going so far this month.

    3. Apple jacked: Three months ago, Apple (AAPL) stunned investors with a rare quarterly miss on the bottom line.
    In its second quarterly report since Steve Jobs' untimely passing, the world's most valuable tech company will get a chance to prove that its fiscal fourth quarter slip was merely a fluke.

    Analysts generally have been raising their iPhone targets, but lowering their iPad forecasts. The onslaught of $199 Kindle Fire tablets, as well as other manufacturers dumping their poor-selling tablets, has made Apple's once seemingly cheap $500 entry-level iPad one of the market's pricier offerings.

    Apple's new digital textbook initiative may help spike iPad sales in 2012, but will that come at the expense of making the iconic tablet seem less cool?

    4. Streaming our lives away: Netflix (NFLX) went from being one of Wall Street's biggest dogs two months ago to being one of the hottest investments.

    Shares of Netflix have soared 55% since December, fueled primarily by the strong streaming trends that the video giant announced earlier this month. Rolling out in the U.K. and Ireland earlier this month also helped encourage skeptics into giving the company a second chance.

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    Sure, we all hated the Qwikster fiasco and the summertime price hike. Netflix has already braced investors to expect rocky, near-term results. Just three months ago, analysts figured that Netflix would earn $1.09 a share for its final quarter of 2011. Now those same pros see a profit of $0.55 a share. If you think that's bad, Netflix has warned of outright losses for all of 2012.

    Wednesday's report will either help soothe or confirm investors' fears that Netflix will continue to shed subscribers, after losing 800,000 domestic subscribers during the hectic third quarter.

    We have all of the prime plot elements that make many of the movies Netflix rents out so captivating. Now it's time to see where its most recent cliffhanger leaves us.

    5. Java junkies on parade: Two of the country's busiest barista barons -- Starbucks (SBUX) and McDonald's (MCD) -- report this week.

    Did somebody say McDonald's?

    Yes. Starbucks loyalists may cringe at the iced caramel mocha that the Golden Arches offers for pocket change, but it's clear that the McCafe makeover at McDonald's has made it cheaper, and typically more convenient, to enjoy specialty coffee drinks.

    Besides, Starbucks investors already know that McDonald's isn't killing Starbucks. Both companies have been sporting healthy growth on solid comps since the McCafe initiative took off two years ago. If anything, McDonald's may be educating future Starbucks customers on the joys of upgraded java.

    Both caffeinated reports are coming, though McDonald's numbers will naturally come with a dipping cup of honey mustard for those McNuggets you ordered.

    Longtime Motley Fool contributor Rick Munarriz does not owns shares in any of the stocks in this article, except for Netflix. The Motley Fool owns shares of Starbucks and Apple. Motley Fool newsletter services have recommended buying shares of Starbucks, Apple, Netflix, and McDonald's.




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  • 01/24/12--09:45: How to Heat Your Home for Free (or Profit) This Winter (chan 1514216)

    • Filed under: , , , , , ,

    Home heating oil pricesBy Joe Mont, TheStreet.com

    Investing doesn't just have to be about increasing wealth. It can also be a means to preserve it.

    Successful investors -- from speculative day traders to steadier 401(k) participants, for example -- will adjust their holdings to craft a portfolio capable of meeting or beating the rate of inflation. With the price of home heating oil on the rise, and likely to keep increasing due to global politics, now might be a good time for investors to place a bet on the price per barrel to hedge against the costs of staying warm this winter. As they say: "If you can't beat 'em, join 'em."

    According to the U.S. Energy Information Administration, the mild winter thus far in the Northeast, where there is the highest concentration of oil-heated homes, has mitigated some expected cost increases.

    The typical household is projected to use about 650 gallons of heating oil this winter, a decrease of about 4% compared with last winter. The cost per gallon will increase, however, averaging about $3.82 a gallon -- up about 13%, according to EIA estimates issued last week. The average home heating bill will total about $2,500 this year, an increase of roughly 8.4%. The good news, thanks to warmer-than-expected weather, is that the EIA initially estimated a 10% jump last month.

    Those projections could prove to be moving targets later in the season due to a variety of threats to the world's oil supply chain.

