Why Caterpillar, IBM, and Exxon Mobil Held Back the Dow This Week

The Dow Jones Industrials (DJINDICES: ^DJI  ) had a strong week to finish the month of May, with the average emerging at an all-time record closing high on Friday. Gains in the Dow have been broad-based, with the vast majority of Dow component stocks rising for the week. But the Dow did leave a few lagging stocks behind, with Caterpillar (NYSE: CAT  ) , IBM (NYSE: IBM  ) , and ExxonMobil (NYSE: XOM  ) among the stocks that posted declines on an otherwise positive day for the market.

Source: Caterpillar.

Caterpillar fell 1.7% on the week, with most of the decline coming on Friday after Chief Information Officer Randy Krotowski announced that he would resign effective June 1. The CIO had only been with Caterpillar for two years, but the drop in the stock's price suggests how sensitive shareholders are to any signs of problems at the company. Still, Caterpillar's stock hadn't performed well even before the announcement, as the Dow component continues to struggle with weak demand for its heavy equipment, especially among mining-industry customers. The key to a Caterpillar rebound will likely be in North America, where conditions in the construction industry have improved dramatically and where prospects for future growth look most promising.

IBM declined 0.9% as investors reacted to the tech giant's investor day during the preceding week with a lack of enthusiasm. Even as IBM seeks to replace falling revenue from its hardware segment with higher-margin software and services, the Dow component faces ever-stronger competition from other tech companies with similar pedigrees of IT success. IBM's area of strength is in business analytics, as the big-data movement continues to draw enterprise customer demand. Even there, though, IBM's responsive investment in its Watson supercomputer line and other big-data initiatives involve substantial risks. Moreover, with IBM facing some security concerns about whether foreign buyers can trust its hardware not to be monitored by U.S. intelligence agencies, the Dow component will need to work to retain its strong international reputation.

Source: ExxonMobil.

ExxonMobil was down 0.8% despite moving forward with its partnership with Russian oil giant Rosneft on its planned Arctic drilling projects. Many had feared that Exxon would face a work stoppage or even forfeiture of its huge investment in Russia, but since sanctions don't yet cover Rosneft, Exxon was in a position to reaffirm its commitment to the project. Given the challenges that ExxonMobil has faced in coming up with economically viable new sources of oil and gas production, it's important for the oil giant to take advantage of every opportunity it has. Moreover, with an agreement to build a liquefied natural gas plant on the eastern coast of Russia, ExxonMobil will help Russia make greater use of its natural-gas resources and serve energy-hungry customers on the Pacific Rim. Still, with uncertainty about whether geopolitical events will stymie Exxon's efforts, shareholders remain nervous about the future.

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Why Amira Nature Foods Ltd. Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Amira Nature Foods  (NYSE: ANFI  ) were looking healthier today, gaining as much as 11% after the company named a new chief financial officer last night.

So what: The maker of natural foods products announced that Bruce Wacha will take over as CFO on June 2. Wacha most recently served as a strategic adviser to Amira at Deutsche Bank, where he was previously a director in its global consumer group. Amira stock has been highly volatile in recent months as some short-sellers have accused it of fraud and nearly half of the company's shares have been sold short.

Now what: Amira has had its share of trouble. India's Commerce Ministry blacklisted it and two other companies for violating a rice export ban in 2008-09, though no criminal wrongdoing was found. A short-seller group, Arihaan Capital, has also attacked the company on several occasions, accusing it of misstatements in its SEC filings and failure to disclose a related third party, among other claims. None of its claims against Amira have been proven, however. Amira's volatility stems from being pushed by short-sellers and momentum traders, and it likely accounts for part of today's wild swing. However, investors also seem to be hoping that Wacha will help ease the fraud concerns. We should hear more from the company about these matters when Amira reports earnings sometime in June.

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Canada’s Key LNG Players Form an Alliance

Last week's announcement of Russia's USD400 billion deal to export its natural gas to China has global liquefied natural gas (LNG) players scrambling.

The good news, as we noted last week, is that as staggering as the numbers are, the 30-year contract between Russia's state-controlled OAO Gazprom and the state-owned China National Petroleum Corp (CNPC) will fulfill just 9 percent of projected Chinese gas demand by the time natural gas starts flowing through East Siberian pipelines toward the end of this decade.

And the Chinese are shrewd enough to know that the Russians are only as dependable as current exigencies allow. In other words, they understand the importance of diversification when it comes to meeting the country's critical energy demands. So while Canada's political and regulatory process is proceeding at a glacial pace, the country's relative stability is a welcome complement to its resource riches.

Besides China, the Asia-Pacific region includes other major consumers of natural gas, including Japan, South Korea, India and Malaysia, all of which will need Canadian LNG.

Still, this landmark deal means the LNG market just got even more competitive than it was already. And there's a real possibility that Canada could squander some of its advantages if politics continue to get in the way.

Fortunately, the companies involved in developing Canada's LNG export infrastructure are now even more motivated to do what it takes to expedite the approval process. To that end, the companies behind four of coastal province British Columbia's largest LNG export projects have formed the B.C. LNG Developers Alliance to lobby the government for sensible policymaking, help each other navigate the thorny approval process, and avoid duplicate efforts when it comes to the infrastructure itself.

According to The Globe and Mail, the group's four members are: Petronas-led Pacific No! rthWest LNG, Shell Canada Energy-led LNG Canada, BG Group PLC's Prince Rupert LNG, and the Kitimat LNG project, which is co-owned by the Canadian units of Chevron Corp and Apache Corp.

Three smaller LNG projects are also considering joining the group. The alliance might also team with the Canadian Association of Petroleum Producers on issues related to drilling for natural gas.

For now, the fledgling group is not quite yet in launch mode. According to a representative from Kitimat LNG, alliance members are still working out the details involving governance, while staff need to be hired, including a leader, who will act as spokesperson for the group, as well as outside consultants.

The companies hope that by working together they'll be able to more easily secure the imprimatur of key constituencies, such as First Nations groups, environmentalists and labor unions, among others. Outreach efforts will include an LNG literacy program to address the sort of misconceptions that have hindered the approval process for other energy infrastructure projects, such as Enbridge's Northern Gateway pipeline.

And once they receive the blessing of these various groups, the companies behind these LNG projects could also negotiate with the provincial government as a collective entity, instead of on a one-on-one basis. There's a solid precedent for the collective approach, as it apparently helped facilitate the negotiations that led to the development of Alberta's oil sands.

Additionally, as these projects are approved, the alliance will also work toward ensuring a steady supply of skilled labor is available for both construction and operation, as labor shortages have plagued past ramp-ups in the energy sector.

According to a report issued last year by the B.C. Natural Gas Workforce Strategy Committee, LNG exports will require more than 100,000 new skilled workers: about 60,000 to build gas liquefaction plants starting in 2016 and 75,000 workers to operate them after they’! re built.!

Finally, LNG project stakeholders may even broker the sharing of certain pipelines, which would not only save on construction costs, but also help speed the approval process.

Nevertheless, the political and regulatory process remains formidable. And this likely means that only a few of the 14 LNG projects that have filed for export licenses with the country's National Energy Board will ever become operational.

For instance, according to Canada's Business News Network, Calgary-based investment bank Peters & Co Ltd believes that just one LNG export plant will be operational by the end of this decade, with "maybe" two on line by 2025.

AltaCorp Capital Inc notes that Petronas' Pacific NorthWest LNG and Shell Canada Energy's LNG Canada are the two presumptive leaders at the moment, though this could very well change, particularly if the provincial tax and compliance regime becomes so onerous that companies decide it's no longer economic to pursue these projects.

LNG projects must appease the provincial government, as well as the aforementioned constituencies, which enjoy considerable political clout. The B.C. government estimates the LNG industry will create at least 75,000 new jobs in the province, while it hopes taxes and royalties will help fund a CAD100 billion prosperity fund. At the same time, it hopes to allay the concerns of First Nations groups, as well as ensure that these projects are in compliance with stringent environmental regulations.

All of these demands add up. Companies investing in these massive multi-billion-dollar LNG projects must not only enjoy a rate of return that justifies their risk, but Asian buyers of LNG are becoming increasingly adamant that contracted commodities be delivered on time and within budget, as they've seen other developed-world energy projects hit by huge cost overruns.

The energy industry has already balked at the B.C. government's proposed tax of 7 percent on the income from LNG facilities after th! e recover! y of capital costs. That's just the latest tax on top of many others already proposed or in existence. And the resulting thicket of taxes has created extraordinary complexity for which the government still needs to provide clarity. That's not expected to happen until the B.C. legislature's fall session, at the earliest.

That timing is crucial, as Petronas is expected to make its final investment decision by year-end. And while the CEO's tough talk at a Vancouver energy conference last week may be just another negotiating tactic, there's definitely a point at which it will no longer make sense for the company to commit further resources to Canadian LNG.

Canada's federal government certainly is in favor of developing the country's LNG export market. And British Columbia clearly sees significant benefits for the province as well. But the provincial government is going to have to shake off its bureaucratic malaise by moving faster and making more concessions, or it will risk killing the golden goose.

Congressional probers contact GM switch engineer

WASHINGTON — Congressional investigators acknowledged on Thursday that they met with a suspended General Motors engineer linked to the recall of 2.6 million cars regarding a safety defect blamed for 13 deaths and 42 crashes.

Following a report Wednesday night in the New York Times, a spokeswoman for the House Energy and Commerce Committee said staff investigators had met with Ray DeGiorgio, who was suspended by GM on April 10, as well as other company employees.

"Over the course of our investigation our staff has met with DeGiorgio and other current and former company officials," said committee spokeswoman Charlotte Baker. "We are continuing to conduct interviews." She declined to provide any other details.

