Lessons from Charlie Munger-IX

In the previous article, we had discussed how a simple emotion like jealousy could prompt you into making irrational investment decisions. Today, we shall discuss our innate tendency to be over-optimistic and how it affects our view of the economy and the stock markets. Our aim is to help you understand the workings of your mind better so that you do not let your biases and thinking errors jeopardise your investments.

Over-optimism tendency

It is indeed commendable how humans and other creatures have evolved and survived over millions of years of evolution. Forget millions of years. Just look at all that has happened in the last 100 years, a period which saw two major world wars and a series of economic and political crises across the globe. Yet we continue to look forward to a better future. What is it that allows man to endure the many trials and tribulations that life presents? Hope, isn't it?

Charlie Munger shares a very interesting perspective in this regard. He opines that an excess of optimism is the normal human condition. And this tendency to be over-optimistic not only manifests when man is in pain, but also when he is doing well and there is no threat of pain whatsoever. A famous Greek orator by the name of Demosthenes is known to have said these very fitting lines more than 2,000 years ago-"What a man wishes, that also will he believe."

Over-optimism tendency in stock markets

It is not at all difficult to understand how this tendency drives not just stock markets but the entire world of finance and economics. Why otherwise would we have booms and bubbles with such amazing regularity? Why do people continue to flock to the financial markets despite the regular crises and busts that torment the markets?

In fact, all the malaise troubling the global economy today, from the debt crises in the developed economies to the high inflation and slowing growth in emerging economies like India, do have roots in excessive optimism. The problem is that when things are good, we expect them to get better and better in a linear fashion. And even when things are bad and getting worse, we often expect that the situation will turn good again sometime in the future.

This tendency is so often displayed by company managements. During good times, they tend to get over-optimistic and take up massive debt-funded expansion plans by way of capacity additions or wasteful mergers and acquisitions. When the cycle turns and things turn sour, you see red ink all over their financial statements. What is surprising is that even in bad times, a lot of companies are extremely shy to admit that things are not going too well. They tend to project and hope only what they wish to see and not what there is really.

As investors, the best way to deal with this bias is to acknowledge that it exists in the first place. That is half solution done because most of the times we are not aware of our own biases. Then a very effective antidote to over-optimism is to challenge your views by asking yourself as many questions as possible. If your views cannot stand the attack of reason, you know which tendency is to be blamed.

We will continue to discuss some more thinking errors and psychological tendencies that can affect your investment decisions in the subsequent articles of this series.

HCP Inc. 9.45% July Upside Aced Dividend Champions

Results from David Fish's Dividend Champions Index compiled as of July 30, 2013 projecting price upside results one year hence showed HCP, Inc. (HCP), the healthcare properties real estate investment trust, posted a 9.45% upside to lead a pack of just four dogs this month.

The chart above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare four Champions Index stocks showing the highest upside price potential into 2014 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts were considered optimal for a valid mean target price estimate.

This article reported results for the Champions Index as one of fourteen in a series of index-specific articles devoted to dividend yield and price upside results. Prompted by Seeking Alpha reader requests, the series has supplied results for these stock indices: Dow 30; Barron's 15 Gems; Russell 2000; S&P 500; S&P Aristocrats; Russell 1000; NASDAQ 100; NYSE International 100; Mergent Dividend Achievers; Champions; Contenders; Challengers; Carnevale's Power 25; Carnevale's Super 29.

This report presumed yield (dividend / price) dividend dog methodology applied to any index and compared that index side by side with the Dow. Below, are the Arnold Dividend Champions Index top dog selections for July were disclosed step by step.

Dog Metrics Graded Dividend Champions Index Stocks by Yield

David Fish's June 28 Champions list of companies paying increasing dividends for 25 consecutive years or more was sorted by yield as of July 30 to reveal the top ten. Price and dividend data was sourced from Yahoo.com! .

Ten Champion dogs that promised the biggest dividend yields into July included firms representing five of nine market sectors. The top stocks were three of five from the financial sector: Universal Health Realty Trust (UHT); Mercury General Corp. (MCY); Old Republic Int'l (ORI). The other two financial firms, HCP Inc., and United Bankshares Inc. (UBSI), placed sixth and eighth.

The balance of the top ten included one technology firm, AT&T Inc. (T) in fourth place; one consumer goods, Altria Group Inc. (MO), placed fifth; Bowl America Class A (BWL.A) in seventh place was the lone service dog. Two utilities, Northwest Natural Gas (NWN), and Consolidated Edison (ED), in ninth and tenth places completed the representation of market sectors in the champions index.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the top ten Dividend Champion dogs by yield as of market close 7/30/2013 compared to those of the Dow. Historic projected annual dividend history from $1000 invested in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.

(click to enlarge)

Actionable Conclusion One: Champion Dogs Ran With Bulls And Dow Didn't

The Champions top July dividend payers continued a bullish price course set since November, 2012. In the past month Champions top ten dog dividend dropped 3.5% while price rose nearly 2%.

For the Dow dogs, meanwhile, annual dividend from $1k invested in each of the top ten increased just 0.03% since June, while aggregate single share price dropped over 8%. Dow dogs decreased their overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53% in June was shrunk ! to $152.5! 1 or 41% in July.

Since Champion dogs may not all be the blue chip high quality equivalents of the Dow list and also include utilities, an additional gauge of upside potential was added to the simple high yield metric used to find bargains.

Actionable Conclusion Two: Wall Street Wizard Wisdom Went Wrong Wresting Just 4.89% Net Gain from Top 20 Dividend Champions Index Dogs In 2014

Top twenty dogs from David Fish's Dividend Champions index were graphed below to show relative strengths by dividend and price as of July 30, 2013 and those projected by analyst mean price target estimates to the same date in 2014.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock price upsides and net gains including dividends less broker fees as of 2014.

Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.

(click to enlarge)

Yahoo projected a 0.03% higher dividend from $10K invested in this group while aggregate single share price was projected to increase over 0.09% in the coming year. The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the charts. Three to nine analysts was considered optimal for a valid estimate! .

T! he Champions was the first index to exhibit a topped out condition. In April the top twenty stock analyst aggregate one year mean target price sank while dividend increased. In July future price increased while future dividend also increased as most of the stocks on the roster were listed with current prices higher than analyst one year target estimates.

A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stocks movement opposite of market direction.

Actionable Conclusion Three: Analysts Forecast 4 Dividend Champion Dogs to Net 3% to 9% By June 2014

Just four probable profit generating trades were revealed by Yahoo Finance for 2014:

(click to enlarge)

HCP Inc. netted $121.22 based on dividends plus mean target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.

Altria Group Inc. netted $80.64 based on a mean target price estimate from ten analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.

AT&T Inc. netted $78.38 based on dividends plus the mean of annual price estimates from twenty-three analysts less broker fees. The Beta number showed this estimate subject to volatility 76% less than the market as a whole.

Tompkins Financial Corp. (TMP) netted $44.97 based on a mean target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a wh! ole.

The average net gain in dividend and price was over 8.1% on $1k invested in each of these four dogs. This gain estimate was subject to average volatility 52% less than the market as a whole.

The stocks listed above were suggested only as decent starting points for your index dog dividend stock purchase research process. These were not recommendations.

