Archives for April 2012

April 2012 - Page 4 of 13 - Money Morning - Only the News You Can Profit From

Profit Falls Ahead of Facebook IPO - Will Investor Interest Follow?

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Is this the first sign of trouble for the Facebook IPO?

The social media giant, now in the final weeks before its long awaited IPO filing, announced Monday that first-quarter profit and revenue has slipped since the end of 2011.

Facebook (Nasdaq: FB) disclosed in a regulatory filing that profit fell 32% from the previous quarter to $205 million. Revenue dropped 6% to $1.06 billion. Sales were up 45% — slower than the 55% sales growth in the last quarter.

Expenses surged on costs related to data center building and workforce growth as the company manages its increasing subscriber base that's climbed to 901 million users worldwide. Expenses soared to $677 million – nearly double what they were a year ago.

Facebook also blamed the drop on "seasonal trends" in advertising and user growth in regions that bring in less revenue per subscriber.

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U.S. Economy: What to Expect for Q1 GDP

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Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business' Stuart Varney to talk about Q1 GDP numbers due out Friday. The U.S. economy likely slowed in the first quarter, meaning investors should look to preserve their portfolios. Fitz-Gerald details what investors should look for in the global economy and which sectors he's looking at […]

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Cirrus Logic (NASDAQ: CRUS) Zeroes in on the $1 Billion LED Market

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The biggest question facing Cirrus Logic (NASDAQ: CRUS) is: now what?

For Cirrus CEO Jason Rhode the answer is found in what will become a $1 billion industry by the end of this decade. According to Rhode, he's found his next big breakout.

It's a digital controller that allows users to dim or brighten their LED lights.

Now, I know some of you may still have strong doubts about the LED market given the drubbing those stocks took about 18 months ago.

In fact, I was right there with you.

At first glance, I was ready to write off Cirrus Logic's move into the LED space as being just plain stupid.

But the more I looked into it, the more I saw how shrewd this move really is.

Today, LEDs have the backing of the major car companies, outdoor advertising firms, the green lobby and the FBI…

Tomorrow, LEDs will become a light source for the masses.

Sales of LED lights are already picking up, and Cirrus is perfectly positioned to benefit since it doesn't need to spend much on new gear to make the control units.

It just has to tweak its existing devices to make LEDs operate with nearly every dimmer switch made in the world.

As for Rhode, the fact that LEDs cost several times more than standard bulbs doesn't worry him in the least.

The Cirrus LED Game Plan

In this case, he's just taking a page from his Apple play book.

Cirrus already makes audio processors used by Apple Inc. (NASDAQ: AAPL). You can find them in Apple's mobile devices: the iPod, iPhone and iPad.

Those are some of the hottest products ever invented. We're talking sales of five million iPhones alone per month for several months in a row in the past year.

For Cirrus that's a tough act to follow.

Yet, Rhode is already talking sales of at least five million LED controllers by the end of this year.

It sounds ambitious. But here's the logic…

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Investing in Bonds: How to Build a Bond Ladder

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With interest rates at near-record low levels it appears that the only way for rates to go is up.

As the U.S. economy moderately strengthens, that means the bond bubble will begin to leak. Even darker, the bubble might just burst altogether.

The prospect of yet another bursting bubble makes investing in bonds difficult. The same is true for stocks.

After all, stocks tend to underperform when rates head north, while gold will certainly drop back once interest rates begin to rise ahead of inflation (which may take a considerable time.)

However, there is one strategy that enables you to prosper even in this tough environment.

It is called the bond ladder. It works like this…

Bond investing in a rising rate environment can be a terrific way to lose money.

If you buy short-term bonds, the yields may well be less than inflation, causing you to lose money in real terms.

And if you invest in long-term bonds, your immediate yield will generally be higher, but you run a large risk of losing part of your principal as rates rise and bond prices decline.

These losses can be a large multiple of your interest payments.

For example, if 30-year bond yields rise from their current 3.11% to 5.11% over the next year, your principal loss on a 30-year T-bond will be $30 on every $100, far more than the $3.11 you will have received in interest.

Of course, if you hold the bond for the next 29 years you will get your principal back at maturity.

But meanwhile you will have spent 30 years locked into an investment at interest rates below the market, and probably below the level of inflation. Not a wise choice.

Investing in Bonds: Building a Bond Ladder

The problem of investing in bonds then is one of reinvestment. You really don't know at what rate you will be able to reinvest your money when the time comes.

This problem is solved by buying bonds in a range of maturities, from short to long, and reinvesting the proceeds of each investment as it comes due.

For example, you could invest 10% of your money in each Treasury bond maturity from 1 to 10 years.