Interviews such as those with DeGiorgio often come just in advance of congressional hearings, but Baker said there are no hearings on the GM recall currently scheduled. An Energy and Commerce subcommittee held a hearing April 1 with GM CEO Mary Barra, who also testified on April 2 before a Senate Consumer Protection subcommittee.

It is possible both panels will have additional hearings in the weeks to come, with an internal GM report from former U.S. Attorney Anton Valukas on what happened expected to be completed soon.

DeGiorgio and another GM engineer, Gary Altman, were suspended with pay in April as the company's internal investigation continued. Congressional investigators want to know why it took until this February for GM to begin recalling affected Chevrolet Cobalts, Saturn Ions and other small cars when there were warning signs of an ignition switch defect dating to 2001.

Because of the defect, a driver can inadvertently jostle the key out of "run" position, potentially cutting power to steering and brake assist, air bags and other systems. GM had maintained that it only learned of the problem late last year but two weeks ago was fined a record $35 million by federal regulators for not acting more quickly. Those regulators noted reports from suppliers as e! arly as 2009 indicating airbags could be disabled if the power to the car was inadvertently turned off.

DeGiorgio was a lead engineer on the switches. As was revealed in earlier hearings, he apparently signed off on a change to the ignition switch in 2006 that largely corrected the shutoff problem in early model vehicles. But the part number was never changed -- a move which could have led to a recall -- and GM did not notify federal regulators.

Last year, in a court case brought by the family of a Georgia woman who died, DeGiorgio said he didn't know about any changes which had been made to the part.

The New York Times said an unnamed House staff aide reported that during an interview on May 19 DeGiorgio, 61, seemed "genuinely upset" about the people who died and at his own failure to connect the ignition switch issue with air bag nondeployment earlier.

"He came across as if he was just overburdened and just missed it," the Times quoted the aide as saying. DeGiorgio, who has not spoken publicly about the recall, remains suspended with pay.

He apparently told investigators that he had forgotten about the upgrade ordered for the switch in 2006 when he was deposed by lawyer Lance Cooper last year.

Timid Tuesday – Indexes get Gun-Shy as they Re-Test the Tops

That was disappointing!

Things started out very exciting as we opened the S&P at 1,704 and ran all the way to 1,705 for a second there, just after noon but then reality stepped in and ruined the mood.  The Dollar had bottomed out at 81.13 but bounced back 0.5% to 81.55 and that, of course, took the S&P down 0.5% (because they have that kind of relationship) and we had a sad little close.  

On Dave Fry's SPY chart, it's 170 but, on the Index itself, we're testing 1,690 in the Futures this morning, down from 1,703.75 at yesterday's highs – pretty much the same thing but our goal for the index is 1,709.67 – that's the August 2nd high and that's what needs to be cracked on this run or the next time we test our +5% line at 1,680, it may not hold. 

Speaking of lines, it's no surprise, looking at our Big Chart, that the Nasdaq pulled back hard yesterday, dropping about 40 points (1%) from it's silly open to the more realistic close at 3,718.  As you can see from our spreadsheet (which is the real Big Chart, the rest is just illustration) the invisible string between the Nasdaq, the NYSE and the NYSE (both still below the Must Hold lines) was stretched more than 10% and either they had to go up or the Nasdaq had to come down.  

Of course AAPL tends to warp the Nasdaq but AAPL is DOWN $50 since the August highs and that's 10% so it SHOULD have a 1.4% drag (now 14% of the Nasdaq) on the Nasdaq but the Nasdaq is HIGHER than it was in August, when it was just below 3,700.  So, if AAPL is dragging the Nasdaq 1.4% lower but the Nasdaq is, in fact, 2% higher – then QCOM (7%), MSFT (5.5%), ORCL (4%) GOOG (4%), INTC (3%), RIMM (3%), CSCO (2.5%), AMZN (2.5%) as well as ATVI, EBAY, BIDU, COST, FSLR, NWSA, SBUX, PCLN, etc (1%ish) must be MORE than pulling their weight.  

That means the SQQQ ETF (ultra-short Nasdaq) is a nice way to protect yourself from a broad-market pullback.  SQQQ is $21.66…

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The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Valeant vs Allergan: Street Unimpressed by Bigger Offer

 Valeant Pharmaceuticals (VRX) has revised its offer to buy Botox-maker Allergan (AGN), upping the size of the overall deal, as well as the cash component. Wall Street, however, isn’t rejoicing.

Shares of Allergan fell 4.2% in morning market action to $158 a share, while Valeant fell 3.3% to $125.65 a share. That's quite a changeover pace from the kick both stocks received last month when Valeant and hedge fund manager Bill Ackman unveiled their alliance to purchase Allergan in a stock and cash deal worth $46 billion.

Today's bid is worth $49.5 billion, an increase of 8.5% over its previous offer. But at roughly $166.16 per share, it's below the $185 to $200 per share expected by Stern Agee's Shibani Malhotra in a note published yesterday.

Valeant's; new offer includes $58.30 per share in cash. Still, the deal still has a very large stock component. Allergan's board said it "would carefully review and consider" the bid.

In a report published this morning, Credit Suisse writes that Valeant's offer "is better, but may not be compelling enough given AGN’s strong standalone outlook…Given that the majority of the offer would still be in VRX stock, how one values VRX stock goes a long way to determining the true value of the deal."

In a nod to investors' worry that Valeant would gut Allergan's R&D pipeline, the drug maker is proposing a contingent-value right potentially worth up to $25 a share for the vision-loss drug DARPin, and the company pledged to continue investing to develop the product.

Still, many analysts still argue that Allergan can go it alone. Buckingham Research Group's David Buck writes:

Given the still high stock component of proposed transaction, effectively a bet on a rising Valeant share price, it is unclear that this proposed transaction can match Allergan standalone's options.

Credit Suisse's Vamil Divan writes:

We still believe that AGN has several ways that they can boost standalone value of the firm, if not possibly fending off VRX completely. Strong base business and balance sheet leave AGN many options and we see them being more proactive in the face of VRX’s bid.

And Aaron Gal at Bernstein Research writes:

Not impressive…The offer continues to under-estimate Allergan value as stand-alone entity. As we noted previously, Allergan has recently increased its earnings expectations for 2014 (mid-point 5.69). It projects 2015 YoY EPS growth to 20-25% and 20% EPS CAGR for the following four years. As the putative Valeant deal will close after 1/1/2015, most investors will compare the Valeant deal to AGN value on a 2016 basis. This suggests value range of $167 to $184 as a stand-alone company (20x-22x ’16 EPS of $8.36). Thus, at the current VRX stock price, the current offer is inferior to AGN on a standalone basis. Further, even if the Valeant multiple was to expand to 12.5x its guidance for 2015 post-deal EPS of $12.74, the value of the offer is $190, not have much in the way of a control premium. Σ We think Valeant is expecting Allergan shareholders will continue to believe the stock will decline to its pre offer range ($120-$130) if the offer was not to materialize. This is, in our view, unlikely. Given the new guidance, the stock may decline to $140 (20x 2015) but is then likely to rebound immediately afterwards. We hoped for something more imaginative, like substantially altering the share of cash and stock Valeant will use or a more substantial increase in the value offer ($30) or $9B, which is one year’s worth of the combined company EBITDA.

Rieder: Time to pass shield law for journalists

Last summer, supporters were confident that at long last the federal shield law for journalists would be enacted.

After a number of false starts, they were convinced that the stars were aligned and that a measure to ensure that journalists wouldn't have to choose between protecting confidential sources and going to jail would make it over the finish line.

The key factor was widespread revulsion at the Obama administration's treatment of journalists in overly zealous leak investigations. In September, by a 13-5 vote, the bill was approved​ by the Senate Judiciary Committee.

Since then, nothing. And news media organizations and First Amendment groups backing the bill fear the momentum of the summer of 2013 may have waned.

That would be bad. It's an important piece of legislation that's vital not only to journalists but, more important, to American citizens.

Confidential sources can be problematic. The transparency of attaching a name to information is obviously preferable. But in some cases, when sources may put their lives in jeopardy or risk losing their jobs by revealing information that's critical to the public interest, anonymity is a defensible cost of doing business. And a journalist should be able to protect that confidentiality without heading to the slammer.

REM RIEDER: Drop effort to make Times reporter testify

This is hardly an academic debate. Last July, the U.S. Court of Appeals for the 4th Circuit ruled that New York Times reporter James Risen would have to testify in the prosecution of former CIA analyst Jeffrey Sterling. If the U.S. Supreme Court rejects Risen's appeal, which would hardly come as a shock, the journalist will have to pick between giving up the source or heading to prison, as then-New York Times reporter Judith Miller did for 85 days in 2005.

Last July, Senate Judiciary Committee Chairman Charles Schumer, D-N.Y., assured me that the measure would "become law relatively quickly, by congressional standards." When I asked Schu! mer spokesman Matt House on Wednesday if his boss was still "confident," he responded, "We remain hopeful it will pass this year." Which is not quite the same thing.

He said he wasn't sure when the bill would be taken up. "Senate Republicans have been blocking bipartisan bills over non-related issues, but we're hopeful that won't happen with the media shield bill," House said.

Everyone seems to agree that more than 50 senators, a majority, are in favor. The problem, as Kevin Goldberg, legal counsel for the American Society of News Editors, points out, is that's not good enough these days. You need 60 votes to cut off debate if opponents try to block a measure.

Goldberg says the leadership wants to make sure those 60 votes are there. But finding out has been a challenge. (ASNE is a key part of the coalition of groups pushing the shield law).

It's the old chicken and egg conundrum. When you ask some senators if they will back the bill, they respond that they'll focus on it when it's heading for the floor. But Senate leaders, who don't want to see the bill tie up the world's greatest deliberative body, are reluctant to give it the green light until they are sure those 60 votes are locked up, Goldberg says.