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Source: HCP Inc. 9.45% July Upside Aced Dividend Champions

Disclosure: I am long DD, GE, INTC, MCD, MSFT, PFE, T, VZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

How to Prepare for Rising Interest Rates

Getty Images Borrowers have been enjoying historically low interest rates since the Great Recession hit. For those with solid credit histories, taking out a mortgage, auto loan or personal loan has never been cheaper. But all that could change. Rates on 30-year fixed-rate mortgages have started creeping upward, and financial experts say other forms of debt could soon follow suit. "We do anticipate rates going up, but how far and how fast that's going to happen is an open question," says Bradley Roth, managing partner at Kattan Ferretti Financial, a Pittsburgh-based financial planning and investment advisory firm. He expects the rates on 10-year Treasurys, which are currently approaching 3 percent, to reach 3.25 percent before the end of the year and then 4 to 4.25 percent in 2014. A rise in interest rates could soon be reflected throughout the entire financial services space, from credit cards to personal loans to home equity lines of credit. The good news for savers is that rates on deposit accounts could also climb after years of very low, or no, rates of return. Here's a roundup of how to prepare for rising rates, depending on your own money identity: For Savers "Savers should be able to benefit," Roth says, because he expects the rates on certificates of deposit, savings accounts and money market accounts to all go up. However, he warns savers against locking up their money in longer-term products, like CDs, which can make it harder to take advantage of quickly rising rates.

Any rise in savings rates, though, will likely come slowly, says Greg McBride, senior financial analyst for Bankrate.com. "The Federal Reserve is still 18 to 24 months away from boosting short-term rates, so that will keep a lid on the savings yield," he says. In the meantime, with deposit rate accounts still low, savers can maximize their rate of return by shopping around, says Richard Barrington, senior financial analyst at MoneyRates.com. Online banks tend to offer higher rates of return, he says, because they don't have the expense of supporting branches. Casey Bond, managing editor of GoBankingRates.com and a U.S. News My Money blogger, also encourages people to explore local banks, which sometimes offer higher rates of return. Otherwise, she says, savers have to take on additional risk to find higher returns. When it comes to short-term savings accounts for emergencies and daily expenses, "It's better to keep [money] in short-term deposit accounts with FDIC protection," she says, even if that means foregoing higher yields. Regardless of where you park your cash, the most important point is getting in the habit of saving, and saving as much as possible, says David Tysk, an Ameriprise (AMP) financial adviser based in Eden Prairie, Minn. That's much more important than the interest rate you are earning on your short-term accounts, he says. "Make saving as automatic as possible, so it's not up to you to save money or not," Tysk says. That way, it's less tempting to spend the money instead of putting it away, he says. For Borrowers Anyone carrying credit card debt is probably paying dearly to do so, since credit cards rates have remained at relatively high levels even as other interest rates have fallen. Roth says he encourages his clients to pay off their credit cards each month to avoid fees and interest. Other types of loans, such as auto loans, personal loans and home equity loans, have seen lower rates, and there's still time to take advantage of that, says Tommy Gletner, senior vice president and private financial adviser at SunTrust Investment Services (STI). "Anybody that's seeking to take on debt should do it now rather than later," he says, adding that borrowers should lock in current rates so they're protected from future rate increases. For Investors Roth says he expects some volatility in the stock market as interest rates go up. "Long-term bonds and bond mutual funds will likely do poorly as we see major outflows," he says, adding that utilities, real estate investment trusts and emerging market funds could also take a hit. "We recommend keeping your bond exposure on the short end and staying diversified," he adds. Roth says many of his younger friends and clients have the mistaken idea that bonds are a relatively conservative, safe investment. "That people think bonds are risk-free is scary to me," he says. Tysk points out that many bond funds have been losing money since May. (Bond funds tend to lose money as interest rates climb.) Tysk says the appropriate response depends on the investor, including when he or she needs the money and what other sources of money he or she has. He encourages anyone with a retirement account to take a close look at where their money is currently invested and consider whether there are better places for their money than bond funds. Current bond behavior is in contrast to the past 30 years, Gletner points out. "From Alan Greenspan to now, we've had a very loose and accommodative, meaning lowering rates for the economy, monetary policy. That's been very good for bonds ... You can see that coming to an end," he says. At the same time, Gletner says, the economy could sputter and rates could fall again. "For many investors, they shouldn't eliminate bonds from their portfolios. It might make sense to simply weather the storm, because people forget to rebalance, and unless you have a lot of time to stay on top of it, it makes sense to stick with diversification, and bonds have important diversification qualities," he says. When stocks are doing poorly, bonds tend to do better, offering an essential stabilizing force. Another option, he says, is to invest in bonds that are less sensitive to interest rates, such as high-yield bonds or floating-rate bonds. For Homeowners and Buyers If you own a home and you haven't refinanced yet, it might be too late. "For my clients, we're not saying, 'Let's refinance today,' with a one-year high," Tysk says. He points out that according to MortgageNewsDaily.com, rates on 30-year fixed-rate mortgages are currently close to 4.75 percent, which is almost 1.5 percentage points higher than their 52-week low. Still, in the context of history, rates are still quite low, says Chuck Schreiber, chief executive of KBS Capital Advisors. "The rate we can negotiate now is substantially below any other time in my career. The only given that we have is that we're highly confident that at some point in the future, interest rates will be higher," he says.

Starbucks Shows Why It's Starbucks

Alright, Will Ashworth, you win this round! One quarter ago, fellow Investopedia writer Will Ashworth took issue with me seeing limited appreciation potential in Starbucks (Nasdaq:SBUX) and laid out a case that Starbucks was still a good buy. With the stock up about 22% over the last quarter, blowing away other restaurants like McDonald's (NYSE: MCD) and other consumer stocks in general, there's little else for me to do but see where I got Starbucks so wrong and reevaluated where it can go from here.

Another Strong Quarter
Starbucks was a strong story in the fiscal second quarter, and it got stronger still in the third quarter. Revenue rose 13%, with retail revenue up 14% and specialty up 10%. Underpinning sales, Starbucks saw comp-store growth of 8% overall (transactions up 7%, ticket up 1%), with 9% growth in the U.S. and China/Asia Pacific and 2% growth in Europe.

With higher revenue also came better operating leverage. Gross margin improved more than a point from last year, while operating income rose 25%. That, in turn, led a point and a half of operating margin improvement.

SEE: The Value Investor's Handbook

Setting The Bar In QSR
In a nutshell, I went wrong on Starbucks in large part because I underestimated the momentum in the company's store base and the extent to which this isn't your regular quick service restaurant (QSR). Leading QSR McDonald's has seen same-store sales slow noticeably in the U.S., even with ongoing success in the McCafe concept. Even top-end QSRs like Panera (Nasdaq: PNRA) and Chipotle (NYSE: CMG) are seeing comps in the mid single digits, while another prime Starbucks coffee rival Dunkin' Brands (Nasdaq: DNKN) is comping at a 4% rate.

Then there's Starbucks with that 9% comp, with 7% growth in transactions. Simply put, people are not only not willing to give up their morning Starbucks fix, but they're going their more often than just in the morning (and/or more people are going … it's not really possible to do a "same customer" analysis from the outside).

What's more, I can appreciate that Starbucks can continue to grow its same-store sales if by nothing more than making more products available in every store. It's still early in the process of integrating Teavana and La Boulange, but there is certainly potential for Starbucks to continue growing beyond its core/traditional footprint in premium coffee. Said differently, if Starbucks can get even just one-quarter of its regular customers to occasionally add a croissant or muffin to their coffee order, that's a meaningful improvement in both comps and margins.

Executing On The China Opportunity
I also think I underestimated the company's momentum in China. While Yum! Brands (NYSE: YUM) and McDonald's are suffering from image problems brought on by using antibiotics-contaminated chicken, not to mention public health and consumer spending issues, Starbucks is not. At 9%, Starbucks' China comps are likely at or near the top of the market, and there is still tremendous store growth potential in the market (to say nothing of markets down the line like India, Indonesia, Vietnam, and so on).

SEE: How To Analyze Restaurant Stocks

The Bottom Line
Maybe Starbucks is just basking in a new-found love affair for coffee on the part of investors. After all, Green Mountain Coffee Roasters (Nasdaq: GMCR) is also up almost 40% over the last three months, and coffee-centric stories like Kraft (Nasdaq: KRFT) and Dunkin are up pretty solidly as well. Likewise, there is still the risk that Starbucks' comp momentum fades and takes the margin leverage with it.

