Morning Movers: Restoration Hardware Surges on Earnings Beat; Cliffs Natural Resources Tumbles

Today, stocks will try to make back yesterday’s losses.

Getty Images

S&P 500 futures have risen 0.75 point, while Dow Jones Industrial Average futures have gained 6 points. Nasdaq Composite futures have ticked up 0.75 point.

Exelon (EXC) has dropped 1.3% to $35.30 after pricing its secondary offering.

Cliffs Natural Resources (CLF) has fallen 3.2% to $13.92 after Casablanca Capital filed a proxy statement to add six new directors to the board. Morgan Stanley also said Cliffs Natural Resources’ dividend could be at risk due to falling iron ore prices.

Lululemon (LULU) has plunged 15% to $37.90 after beating earnings forecasts but lowering full year guidance. Lululemon also said that its CFO would retire.

Consol Energy (CNX) has gained 3.4% to $48.60 after it said it would create a master limited partnership.

Restoration Hardware (RH) has gained 16% to $82.82 beat earnings and revenue forecasts and raised its guidance for the year.

3 Big Obamacare Changes That Employers Want – and One They’ll Actually Get

The fight to repeal the Affordable Care Act—Obamacare—is over.

See Also: The Obamacare Quiz

Tensions remain, and the rhetorical battle is still being waged, but Republicans lost the war to kill the controversial health care law, and most of them accept that as political reality. Instead, the focus will shift to making changes in the law, some of them substantive, over the next few years.

Businesses want major alterations, but their top three goals won't be realized once Congress starts tinkering with the measure. Topping their wish list is redefining who is a full-time employee. The law's definition is anyone who works at least 30 hours a week, not the traditional 40. Next is doubling the small business exemption so that firms with fewer than 100 full-time-equivalent workers would not be required to offer health insurance.

For now, the administration will dash employers' third hope: a bare-bones "copper" plan that would have lower premiums than the bronze plan, which now provides the lowest level of acceptable coverage. That could come back into play down the road if the cost of other plans forces a large number of people to drop coverage.

One other business priority is within reach, though: Delaying the hefty excise tax on high-cost insurance plans. Firms don't want to pay the 40% levy, set to start in 2018. And labor unions don't like it because many plans that are part of collective bargaining contracts will be affected by the limits. So don't be surprised if a strange-bedfellows coalition of bosses and unions forces a delay of a year or two.

But chances of further delays in key Obamacare deadlines are practically zero.

Despite widespread concerns and threats, relatively few firms that offer insurance coverage for their workers will stop during the next five years, according to a recent survey by Mercer, a human resources consulting firm. Most companies see offering insurance as a needed perk to attract and keep top workers. And even if the concept sounds appealing to some executives, in most cases the penalty for not providing coverage would be greater than the price of insurance, especially after factoring in the tax deduction that firms would lose. Also, workers would be taxed on any money companies gave them to purchase their own coverage.

The number of people buying health insurance will triple by 2016, from about 8 million now, as the health exchange websites are upgraded and word of easier enrollment spreads. Both federal and state exchanges will focus on making it easier for shoppers to compare plans. Costlier penalties for not having insurance will also coax more to sign up. The penalty is $325 next year for an individual or nearly 2% of adjusted gross income, whichever is higher; it reaches $695 or about 2% of AGI in 2016, and goes up from there with the annual cost of living.

Insurance premiums will increase, too, mostly by 5% to 10%. Few insurers will choose to boost rates by more than 10% because that would trigger a formal rate review.

Meanwhile, states will stop fighting Uncle Sam over Medicaid expansion. Just 25 states and the District of Columbia are on board now. In time, though, all are likely to participate. The reasons: big federal subsidies -- 100% now, dipping to 95% in 2017 and 90% in 2020 -- plus pressure from care providers, employers large and small, and interest groups.

The pattern looks remarkably like what happened after Congress and President Johnson created the Medicaid program in 1965 to provide health care for those with low incomes. By 1967, 26 states were participating. By 1972, all but two states were part of the program.