Support tends to crest when something happens that underscores the urgency of the measure, as was the case last summer. But with time that support ebbs. That's why quick action at a flashpoint is key. The next such moment may come if the Supreme Court rejects Risen's appeal.

It's not like this is a radical idea. Forty-eight states and the District of Columbia have similar protection for journalists.

It's hardly a get-out-of-jail-free card. The law includes a balancing test, which means in some instances national security concerns will trump the shield law and a journalist will be required to testify.

And the Judiciary Committee did a good job of sorting out who is covered, a thorny issue in an era in which traditional journalists are hardly the only peopl! e carryin! g out the craft.

So let's stop fooling around. It's time for both houses of Congress to pass the law.

This Metric Says Kinder Morgan Energy Partners Is Cheap Right Now

Master limited partnerships are not like other stocks, and the metrics we use to compare an MLP to its peers differ from the metrics we use to compare regular companies. For example, instead of the traditional P/E ratio, we emphasize MLP-specific metrics like distribution coverage ratio and today's focus: price to distributable cash flow (P/DCF). I'll use Enterprise Products Partners (NYSE: EPD  ) , Kinder Morgan Energy Partners (NYSE: KMP  ) , and Buckeye Partners (NYSE: BPL  ) to illustrate the concept.

Why this metric?
Price to distributable cash flow is the MLP metric that comes closest to the P/E ratio most investors know and love. Like any good ratio, it allows you to compare MLPs on a relative basis, regardless of size.

Distributable cash flow per unit replaces earnings per unit in these relative valuations because MLPs pass almost all of their cash to unit holders. Distributable cash flow drives distribution growth, which in turn drives unit prices. That's really what investors care about the most with MLPs, and that's why analysts and management never discuss earnings per share for their MLPs; it's all about distributable cash flow.

How the metric works
To calculate P/DCF, you take the market cap of your MLP and divide it by a full year of distributable cash flow.

Let's use Enterprise Products Partners as our first example. We'll use distributable cash flow numbers from the four most recent quarters. The numbers shake out like this:

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Total

$1,069	$1,021	$908	$925	$3,922

Source: MLPData.com, Yahoo! Finance. Dollar figures are in millions.

Now we'll divide the partnership's market cap by its distributable cash flow total of $3.9 billion to derive our P/DCF multiple:

Market Cap

DCF

P/DCF

$68.1	$3.9	17.4x

Source: MLPData.com, Yahoo! Finance. Dollar figures are in billions

A multiple of 17.4 is a tad high, but we'll get to that in a minute. The whole point of this exercise is relative valuation, so let's see how Enterprise's multiple compares to that of some of its peers.

The DCF numbers for Kinder Morgan Energy Partners and Buckeye Partners come from the same four quarters that we used for Enterprise.

MLP

Market Cap

DCF

P/DCF

EPD	$68.10	$3.9	17.4x
KMP	$34.45	$2.4	14.4x
BPL	$9.04	$0.5	20.0x

 Source: Company releases, Google Finance. Dollar figures are in billions.

Enterprise falls right in the middle here. Given its recent trading history, it's not that big of a surprise to see Kinder Morgan posting the best multiple of the group. Its shares have vastly underperformed its two peers over the past year. Kinder Morgan is down more than 13%, while Enterprise and Buckeye Partners are up 19% and 16%, respectively.

But what is the benchmark for this cash flow multiple anyway? Most investors have heard that a P/E ratio greater than 15 is high, and the further it floats above that magic number the more overvalued the stock is. According to analysts at Morgan Stanley and Wells Fargo, the average multiple for large cap MLPs like today's group has been between 15 and 16 times price to distributable cash flow.

By this standard, Kinder Morgan is the only MLP here that is "cheap." But again, the P/DCF ratio is useful for relative valuations, but by no means would you want to base your entire investing thesis on this one metric -- or any one metric -- alone. Rather, it serves as a starting point for further research.

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Pfizer Inc. Pulls Offer for AstraZeneca plc; AstraZeneca Shares Fall (PFE, AZN)

AstraZeneca (AZN) shares were lower in pre-market trading on Tuesday morning, after Pfizer (PFE) announced on Monday that it is removing its offer to acquire the UK-based pharmaceutical company.

After having its final proposal rejected by the AZN board last week, Pfizer released a statement on Monday morning stating that the company is no longer making an offer for AstraZeneca.

Pfizer chairman and CEO Ian Read issued the following statement in the company’s press release: "We continue to believe that our final proposal was compelling and represented full value for AstraZeneca based on the information that was available to us. As we said from the start, the pursuit of this transaction was a potential enhancement to our existing strategy. We will continue our focus on the execution of our plans, bringing forth new treatments to meet patients' needs and remaining responsible stewards of our shareholders' capital.”

AstraZeneca shares were down $1.21, or 1.67%, in pre-market trading. YTD, the company’s stock is up 23.4%.

Pfizer shares were up 17 cents, or 0.58%, in pre-market trading. YTD, the company’s stock is down 3.18%.

How Not To Get Soaked When The Bond Bubble Bursts

Most investors are unaware and ill-prepared for the impact that rising interest rates will have on their bond funds and ETF investments. There has been an unprecedented period of Fed participation (manipulation) with six years of near zero-percent interest rate policy and trillions of newly created currency.

The Federal Reserve is waging a battle against deflation. Deflation can lead to depression. The Fed's objective is to create inflation. Our risk is that they do not succeed.  Unfortunately, our risk is also that they do succeed.

In inflationary periods, interest rates rise.  Since the Fed sets short-term rates, let's take a look at where the Federal Open Market Committee members believe interest rates are heading. Currently, 13 of the 16 FOMC participants believe the Fed will begin to raise rates in 2015.  One sees rates beginning to rise in 2014 and the remaining two see rates rising in 2016.  Their median year-end Fed funds rate target for 2015 is now 1.00%, up from 0.75% just three months ago.  The year-end target for 2016 is now 2.25%, up from 1.75%.

All of this suggests that the FOMC will begin hiking rates sooner and perhaps more aggressively than what investors may be expecting.  Also of note is that the FOMC participants see a 4% federal funds rate longer term. Rising rates spell trouble for unsuspecting bond investors.

What is the potential impact?  Recently, the yield on the 10-year Treasury note was 2.50%.  That is 2.50% above the current Fed funds rate of 0%.  If the Fed funds rate reaches 1% in 2015, then the 10-year Treasury is likely to yield 3.50%.  Such a move higher will cause an approximate 8% loss in principal value; though rates could move even higher.

A 2016 Fed funds target of 2.25% puts the 10-year Treasury yield near 4.75% (an approximate loss of 18%) and a longer-term Fed funds target of 4% puts the 10-year Treasury yield near 6.50%, a loss in principal value of 29%.  Further, if you own bond funds or ETFs with long-term exposure, the losses will be even greater.  A behavioral disconnect exists as many individual investors are unaware they can lose money in their bond funds and ETFs.

The following chart shows the current yield on the 10-year and 30-year Treasury (orange highlight).  The green arrow shows how much bonds will appreciate if rates move 1% lower.  The red arrow shows the approximate loss for every 1% rise in interest rates.  I've circled in red the potential loss should rates rise 3% above where they are today.

These are estimates, of course, yet the idea is to gain awareness of the large interest rate risk that may exist in your portfolio. While rates may continue to go lower before they go higher, most Wall Street analysts project the 10-year Treasury to yield north of 3% by year end.  So far they are wrong yet at some point, with little room left on the downside, rates are likely to rise.  It is important to protect your portfolio against the inevitable rise in interest rates while at the same time participating in bond returns when the trend for interest rates is down (such as year-to-date 2014).

What can you do? Tactically trade your bond funds and bond ETFs.

Years ago the late Marty Zweig created a tactical trend following bond model. We recently did some customized work and updated a model Marty co-created with Ned Davis Research in the mid 1980s. The rules have remained in place since then, the model has continued to perform well and it has been properly positioned in bonds this year.  Of course, there are no guarantees in this business.  This is a mathematical process you could track and trade on your own.

Here is how this particular tactical trend following process works:

Production halt for India's iconic Ambassador

An Ambassador taxi on the streets during monsoon rain in Kolkata.

HONG KONG (CNNMoney) Hindustan Motors has suspended production of its iconic Ambassador model amid growing financial pressure and low demand for the car.

Once the vehicle of choice for Indian politicians and bureaucrats, the Ambassador's design was borrowed from Britain's Morris Oxford. The car's look hasn't changed much since the 1950's, making it one of the most enduring sights on India's streets.

While the car's popularity has diminished greatly in recent years, the Ambassador is still used today as a taxi in several Indian cities including Kolkata. Last year, the Ambassador was named world's best taxi by the popular BBC show Top Gear.

The suspension of work at Hindustan Motors' Uttarpara production facility, where the Ambassador is built, has thrown the model's future into doubt. Only a few thousand of the cars are sold each year.

The company said in a stock market filing that it was working to fix substantial problems at the factory located near Kolkata.

"The Company has been transparent in sharing updates about the worsening conditions at its Uttarpara Plant which include very low productivity, growing indiscipline, critical shortage of funds, lack of demand for its core product, the Ambassador, and large accumulation of liabilities," the statement said.

  Hottest cars at the NY Auto Show

Rajiv Saxena, a company spokesman, said that the suspension of work at the factory did not mean permanent closure.

"We have suspended operations to set things right for revival," he ! said.

-- CNN's Ravi Agrawal contributed reporting from New Delhi.

Congress Saves the A-10 Warthog... for Now

Sunset for the A-10 Thunderbolt II? Or a new dawn? Photo: U.S. Air Force.

The U.S. Air Force wants to kill the A-10 Thunderbolt II. Really, really, really wants to kill it.