I'm not expecting that to happen. Even so, I think you have to make some pretty exceptional assumptions to get an attractive fair value on these shares. Let's say Starbucks can grow revenue at almost 12% a year for a decade, and improve its free cash flow by 20% a year. Should that occur, Starbucks will be at 90% of the annual revenue run rate projected for McDonald's in 2022, though the free cash flow margin will be a little lower. With the same discount rate I use for McDonald's, that leads to a $70 price target. So although I'm willing to take my lumps for missing the huge move in Starbucks, I still end up wondering just how this company will manage to continue to outgrow expectations.

Disclosure – At the time of writing, the author had no positions in any of the stocks mentioned.

Weekend Roundup: Stocks Fall as Yields Rise; REITs Get Clobbered; Housing Stocks Soar

For three days this week, all was quiet. It was as if the market had taken a page out of the Night Before Christmas–nothing was stirring, not even a quant.

AFP

Then Thursday came along and it wasn’t Santa crashing down the chimney. Treasury yields rose–for reasons that still remain unclear but had something to do with when tapering might begin–and stocks plunged. Of the Dow Jones Industrials’ 2.2% loss this week, two-thirds came on Thursday. On Friday, it was snooze time once again.

The focus now is on higher Treasury yields and the impact they could have on stocks. Some have argued that higher yields won’t ding markets, as long as they rise slowly. Others point to Thursday’s selloff as proof that higher-yields are bad for stocks. One thing is clear–rising yields are no longer good for stocks, as they were at the beginning of the year.

Look at this week’s best performing stocks and you might never know that tapering was the big deal. Among the 10 best performing stocks in the S&P 500 were two homebuilders–PulteGroup (PHM) gained 2.3% to $16.28 and Lennar (LEN) rose 1.8% to $33.88 (you can read Barron’s bullish case for homebuilders here)–who benefited from solid housing starts data today, as well as some possible short covering yesterday. Newmont Mining (NEM), meanwhile, gained 9.7% to 32.39. the second largest gain in the S&P 500 this week, especially puzzling because higher U.S. yields are supposed to make gold less attractive.

But the S&P 500′s biggest losers show the kind of carnage long predicted by those fearful of higher yields. How’s this for evidence: Real-estate investment trusts, whose yields look more paltry with every tick higher in the 10-year Treasury, made up half of the top-10 losers. Prologis (PLD) fell 8.4% to $35.08, the Macerich Co. (MAC) dropped 8.2% to $56.72 and Health Care REIT (HCN) was off 8.1% at $58.57.

How much yields rise will likely depend on when the Fed decides to start curtailing its bond buying, and investors will be looking to the release of the minutes from the FOMC’s last meeting for details when they’re released on Wednesday.

Opinions differ on when tapering will begin and how much the buying will be curtailed, sometimes in startling ways. RBC Capital Markets’ Tom Porcelli sounds as if he believes tapering is a done deal:

BrightScope Defends a Business Model Modeled After Morningstar

Independent registered rep David Sterling was infuriated last month when a BrightScope Advisor Pages salesman called to see if he wanted to pay a fee to manage the information on the Web page that describes Sterling’s business.

Until then, Sterling wasn’t aware that there was such a page. But when he checked it out, he discovered that anybody who looked him up on BrightScope would find a red mark against his name and a link to the Financial Industry Regulatory Authority’s BrokerCheck, where FINRA lists what Sterling believes is an out-of-date and irrelevant report on his long-resolved dispute with a contractor over payment on a kitchen remodeling job.

“For just under $1,000 per year I can subscribe to BrightScope so that I can have access to and edit information gathered about me. Of course, the gentleman went on to explain how valuable this option is to my business and branding. What a farce,” Sterling wrote in an complaint emailed to ThinkAdvisor.

But while advisors such as Sterling are upset about BrightScope's sales methods and online business model, others in the advisor industry say that's exactly how the website is supposed to work.

One such fan of BrightScope is Chip Roame, managing partner of industry consultant Tiburon Strategic Advisors, who calls BrightScope an innovative disruptor. “BrightScope will disrupt the advisor industry, and become a portal for advisor data,” said Roame when commenting on Michael Kitces’ decision in April to join BrightScope’s advisory board. Kitces, a partner with Pinnacle Advisory Group, publishes The Kitces Report financial planning blog and is a regular speaker at industry events. He also is a contriubtor to ThinkAdvisor.

Morningstar Is BrightScope’s Role Model

BrightScope officials, too, have argued the merits of online transparency since their launch of Advisor Pages two years ago, and they point to Morningstar as their role model.

BrightScope CEO and co-founder Mike Alfred said last week that he and his team of executives have engaged in regular discussions with officials at Morningstar for several years. Alfred described BrightScope as the Morningstar of financial distribution channels, because it intends to democratize information about advisors and 401(k) plans and make those markets more efficient.

“I think our business model is pretty much misunderstood,” Alfred said. “But we’ve seen how Morningstar has evolved since 1984. Although Morningstar had people screaming when it was new, the service that Morningstar offers today is huge. Morningstar drives real consumer decision-making, and now the asset managers have to be users of Morningstar because between 70% and 80% of the mutual funds that sell the most have Morningstar ratings of four or five stars. If you’re rated two stars, you’re probably not moving flows. That’s powerful.”

Alfred said his privately held company has almost 70 employees. Though he wouldn’t reveal BrightScope’s market cap or revenues, he said the firm has been cash flow positive for three straight years, with more than 60% revenue growth every year. He said the public website represents only 3% of what’s going on at BrightScope, at the very front end of the business, and the revenue is generated at the back end through software and data subscriptions sold to large asset managers, recordkeepers, large plan sponsors and financial advisory firms in the RIA, wirehouse and IBD channels.

When told of Sterling’s complaints, Alfred said his firm is building out additional functionality to benefit non-subscribers. “We’re trying to make it more inclusive so that advisors who don’t use the subscription service can still get something out of it,” he said in a phone interview.

‘When I Got the Solicitation, I Felt Painted Into a Corner’

But Sterling, who in addition to being a registered rep is a practicing attorney and vice-chairman of the American Bar Association’s Insurance and Financial Planning Committee, expressed concern in a separate phone interview that any consumer who checks him out online will see the red mark against his name in the BrightScope regulatory disclosures section and not even bother to do further due diligence on FINRA’s BrokerCheck site.

Further, Sterling said, he resented feeling forced to pay a fee to clear his name.

“It felt like a solicitation that’s so poorly viewed in the finance industry, where you get a sales pitch in a cold call,” he said. “The foundation of my concern centers on the question of the fiduciary issue. Compliance is a way of life for me, and a lot gets lost in translation. That’s the concern I have with all these online digital deals. I laughed when I told a client about the kitchen repair, but I don’t have the opportunity to do that on BrightScope. When I got the solicitation, I felt painted into a corner. Whether you like it or not, you’re a part of the database.”

Alfred disagreed with David Sterling’s argument that online consumer searches of advisors should be viewed as a problem.

Bull of the Day: MDC Holdings (MDC) - Bull of the Day

Earnings estimates have been soaring for MDC Holdings (MDC) as the homebuilder continues to benefit from a rebounding housing market. The significant increase in demand for new homes not only means higher revenues for MDC but also significantly higher profit margins as the company is able to raise prices and reduce incentives while leveraging its fixed expenses.

It is a Zacks Rank #1 (Strong Buy) stock.

MDC Holdings Inc. is a homebuilder that has been building under the name "Richmond American Homes" for 40 years. It primarily operates in the Western and Mountain regions of the United States with some exposure in the Eastern U.S.

The recent rise in interest rates has hurt shares of homebuilders like MDC, but the selloff could be a great buying opportunity as the fundamentals of MDC look very attractive.