Then when the first bond came due in year 1, you would reinvest the proceeds in a 10-year bond, so you would again have 10 equal bond investments coming due in years 2 through 11.

Here's a concrete example.

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Don't Be Surprised by Apple Inc.'s (Nasdaq: AAPL) Q2 Earnings

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Following its extraordinary beat last quarter, expectations for Apple Inc.'s (NASDAQ: AAPL) earnings are even higher than usual.

With Apple having such an outsized influence on the markets, even investors who don't hold the stock will be watching for Apple's Q2 earnings report after the closing bell today (Tuesday).

Still, with its stock having tumbled 11% in the past two weeks, from its peak of $640 April 10, Apple needs to beat Wall Street expectations.

If Apple earnings disappoint — as occurred in the September quarter last year — the stock will get beaten down even further. Such negative news would push the stock toward $500.

The consensus estimates for Apple's Q2 earnings are $9.99 per share on revenue of $36.6 billion, which most analysts believe is achievable.

In fact, just in the past week several analysts, such as Shaw Wu of Sterne Agee and Bill Shope of Goldman Sachs, again raised their estimates for iPhone and iPad sales.

However, Money Morning Chief Investing Strategist Keith Fitz-Gerald isn't so sure.

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Why Nestle Paid $11.9 Billion for Pfizer (NYSE: PFE) Baby Food

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Nestl'e SA, the world's largest food maker, has agreed to acquire Pfizer Inc.'s (NYSE: PFE) baby food business for a hefty $11.9 billion.

Nestl'e outbid potential rivals like Danone SA and Mead Johnson Nutrition Co. (NYSE: MJN).

Chris Hogg, a spokesperson for Switzerland-based Nestle, said the company will be funded entirely through debt, "namely through internal cash resources and through the bond markets."

In a statement, Nestle CEO Paul Bulcke said, "Pfizer Nutrition is an excellent strategic fit and this acquisition underlines our commitment to be the world's leading nutrition, health and wellness company. Its strong brands and product portfolio, together with its geographic presence will compliment our existing infant nutrition business perfectly."

Nearly $12 billion for baby food sounds steep – that's nearly 20 times earnings before interest, tax, depreciation and amortization (EBITDA). Most analysts expected the deal to top out at $10 billion, according to The Wall Street Journal.

But Bulcke tried to assure investors that this was a growth move aimed at getting ahead of the game and snagging a leadership role in a market that will drive the company's earnings for years.

"At first look [Nestle's acquisition] is expensive, no doubt," Patrik Schwendimann, an analyst at Zuercher Kantonalbank, told The Journal. "On the other hand, the Pfizer deal is attractive for Nestl'e in the long term. Its exposure to emerging markets is higher than expected, which is attractive, and the margins are also higher than expected."

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Investing in the “New China” with this Telecom Market Stock

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How would you like to get in on the ground floor of the telecom market in a country I've dubbed the "New China"?

It's a country that boasts:

  • 6% annual GDP growth before, after and during and the global economic meltdown.
  • The fourth largest population on the planet. It is also one of the youngest (median age is 28).
  • A centuries-long social and economic connection to China and every strategic Southeast Asian economy.
  • Foreign Direct Investment that has grown exponentially in the teeth of the global crisis.
  • A bigger economy than the Netherlands or Turkey.

I'm talking about Indonesia.

It's a place usually found in the back of the mind of most Western investors. It only crops up if there is an earthquake, a tsunami or political unrest in a far flung province.

But the truth is, Indonesia is nestled in one of the most strategic locations on the emerging market map. It neighbors India, Malaysia, Australia and Thailand.

It also has long historical and economic ties to China.

About 3%-4% of the population is Chinese/Indonesian, and they represent a powerful but quiet voice in the Indonesian economy. That influence, which was buried for many years, is now a highly prized asset.

Investing in the "New China"

From the 1970s until recently, Chinese influence in Indonesian society was largely muted by Indonesian politicians. The Chinese language wasn't taught in schools and Chinese history was stricken from textbooks.

But things are changing rapidly.

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He Predicted the Apple (Nasdaq: AAPL) Sell-Off … Here’s What's Next

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The recent sell-off we've seen in Apple Inc. (Nasdaq: AAPL) shares came as a real stunner to Wall Street.

But Strike Force Editor Keith Fitz-Gerald saw the sell-off coming.

In fact, he predicted it.

Back on March 27, Keith wrote a lead story for Money Morning in which he articulated seven very clear reasons that investors should consider shorting Apple's stock.

And that was a couple of weeks after he detailed a "put" option strategy – in essence, a "short" trade – that resulted in a 47% profit (in just two days, no less) for the subscribers of his Strike Force trading service who followed his recommendation (a short-term reversal delivered those gains).