But the Air Force's paymaster does not. And when all's said and done, that's what the debate over the fate of America's best tank-destroying warplane may come down to -- whether the folks who control the Air Force's purse strings want to keep the A-10 flying.

A few weeks ago, we went over a few trial balloons that the Air Force has floated, in case Congress won't let it retire its fleet of 326 A-10 "Warthogs." To save the estimated $700 million a year it costs to keep the A-10s fueled, maintained, and flying, USAF has suggested it could retire its entire fleet of 66 B-1B long-range bombers instead -- or put about a third of its 1,018 F-16 fighter jets into mothballs.

That makes sense because, as Georgia Senators Saxby Chambliss and Johnny Isakson have pointed out, the A-10 is cheaper to fly, per flying hour, than either the F-16 or the B-1. This suggests that cutting the more expensive planes from the Air Force's arsenal, and sticking with the older -- but cheaper and more effective -- A-10 is the right move to make.

And speaking of no brains -- Congress!
Regardless, Congress is busily brainstorming other ways to save the A-10. Earlier this month, for example, legislators in the House Armed Services Committee, or HASC, passed an amendment, voting two to one to forbid the USAF from even thinking of retiring the plane unless it can assure legislators it has other ways of providing "adequate" close-air support to troops on the ground.

Caution: A-10 Warthog at work. Photo: U.S. Air Force.

This requirement edged out a separate proposal (which was rejected) that would have had the Air Force mothball its A-10s -- so that rather than being disassembled and sold for scrap, they'd be kept in stasis, shrink-wrapped in latex, and could be brought back from retirement if need be. (The main problem with that plan: "Spinning up" a latex wrapped A-10 can take as long as four months to accomplish. By that time, the war may already be lost).

Meanwhile in the Senate, the HASC's doppelganger, the Senate Armed Services Committee, confirmed this week that it's working on a plan to shift funding from other programs to cover the cost of the A-10. (The catch here? Optimistic senators think they only need to cobble together $400 million to keep the A-10 flying for another year. That's barely half what USAF says it needs -- and less than half of what the Obama Administration says the A-10 will cost).

What it means to investors
It's that last point that may turn out to be of most importance to defense investors. The White House went on record this week saying it has "serious concerns" with Congressional efforts to keep the A-10 alive, and "objects," in particular to Congress's plan to shift funding from the Littoral Combat Program, among others, to fund programs such as the A-10. The Administration even went so far as to utter the "V" word -- threatening to veto the bill if its demands are not met.

What might this mean for investors, in dollars and cents? Here's a quick rundown of the highlights.

Northrop Grumman (NYSE: NOC  )
America hasn't built a brand-new A-10 Warthog in decades. But as the debate before Congress shows, it still spends hundreds of millions annually keeping the ones it's already built flying. Since 1987, Northrop Grumman has served as prime contractor for A-10 work. Its most important recent contract was awarded in 2010 -- a $486 million contract to equip U.S. Air Force and Navy aircraft -- including A-10s -- with up to 99 LITENING targeting pods.

Other tasks assigned to Northrop: $1.7 million to "sustain and modernize all A-10 weapon system configurations," and $11.3 million to perform "evaluations, analysis, repair designs, and/or testing" of A-10 structural integrity.

Boeing (NYSE: BA  )
Another contractor with arguably as big a stake in the A-10's survival as Northrop Grumman's, is Boeing. Last year, Boeing was the single biggest recipient of A-10-related funding, winning $218 million in maintenance contracts for the A-10, "the most of any defense prime," according to Bloomberg. These included $212 million awarded in just one single contract to deliver 56 replacement "thick-skinned" wings for the A-10.

Going forward, and working from the estimated $4 million cost per wing, Boeing's contract to build as many as 242 replacement wings for the A-10, of which 173 have already been ordered, could yield as much as $276 million in additional revenue for Boeing in years to come -- and help to keep the A-10s flying well into the 2040s. (That is, if Congress can convince USAF to keep the plane flying, at all).

Lockheed Martin (NYSE: LMT  )
Lockheed Martin, in contrast, has almost no ties to the A-10 program whatsoever. Yet, it's arguably the single company most interested in the aircraft's fate.

A review of business segment data from S&P Capital IQ on the revenues of each of the major A-10 players reveals that, even the multi-hundred-million-dollar contracts that Boeing and Northrop have won for A-10 work amount to mere fractions of 1% of each company's annual revenue stream. In contrast, Lockheed Martin gets 20% of its revenues from production of its new F-35 Lightning II fighter jet -- the plane that the Obama administration and the U.S. Air Force agree can do an "adequate" job of replacing the A-10 on, for close-air-support missions.

Over time, and based on the F-35's projected program cost, the F-35 could ultimately grow to constitute 50% of Lockheed's business, if the company is able to sell as many F-35s as originally expected. But here's the key: Every dollar diverted from F-35 production to fund the A-10 means fewer F-35s built today. And the fewer F-35s that get built, the slower Lockheed Martin is able to scale production of the F-35.

Less economies of scale mean less efficiency of production for Lockheed, raising the cost of building F-35s, and making the plane less price-competitive with alternative fighter jets for sale on world markets. And this effect tends to snowball -- the more expensive the plane, the fewer the foreign buyers, and the fewer the foreign buyers, the less efficient the production -- raising the F-35's cost even further, and leading to even fewer buyers.

In short, Lockheed Martin needs to scale production of the F-35 fast. But the more funds get diverted from F-35 production to save the A-10, the harder this job gets for Lockheed Martin. If you were wondering before why the F-35's backers in Congress hate the A-10 so much, well, now you know.

That's a lot of F-35s. But it's still not as many F-35s as Lockheed Martin wants to sell. Photo: Lockheed Martin.

 

Could saving the A-10 threaten your dividends?
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. But what might a revived A-10 program -- and a decimated F-35 program -- do to Lockheed Martin's ability to keep paying its 3.3% dividend? It might mean you need to find yourself a new dividend stock. Knowing how valuable dividend-paying stocks can be for investors, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

10 Best Quality Stocks To Watch Right Now

Focus Financial Partners, which brings together independent RIA firms, said Monday that Telemus Capital Partners had joined the partnership with more than $2.2 billion in client assets.

The addition of Telemus, a group of ex-wirehouse advisors, is the fifth transaction for Focus in 2013.

“With the addition of Telemus, we have brought in a very attractive, top independent advisory firm to our growing partnership and have expanded our Midwest presence, said Rudy Adolf (left), founder and CEO of Focus, in a press release. “Telemus will contribute to our vast network of experienced investment management teams, and will help attract other quality brokers and independent advisors to Focus.”

Telemus has offices in Southfield, Mich., and Ann Arbor, Mich. Former Merrill Lynch (BAC) and UBS (UBS) executives Gary Ran, Bob Stone and Lyle Wolberg formed the firm in 2005; it offers services such as investment management, financial planning, retirement and estate planning to nearly 600 clients nationwide.

10 Best Quality Stocks To Watch Right Now: Cracker Barrel Old Country Store Inc.(CBRL)

Cracker Barrel Old Country Store, Inc., through its subsidiaries, engages in the development and operation of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. Its restaurants provide breakfast, lunch, and dinner. The company?s gift shops offer various decorative and functional items, such as rocking chairs, holiday and seasonal gifts, apparel, toys, music CD?s, cookware, old-fashioned-looking ceramics, figurines, a book-on-audio sale-and-exchange program, and various other gift items, as well as candies, preserves, pies, cornbread mixes, coffee, syrups, pancake mixes, and other food items. As of November 22, 2011, it operated 608 company-owned locations in 42 states. The company was formerly known as CBRL Group, Inc. and changed its name to Cracker Barrel Old Country Store, Inc. in December 2008. Cracker Barrel Old Country Store, Inc. was founded in 1969 and is headquartered in Lebanon, Tennessee.

Advisors' Opinion:

• [By Chris Hill]

  Cracker Barrel's (NASDAQ: CBRL  ) reported a 30% increase in third-quarter profits. What was behind the higher-than-expected earnings? In this installment of MarketFoolery, our analysts discuss the future of the company.

• [By Rick Munarriz]

  Monday
  The first trading week of June kicks off with Cracker Barrel Old Country Store (NASDAQ: CBRL  ) reporting. The chain of comfort-food eateries with attached gift shops hit a fresh all-time high this past week, so expectations are high as well. Having Sardar Biglari as an activist investor needling the restaurant operator hasn't hurt the company's focus and execution. Analysts see earnings climbing 9% to $0.94 a share.

10 Best Quality Stocks To Watch Right Now: Cornerstone OnDemand Inc.(CSOD)

Cornerstone OnDemand, Inc. provides learning and talent management solution delivered as software-as-a-service. The company offers three integrated cloud-based solutions for learning management, performance management, and extended enterprise. Its Cornerstone Learning Cloud helps clients deliver and manage enterprise training and development programs, as well as links employee development to other parts of the talent management lifecycle, including performance management and succession planning. The company?s Cornerstone Performance Cloud allows clients to direct and measure performance at the individual, departmental, and organizational level through competency management, organizational goal setting, performance appraisal, compensation management, and development planning. Its Cornerstone Extended Enterprise Cloud helps clients extend learning and talent management to their customers, vendors, and distributors. The company also offers consulting services comprising impl ementation, integration, content, business consulting, and educational services; and account services, as well as resells third-party e-learning content. Its clients include multi-national corporations, large domestic enterprises, mid-market companies, public sector organizations, higher education institutions, and non-profit entities. The company sells its solution and services directly through its own sales force in North America and Europe; and indirectly through domestic and international network of distributors. Cornerstone OnDemand, Inc. was founded in 1999 and is headquartered in Santa Monica, California.