Despite a Sizzling IPO Market, These 4 Firms Are Backing Out

Jeff Chiu/AP So far, 2014 has been a high-scoring year for initial public stock offerings. The first quarter saw more IPO activity than any other initial quarter since 2000, with 64 companies listing on various U.S. exchanges raising a collective $10.6 billion. That's more than double the number of IPOs that took place in the first quarter of 2013. This is directly related to the health of the overall stock market. Generally speaking, the better shares are performing, the higher the chance of an issuer being successful on IPO day. After all, who's eager to buy anything when the market's in the doldrums? Yet even in a good environment for IPOs, companies occasionally get the jitters and withdraw their listings. Sometimes this is due to the overall atmosphere on the market; sometimes it's because of difficulties with the issuing company itself; sometimes it's both. Whatever the reason(s), the notable examples below scampered away before they could become publicly traded entities. Square One of the top anticipated IPOs of 2014 was for this cutting-edge e-commerce company, which pioneered the use of smartphone and tablet payment card readers. Then there's Square's impeccable geek credentials, thanks in no small part to its founder-CEO Jack Dorsey, who was one of the guiding lights behind Twitter (TWTR). That, apparently, wasn't enough to bring it to market. In late February, media reports had it that the company postponed its planned IPO indefinitely. It seems that it's burning through cash very quickly and doesn't have enough revenue to cover this. Instead of listing on an exchange, the firm is reportedly looking for a deep-pocketed suitor and has allegedly held discussions with Google (GOOG), Apple (AAPL) and eBay (EBAY), and possibly even one of its investors, Visa (V), regarding a potential buyout. Square denies it has been in acquisition talks. Trustwave Holdings Another nonstarter in the tech IPO space was Trustwave, which provides on-demand data security solutions. After Target (TGT) suffered a large-scale breach of its credit card data last November, both the retailer and Trustwave were sued by a pair of regional banks that claimed they suffered financial damages from the incident. Trustwave claimed that it didn't outsource data security to Target (it's hard to tell -- such arrangements are usually confidential). Nevertheless, the lawsuit attracted the wrong kind of publicity before the banks dropped it in April. Interestingly, Trustwave's cancellation of the IPO was its second; the first was a flotation planned for August 2011. This time, the company was to sell 6.25 million shares priced at $15 to $17 apiece on the Nasdaq. The underwriting syndicate was led by heavyweights Morgan Stanley (MS), JPMorgan Chase's (JPM) J.P. Morgan unit and Barclays (BCS) Capital. Sundance Energy Australia The world just can't get enough energy; oil and gas markets are thriving these days. Combine that with a strong market for IPOs, and you've got a bunch of new issues in the energy sector listing on stock markets. Sundance Energy Australia had planned to complement the extant listing on its native exchange by floating nearly 7.8 million American depository shares on the Nasdaq. The issue was slated for this past February and was to be lead-underwritten by Wells Fargo (WFC) Securities, Canaccord Genuity and UBS (UBS) Investment Bank. But in April the company pulled the issue due to market conditions. That's a shame, as Sundance likely would have attracted investor interest given that it has a presence in rich U.S. plays such as the Bakken formation in the Midwest. Although the company's net result hasn't always been positive, Sundance almost doubled its top line on a year-over-year basis in the first nine months of 2013. Associated Materials The building materials sector is home to this 67-year-old company, which did not specify a reason for withdrawing its planned IPO this April. Market weakness probably had at least something to do with it; on the same day it bagged its issue, three other stocks coming to market priced below their anticipated per-share ranges. Fundamentals might also have been a factor. Both the current form of the company and its immediate predecessor have generally been unprofitable since 2009, and revenue has dropped in recent times. This is the sort of combination that gives investors pause. Regardless, a trio of busy financials -- Goldman Sachs (GS), Barclays and UBS Investment Bank -- were set to lead-underwrite the issue, which was planned to raise up to $100 million on the Nasdaq or New York Stock Exchange.

2 Things Wynn Resorts, Limited Dividend Investors Need to Know

Wynn Resorts (NASDAQ: WYNN  ) could be a very strong dividend bet. In the most recent quarter, Wynn management raised the quarterly dividend payouts, and also announced a special dividend of $1.00. The stock now pays $6.00 per share per year.