    On Monday, the European Union voted to support U.S. calls for a ban on imports of Iranian oil as punitive persuasion to get that nation to back away from an effort to develop nuclear weapons. Iranian officials have threatened to blockade the Straits of Hormuz, the oceanic shipping route for most oil-producing countries in that region.

    "If the Straits of Hormuz close, oil will rise above $200 per barrel," warns Chris Faulkner, CEO of Breitling Oil & Gas, an independent exploration and production company based in Irving, Texas. "It is the one bottleneck that allows Iran to choke the West's oil supply."

    Seventeen million barrels of oil per day passed through the Straits last year, according to the U.S. Energy Information Agency -- approximately one-sixth of global oil production and nearly 20% of all the oil traded worldwide. Iran itself exports between 2.2 million to 2.5 million barrels a day.

    Iran isn't the only hot spot that could lead to tightened supplies and higher prices. Political conflict in Nigeria threatens its output of 2.5 million barrels a day. Tensions between Sudan and the newly independent nation of South Sudan over oil-related transit fees could curtail the nearly 500,000 barrels per day that flows from that area.

    Domestically, it remains to be seen whether there will be any price-related pushback to President Barack Obama's refusal to grant a permit for the politically charged Keystone XL pipeline expansion pitched as running from Canada through Montana and Oklahoma to refineries in Texas for export.

    Hedge Your Home Heating Bill with Energy Stocks

    All that volatility may not necessarily be terrible news from an investing standpoint, especially if your goal is to mitigate that 8.4% price increase for heating your home this winter by betting on companies in the oil business that profit while consumers get hit.

    The big oil companies of the world -- ExxonMobil (XOM), BP (BP), Chevron (CVX), ConocoPhilips (COP), Occidental Petroleum (OXY), Devon Energy (DVN), Chesapeake Energy (CHK) and Anadarko Petroleum (APC) -- are well-positioned to benefit when the global commodities marketplace inflates crude prices.

    For example, in October, ExxonMobil announced that its quarterly profit of $10.3 billion was up 41% from a year earlier, in part due to rising crude prices. In April, the company's Q1 earnings spiked 69%.

    Investing in the top oil companies will also net you a dividend yield that typically ranges between 2% and 4%.

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    If these individual stocks are too pricey for your budget, you may want to seek out mutual funds that include some of these top companies among their heavily weighted holdings.

    Supply disruptions overseas -- even in the short term -- increase demand for alternative sources, which is good news for companies focused on drilling and exploration. Anadarko, for example, has oilfields in several U.S. States and, further North, Canada's vast oil sands could be a continued boon for Suncor Energy (SU).

    North Dakota and Montana are home to "The Bakken," a formation of shale covering about 200,000 square miles that is estimated by the U.S. Geological Survey to have as much as 4.3 billion barrels of potentially recoverable crude. Among the companies working to extract that oil are Continental Resources (CLR), Hess (HES), Oasis Petroleum (OAS), Kodiak Oil & Gas (KOG), Northern Oil & Gas (NOG), MDU Resources Group (HEW), EOG Resources (EOG), Whiting Petroleum (WLL) and Marathon Oil.

    Pipeline owners such a Constellation Energy (CEG) may also their stock price rise in concert with oil prices, as could Schlumberger (SLB), the world's largest oilfield services company.

    Oil refineries feel the pinch of rising costs per barrel as their costs to buy oil go up even as demand for their finished product drops. Offshore drilling companies such as Transocean (RIG) -- despite the Deepwater Horizon disaster -- and SeaDrill Limited (SDRL) are key players in that arena.

    It Doesn't Have to Be Complicated

    The simplest way to hedge against oil inflation for most Main Street investors is to consider ETFs designed with that very goal in mind.

    In its prospectus, United States Heating Oil Fund (UHN) is described as "a way for investors and hedgers to manage their exposure to energy" and an ETF "designed to track in percentage terms the movements of heating oil prices." Year to date, the fund is up 5.6%, and it saw a return of 15.64% for a one-year period.

    The United States Oil Fund (USO) is designed to track the price movements of light, sweet crude oil. Unfortunately its returns have been far from stellar, down approximately 21% so far this year and at -54.5% since its inception in 2006.