Advisors' Opinion:

• [By Jonas Elmerraji]

  First up is Cornerstone OnDemand (CSOD), a $2.57 billion software stock that's been on a tear in 2013. Since the first trading session of the year, CSOD has rallied more than 69%. But the upside could be over thanks to a bearish setup that's been forming in shares.

  CSOD is currently forming a descending triangle pattern, a bearish setup that's formed by a horizontal support level below shares at $46 and downtrending resistance to the upside. Basically, as CSOD bounces in between those two technical price levels, it's getting squeezed closer and closer to a breakdown below $46. When that happens, we've got a sell signal.

  $46 gets some extra strength as a support level because it acted as resistance for shares on the way up back in the summer. The fact that buyers assigned some extra significance to $46 makes it a level that's worth watching on the way down. The 50-day moving average has been a good proxy for resistance on the way down. If you decide to bet against CSOD from here, that's where you'll want to keep a protective stop.

Best Mid Cap Companies To Buy Right Now: Powershares Buyback Achiever Portfolio (PKW)

PowerShares Buyback Achievers Portfolio (Fund) seeks investment results that correspond generally to the price and yield of an equity index called the Share BuyBack Achievers Index (the Index). The Index is designed to track the performance of companies that meet the requirements to be classified as BuyBack Achievers. To become eligible for inclusion in the Index, a company must be incorporated in the United States, trade on the NYSE, the AMEX or the NASDAQ, and must have repurchased at least 5% or more of its outstanding shares for the trailing 12 months. The Index consists of stocks of companies selected by Mergent, Inc. (the Index Provider) pursuant to its own selection methodology. The Fund�� investment advisor is PowerShares Capital Management LLC.

The Index is rebalanced on the last trading date of April, July and October based on the constituents��modified market capitalizations as of the last trading day in March, June and September, respectively. The Fund generally will invest in the stocks comprising the Index in proportion to their weightings in the Index. The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Fund, using an indexing investment approach, attempts to replicate the performance of the Index.

Advisors' Opinion:

• [By Joon Choi]

  Meanwhile, investors have been flocking to buy PowerShares Buyback Achievers (PKW), pushing the price into overbought territory.

  Currently, the monthly relative strength indicator (RSI) reading is 83.7. (A reading over 70 is considered to be overbought.) To put this figure in perspective, the monthly RSI of the Nasdaq Composite was 85.9 on March of 2000 (the index peak), and we know what happened afterwards.

• [By Elliott Gue]

  Just check out the PowerShares Buyback Achievers ETF (NYSE: PKW), which invests in companies that have bought back at least 5% of their shares outstanding during the prior 12 months. This ETF has more than doubled the returns of the S&P 500 over the past five years.

• [By Jon C. Ogg]

  5. Dividends, stock buy-backs, capex, and M&A all increase at a double-digit rate – This is led by a lot of cash flow, underleveraged balance sheets, and possible great places to use cash. The argument for higher cap-ex is as follows: “Pent-up demand and aging of plant, equipment and technology argue for increases in those key areas.”

  ETF Recommendation: Vanguard Dividend Appreciation ETF (NYSEArca: VIG) for dividend growers, and PowerShares Buyback Achievers (NYSEArca: PKW) for buyback stocks. Hint: the buyback ETF rose by 45.5% in 2013 after dividend adjustments versus 28.8% for the dividend growth ETF.

  6. The U.S. dollar appreciates as U.S. energy and manufacturing trends continue to improve.

10 Best Quality Stocks To Watch Right Now: Con-way Inc (CNW)

Con-way Inc. (Con-way), incorporated in 1958, provides transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial and retail customers. Con-way�� business units operate in regional and transcontinental less-than-truckload and full-truckload freight transportation, contract logistics and supply-chain management, multimodal freight brokerage, and trailer manufacturing. Con-way is divided into four segments: Freight, Logistics, Truckload, and Other. At December 31, 2011, Con-way Freight operated 286 freight service centers, of which 144 were owned and 142 were leased. At December 31, 2011, Con-way Freight owned and operated approximately 9,200 tractors and 26,400 trailers, including tractors held under capital lease agreements.

Freight

The Freight segment consists of the operating results of the Con-way Freight business unit. Con-way Freight is a less-than-truckload (LTL) motor carrier that utilizes a network of freight service centers to provide day-definite regional, inter-regional and transcontinental less-than-truckload freight services throughout North America. LTL carriers transport shipments from multiple shippers utilizing a network of freight service centers combined with a fleet of line-haul and pickup-and-delivery tractors and trailers. Freight is picked up from customers and consolidated for shipment at the originating service center. Freight is consolidated for transportation to the destination service centers or freight assembly centers. At Freight assembly centers, freight from various service centers can be reconsolidated for transportation to other freight assembly centers or destination service centers. From the destination service center, the freight is delivered to the customer. Typically, LTL shipments weigh between 100 and 15,000 pounds. In 2011, Con-way Freight�� average weight per shipment was 1,305 pounds.

Logistics

The Logistics segment consists of the operating results o! f the Menlo Worldwide Logistics business unit. Menlo Worldwide Logistics develops contract-logistics solutions, which can include managing complex distribution networks, and providing supply-chain engineering and consulting, and multimodal freight brokerage services. Menlo Worldwide Logistics��supply-chain management offerings are primarily related to transportation-management and contract-warehousing services. Transportation management refers to the management of asset-based carriers and third-party transportation providers for customers��inbound and outbound supply-chain needs through the use of logistics management systems to consolidate, book and track shipments. Contract warehousing refers to the optimization and operation of warehouses for customers using technology and warehouse-management systems to reduce inventory carrying costs and supply-chain cycle times. For several customers, contract-warehousing operations include light assembly or kitting operations.

Menlo Worldwide Logistics provides its services using a customer- or project-based approach when the supply-chain solution requires customer-specific transportation management, single-client warehouses, and/or single-customer technological solutions. However, Menlo Worldwide Logistics also utilizes a shared-resource, process-based approach that leverages a centralized transportation-management group, multi-client warehouses and technology to provide scalable solutions to multiple customers. Additionally, Menlo Worldwide Logistics segments its business based on customer type. At December 31, 2011, Menlo Worldwide Logistics operated 76 warehouses in North America, of which 55 were leased by Menlo Worldwide Logistics and 21 were leased or owned by clients of Menlo Worldwide Logistics. Outside of North America, Menlo Worldwide Logistics operated an additional 63 warehouses, of which 48 were leased by Menlo Worldwide Logistics and 15 were leased or owned by clients. Menlo Worldwide Logistics owns and operates a small fleet of tr! actors an! d trailers to support its operations, but primarily utilizes third-party transportation providers for the movement of customer shipments.

Truckload

The Truckload segment consists of the operating results of the Con-way Truckload business unit. Con-way Truckload is a full-truckload motor carrier that utilizes a fleet of tractors and trailers to provide short- and long-haul, asset-based transportation services throughout North America. Con-way Truckload provides dry-van transportation services to manufacturing, industrial and retail customers while using single drivers as well as two-person driver teams over long-haul routes, with each trailer containing only one customer�� goods. This origin-to-destination freight movement limits intermediate handling and is not dependent on the same network of locations utilized by LTL carriers. On average, Con-way Truckload transports shipments more than 800 miles from origin to destination. Under its regional service offering, Con-way Truckload transports truckload shipments of less than 600 miles, including local-area service for truckload shipments of less than 100 miles.

Con-way Truckload offers through-trailer service into and out of Mexico through all major gateways in Texas, Arizona and California. For a shipment with an origin or destination in Mexico, Con-way Truckload provides transportation for the domestic portion of the freight move, and a Mexican carrier provides the pick-up, linehaul and delivery services within Mexico. At December 31, 2011, Con-way Truckload operated five owned terminals with bulk fuel, tractor and trailer parking, and in some cases, equipment maintenance and washing facilities. In addition, Con-way Truckload also utilizes various drop yards for temporary trailer storage throughout the United States. At December 31, 2011, Con-way Truckload owned and operated approximately 2,700 tractors and 8,000 trailers, including tractors held under capital lease agreements.

Other

! The Other! reporting segment consists of the operating results of Road Systems, a trailer manufacturer, and certain corporate activities for which the related income or expense has not been allocated to other reporting segments, including results related to corporate re-insurance activities and corporate properties. Road Systems primarily manufactures and refurbishes trailers for Con-way Freight and Con-way Truckload.

Advisors' Opinion:

• [By Rich Smith]

  Consider: According to YRC, the $150.9 million it currently pays in annual interest exceeds the $92.6 million in interest obligations paid by "all [of its] competitors combined." Con-Way (NYSE: CNW  ) , for example, sports a debt load about half of YRC's, yet pays only about one-third �as much in interest on that debt. Old Dominion Freight (NASDAQ: ODFL  ) has 12% the debt �of YRC, but only 7% of the interest expense.

• [By Rich Smith]

  Con-Way (NYSE: CNW  ) announced that after polling its drivers for feedback on various truck manufacturers and models, it has decided to refresh its truck fleet with 525 new tractors -- 325 Kenworth T680s from Paccar, and another 200 Navistar ProStars.

• [By Ben Levisohn]

  Shares of Heartland Express have gained 50% this year, trumping the 38% rise in Con-Way (CNW) and the 29% advance in J.B. Hunt Transport Services (JBHT) but lagging Old Dominion Freight Lines (ODFL) and Swift Transportation (SWFT).