Wynn Resorts has a dividend yield of 4.1%, the highest in the industry, ahead of the next closest Las Vegas Sands (NYSE: LVS  ) , at 3.5%, and MGM Resorts International (NYSE: MGM  ) , which doesn't pay a dividend. Wynn management has been steadily raising dividend payouts since 2010, and has consistently paid special dividends during the past five years. All of this looks great for Wynn as a dividend buy. However, the special dividend paid this year is far below that of previous years, and the high payout ratio, at around 95%, according to Yahoo! Finance, may not be sustainable as Wynn continues to struggle to maintain growth. Here are the two things dividend investors need to know before investing in Wynn based on its dividend.

1. Special dividends are getting smaller
Wynn recently raised its quarterly dividend $0.25, putting it at $1.50 per share each quarter. However, during the last few years, the company's payment of special dividends has made a much bigger difference for income investors than regular dividends.

In recent years, special dividends were as high as $8.00 a share (2010 and 2012). However, last year the special dividend was only $3, and this year it was only $1.

Source: Zacks Investment.

While the company has been a great bet for dividend investors based on the yearly special dividend that the company has consistently announced around Q3 for the last five years, a large special dividend may not be sustainable. Small special dividends like this year's might be the case for the next couple of years -- if special dividends are paid at all -- as Wynn is struggling to keep growing at rates it saw in the last few years.

2. Wynn's payout ratio may not be sustainable
Wynn's payout ratio now sits at 95% of earnings, including special dividends. This incredibly high payout ratio might be unsustainable. Wynn saw massive growth in the last few years as the company made huge gains in Macau. The company was so profitable that returning such a high amount of earnings to shareholders wasn't impeding to its growth, and it could consistently raise dividends.

Wynn has had a tough 2014, with total revenue down 1.5% year over year in the most recent quarter, and earnings growth well below what it has seen in prior years. This high payout ratio looks inflated now due to dividend increases and lowered earnings growth. Wynn will need to focus on growing again, and it's likely that this high payout ratio might not be sustainable as the company needs to reinvest in itself instead of growing dividends.

One growth project that we know is going to eat up a lot of the company's money in the next two years is the Wynn Palace resort being built in Macau. Macau revenues have put a strain on the company this year, but long term, Macau still looks like a great bet on mass market gamers.

Wynn's new resort on the Cotai strip could be a new profit driver in years to come. Still, consider that costs and the need to reinvest in the company in the next two years as this property comes online may mean that we see no increases in regular dividends, and a lowered payout ratio going forward.

Should income investors still bet on Wynn?
Overall, Wynn has been very generous to shareholders in terms of returning capital through dividends. During times of growth, Wynn looks like a great dividend bet.

But with competition from Las Vegas Sands in Macau and MGM Resorts in Las Vegas, Wynn Resorts might have a hard time getting back to the amazing growth it had in the four years before 2014. Until there's reason to bet on the company growing again, buying Wynn based on its dividend history might not be a great move.

One great stock to buy for 2015 and beyond
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The Wendy’s Co Releases Unaudited Q4 Results; Announces Buyback; Gives 2014 Guidance (WEN)

Before the opening bell on Monday, fast food chain Wendy’s (WEN) released its preliminary Q4 earnings. The company also announced that its board has approved a $275 million stock repurchase. The company is releasing its official results on February 27.

WEN Preliminary Unaudited Earnings

In North America, Wendy’s saw a 3.1% increase in same restaurant sales, which is up from a 0.2 percent decrease in last year’s Q4. Consolidated quarterly earnings fell despite the company’s improving restaurant sales, due to Wendy’s having less company operated restaurants. The earnings came in at $592.2 million, down from $629.9 million in last year’s same quarter. The company’s operating profit was also down, coming in at $24.1 million compared to $32.3 million in last year’s Q4. WEN adjusted earnings per share were between 10 cents and 11 cents (the company does not have a hard number due to the company not completed its tax closing procedures). For the full year, Wendy’s revenues came in at $2.487 billion, down from $2.505 billion last year. Operating profit for the full year was up to $130.3 million from $122.7 million last year.