    Other funds worth investigating are the iPath S&P GSCI Crude Oil TR Index ETN (OIL), SPDR S&P Oil & Gas Exploration & Production ETF (XOP) -- which has a three-year return of over 22% -- SPDR Oil & Gas Equipment & Services Fund (XES) and the PowerShares DB Crude Oil Long ETN (OLO) -- up a slight 0.14% for the year.


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  • 01/24/12--10:00: Hating These Companies Can Be Hazardous to Your Wealth (chan 1514216)

    • Filed under:

    Sealy MattressSome bears never hibernate -- we're talking about the worrywarts out there, betting against companies by initiating short positions.

    In a nutshell, a short is an investment that appreciates when a stock heads lower. Bears will short a stock by selling shares borrowed from their broker. They then cover their positions by buying them back, ideally at lower prices so they can make some money. Selling first and buying later -- reversing the traditional order -- may be frowned upon by some investors, but it's a perfectly legal practice.

    It's also very popular in volatile times.

    Short People

    Unfortunately for shorts, betting against a company can backfire on them. If the stock ticks higher on good news or general market optimism, those betting against the stock may find themselves scrambling to cover their short positions before they lose even more money. When too many shorts are rushing for the exits, the act of purchasing the stock to close out their positions creates what we call a short squeeze.

    Here's where something called the short interest ratio should be every worrywart's friend. The metric divides the number of shares sold short by the trading volume on a typical trading day. The larger the short interest ratio, the more likely that we'll see a short squeeze because of the spike in demand for buy orders.

    5 Companies That Would Be Dangerous to Diss

    Let's take a look at a few of the stocks with the highest short interest ratios as of the end of last month, making them dangerous to bet against unless a bear is absolutely sure about where the company's stock is heading.

    o. Sealy (ZZ): Short interest ratio of 75 days (13 million shares short on 172,976 daily volume)

    The story: The leading mattress maker has been tossing and turning at night. Sealy stunned the market by posting a sharp loss in its latest quarter when analysts were braced for a small profit. One analyst downgraded the stock on the "distressingly disappointing" showing.

    What can go wrong for shorts: Despite the success of rivals making premium form-fitting and air-chambered mattresses, Sealy still has many popular brands in its portfolio. Analysts also see a return to slight profitability this fiscal year.

    o. MannKind (MNKD): Short interest ratio of 39 days (27.1 million shares short on 692,640 daily volume)

    The story: Diabetics were cheering on MannKind as the company was trying to push an inhaled insulin called Afrezza toward regulatory approval. No more insulin needles? Sweet! Well, not so sweet. The Food and Drug Administration failed to clear the treatment, leaving MannKind with mounting losses as it bleeds through its cash.

    What can go wrong for shorts: MannKind already shed two-thirds of its value last year, so it's not as if bears are new to this story. There have also been several acquisitions in the pharmaceuticals industry lately, as larger drugmakers snap up promising biotechs. MannKind may seem to be an unlikely buyout candidate, but anything is possible.

    o. Logitech (LOGI): Short interest ratio of 28 days (12 million shares short on 422,895 shares)

    The story: Logitech is a major maker of third-party hardware accessories for computers. If you have an optical mouse or a detachable webcam that didn't come packaged with your original computer, you may very well own a Logitech device. Unfortunately, the success of smartphones and tablets that don't require third-party hardware accessories are eating into Logitech's performance.

    What can go wrong for shorts: PC and laptop sales were sluggish last year, but this is far from a dead market. Logitech has also embraced the "good enough" computing trend by rolling out new accessories for tablets and mobile phones.

    o. Tesla Motors (TSLA): Short interest ratio of 28 days (23.7 million shares short on 851,090 daily volume)

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    The story: The original Tesla Roadster turned heads, but didn't attract enough buyers, given its lofty sticker price. The plan to roll out more affordable Model S sedans -- starting at $50,000 -- later this year is encouraging, but now that we've seen Chevy Volt batteries catch on fire days after a collision, electric cars have an even steeper uphill climb.