10 Best Quality Stocks To Watch Right Now: Gentherm Inc (THRM)

Gentherm Inc, formerly Amerigon Incorporated, doing business as Gentherm, incorporated in 1991, is a global developer and marketer of thermal management technologies for a range of heating and cooling and temperature control applications. Automotive products include actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated seat and steering wheel systems, cable systems and other electronic devices. The Company is developing materials for thermoelectrics and systems for waste heat recovery and electrical power generation for the automotive market that may have applications for consumer products, as well as industrial and technology markets. Gentherm has facilities in the United States, Germany, Mexico, China, Canada, Japan, England, Korea, Malta, Hungary and the Ukraine. In February 2013, it announced the closing of the acquisition of W.E.T. Automotive Systems AG (W.E.T.).

The Company designs, develops and markets products based on its thermoelectric device (TED) technologies for a range of global markets and heating and cooling applications. As of December 31, 2011, its principal product was its Climate Control Seat (CCS), which it sells to automobile and light truck original equipment manufacturers or their tier one suppliers. The Company�� CCS product is offered as an optional or standard feature on automobile models produced by Ford Motor Company, General Motors, Toyota Motor Corporation, Nissan, Tata Motors, Ltd. and Hyundai. On May 16, 2011 the Company, through its wholly owned subsidiary Amerigon Europe, GmbH (Amerigon Europe), acquired a majority interest in W.E.T. Automotive Systems AG. (W.E.T.).

Thermoelectric device

The Company�� products are primarily based upon its TED technology. A TED is a solid state circuit that has the capability to produce both a hot and cold thermal condition. TEDs also have a capability known as the Seebeck effect that is reciprocal to the Peltier effect.

Climate Control Seat

The Company�� CCS product uses one or more TEDs, which generate heating or cooling depending upon the direction of the current applied to the device. If a manufacturer wishes to integrate its CCS product into a seat, it provides the Company with automotive seats to be modified so that it can install a unit in a prototype. The seat is then returned to the manufacturer for evaluation and testing. If a manufacturer accepts the Company�� CCS product, a program can then be launched for a particular model on a production basis.

Heated and Ventilated Seat

The Company sells a heated and ventilated only variant of the CCS. This product works in a similar fashion to its CCS, only there is no active cooling capability and no TED. In the cooling mode, the vent only system will use the ambient cabin air to provide a degree of cooling comfort to the seat occupant. In the heating mode, the vent only system is supplemented with more traditional resistive heating elements. Similarly, W.E.T.�� core seat comfort product uses a resistive element heater mat to generate heat when the seat is in heating mode and ambient cabin air for cooling.

Heated and Cooled Cup Holder

The heated and cooled cup holder represents an adaptation of the technology found in its CCS, including the use of a TED and other key elements. The dual cup holder provides separate temperature settings in each holder allowing the driver and passenger to individually maintain a heated or cooled beverage. The vehicles that feature the heated and cooled cup holder was the 2011 Dodge Charger and 2011 Chrysler 300 during the year ended December 31, 2011.

Heated and Cooled Mattress

The Company�� heated and cooled mattress incorporates its Climate Control Sleep System (CCSS) technology. The mattress is sold in the United States by its retail partner, Mattress Firm, under its YuMe brand. Mattress Firm has over 800 retail stores located a! cross 26 ! states. There are five available settings in each of the heat and cool modes, as well as an ambient setting. The bed can be controlled using either the Master Control Unit (MCU) or one of two remotes provided for each zone.

Automotive Cable Systems

W.E.T. produces automotive cable systems to be used to connect automotive components to sources of power. W.E.T.�� cable systems include both ready-made individual cables and ready-to-install cable networks.

Advisors' Opinion:

• [By Seth Jayson]

  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 Gentherm (Nasdaq: THRM  ) , whose recent revenue and earnings are plotted below.

10 Best Quality Stocks To Watch Right Now: Itron Inc.(ITRI)

Itron, Inc. provides products and services for the energy and water markets worldwide. It produces standard electricity, natural gas, and water meters for residential, commercial, industrial, and transmission and distribution customers. The company also offers advanced and smart electronic, gas, and water meters, as well as communication modules; handheld, mobile, and fixed network collection technologies; meter data management software; prepayment systems comprising smart key, keypad, and smart card communication technologies; data warehousing; and knowledge application solutions. It provides communication technologies, which include telephone, radio frequency, global system for mobile communications, power line carrier, and Ethernet devices. In addition, the company offers professional services, including implementation, installation, consulting, system management, and analysis. It markets its products through direct sales, distributors, representative agencies, partners , and meter manufacturer representatives. The company was founded in 1977 and is headquartered in Liberty Lake, Washington.

Advisors' Opinion:

• [By John Udovich]

  Small cap cloud stock Opower Inc (NYSE: OPWR), a cloud�solutions provider to the utility sector, IPO�� at $19�on Friday to�close at $23 a share, meaning its worth taking a closer look at the stock plus�take a look at the performance of smart meter or smart grid�stocks like�Itron, Inc (NASDAQ: ITRI), Echelon Corporation (NASDAQ: ELON) and EnerNOC, Inc (NASDAQ: ENOC).

• [By John Udovich]

  Although small cap smart metering stock Silver Spring Networks Inc (NYSE: SSNI) recently soared on earnings, it also plunged yesterday�after loosing�out on important contract ��meaning it might be time to take a closer look at it along with other smart metering stocks like Itron, Inc (NASDAQ: ITRI) or Echelon Corporation (NASDAQ: ELON) to see if they are smart investments.

• [By Alex Planes]

  What: Shares of Itron (NASDAQ: ITRI  ) are down nearly 10% after plunging as much as 14% in early trading today after a pre-market earnings report gave investors little cause for optimism in the near term.

10 Best Quality Stocks To Watch Right Now: iShares Global Tech ETF (IXN)

iShares S&P Global Technology Sector Index Fund (the Fund) seeks investment results that correspond generally to the price and yield performance of the Standard & Poor�� Global Information Technology Sector Index (the Index). The Index is a subset of the Standard & Poor�� Global 1200 Index, and measures the performance of companies that Standard & Poor�� deems to be part of the information technology sector. Component companies include those involved in the development and production of technology products, including computer hardware and software, telecommunications equipment, microcomputer components, integrated computer circuits and office equipment utilizing technology.

The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. The Fund�� investment advisor is Barclays Global Fund Advisors.

Advisors' Opinion:

• [By Russ Koesterich]

  The list above is based on my team's analysis of whether sector valuations appropriately price in each sector's expected earnings growth, profitability and risk. Based on these factors, I have a preference for the energy and informational technology sectors, accessible through the iShares S&P Global Energy Sector Fund (IXC) and the iShares S&P Global Technology Sector Fund (IXN). And as I write in my new Investment Directions commentary piece, if it turns out that we do see more investors rotating out of defensives and into more attractively priced cyclicals, these two sectors are poised to especially benefit.

10 Best Quality Stocks To Watch Right Now: Smith & Wesson Holding Corp (SWHC)

Smith & Wesson Holding Corporation (Smith & Wesson), incorporated on June 17, 1991, is a manufacturer of firearms. The Company manufactures a range of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a range of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and globally. It sell its products under the Smith & Wesson brand, the M&P brand, the Thompson/Center brand, and the Walther brand. The Company manufactures its firearm products at its facilities in Springfield, Massachusetts and Houlton, Maine. On July 26, 2012, it sold all of the assets of Smith & Wesson Security Solutions, Inc.

Firearms

During the fiscal year ended April 30, 2012 (fiscal 2012), the Company introduced multiple new handgun and modern sporting rifle models, and one new bolt action rifle platform. The Company's rifle introductions included the addition of the M&P15 300 Whisper to the Company's line of modern sporting rifles. As of April 30, 2012, the Company participated in three categories of the long-gun market and both core categories of the handgun market.

Handguns

The Company manufactures an variety of handgun models that include revolvers and pistols. A revolver is a handgun with a cylinder that holds the ammunition in a series of rotating chambers that are successively aligned with the barrel of the firearm during each firing cycle. There are two general types of revolvers: single-action and double-action. The Company's small-frame revolvers have been carried by law enforcement personnel and personal defense-minded citizens. The Company's revolvers are available in a variety of models and calibers, with applications in virtually all professional and personal markets.

The Company�� M! &P15 Series of modern sporting rifles are designed to satisfy the functionality and reliability needs of global military, law enforcement, and security personnel. These rifles are also popular as sporting target rifles and are sold to consumers through the Company's sporting good distributors, retailers, and dealers. The Company has a range of product portfolio of modern sporting rifles, which includes a lower price-point, sport model, a .22 caliber model, and a fully automatic model designed for the exclusive use of military and law enforcement agencies throughout the world.

Hunting Firearms

The Company manufactures three lines of bolt-action rifles under its Thompson/Center brand consisting of several models in each line. The Company's hunting rifles are offered in 16 different calibers. Bolt-action rifles operate by the cycling of a bolt handle that allows for both the loading and unloading of rounds through a magazine fed system.

During fiscal 2012, the Company introduced the Dimension bolt action rifle platform. Under the Company's Thompson/Center brand, the Company also offers seven models of American-made single shot black powder, or muzzle loader, firearms. The Company offers eight models of interchangeable, single shot firearm systems that deliver numerous gun, barrel, caliber configurations, and finishes. These systems can be configured as a center-fire rifle, rim-fire rifle, shotgun, black powder firearm, or single-shot handgun for use across the entire range of big- and small-game hunting.

Handcuffs

The Company manufactures handcuffs and restraints in the United States. The Company fabricates these products from the carbon or stainless steel.

Smith & Wesson Academy

Through the Smith & Wesson Academy, the Company offers instruction designed to meet the training needs of law enforcement and security customers worldwide. Classes are conducted at the Company's facility in Springfield, Massachusetts or o! n locatio! n around the world.

Specialty Services

The Company's services include forging, heat treating, finishing, and plating. It provides services to third-party customers.