CEO Commentary

Wendy’s president and CEO, Emil Brolick, had the following comments about the company’s earnings release: ”Wendy’s® made tremendous strategic and financial progress in 2013. We gained significant traction with consumers through ‘A Cut Above’ brand positioning, accelerated Wendy’s brand transformation with Image Activation and refined our Company-operated restaurant portfolio through System Optimization. These efforts contributed to improving metrics and solid financial performance, highlighted by 2013 North America Company-operated same-restaurant sales growth of 1.9 percent, record average annual sales of $1.51 million at North America Company-operated restaurants, and overall Adjusted EBITDA and Adjusted Earnings Per Share performance well ahead of original expectations.”

2014 Outlook

Looking forward to the coming year, WEN has announced that it expects adjusted EBITDA in the range of $390 million to $400 million. Adjusted EPS is expected in the range of 34 cents to 36 cents. The company sees same restaurant sales growth in the range of 2.5% to 3.5%.

Share BuyBack and Wendy’s Dividend

Wendy’s announced a $275 million share repurchase program. The program authorizes the buy back of up to $275 million worth of shares throughout 2014. Wendy’s most recently announced a dividend raise in May 2013 for its September payout. The company raised its dividend 25%, from 4 cents to 5 cents per quarter.

Stock Performance

Wendy’s stock was essentially flat in pre-market trading. So far this year, the company’s shares are down 2.87%.

How financial advisers should focus their core values

Scott Hanson

The most important stake that you'll drive into the ground in support of your company's foundation should be comprised of your core values. But what exactly are these core values, and when it comes to developing them, who precisely should they be created for?

Rather than thinking of them as a client-facing marketing tool, your core values should be almost entirely “inward-focused,” meaning they should be designed to reinforce the internal principles that promote ethical business practices and consistent professionalism throughout your firm.

In this way, your core values are an aquifer through which each decision made by you or your associates can be vetted.

CORE VALUES AS A SALES TOOL

I've read dozens of books by giants of industry, men and women who almost always reference the importance of their companies' core values. These thought-leaders often use an entire chapter to articulate their own personal commitment to an honorable set of business practices.

In the shadow of these pronouncements, however, is the fact that these CEOs are strategically positioning their values as a marketing tool (to market either themselves, or their companies, or both). This is because establishing trust is important to both the creation and the maintenance of a positive brand. More subtly, perhaps—and this is especially true in the financial services sector, where compliance restrictions limit messaging—the publication of a company's core values is as close to traditional advertising as our industry's regulators will allow.

So then, what's wrong with utilizing core values as a marketing tool?

It begins with companies such as Enron and their 60-pages long Code of Ethics. For one thing, the stark contrast between Enron's outward, marketing-focused approach to core values, and the systemic impropriety of their actual internal culture, resulted in a massive increase in regulatory oversight for the rest of us.

In spite of the fact that a majority of the people who work in the financial services sector are both decent and hardworking, because of Enron, Bernie Madoff, WorldCom, and others, our industry has approval ratings that rival those of the United States Congress. Simply, much of the public is skeptical about what we do, and it's become substantially more time consuming and costly (because of regulation) for those of us who run our businesses honorably to achieve and maintain success.

Yet while massive scandals have damaged our profession, they have also given rise to the opportunity to set your company apart by implementing core values that not only emphasize professionalism, integrity and attention to detail, but which, by their existence, h! elp to limit the possibility of internal impropriety at your firm.

REINFORCE, MEASURE, REWARD

Inward-focused core values—practiced by you and your team—naturally market and build your brand through client satisfaction and positive word of mouth. The process starts when you create a list of values that is a precise reflection of the basic principles (e.g. professional integrity, teamwork, community service) by which you want your company to operate.

Above all, the implementation of core values takes consistency. From the moment you interview a prospective associate, the process of instilling the values of your firm begins. Asking, for instance, “What does professional integrity mean to you?” not only allows you to gauge the applicant's definition, but unless their answer is identical to yours, you now have your first opportunity to convey what this means to your firm.

This is not to say that an internal focus means that actually publishing your core values isn't useful. No viable applicant should ever leave your office without a printed copy in hand, and every associate of your firm should have a similarly printed copy at their desk.