Big First Quarter Beat

MDC Holdings reported strong first quarter results on May 2. Earnings per share came in at 45 cents, crushing the Zacks Consensus Estimate of 26 cents. It was a huge increase over the 4 cents it reported in the same quarter last year.

Total revenue surged 77% to $344.3 million, well ahead of the consensus of $294.0 million. Home sale revenues rose a whopping 80% to $331.7 million, which was driven by a 64% jump in home delivered. The average selling price for homes closed rose 9% to $325,900.

The gross profit margin expanded 330 basis points to 17.4% of revenue as the company continued increasing prices and decreasing incentives as demand picked up considerably. Meanwhile, selling, general and administrative expenses fell from 18.5% to 14.5% of revenue as the company leveraged its fixed expenses.

Estimates Soaring

Following solid Q1 results, analysts revised their estimates significantly higher for MDC, sending the stock to a Zacks Rank #1 (Strong Buy). You can see the dramatic rise in earnings estimates in the company's 'Price & Consensus' chart:

The Zacks Consensus Estimate for 2013 is currently $2.49, representing 103% EPS growth over 2012. The 2014 consensus is now $2.65, corresponding with 6% annual growth.

In fact, estimates have been rising in general for homebuilders. The 'Building - Residential / Commercial' industry ranks 8th out of the 265 industries that Zacks ranks. That puts it in the top 3% of all industries.

Reasonable Valuation

Despite strong earnings momentum, shares of MDC have sold off recently as interest rates have risen. But shares look attractive at these levels.

The stock currently trades at just 12.5x 2013 earnings, which is below the industry median of 14.5x. Its price to book ratio of 1.6 is also well below the industry median of 2.0.

The Bottom Line

With very strong industry trends, soaring earnings estimates and reasonable valuation, this homebuilder offers a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

The Ever Friendly Fed - Ahead of Wall Street

Thursday, August 1, 2013

Favorable data out of China and follow through from the Fed's relatively market-friendly statement from Wednesday provide the favorable backdrop for today's trading action. While some tentativeness ahead of tomorrow's jobs report will be understandable, but one would reasonably expect the stock market today to sustain the positive pre-open mood throughout the session, particularly if the ISM report comes through as expected.

The Fed statement was broadly market friendly as it cracked the door open to delaying the 'Taper' from September to perhaps December or even early next year. The Fed appeared to be downgrading their economic growth outlook a bit and pointed towards low inflation readings and the rise in mortgage rates. A natural offset to those trends would be for the Fed to not do anything on the QE question, at least not any time soon.

GDP growth has undoubtedly been tepid and even the housing recovery could be at risk from the rising interest rates. But labor market data has broadly been positive, as this morning's weekly Jobless Claims numbers and Wednesday's ADP report showed. A positive jobs reading in tomorrow's BLS report, say something close to 200K, will further magnify this apparent disconnect between the labor market and GDP numbers. The question in many people's minds, including the Fed, could very well be which set of data is more accurately reflective of the economy – GDP or jobs. The market's hope will be that a continued goldilocks type of positive jobs and underwhelming GDP numbers keeps the Fed in its QE business for a long time to come.

This debate about the timing of 'Taper' notwithstanding, I strongly feel that it is coming. If it's not in September, then it's most likely in December. But there is no doubt in my mind that the Fed is itching to get out of the QE business.

Sheraz Mian
Director of Research



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Newmont Posts 2Q Prelim Operational Update - Analyst Blog

Gold mining giant Newmont Mining Corporation (NEM) has declared its preliminary gold and copper production for the second quarter of 2013. The company has also reaffirmed its outlook for 2013.

Newmont's attributable gold production for second-quarter 2013 amounted to 1.167 million ounces compared with 1.182 million ounces registered in second-quarter 2012 and 1.165 million ounces in first-quarter 2013. Attributable copper production for second-quarter 2013 was 34 million pounds compared with 38 million pounds in both second-quarter 2012 and first-quarter 2013.

Attributable gold sales were 1.213 million ounces for second-quarter 2013 compared with 1.140 million ounces in both second-quarter 2012 and in first-quarter 2013. Attributable copper sales were 37 million pounds for second-quarter 2013 compared with 28 million pounds for second-quarter 2012 and 31 million pounds for first-quarter 2013.

Newmont also maintained its outlook for 2013 and anticipates attributable gold and copper production to be roughly 4.8 million to 5.1 million ounces and 150 million to 170 million pounds, respectively.

Newmont's revenues and profit declined by double digits in first-quarter 2013 hurt by lower grade and shipping delays. Adjusted earnings and sales missed the Zacks Consensus Estimates.

Attributable gold production fell due to lower production across North and South America. Weaker gold and copper pricing affected the results. Newmont may continue to face headwinds due to increasing mining and non-mining costs.

Newmont is focused on reviewing the potential opportunities to improve its cash flow and preserve financial flexibility under the dominant volatile metal price environment. It is slated to release its second-quarter 2013 results after the market closes on Jul 25.

Newmont currently carries a Zacks Rank #4 (Sell).

Other companies in the mining industry with favorable Zacks Rank are NovaGold Resources Inc. (NG), Pretium Resources Inc. (PVG) and Lak! e Shore Gold Corp. (LSG). All of them retain a Zacks Rank #2 (Buy).

Know the difference between investing and trading

Wealth creation happens by doing two things

a. Earning well and having
b. Good wealth creation and management techniques.

Wealth creation has many steps and one of them is investing. Investing itself is a complex field. It involves studying a myriad of investment vehicles, terms, concepts, strategies and processes. It also involves study of various markets equity shares, real estate, money markets, economics, etc.

In the real world of investing, this study is best accompanied by training, observing, and experience. The complexity of the science (or art?) and a lifetime pursuit of financial goals means there are no short cuts that are allowed.

However, since the very beginning of the equity market (as well as commodity markets),  there have always been some individuals who have attempted to trade stocks, options, commodities, currencies actively in order to capture more profits than losses.

Obviously most of them hoped to make a profit.

The trading in shares was facilitated by the 'share broker' who was more like a cowboy not very long ago. At in the Indian context the last 2 decades have seen the introduction of technology and a lot of regulation.

This led to many new entrants in the 'broking' business, expanding the size of the market. Of course, new entrants meant lesser brokerage charges. This has led to a great expansion of the business in the hinterland of the country.

Too many individuals have confused the ability to trade or execute a transaction with the ability to effectively manage their investment assets.

Some one who has the knowledge, training, time, maturity and experience to perform financial planning may not necessarily need a planner, advisor or broker to buy or sell a share.

However, the reverse is not true at all. Being able to execute a share transaction in no way lessens the importance of knowledge, training and experience in the lifetime pursuit of financial goals.

If after creating a financial plan, the asset allocation and risk model allows you to do equity trading and the risk tolerance for it exists, only then should actively trading in shares be considered. To do otherwise is sheer foolishness. 

Seth Klarman on Preventing Mental Mistakes

Investors, with or without experience, make mental mistakes all the time. And to make matters worse, we ourselves often consciously or unconsciously shrink away from the important task of analyzing those mistakes. In a book that we strongly recommend to serious investors, The Little Book of Behavioral Investing: How not to be your own worst enemy, author James Montier pointed out that, if we want to be better investors, we have to carefully analyze our own mental flaws.

Seth Klarman, in his 2011 letter to Baupost investors, wrote: "Understanding how our brains work—our limitations, endless mental shortcuts, and deeply ingrained biases—is one of the keys to successful investing." He stressed a few key mental errors made by both individual and institutional investors. Here are some mental errors that we should all watch out for:

Overreacting to the latest news

Klarman had this to say about overreacting: "Investors emotionally pile in on good news and rush for the exits on bad news, causing prices to overshoot." We tend to act in the heat of the moment and make quick buy and sell decisions without any significant thought. The average investor's mindset, according to Klarman, is this: "Most of us like a stock more when it has risen in price and less when it has fallen." If a company reports an increase in earnings, our brains might feel something golden and jump on the bandwagon. Tech giant Intel (INTC) recently reported increased earnings for the 1st quarter of 2012. Does that mean we should buy it right away?