I wanted to know what tipped him off that a reversal was coming – as well as what he was predicting for Apple's shares going forward.

"BP, it was clear to me that this kind of reversal was coming – and sooner rather than later," Keith said during a private briefing late last week. "The shares had soared 75% in just five months – one analyst actually described the performance as "euphoric.' Suddenly, we're seeing all these mainstream-news-media stories explaining why Apple shares are going straight to $1,000. But I know from my own experience as a professional trader that even the shares of the best companies on earth don't go straight up. I happened to time it perfectly and help Strike Force subscribers take advantage of the reversal I just knew was in the offing."

Key Questions for Apple Stock


The way we see it, the Apple stock sell-off raises these three key questions for investors:

  • No. 1: What's going to happen to Apple shares in the near-term?
  • No. 2: If the stock is headed for a volatile stretch, is there any way to profit until the smoke clears?
  • No. 3: What's the long-term outlook for Apple – both the company and the stock?

Having worked with him for five years, I've seen Keith make gutsy calls like this – and have them pay off big – time and time again. Since I knew you'd be as interested in his answers as I was, we wanted to share them with you.

Here's what Keith had to say.

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Ride the Boom With These 5 Bakken Oil Shale Stocks

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The Bakken oil shale boom is the opportunity of a lifetime.

With activity ramping up rapidly – production has soared from 100,000 barrels a day in 2005 to 494,000 barrels a day in February – the Bakken oil shale boom could turn out to be just as big, if not bigger than the California gold rush 1849.

Last week we told you about how the Bakken oil shale boom has affected Williston, ND. The town has an absurdly low unemployment rate of 0.8%, and the average pay for the oil company jobs is about $90,000.

One way to take advantage of this boom yourself would be to move to North Dakota.

But with dozens of companies flocking to the region, a much easier way to get in on the boom is to simply invest in some Bakken oil shale stocks.

The allure of big profits has attracted dozens of companies to the Bakken oil shale formation. The list ranges from industry giants like Exxon Mobil Corporation (NYSE: XOM) and ConocoPhillips (NYSE: COP) to pipeline companies like Enbridge Inc. (NYSE: ENB).

With oil prices expected to keep rising, and the production in the Bakken not expected to peak until 2020, it will be hard not to make money in Bakken oil shale stocks.

"Bakken is almost twice as big as the oil reserve in Prudhoe Bay, Alaska," Harold Hamm, CEO of Continental Resources Inc. (NYSE: CLR) – one of the major players in the Bakken oil shale boom — told The Wall Street Journal last October. "We expect our reserves and production to triple over the next five years."

Still, some Bakken oil shale stocks will benefit more than others.

For example, the really big companies like Exxon, with large global operations, will see less of a boost than companies with operations concentrated in the Bakken and other North American shale deposits.

Money Morning has taken a look at these Bakken oil shale stocks and found five companies positioned to benefit most from this historic find's tremendous potential.

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The Views from Near and Far

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There are always two ways (at least two ways) to look at everything, including the market. In fact, whether one looks at the market from near or far makes a big difference in what you see.

Like most complex equations with multiple inputs, synthesizing the different inputs is critical to what comes out on the other end of your equation.

In this case, I'm talking specifically about two inputs – the perspective from near and from far away.

And I am talking about how they affect one's view of what's happening in the market and where it's likely going to go next.

Thursday was a good example.

Early in the morning (in my travels), I saw that the Dow futures were up 82, and I thought, it could be a good day and we might finally tip the scales resting on the pivot point fulcrum we've been teetering on for a couple of weeks now.

As the morning rolled on, before the open, company after company reported earnings, and they all handily beat consensus estimates – some by huge margins.

From a distance, if that's all you saw, you'd be inclined to think, as I did, that the market was headed for a great day.

But that was just the far view…

Closer to the action (which I wasn't always seeing, because I was in transit), as one after another earnings report came out, again before the opening, the futures ticked down, lower and lower.

I didn't catch the open, so let's pretend I still don't know what happened at that moment.

The opening is important because sometimes it sets the tone for the day, especially if the futures are up big and the market opens up strong and rises steadily from there.

Of course, that's not always true, especially these days. But stay with me.

Later in the day, I'm walking past a TV monitor that has CNBC on, and I see the Dow down 116. That's a far view, again.

We ended up rallying towards the end of the day, and the Dow closed down only 68 points.

But again, that was the view from afar.

Sure, I see all that, and take the far view. But, I also take the near view.

Up close, earnings look great, and the U.S. looks like it's "basing" and laying the groundwork for reasonable growth.

All that is tentative, however, when we look closer.

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