Reinforcing your core values can take almost any form. Formally, you can begin meetings by asking associates to define one of your company's principles. Informally, every interaction is an opportunity to reinforce a message. If “knowledge and expertise” is a core value, and you overhear an associate providing an exceptionally good answer to a client, don't let it pass without acknowledgement. You want associates thinking about the culture of the company as they make decisions, so that in time it becomes second nature.

Ultimately, it's about everyone understanding that your core values are a “thought-funnel” through which every professional decision and action needs to pass.

Measuring the effectiveness of your core values is often anecdotal. Clients appreciate exemplary service, and most will go out of thei! r way to ! tell you if they've been treated well. For instance, a core value of professionalism should result in unsolicited praise from clients for associates on an ongoing basis.

Conversely, if your associates aren't getting praised by clients, you need to find out why.

Rewarding good performance should be a part of your business's culture, and exemplary performance stems, in part, from ingrained core values. Encourage associates to nominate coworkers who embody a particular value. Award gift cards, certificates, or even plaques, as everyone loves to be acknowledged, and a dogged adherence to the company core values has the multi-pronged effect of being great for your firm and terrific for the perception of our industry.

After all, we have a lot to overcome.

AN INTERNAL FOCUS LEADS THE WAY

Unfortunately, it's not u

EPA Reduces Ethanol Requirement, Archer Daniels Midland Falls

Hear that sound? That’s the sound of Archer-Daniels-Midland’s (ADM) shares running out of gas.

Associated Press

Archer’s stock has dropped 3.1% to $40.70 after reports that the EPA would cut the amount of ethanol required to be added to gasoline. The Wall Street Journal has the details:

The Environmental Protection Agency on Friday proposed for the first time to ease an annual requirement for ethanol in gasoline, acknowledging that mandated levels specified in a 2007 law are difficult, if not impossible, to meet.

The EPA is asking refiners in 2014 to blend 15.2 billion gallons of renewable fuel—most of it ethanol—into U.S. gasoline supplies. That is about 16% less than what Congress specified in a 2007 renewable fuels law. The law gives EPA the ability to lower the requirement.

Archer isn’t the only stock being hit today. Bunge (BG) has dropped 0.3% to $81.91, while Andersons (ANDE) has fallen 2.2% to $81.55.

Archer was already weak after reports that Australia would block its takeover of GrainCorp.

3 Stocks Near 52-Week Highs Worth Selling

The markets may have plunged yesterday on concerns that the Federal Reserve may soon pare back its $85 billion monthly bond-buying program, but you could hardly tell with new 52-week highs still outpacing new 52-week lows by a margin of three to two. For skeptics like me, that's an opportunity to see whether companies have earned their current valuations.

Keep in mind that some companies deserve their current valuations. Allegiant Travel (NASDAQ: ALGT  ) , for example, is creating cash flow hand over fist by luring in passengers with low ticket fees and then utilizing hefty optional fees such as on checked baggage, carry-on baggage, and food, which are almost pure margin plays, to add to its bottom line. The beauty of Allegiant's model is that many of these ancillary fees are purchased online or at electronic points of sale, meaning few employee costs.

Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.

Where's the beef, DexCom?
Sometimes a company's products make a lot of sense on paper, but the practical application doesn't go nearly as smoothly. This is how I'd describe medical monitoring device maker DexCom (NASDAQ: DXCM  ) , which has an array of glucose monitoring devices to help diabetes patients better manage their disease. Make no mistake about it; the number of diabetes diagnoses in this country is rising in accord with our obesity rate. Therefore, a company like DexCom, which makes the DexCom G4 System monitor, could be a big hit, and certainly has a wide enough audience to cater to.

The key word here, though, is "could," as the practical application of DexCom's monitoring devices hasn't resulted in profits for DexCom. In the first quarter, DexCom did report robust product sale growth of 49%, but only squeaked by Wall Street's expectations with a loss of $0.16 per share. It does have solid partnerships in place, but it could be two or more years before it even turns a quarterly profit with investment in R&D taking up such a large slice of its available cash.

Another key point to note here is that competition among glucose monitoring devices is fierce. DexCom is likely going to have to spend through the nose in advertising just to differentiate its product from the rest of the field, further delaying its profitability.