What we should do is to reverse our thinking about the latest hot news and look for reasons why a company like Intel may not be a good investment. As Sir John Templeton once noted, "The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell". So when the stock market is down, it is time to look for opportunities, not to sit back and do nothing. Klarman suggests a common error when searching for inv! estment opportunities: "The herd can irrationally lose sight of the underlying assets and long-term prospects of a business when it focuses on price movements."

Looking in the rearview mirror

As Klarman states, "Our expectations about future events are distorted by past experience." When we think too much about the past, we become more hesitant to take risks. And Klarman further states: "Actions that seemed prudent in foresight can look horribly negligent in hindsight." We likely fail to overcome the extreme fear that prevented smart decision-making. Fear, particularly upon suffering a loss, causes people to ignore bargains in the market. Banking businesses like Citigroup (C) were a bargain following the low point of the economic recession. But did anyone bother to look at Citigroup's future outlook?

People in the market today are scared due to their memories of the recent financial crisis. However, "Protective actions, whether by individuals or governments, tend to be designed to prevent a recurrence of the worst such disaster previously experienced, " wrote Klarman. We tend to become too cautious in trying to prevent the worst of such disasters. We tend to look back at the worst scenario that may not happen again. In Montier's words, we become afraid of the big, bad market.

Focusing on results rather than processes

Klarman makes the ultimate point about focusing less on results: "A good result says nothing about whether the process involved was a good one and whether or not the success might be replicable." Montier takes this a step further: "You could have a good process but a bad outcome. Or you could have a bad process but a lucky outcome. The bad process/lucky outcome combination is worse because it sets investors up for a higher likelihood of failure in the future." Klarman explained: "The focus on benefits lessens our concern about what could go wrong." The biggest mistake we make is not remembering our past mistakes. With a g! ood outco! me, we are less likely to remember and analyze our weaknesses.

Klarman notes: "Those who have been lucky are almost never punished for having taken too much risk." With good results that may turn out to be pure luck, we are quick to praise the positive outcome on genuine skill that we don't really have.

Letting intuitive hunches take over rationality

Klarman stressed the importance of being a rational thinker: "It is good to buy investment bargains, but it is far better if you know why they are bargain-priced." In essence, it is important to focus on logic and rationality. Look no further than Warren Buffett, whose investment logic is to buy businesses with good-to-superb underlying economics run by reliable people.

Investor irrationality comes from the two systems in his or her brain: an intuitive brain, System One, and an analytical brain, System Two. Our intuitive brain makes quick, unconscious decisions on the spot. Our analytical brain takes more time to process the information and formulate solutions. This is how our brains tend to work, according to Klarman: "When System One substitutes an easier question for a harder one, it is easy to make mistakes." The best investors are the ones with a strong analytical brain.

We, by human nature, think we know the difference between right and wrong without extensive analysis, if we have been around the business for a long time. So we come to believe that our decisions are always rational no matter what. We need to always be conscious of whether we are making rational decisions or not. Klarman wrote: "No one should be confident that they are immune from irrational behavior from time to time."

- By MATTHEW INDYKE and BRIAN ZEN

Can DirecTV Stock Benefit From This Acquisition?

With shares of DirecTV (NASDAQ:DTV) trading around $63, is DTV an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

DirecTV provides digital television entertainment in the United States and Latin America. The company engages in acquiring, promoting, selling, and distributing digital entertainment programming primarily through satellite to residential and commercial subscribers. A rising number of consumers are opting for satellite services due to the reduced costs and increased coverage offered. DirecTV is poised to capitalize on the increased entertainment demand from consumers in the United States and Latin America.

DirecTV along with Guggenheim Digital Media and KKR (NYSE:KKR) have reportedly made a joint bid for online TV streaming service Hulu. This news comes after AT&T (NYSE:T) and Chernin Group made their own bid for the company yesterday. Time Warner Cable (NYSE:TWC) has also expressed interest in buying stake in the company. This potential acquisition may be key for DirecTV as it looks to expand its offerings and its user base.

T = Technicals on the Stock Chart are Strong

DirecTV stock has witnessed an explosive move higher over the last several years. The stock is now trading near all-time high prices so it may need a little time before its next move. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, DirecTV is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of DirecTV options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
DirecTV Options	31.29%	96%	94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
July Options	Flat	Average
August Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on DirecTV’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for DirecTV look like and more importantly, how did the markets like these numbers?

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	12.15%	50.50%	28.57%	19.788%
Revenue Growth (Y-O-Y)	7.58%	7.92%	8.36%	9.45%
Earnings Reaction	6.88%	-2.82%	-0.29%	-2.59%

DirecTV has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been excited about DirecTV’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has DirecTV stock done relative to its peers, Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), and sector?

	DirecTV	Dish Network	Comcast	Time Warner Cable	Sector
Year-to-Date Return	26.32%	17.03%	14.86%	17.74%	16.55%

DirecTV has been a relative performance leader, year-to-date.

Conclusion

DirecTV is a digital television entertainment company that offers satellite services to consumers and companies across the nation. The company is attempting to jointly acquire Hulu in order to expand its offerings and user base. The stock has been trending higher for the last several years and is now trading near all-time high prices. Over the last four quarters, investors in the company have been excited as earnings and revenue figures have been steadily rising. Relative to its peers and sector, DirecTV is a year-to-date performance leader. Look for DirecTV to continue to OUTPERFORM.

What Do These Factors Suggest About Elan Stock?

With shares of Elan (NYSE:ELN) trading around $13, is ELN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Elan is a biotechnology company that is focused on discovering and developing advanced therapies in neurodegenerative and autoimmune diseases. Such diseases include Alzheimer’s Disease, Parkinson’s Disease, Celiac disease, Crohn’s Disease, and Narcolepsy. These diseases really take a toll on the lives that they affect so any positive progress Elan can make may be very rewarding. As many of these diseases come to the attention of people around the world, biotechnology companies such as Elan will see rising demand.

T = Technicals on the Stock Chart are Strong

Elan stock has seen its fair share of volatility over the last several years. The stock is now trading in a ranging extending back to last year and looks comfortable at these prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Elan is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

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Taking a look at the implied volatility (red) and implied volatility skew levels of Elan options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Elan Options	35.46%	80%	77%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
July Options	Steep	Average
August Options	Steep	Average

As of today, there is an average demand from call buyers or sellers and higih demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Elan’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Elan look like and more importantly, how did the markets like these numbers?

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	-20.00%	-452.69%	-133.33%	37.50%
Revenue Growth (Y-O-Y)	27350%	13.37%	9.74%	6.43%
Earnings Reaction	-0.75%	-10.13%	-0.28%	0.95%

Elan has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Elan’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Elan stock done relative to its peers, Pfizer (NYSE:PFE), Sanofi (NYSE:SNY), Biogen Idec (NASDAQ:BIIB), and sector?

	Elan	Pfizer	Sanofi	Biogen Idec	Sector
Year-to-Date Return	32.52%	15.61%	16.00%	41.79%	27.18%

Elan has been a relative performance leader, year-to-date.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

Elan is a biotechnology company that is looking for ways to improve and better the lives of people with neurodegenerative and autoimmune diseases. The stock has struggled over the last couple of years and looks to be comfortable at these prices. Over the last four quarters, investors in the company have been disappointed as earnings have decreased while revenue figures have increased. Relative to its peers and sector, Elan has been a year-to-date performance leader. WAIT AND SEE what Elan does in coming quarters.

Hot Canadian Companies To Watch For 2014

The following three companies reported the largest CEO buys in terms of transaction amount over the past week. A common idea regarding insider buying is that an insider wouldn�� spend their own money investing unless they expected the price to rise. Which leads to the importance of CEO buys. CEO insider transactions are important to note because as the leader of a company CEOs are typically thought of to have the most insight into the inner workings of a company.