    What can go wrong for the shorts: Once the Model S hits the road at a price point that isn't much more than the Volt or other electrics and electric hybrids, its visibility may prove to be contagious. Tesla is nowhere near profitability at the moment, but a growing presence will help see it through, if not smoke out a major car manufacturer as an outright buyer.

    o. GameStop (GME): Short interest ratio of 24 days (39.8 million shares short on 1.7 million daily volume)

    The story: Video game sales have been languishing since 2009, and console makers updating their systems may not attract casual gamers who are killing time elsewhere. Every passing quarter over the past year has seen the small-box video game retailer hosing down its guidance for store-level sales. Digital delivery is another threat, rendering physical distributors obsolete.

    What can go wrong for the shorts: GameStop has held up better than the industry itself. Strong customer loyalty and a wildly successful program where gamers trade in used games and gear for store credit have kept GameStop's profitability growing at a time when the niche is going the wrong way. The long-term outlook is gloomy for GameStop, but the stock appears cheap in the near term.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Logitech International and GameStop. Motley Fool newsletter services have recommended buying shares of Tesla Motors and Logitech International, as well as writing covered calls in GameStop.




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  • 01/24/12--14:01: Off the RIM: The Worst Co-CEOs of 2011 Step Down (chan 1514216)

    • Filed under: , , ,

    The two-headed beast at the helm of Research In Motion (RIMM) has been vanquished.

    The BlackBerry maker's maligned co-CEOS Jim Balsillie and Mike Lazaridis are stepping down. CEO Thorsten Heins is taking the reins. RIM's stock fell sharply on the news, but it's not as if the market is lamenting the loss of Balsillie and Lazaridis.

    The smartphone pioneer's co-CEOs were at the top of many "Worst CEOs of 2011" lists thanks to the company's struggles to keep pace with the booming popularity of wireless gadgetry powered by Apple's (AAPL) iOS and Google's (GOOG) Android.

    But as far as changes at the top are concerned, the market simply wasn't impressed because Heins is an insider. He's been at the company for a few years. Mirroring the dual CEO structure, he was one of two co-COOs at RIM.

    The stock shed more than 8% of its value on Monday because investors felt that Heins is too close to the problem to find a solution. Those hoping for a radical makeover at RIM were naturally let down, especially after Heins' first comments as the Canadian company's new chieftain were basically to downplay the its shortcomings and argue that he's not inheriting a turnaround situation.

    The Basket's Open But the Ball RIMs out

    Bulls may argue that Heins is right. How can RIM be broken when it closed out its most recent quarter with a record 75 million BlackBerry owners? Sure, the company is losing gobs of market share to Android and iPhones, but the pie is clearly growing.

    The one encouraging thing that Heins did this week is to say that his first move will be to bring in fresh minds on the marketing end. RIM isn't dead or dying, and he wants that message to get out there more effectively than it is now.

    However, life isn't going to get any easier for RIM. The same corporate IT decision makers who always swore by BlackBerry as a secure and efficient platform for their companies have been talked into embracing the two consumer operating systems of choice. Nokia (NOK) is also in the process of releasing its first wave of phones powered by Windows Phone -- and IT departments have longer working relationships with Microsoft (MSFT) than they do with RIM.

    This is a turnaround attempt, whether Heins concedes the point publicly or not.

    Kicking the 'Co-' Habit

    Because RIM has been a huge disappointment for investors over the past year, some may question whether having two CEOs got in the way of the company making the changes necessary to make it relevant again. Few similar dual leadership structures have been successful.

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    Sometimes it's hard to take the setup seriously. When IMAX (IMAX) had two CEOs, they would literally both be given attribution to the same quotes in corporate press releases. Even if we all know that CEO quotes in press releases are typically the handiwork of crafty corporate communication departments (which then get CEOs to approve the spin-doctored quotes), it just felt silly to read a quote attributed to two executives as if they were saying it in unison.

    IMAX held up reasonably well during its dual CEO tenure, but RIM is cautionary tale for companies that are so unsure about who they want at the helm or so fear losing or offending a senior executive that they end up splitting the CEO position.

    Having a single CEO is the way to go. It encourages accountability. It sends a clear message. A CEO can wear many hats, but two CEOs should never have to share one.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Google, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, Google, and IMAX. Motley Fool newsletter services have recommended creating a bull call spread positions in Apple and Microsoft.