The Company competes with Ruger,Taurus, Beretta, Glock, Heckler & Koch, Sig Sauer, Springfield Armory, Bushmaster, Rock River, Stag Arms, DPMS, Browning, Marlin, Remington, Ruger, Savage, Weatherby, CVA, Traditions, and Winchester.

Advisors' Opinion:

• [By Hibah Yousuf]

  What's moving: Smith & Wesson (SWHC) shares tumbled after the gun maker reported a disappointing outlook for the current quarter.

  Facebook (FB) shares rose 3%. The social network's stock hit a new 52-week high of $44.61 and is inching closer to its all-time high of $45. The rise made Facebook the most talked about stock among StockTwits traders. But investors were divided on whether Facebook's gains are warranted.

• [By Steve Symington]

  And Sturm, Ruger certainly isn't alone trying to manage this enviable problem; last month, fellow firearms manufacturer�Smith & Wesson (NASDAQ: SWHC  ) sealed a record year with its solid fiscal fourth-quarter earnings report. In fact, Smith & Wesson's own 38% quarterly sales growth stood nearly identical to Sturm, Ruger's most recent revenue increase, while Smith & Wesson's net income rose an even more impressive 63%.

10 Best Quality Stocks To Watch Right Now: Mizuho Financial Group Inc. (MFG)

Mizuho Financial Group, Inc., through its subsidiaries, provides various banking and financial services in Japan and internationally. The company offers retail banking services, including housing and personal loans, credit cards, deposits, investment products, and consulting services; and corporate banking services comprising loans, syndicated loan arrangements, structured finance, advisory services, and capital markets financing services. It also provides derivatives and other risk hedging products; and securities services to individuals and corporate customers, as well as engages in the proprietary trading, such as foreign exchange and bond trading, and asset and liability management. In addition, the company offers wholesale securities and investment banking services, such as underwriting and trading of bonds and equities, advisory services, and structured finance. Further, it provides products and services related to trust, real estate, securitization and structured fi nance, pension and asset management, stock transfers, private banking, and trust and custody. Additionally, it offers non-banking services, including research and consulting services; information technology-related services; and advisory services to financial institutions. The company serves large corporations, financial institutions, public sector entities, foreign corporations, foreign governmental entities, individuals, small and medium sized enterprises, middle-market corporations, local governmental entities, and other public sector entities. It serves individual customers through its branch and automated teller machine network, as well as through telephone and Internet banking. As of March 31, 2010, the company had 431 branches in Japan. The company was founded in 2003 and is headquartered in Tokyo, Japan.

Advisors' Opinion:

• [By Daniel Inman]

  Also in Japan, Mizuho Financial Group (JP:8411) � (MFG) �rose 0.5%, underperforming the broader market, after weekend media reports said that its Mizuho Bank unit will reprimand 54 current and former staff for failing to take responsibility for loans to borrowers associated with organized crime.

• [By MARKETWATCH]

  LOS ANGELES (MarketWatch) -- Japanese stocks slipped early Monday, with the Nikkei Stock Average (JP:NIK) down 0.1% at 14,298.17, and the Topix dropping 0.4%. Singapore-traded lead futures for the Nikkei Average had suggested a 0.8% gain for the index, but the indicator fell after the Cabinet Office reported fourth-quarter economic growth of 0.3%, flat from the previous quarter and below expectations in separate Reuters and Wall Street Journal/Nikkei surveys. The disappointing economic data also pushed the yen higher, weighing on some exporters, with Panasonic Corp. (JP:6752) (PCRFF) down 1.8%, NEC Corp. (JP:6701) (NIPNF) off 1.3%, and Sony Corp. (JP:6758) (SNE) down 0.7% after S&P downgraded the firm's credit rating to BBB- from BBB with a negative outlook. Shares of Internet retailer Rakuten Inc. (JP:4755) (RKUNF) dropped 12% after announcing plans to buy online messaging and telecom firm Viber Media Inc. for $900 million as well as posting below-consensus full-year profit. Banks were broadly lower, with Mizuho Financial Group Inc. (JP:8411) (MFG) off 1% and Sumitomo Mitsui Financial Group Inc. (JP:8316) (SMFG) off 1.1%, though Daiwa Securities Group Inc. (JP:8601)

• [By Dan Carroll]

  The sector's taken off recently, with Nomura and fellow financial firms such as Mizuho Financial Group (NYSE: MFG  ) surging behind stimulus and easy money. After the Bank of Japan declared its intentions to double its monetary base within two years, financial companies have benefited and stocks have jumped. Mizuho has seen investor demand skyrocket, and the firm's picked up its planned hiring in response. Mizuho's stock has jumped a whopping 15.7% so far this year.

10 Best Quality Stocks To Watch Right Now: Sabre Corp (SABR)

Sabre Corporation, incorporated on December 11, 2006, is a technology solutions provider to the global travel and tourism industry.The Company provides software and services to a range of travel suppliers and travel buyers. The Company through its Travel Network business, processes hundreds of millions of transactions annually, connecting travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines and tour operators, with travel buyers in a comprehensive travel marketplace. The Company operates through three business segments: Travel Network, Airline and Hospitality Solutions and Travelocity. The Company offers global distribution of travel content from approximately 125,000 travel suppliers to approximately 400,000 online and offline travel agents. To those agents, it offers a platform to shop, price, book and ticket comprehensive travel content in a transparent workflow.

The Company through its airline solutions business (Airline Solutions) and hospitality solutions business (Hospitality Solutions and, together with Airline Solutions, Airline and Hospitality Solutions) offer travel suppliers a suite of software solutions, ranging from airline and hotel reservations systems to high-value marketing and operations solutions, such as planning airline crew schedules, re-accommodating passengers during irregular flight operations and managing day-to-day hotel operations. These solutions allow its customers to market, distribute and sell their products more efficiently, manage their core operations, and deliver an enhanced travel experience. Through its complementary Travel Network and Airline and Hospitality Solutions businesses, it offers the broadest, end-to-end portfolio of technology solutions to the travel industry.

The Company�� portfolio of technology solutions has enabled them to become the technology provider in the travel industry. The Company is the global distribution systems (GDSs) provider in North America and also in higher growt! h markets such as Latin America and Asia Pacific (APAC). The Company has a portfolio of airline marketing and operations products across the solutions that it provides. In addition, the Company operates Travelocity, one of the recognizable brands in the online consumer travel e-commerce industry, which provides them with business insights into its broader customer base. Through its solutions, which span the breadth of the travel ecosystem, the Company has developed deep domain expertise. Its investment in Airline and Hospitality Solutions offerings has allowed to create a broad portfolio of value-added products for its travel supplier customers, ranging from reservations platforms to operations solutions typically delivered via scalable and flexible software-as-a-service (SaaS) and hosted platforms.

The Company enabled airlines to sell ancillary products like premium seats through the GDS, the first third-party provider to automate passenger reaccommodation during operational disruptions and the first GDS to launch a business-to-business (B2B) app marketplace for its travel agency customers that allows them to customize and augment its Travel Network platform. The Company�� SaaS and hosted technology platforms allows them to serve its customers primarily through a recurring, transaction-based revenue model based primarily on travel events such as air segments booked, passengers boarded (PBs) or other relevant metrics.

Travel Network

Travel Network is a global B2B travel marketplace and consists primarily of its GDS and integrates with its GDS to add value for travel suppliers and travel buyers. The Company�� GDS offers content from a broad array of travel suppliers, including approximately 400 airlines, 125,000 hotel properties, 30 car rental brands, 50 rail carriers, 16 cruise lines and 200 tour operators, to tens of thousands of travel buyers, including online and offline travel agencies, TMCs and corporate travel departments.

Airline and Hospi! tality So! lutions

The Company�� Airline and Hospitality Solutions business offers a broad portfolio of software technology products and solutions, primarily through SaaS and hosted models, to approximately 225 airlines, 17,500 hotel properties and 700 other travel suppliers. Its software and systems applications help automate and optimize its customers��business processes, including reservations systems, marketing tools, commercial planning solutions and enterprise operations tools.

Travelocity

Travelocity is the Company�� family of online consumer travel e-commerce businesses through which it provides travel content and booking functionality primarily for leisure travelers. In August 2013, Travelocity entered into an long-term strategic marketing agreement with Expedia which was recently amended and restated in March 2014 to reflect changed commercial terms (the Expedia SMA). Under the Expedia SMA, Expedia will power the technology platforms of Travelocity�� existing U.S. and Canadian Websites, as well as provide access to Expedia�� supply and customer service platforms. Additionally, Travelocity recently sold its Travelocity Partner Network (TPN) business, a B2B loyalty and private label Website offering, to Orbitz.

The Company competes with Amadeus, Hewlett-Packard, Unisys, Navitaire, Jeppesen , Lufthansa Systems, SITA, PROS, ITA Software, Datalex, Travelport, MICROS, TravelClick, Pegasus and Trust.

Advisors' Opinion:

• [By Stephen Grocer]

  High-profile offerings from boutique investment bank Moelis(MC) & Co. and travel-technology firm Sabre Corp.(SABR) sold fewer shares at a lower price than both expected lat week. On the day they debuted, shares of the two companies rose 4.6% and 3%, respectively.

Small business on-the-go? Smartphones can help

NEW YORK — Avi Shenkar runs his four hair salons from the palm of his hand.

Work for the owner of Blo/Out Blow Dry Bars begins as soon as he grabs his iPhone at 6 a.m. while still in bed. He scrolls through messages on group texting app GroupMe to see if any of his stylists are running late or need the day off. He pumps pop and electronic dance music through the wireless speakers in his stores using an app for Sonos, a brand of wireless speakers. And he can see what's going on in each location by watching video on his phone from cameras with the Samsung iPolis app, a video camera security system.

"The phone is always with me," says Shenkar, whose salons do blowouts for $35. "It's an extension of me."