Invesco Mortgage Capital (IVR)

President and CEO of Invesco Richard King reported a rather notable insider buy on Aug. 5. The CEO purchased 6,500 shares of company stock at an average price of $15.41 per share. This purchase cost King a total of $100,165. Since this buy, the share price has increased a minor 0.13%. King now holds on to at least 56,545 shares of Invesco Mortgage stock.



King�� buy comes as the company�� price has recently dwindled down to nearly its 2-year low price of $14.13. His buy is also the first insider buy reported since May. Since the last purchase reported in May, the share price has dropped -21.32%.

Invesco Mortgage Capital is a REIT that acquires, finances, and manages residential and commercial mortgage-backed securities and mortgage loans. The company�� portfolio contains: residential mortgage-backed securities for which a U.S. Government agency or federally chartered corporation guarantees payment of principal and interest, residential mortgage-backed securities that are not issued or guaranteed, commercial mortgage-backed securities and residential and commercial mortgage loans.

Invesco�� historical price, revenue and net income:

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The company�� second quarter financials reported:

路 Net income of $140.3 million, or $1.03 per common share.
路 Core earnings of $79.8 million, or $0.59 per common share.
路 Book value of $17.88 per common share.
路 Maintained a $0.65 per share dividend
Invesco Mortgage Capital has a market cap of $2.09 billion. Its shares are currently trading at around $15.43 with a P/E ratio of 5.60, a P/S ratio of 4.80 and a P/B ratio of 0.80. The dividend yield for Invesco stocks is 16.90%.

Jim Simons and Jeremy Grantham maintain holdings in IVR.

Swift Energy Company (SFY)

During the past week CEO and Chairman of Swift Energy Company, Terry Swift, reported the first insider transaction reported in the company since February.

On Aug. 5 Swift added 20,000 shares to his stake in the company. The CEO purchased these shares at an average price of $11.85 per share, costing him a total of $237,000. Since his buy, the price per share has increased a minor 0.34%. Swift currently holds the most shares of any insider with a total of 408,655 shares of company stock.



Swift�� buy come as the price has hit a 3-year low.

Swift Energy Company is an independent U.S.-based oil and natural gas company with three core areas of operation in Louisiana and Texas.

Swift Energy�� historical price, revenue and net income:

[ Enlarge Image ]

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The company�� second quarter financials reported:

路 Earnings of $6.7 million, or $0.15 per diluted share, up 122% from the second quarter financials.
路 Adjusted cash flow of $72.8 million, or $1.67 per diluted share, compared to $72.7 million, or $1.69 per diluted share in 2012.
路 Produced 2.78 million barrels of oil equivalent, a 5% decrease from second quarter 2012 production.
路 Total revenues increased 6% to $142.5 million.

The Peter Lynch Chart shows that Swift Energy currently appears to be overvalued:

[ Enlarge Image ]

Swift Energy has a market cap of $517.1 million. Its shares are currently trading at around $11.92 with a P/E ratio of 18.10, a P/S ratio of 0.90 and a P/B ratio of 0.50.

There are currently four gurus that maintain a position in SFY. Click here to see their holding histories.
Signatu! re Group Holdings (SGGH)

Over the past week, two insiders have made significant buys of Signature Group Holdings.

On Aug. 2, Director Peter Bynoe purchased 125,000 shares at an average price of $1.19 per share. Bynoe spent a total of $148,750 on this transaction. Since his buy, the share price has increased an additional 15.97%. The director now holds 125,000 shares of company stock.

CEO Craig Bouchard added 100,000 shares to his holdings on Aug. 5. The CEO purchased these shares at an average price of $1.22 per share. This transaction cost him a total of $122,000. Since this buy, the price per share has increased approximately 13.11%. Bouchard now owns 1,070,866 shares of company stock.



These insider buys come as the share price has recently shot up to a 5-year high.

Signature Group Holdings is a diversified enterprise with current principal activities in industrial supply and special situations finance.

The company�� historical price, revenue and net income:

[ Enlarge Image ]

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The company�� second quarter financials reported:

路 $1.8 million operating profit from continuing operations.
路 Net loss of $1.9 million, or $0.02 per share, up from a net loss of $3.9 million, or $0.04 during the second quarter 2012.
路 Operating revenues were $14.9 million, compared to $9.3 million last year.

Signature Group Holdings has a market cap of $167.9 million. Its shares are currently trading at around $1.38 with a P/S ratio of 4.60 and a P/B ratio of 2.90.

There are currently no gurus that maintain a position in SGGH.

You can view all CEO buys and sells here. Also, check out the new Canadian Insider Trade Page.

Try a free 7-day Premium Membership Trial here.

Hot Canadian Companies To Watch For 2014: ING Group N.V. (IDG)

ING Groep N.V., a financial services company, provides banking, investment, life insurance, and retirement services for individuals, families, small businesses, corporations, institutions, and governments worldwide. The company provides savings accounts, mortgage loans, consumer loans, credit card services, and investment products, as well as current account services and payments systems; life and non-life insurance products; asset management products and services; mortgage products; and risk management services. It also offers commercial banking products and services, including lending products, such as structured finance; payment and cash management, and treasury services; and specialized and trade finance, derivatives, corporate finance, debt and equity capital markets, leasing, factoring, and supply chain finance. In addition, the company provides individual endowment, and term and whole life insurance products, as well as traditional, unit-linked, and variable annuity life insurance products for individual and group customers; fire, motor, disability, transport, accident, and third party liability insurance products; employee benefits products and pension funds; retirement services, fixed annuities, mutual funds, and broker-dealer services; and disability insurance products and complementary services for employers and self-employed professionals comprising dentists, general practitioners, and lawyers. Further, the company offers investment management services. ING Groep N.V. operates a network of approximately 280 branches in the Netherlands; and 773 branches in Belgium. The company was founded in 1991 and is headquartered in Amsterdam, the Netherlands. ING Groep N.V. is a subsidiary of Stichting ING Aandelen.

Hot Canadian Companies To Watch For 2014: Hudbay Minerals Inc (HBM)

HudBay Minerals Inc., an integrated mining company, engages in the exploration and development of copper, zinc, and precious metals mines in North and South America. It primarily produces copper concentrates containing copper, gold, and silver; and zinc metal. The company principally owns underground 777 mine that covers an area of 4,400 hectares and is located in Flin Flon, Manitoba. It also owns ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan. The company was founded in 1992 and is based in Toronto, Canada.

Top 10 Performing Stocks To Watch For 2014: Yamana Gold Inc.(AUY)

Yamana Gold Inc. engages in gold and other precious metals mining, and related activities, including exploration, extraction, processing, and reclamation. It also explores for copper, molybdenum, zinc, and silver metals. The company's portfolio includes 7 operating gold mines namely Chapada; El Pen Advisors' Opinion:

• [By Barker]

  I believe I have touted Yamana Gold's clear prowess as a deep-value favorite from every possible angle. With arguably the lowest downside risk of any stock in the sector, I join fellow value hounds in waiting patiently for the market to recognize the full value of these shares.

Hot Canadian Companies To Watch For 2014: STMicroelectronics N.V.(STM)

STMicroelectronics N.V., an independent semiconductor company, engages in the design, development, manufacture, and marketing of a range of semiconductor integrated circuits and discrete devices. Its products include discrete and standard commodity components, application-specific integrated circuits, custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications. The company also offers subsystems and modules for the telecommunications, automotive, and industrial markets comprising mobile phone accessories, battery chargers, ISDN power supplies, and in-vehicle equipment for electronic toll payment, as well as provides Smartcard products. Its products are used in various microelectronic applications consisting of automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation, and control systems. The company sells its products through distributors and ret ailers. STMicroelectronics N.V. was founded in 1987 and is headquartered in Geneva, Switzerland.