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  • 01/25/12--03:30: Why Does Wall Street Hate AutoNation? (chan 1514216)

    • Filed under: ,

    Auto Nation"If you have nothing nice to say, don't say anything at all," is a mantra that's alive and well on Wall Street. Analysts prefer to cover stocks where their sentiment is bullish. Google (GOOG), for example, is a market darling. A full 34 of the 38 major firms with published analysis on the search giant give it a "buy" or "strong buy" rating. This series looks at the few stocks where Wall Street is generally bearish on a company's prospects.

    We have always had a fascination with cars in this country. We still love many of the car manufacturers. Unfortunately, analysts don't seem to have a whole lot of love for the country's leading auto showroom operator.

    Wall Street isn't keen on AutoNation (AN). Of the 14 established analysts tracking the stock, not a single firm has a "buy" or "strong buy" rating on the company. Nine analysts have "hold" ratings, and that neutral call isn't as encouraging as it sounds. The other five have negative "underperform" or "sell" ratings on the company.

    Revving the Engine

    AutoNation is huge. The company watches over 258 new vehicle showrooms, selling 32 car brands across 15 states. And there doesn't seem to be anything wrong with AutoNation on the surface.

    The company has beaten Wall Street's profit targets in each of its four past quarters. These same skeptical analysts see earnings climbing 11% to $2.12 a share this new year, pegging revenue to climb 7% to a healthy $14.6 billion.

    Nor is auto retailer losing any steam. It posted an 11% spike in new vehicle sales last month relative to December 2010. AutoNation handed keys to 24,342 drivers last month. In welcome news to Ford (F) and General Motors (GM), AutoNation's domestic car sales climbed 17% and import brands were flat. There was a 32% surge in the premium luxury category, suggesting that the pent-up demand for that new car smell during the economic downturn is finally starting to kick in.

    There are some -- but not many -- potholes ahead.

    Not Exactly Paradise by the Dashboard Light

    One of the reasons domestics have thrived at the expense of imports is that the tsunami and earthquake that tore through Japan last year temporarily shut down many of its plants and parts manufacturers.

    Production is ramping up again on that front, and in October, AutoNation said that the showroom operator will be welcoming in roughly 30,000 Japanese imports that it will have to sell at lower profit margins.

    Selling cars is a cyclical business, though potential buyers naturally are thrown for a loop when Toyotas have accelerator problems and Chevy Volt batteries catch fire several days after serious accidents.

    If the economic recovery is starting to rear its head, the big-ticket luxury of automobiles would seem to be a natural beneficiary. However, even bearish analysts aren't disputing AutoNation's pole position here. Some pros are simply turned off by the valuations.

    Haggling on Price

    When Wells Fargo downgraded shares of AutoNation this summer -- from the neutral "market perform" to the bearish "underperform" -- the analyst was concerned about AutoNation's valuation.

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    AutoNation was trading at a 50% premium to publicly traded peers including Group 1 (GPI) and Penske (PAG), compared to its historical average of 16%.

    The analyst had a point. AutoNation's stock had doubled over the past year to hit $40 at the time of the downgrade. The shares are down to the mid-$30s now, though still well above Wells Fargo's valuation range of $29 to $31.

    A few months later, Bank of America followed Wells Fargo in downgrading AutoNation from "neutral" to "underperform." However, Bank of America's revision was based on the theory that domestic auto sales would be declining over the next few quarters. AutoNation's report -- and metrics out of Ford and GM -- offer a more encouraging prognosis.

    The Antilock Brakes Are Kicking In

    The original valuation argument against AutoNation remains.

    The auto giant is fetching 17 times the $2.12 a share that analysts are projecting for 2012. That's a steep price when Penske and Group 1 Automotive are fetching multiples of 12 and 13, respectively.

    It's a valid argument. AutoNation may have some advantages as the bigger player, but Penske is no slouch, with Wall Street forecasting $12.5 billion in sales. Group 1 is generating roughly half the revenue of AutoNation and Penske, but it's also growing slightly faster than its two larger rivals.

    AutoNation isn't a bad company, it's just a bad stock relative to the available alternatives. Wall Street seems to see it that way, at least, and the numbers bear the argument out.

    Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Ford. The Motley Fool owns shares of Google and Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors, Ford Motor, and Google. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor.

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