Smartphones have become vital for on-the-go entrepreneurs. Apps aimed at small business owners allow them to pay bills, update websites, market their companies, reach out to customers and keep in touch with employees from anywhere. Some owners say their smartphones makes it easier for them to build a side business while keeping a full-time job or step away from the company when needed.

GETTING HELP: Partnership helped small lingerie business grow

They're also a big help for store owners, like Shenkar, who can't be at every location at once.

"Typically, I drive from one store to another," says Shenkar, who has three stores in Philadelphia and one in Atlantic City, which is only open in the spring and summer months.

Last year, he dropped his iPhone and shattered it before a drive to the Atlantic City shop.

"I had to immediately rush over to the Apple Store," he says. "I didn't care what the price was, I just got it."

Noah Chaimberg is also attached to his smartphone. He started Heatonist.com, a website that sells specialty hot sauces, in November. He still works a full-time marketing job in New York and relies on his iPhone to keep him connected to his business.

An app from online store creator Bigcommerce alerts him when an order is made on Heatoni! st.com. He pays suppliers using an app from payment processor PayPal. He also frequently uploads photos of hot sauce bottles to photo-sharing app Instagram, which helps him attract new customers.

When he goes to food festivals to sell carrot curry or red chili lime hot sauces, he turns his iPhone into a cash register with Square, a small device the size of a quarter that plugs into his phone and lets customers buy the sauces with their debit or credit cards.

"I'm constantly on the go," Chaimberg says.

Some entrepreneurs don't even have to be in the same state to run their business.

Kimberly Davison, who co-owns women's clothing store Goodbuy Girls in Nashville , moved to Los Angeles in April to earn some extra cash as a freelance marketing consultant to pay off a $10,000 dentist bill. She also wanted "to have fun" after running the store for nearly five years. Her co-owner, who drops by the shop a few days a week, was skeptical about the move, Davison says, but the arrangement is working.

Davison updates the stores website with an app from website and blog publishing platform WordPress on her Nokia Lumia smartphone. She gives out a Google Voice phone number to customers so that they can text her if they want to order a T-shirt or a vintage pair of cowboy boots. She uses Google's calendar to schedule employee work hours and special events, like if a country artist plans to stop by for a fitting. And she uses Instagram to post photos of new items she finds after meeting with clothing wholesalers in Los Angeles.

Often, customers ask to buy clothing straight from Instagram. That's when she'll respond with a link to the store's PayPal account to pay for the clothing.

"I literally do this sitting on the beach sometimes," says Davison. "It's crazy."

Restaurant aims to make dining solo cool

Eating out tends to be synonymous with socializing, whether it's with family, friends or work colleagues. So dining alone is often perceived as a sad and lonely affair.

In Amsterdam, however, two design agencies, Van Goor and Vandejong, have teamed up to eliminate this culinary stigma by creating Eenmaal, the world's first restaurant for parties of one.

The small pop-up venue with 10 tables — each for a single diner — is the brainchild of Marina van Goor, a designer focused on projects with social impact, who wants to make solo dining culturally acceptable and cool.

"We wanted to break the very recognizable taboo of eating out alone. I noticed that in our society, there is actually no room for being alone in public spaces," she explains. "Being a pop-up allows us to give a wider audience the chance to try it."

More from OZY.com:

The joy of cooking with Samin

Spice it up!

Urban gardening goes through the roof

Eenmaal — a Dutch word meaning both "one time" and "one meal" — moves locations but always sets up in unused shop spaces with large front windows and little decoration, to avoid distractions. The walls are bare, the music plays softly and, before you ask, no, there is no Wi-Fi. Customers are asked to refrain from using their smartphones and encouraged to read a book or magazine instead.

Eenmaal's clientele ranges from millennial hipsters in search of a trendy venue to misanthropic foodies looking to enjoy a four-course meal without having to engage in idle chitchat. The menu costs $50, including drinks, and is crafted by chef Leslie Dronker, who favors fresh tastes and organic, locally sourced ingredients.

This place transforms an awkward situation into something comfortable.

Judging by the serene atmosphere in which diners dig into their parsley rye bread, pork belly with pickle, and Lapsang ice cream, eating alone can be a truly pleasurable experience. "This place transforms an awkward situation into something comfortable,"! says Peik Suyling, a client and fan. "It's relaxed and exciting at the same time."

Since it debuted last summer, Eenmaal's success has surpassed its founders' expectations. The temporary eatery is already in its sixth location, changing venue every month or so — info is provided on its website — and later this year it's going to start popping up internationally, in London, Berlin and New York.

Van Goor is even flirting with the idea of opening permanent locations. "We could create a franchise, because I am convinced it will work anywhere, and there is a need for it," she says.

For now, Eenmaal is expanding its brand by creating products for the "one-person market." Their first item, a 375-ml bottle of "not for sharing" champagne, named Eenmaal Bauchet, is already available to enjoy with the meals, and chocolate and tea products will soon follow.

Eating with friends and relatives will always be a popular pastime. But in today's hyper-connected world, Eenaal gives its clients the rare opportunity to turn down the volume and focus on themselves before modern life takes over again.

So if you fancy a party for one, check out Eenmaal. But keep in mind that when the bill comes, you'll have no choice but to go Dutch.

Ozy.com is a USA TODAY content partner providing general news, commentary and coverage from around the Web. Its content is produced independently of USA TODAY.

A Look at AstraZeneca’s New Drug on Diabetes

AstraZeneca (AZN) is a global biopharmaceutical company. AstraZeneca's products include Crestor, Atacand, Seloken/Toprol-XL, Plendil, Onglyza, Zestril, Symbicort and Zoladex. The company owns and operates a range of research and development (R&D), production and marketing facilities worldwide. AstraZeneca operates in over 100 countries, including China, Mexico, Brazil and Russia.

Focus on the Diabetes Segment

For AstraZeneca, its diabetes business grew 60% in the third quarter of fiscal 2013 and contributed to overall growth of 8%. The diabetes franchise made $206 million. U.S. health regulators approved an AstraZeneca drug from a new class of medicines to treat type 2 diabetes after previously rejecting it over safety concerns. The medicine was co-developed by Bristol-Myers Squibb Co. (BMY) and AstraZeneca. AstraZeneca late last year bought out Bristol's stake in its diabetes joint venture for more than $4 billion, including up-front and sales-related milestone payments.

Farxiga, which has already been available in Europe, belongs to a class of diabetes drugs called SGLT-2 inhibitors that work by blocking reabsorption of glucose by the kidney and increasing its excretion through urine to lower levels of blood sugar.

It will compete with a similar drug from Johnson & Johnson (JNJ) called Invokana, as well as diabetes medicines from other classes.

Details of the Drug

"Farxiga provides an additional treatment option for millions of Americans with type 2 diabetes," Curtis Rosebraugh, of the FDA's Center for Drug Evaluation and Research, said in a statement. The FDA had initially rejected the Astra and Bristol-Myers drug in early 2012 over concerns about possible cancer and heart risks. The companies provided additional data that addressed those concerns to the satisfaction of the advisory panel and the agency.

Still, as a condition of approval, the FDA is requiring six post-marketing studies, including a cardiovascular outcomes trial to make sure the medicine does not increase the risk of heart attacks in patients deemed at high risk of heart disease, and a study to assess bladder cancer risk. The FDA-approved label for Farxiga says the drug should not be used in patients who also have kidney disease or who are being treated for bladder cancer.

The innovation is the latest in AstraZeneca's efforts to invest heavily in emerging treatments for diabetes – a disease that represents a $465 billion market. A growing epidemic, diabetes is projected to affect 550 million people worldwide by 2030.

AstraZeneca has made acquisitions and forged collaborations with other companies that have promising drugs in their developmental pipelines. Diabetes represents an important strategic area in returning AstraZeneca to growth as it works to offset losses from patent expirations on key medicines.

Under the terms, the firm agreed to pay Bristol-Myers Squibb $2.7 billion and up to $1.4 billion in regulatory, launch and sales payments, as well as other sales royalty payments up to 2025.

A relatively new diabetes drug, Symlin (pramlintide), developed by AstraZeneca's Amylin Pharmaceuticals has been found to combat a major component of Alzheimer's disease and may offer a new treatment option for the millions of Americans with the memory-robbing condition. It is a degenerative brain disease that slowly destroys memory and thinking skills and eventually destroys the ability to carry out the simplest tasks. Today there are 5 million suffers in the U.S. with this disease and there is no effective treatment, and the cost of caring for the patients is over $100 billion per year; $6 billion of those dollar are on drugs that only treat the symptoms.

Symlin allows patients to use less insulin, lowers average blood sugar levels, and substantially reduces what otherwise would be a large unhealthy rise in blood sugar that occurs in diabetics right after eating. Other than insulin analogs, Symlin is the only drug approved by the FDA to lower blood sugar in type 1 diabetics. Symlin, taken as an injection at mealtime, was approved in 2005 by the FDA for Type 1 and Type 2 Diabetics who use insulin. It is an antihyperglycemic agent which mimics the activity of amylin, a naturally occurring hormone which is secreted together with insulin and is involved in post-prandial glucose control.

Wrap Up

The potential market for type 2 diabetes treatments is enormous despite a crowded field with many medicines from several different classes from which to choose. An estimated 90 percent to 95 percent of the more than 370 million people living with diabetes worldwide have type 2, according to the International Diabetes Federation.

While the diabetes market is enormous and expected to reach over $55 billion in 2017, it is also one of the most competitive. Over 25 million Americans suffer from the disease, and 350 people million suffer worldwide. AstraZeneca has a market cap of $81.18 billion. Its stock has risen almost 10% YTD, closing on March 25 at $64.38 per share. It offers one of the best dividends available at $1.90 per share and has a yield of 4.33%. It therefore may create shareholder returns.

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