Top Low Price Stocks To Own For 2014

LONDON --�I'm shopping for shares right now, should I pop�Aviva� (LSE: AV  ) (NYSE: AV  ) �into my basket?

Problem play
How do you solve a problem like Aviva? it has been looking like a bargain buy for several years, and I'm not the only Fool dazzled by its low, low price. But now it is beginning to look more than a little shop soiled. Is it really a bargain? And should I buy more now, while it still looks cheap?

Insurer Aviva would try the patience of a saint. I bought it three years ago at around seven times earnings, seduced by its fat yield of nearly 8%. Subsequent share price performance has been dreadful. Aviva is down 6% in the past three years, against a 79% leap for�Prudential� (LSE: PRU  ) (NYSE: PRU  ) and 95% blitz for�Legal and General Group� (LSE: LGEN  ) . That's what you get for over-exposure to the toxic eurozone, and underexposure to booming Asia. Aviva's management cut the yield by 25% in March, further reducing its charms.

Top Low Price Stocks To Own For 2014: Sun Communities Inc (SUI)

Sun Communities, Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company leases individual parcels of land (sites) with utility access for placement of manufactured homes and recreational vehicles (RV) to its customers. It operates in two segments: Real Property Operations, and Home Sales and Rentals. The Real Property Operations segment owns, operates, and develops manufactured housing communities concentrated in the Midwestern, southern, and south-eastern United States and is in the business of acquiring, operating, and expanding manufactured housing communities. The Home Sales and Rentals segment offers manufactured home sales and leasing services to tenants and prospective tenants of its communities. In May 2011, it acquired Orange City RV Resort, a Florida RV community comprised of 525 developed sites. In February 2012, it acquired three additional Florida RV communities, Three Lakes RV resort, Blueberry Hill RV resort and Grand Lake Estates.

As of December 31, 2011, it owned and operated a portfolio of 159 properties located in 18 states, including 141 manufactured housing communities, eight RV communities, and 10 properties containing both manufactured housing and RV sites. As of December 31, 2011, the Properties contained an aggregate of 54,811 developed sites consisted of 47,935 developed manufactured home sites, 3,867 permanent RV sites, 3,009 seasonal RV sites, and approximately 6,400 additional manufactured home sites suitable for development. Most of the Properties include amenities oriented toward family and retirement living. Of the 159 Properties, 73 have more than 300 developed manufactured home sites, with the having 1,003 developed manufactured home sites. As of December 31, 2011, the Properties had an occupancy rate of 85.3 % excluding seasonal RV sites.

The Company�� properties contain improvements similar to garden-style residential developments, including centralized entrances, paved streets, curbs and gutters, an! d parkways. In addition, these communities also often provide a number of amenities, such as a clubhouse, a swimming pool, shuffleboard courts, tennis courts and laundry facilities. The owner of each home on its Properties leases the site, on which the home is located. The Company owns the underlying land, utility connections, streets, lighting, driveways, common area amenities and other capital improvements. Some of the properties provide water and sewer service through public or private utilities, while others provide these services to residents from onsite facilities. Each owner within its properties is responsible for the maintenance of the home and leased site.

Top Low Price Stocks To Own For 2014: tw telecom inc.(TWTC)

tw telecom inc. engages in the provision of managed network services in the United States. The company offers data networking, converged, Internet protocol based virtual private network (IP VPN), and Internet access services. The company?s data services include switched native local area network (NLAN), point-to-point elite NLAN, E-Line, extended NLAN, regional ethernet, and IP VPN and managed IP VPN services; and converged and integrated services. It also provides high capacity Internet service with bandwidth speeds ranging from 1.5 Mbps to 10 Gbps to access the Internet and other external networks; and managed services comprising enhanced management services, managed security services, collocation services, and distributed denial of service mitigation. In addition, the company offers network access services for voice, data, image, and video transmission, such as private line, special access, transport arrangements, and metropolitan and regional connectivity; and voice s ervices that provide customers with local and long distance calling capabilities consisting of access trunk, long distance, local toll, local telephone, business access line, and IP trunk services. Further, it offers intercarrier services, such as switched access and local traffic termination services. As of December 31, 2011, the company?s fiber network spanned approximately 27,000 route miles connecting to 15,438 buildings. Its customers include enterprise organizations in the distribution, health care, finance, service, and manufacturing industries; state, local, and federal government entities; system integrators; and communication service providers, such as incumbent local exchange carriers, competitive local exchange carriers, wireless communications, and cable companies. The company was formerly known as Time Warner Telecom Inc. and changed its name to tw telecom inc. in March 2008. tw telecom inc. was founded in 1993 and is headquartered in Littleton, Colorado.

Hot Canadian Stocks To Buy Right Now: Queensland Minerals Ltd (QML.V)

Dunav Resources Ltd. engages in the acquisition, exploration, and development of mineral resource properties in Serbia. It holds mineral licenses related to the Tulare copper and gold project, the Surdulica molybdenum project, and other early stage projects. The company was formerly known as Queensland Minerals Ltd. and changed its name to Dunav Resources Ltd. in May 2011. Dunav Resources Ltd. was incorporated in 1996 and is headquartered in Longueuil, Canada.

Top Low Price Stocks To Own For 2014: IAC/InterActiveCorp (IACI)

IAC/InterActiveCorp engages in the Internet business in the United States and internationally. The company�s Search segment develops, markets, and distributes various downloadable toolbars; provides search, reference, and content services through its destination search and other Websites, including Ask.com and Dictionary.com; and aggregates and integrates local advertising and content for distribution to publishers on Web and mobile platforms, as well as markets and distributes mobile applications through which it provides search and additional services. Its Match segment offers subscription-based and advertiser-supported online personals services through its Websites comprising Match.com, Chemistry.com, OurTime.com, BlackPeopleMeet.com, and OkCupid.com, as well as through mobile applications and Meetic-branded Websites. The company�s ServiceMagic segment offers Market Match service that matches consumers with service professionals; Exact Match service, which enables con sumers to review service professional profiles and select the service professional that meets their specific needs; and 1800Contractor.com, an online directory of service professionals. This segment also offers Website design and hosting services. Its Media and Other segment operates CollegeHumor.com, an online entertainment Website that targets young males; Vimeo, a Website on which users can upload, share, and view video; and Pronto.com, a comparison search engine. This segment also engages in the creation of video content for various distribution platforms; and operates as an Internet retailer of footwear and related apparel and accessories, as well as focuses on multimedia business. The company was formerly known as InterActiveCorp and changed its name to IAC/InterActiveCorp in July 2004. IAC/InterActiveCorp was founded in 1986 and is headquartered in New York, New York.

Advisors' Opinion:

• [By Lisa Springer]

  IAC/InteractiveCorp. (NASDAQ: IACI) is perhaps the forgotten Internet company. This $4 billion Web property gets very little love and respect from Wall St. because it is such a smaller competitor and it is considered a hodge-podge of Web properties. It has media, shopping and the Ask.com search engine, and that search is said to be the glue that keeps it together. Its Ask.com is still one of the largest search engines running, at number four in most rankings, but it is incredibly small when compared to Google and even compared to Microsoft along with Yahoo! Its own efforts to become a content destination have been met with a mixed reception, and the stock chart shows no real read either way at the start of 2013. What is amazing is that the company has grown without many investors paying attention.

  IAC/InteractiveCorp shares trade at $46.00, and its 52-week range is $40.87 to $55.57. Analysts have a consensus value of just over $60.00, for an implied upside of close to 30%, and IAC trades at only about 12-times earnings. Is this a Web value stock in the making?

Top Low Price Stocks To Own For 2014: Electrometals Technologies Ltd(EMM.AX)

Electrometals Technologies Limited designs, manufactures, and sells patented EMEW electrowinning equipment for the metals processing industry primarily in Australia and Canada. The company?s EMEW technology is used for the recovery of metals, such as gold, silver, platinum, cadmium, cobalt, copper, nickel, tin, zinc, lead, manganese, and various other metals. It also offers various services that include laboratory and test programs, pilot programs, flowsheet and general process development, feasibility studies, and general mining and industrial metal recovery consulting. The company markets its products directly and through agents and partners. Electrometals Technologies Limited is headquartered in Ashmore, Australia. As of June 1, 2011, Electrometals Technologies Ltd. operates as a subsidiary of Waverton Holdings, Ltd.

Top Low Price Stocks To Own For 2014: China Finance Online Co. Limited(JRJC)

China Finance Online Co. Limited provides integrated financial products and services in the People?s Republic of China. It offers various financial services, including news, data, analytics, and brokerage-related services through Web portals, desktop solutions, and mobile handsets. The company?s Web portals comprise jrj.com and stockstar.com, which offer subscription-based service packages that integrate financial and listed company data, information, and analytics from various sources with features and functions, such as data and information search, retrieval, delivery, storage, and analysis to individual users and institutional customers, including domestic securities and investment firms. It also collects, processes, and provides financial analysis tools, real-time and historical data, news, research reports, and online forums in one integrated information platform that allows its subscribers to make investment decisions with respect to various listed company stocks, bonds, mutual funds, and stock index futures. In addition, the company?s financial analysis tools offer subscribers with the ability to calculate and analyze financial data, such as securities market data analysis tools; technical analysis; and fundamental analysis. Further, it provides securities brokerage and online advertisement services. The company offers its products and services through its Websites, telemarketing, and customer service centers to individual investors managing their own money; professional investors, including institutional investors managing money on behalf of their clients and high net worth individuals; and other financial professionals, such as investment bankers, stock analysts, financial reporters, and middle class individuals. China Finance Online Co. Limited has strategic alliances with China Center for Financial Research of Tsinghua University and China Telecom. The company was founded in 1998 and is based in Beijing, the People?s Republic o f China.

Has Broadridge Financial Solutions Made You Any Real Money?

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Broadridge Financial Solutions (NYSE: BR  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Broadridge Financial Solutions generated $213.2 million cash while it booked net income of $160.9 million. That means it turned 9.0% of its revenue into FCF. That sounds OK.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Broadridge Financial Solutions look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 29.5% of operating cash flow coming from questionable sources, Broadridge Financial Solutions investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 9.3% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 16.0% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Can your portfolio provide you with enough income to last through retirement? You'll need more than Broadridge Financial Solutions. Learn how to maximize your investment income and get "The 3 DOW Stocks Dividend Investors Need." Click here for instant access to this free report.

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

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This Is 1 Incredible CEO

The Motley Fool's readers have spoken, and I have heeded your cries. After months of pointing out CEO gaffes and faux pas, I've decided to make it a weekly tradition to also point out corporate leaders who are putting the interests of shareholders and the public first and are generally deserving of praise from investors. For reference, here's my previous selection.

This week, we'll take a closer look at Qualcomm (NASDAQ: QCOM  ) and discover why CEO Paul Jacobs has put Qualcomm firmly at the top of the pack in wireless communications.

Kudos to you, Mr. Jacobs
As I discussed in March, Qualcomm has two primary enemies: oversaturation and industrywide commoditization. Luckily for Qualcomm, the U.S. market is nothing like Russia, where there are far more phones than there are people living in the country, so there's still room for expansion in terms of smartphones and tablets. It also helps that many rural areas of the U.S. still don't have 4G LTE capability, leaving ample room for smartphone and tablet growth in those markets.

Still, this hasn't helped Apple (NASDAQ: AAPL  ) , which is a prime customer of Qualcomm, utilizing its baseband processor in its iPhone and iPad. A combination of unrealistic growth expectations by investors and a growing presence of Samsung's Galaxy S series phones have slowed iPhone demand and caused the company to reduce supply orders, to the surprise of everyone earlier this year. There's also a nasty Catch-22 that exists in which Apple would love to be able to expand its fabless contract agreement with Taiwan Semiconductor (NYSE: TSM  ) , but Qualcomm is Taiwan Semi's other primary customer. If Apple were successful in negotiating more capacity, it would be hurting its own production potential by stymying Qualcomm's.

However, these problems really are for naught when it comes to Qualcomm, the first vertically integrated wireless device company. When it comes to advanced wireless technology, Qualcomm is the king of the hill. Shortly after NVIDIA (NASDAQ: NVDA  ) announced the introduction of a new line of Tegra 4 quad-core processors, which have the processing capacity to outperform Qualcomm's own chips based on speed, Qualcomm one-upped the entire field by introducing its all-in-one RF360 chip, which could be available as soon as the latter half of this year. The RF 360 chip is capable of handling RF band-fragmentation on the front end, potentially eliminating the need for an RF chip in its entirety, "combining all LTE platforms under one family of chips" (as my Foolish colleague Evan Niu so eloquently stated), and of course delivering the same high-end processing capability that we've come to expect from Qualcomm's wireless technologies.

The success in Qualcomm's bottom line results is undeniable. In its most recent quarter, Qualcomm delivered a 24% increase in revenue to $6.1 billion despite a 17% drop in income. It isn't too alarming to see income fluctuate during the evolution of new technologies, so don't spend too much time thinking about that 17% decrease in profits. From its popular Snapdragon processor to its Gobi LTE modems, Qualcomm has service providers covered from the top down.

A step above his peers
If Qualcomm's outperformance on the earnings front isn't enough to wow you, then perhaps its incredibly generous share repurchase and dividend policy, employee perks, and community giving will help change your mind.

As I noted last month, when I highlighted Qualcomm as a great dividend that you could buy right now, Qualcomm announced the replacement of a $4 billion share repurchase agreement, which still had about $2.5 billion left, with a $5 billion repurchase agreement with no expiration date! If that's not enough to excite shareholders, perhaps a 21.5% annualized increase in its dividend over the decade (that's more than 600% if you're curious) will tickle your fancy.

Source: Nasdaq.com.
*Assumes quarterly payout of $0.35 for remainder of 2013 and 2014.

Qualcomm's new yield of 2.2% puts it on par with some of the tech's sectors most generous dividend payers and amounts to an easily sustainable payout ratio of just 31% for this year.

In terms of employee perks, it really just matters where in the world you're based. For the sake of argument, I examined its U.S. operations and found a couple of perks to be particularly intriguing. Much like what I heard when I met with DreamWorks Animation CEO Jeffrey Katzenberg three months back, Paul Jacobs is a firm believer in keeping his workforce healthy. That's why the office brings in locally owned farmer's market foods once a week for employees to purchase. As you may have guessed, employees also receive a subsidy on their purchase of a wireless device that contains a Qualcomm chip. Finally, Qualcomm offers $5,250 toward qualifying tuition expenses for a bachelor's degree and $10,125 for graduate or post-graduate degrees.

Jacobs also does a good job of instilling the ethos of giving with his employees and throughout the company. Qualcomm will match its employees and directors dollar-for-dollar in qualifying charitable contributions, up to $1,000 for employees and $5,000 for directors. Qualcomm also has a volunteer grant program that will donate up to $250 for employees who put in at least 15 hours with a qualify non-profit organization.

Two thumbs up
There are about a handful or reasons to be concerned about Qualcomm's future and a mountain full of reasons Qualcomm is a leading wireless innovator that's taking care of its employees, shareholders, and the communities that it operates in. With a rapidly growing dividend, and technology that appears so far ahead of its peers that it'll maintain its LTE dominance for years to come, Paul Jacobs has certainly done a fantastic job of setting his company up for continued success. For that, I give Jacobs two well-deserved thumbs up.

Will Apple's worries persist?
There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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More Expert Advice from The Motley Fool

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.