Until DexCom can pull itself out of the red, I'd suggest monitoring a different company in the glucose monitoring industry.

Anything but smoothie
Fruit smoothie and juice maker Jamba (NASDAQ: JMBA  ) recently completed a 1-for-5 reverse split to make its share price more attractive to more risk-averse investors and Wall Street institutions. However, no amount of cosmetic changes is enough to hide the lack of progress at Jamba over the past six years.

Call it Krispy Kreme syndrome or Starbucks envy, but Jamba fell under the same spell of success that many posh drink and doughnut makers did in the mid-2000s and expanded willy-nilly. Unfortunately for Jamba, it simply assumed that having more stores would lead to big profits and everything would work itself out in the end. Needless to say, "cross your fingers economics" hasn't worked out too well for Jamba. It's closed stores and cut jobs in order to reduce costs, yet it hasn't turned an annual profit since 2005.

The more troubling aspect I find with Jamba is its expansion plans, which call for 125 new stores in California. That's right, an additional 125 stores, all clustered in one state where it already operates. Not only is it planning to add to its network of locations, but it's doing so in a market where sales are essentially flat!

If Jamba can somehow encourage more people to drink its products from a health perspective it might be able to build its brand image faster. However, Starbucks has pretty much written the book on building a brand and has courted many of the organic and natural-food seekers in the juice and drink market with numerous partnerships. Unless Jamba has something magical up its sleeve, I'm not sure it will ever push its way out of being a middle-of-the-pack kind of chain.

Furnishing fantasies
Home furnishings company Restoration Hardware (NYSE: RH  ) has certainly come a long way from where it was just a few years ago. Back then it was deep in the red, riding excess levels of inventory, and discounting everything in sight just to keep the hamster wheel turning. Now, with the company focused on a higher-end customer and better quality merchandise, Restoration Hardware is slowly trickling back into the black.

The concern I have is that this is still a very fragile housing recovery, and Restoration Hardware is hardly racking up the big bucks -- yet its share price has practically doubled since its IPO less than a year ago.

In May, the company boosted its first-quarter EPS guidance to a profit of $0.02-$0.04 from a previous expectation of breakeven results to a $0.01 per share loss. It cited lower inventory and better customer response to its product line as the impetus for its upped guidance. As for me, I'm flabbergasted that a minor bump higher in EPS and a $15 million (about 5%) boost in sales is enough to cause the stock to effectively double!

As soon as the Federal Reserve pares back its bond-buying program, you can expect mortgage rates to tick slightly higher and, I suspect, mortgage applications to dry up. Restoration Hardware's business relies on a strong housing market to drive its bottom line. With the company barely on the cusp of profitability, now is not the time to be diving headfirst into a company still in the process of completing a turnaround and trading at a whopping 34 times next year's earnings.

Foolish roundup
Yet again, history has told me pretty much everything I need to know about these three companies. With a long history of losses and an ongoing restructuring at Jamba and Restoration Hardware, the chance of these stocks seeing big bottom-line gains and maintaining them for an extended period of time seems slim to me.

I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?

One company near its 52-week high that could head higher
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Could Apple Possibly Be Worth Just $240?

So far this week, Apple (NASDAQ: AAPL  ) has been under pressure and lagged the broader market. One contributing factor to the weakness has been David Trainer of New Constructs, who has made headlines over the past couple of days by proclaiming that Apple is worth just $240. That's over $200 less than what shares closed at yesterday, implying an additional 45% downside.

Could such a price be possible?

The one and only
Trainer's bearish thesis hinges upon a single metric: return on invested capital, or ROIC. Apple has historically enjoyed an incredibly high ROIC that has declined recently and Trainer thinks that trend is here to stay, citing the loss of Steve Jobs and assumption that the company has no revolutionary products up its sleeve.

He compares Apple's ROIC to industry peers and arrives at different price targets based on different levels of ROIC. At a 75% ROIC, which is slightly above Microsoft (NASDAQ: MSFT  ) , Apple is worth just $295, in Trainer's view. He expects Apple's ROIC to decline to 50% eventually, which pegs the company at $240. According to his estimates, Apple's current price implies a 124% ROIC, which Trainer considers unsustainable.

Trainer was interviewed on Money Life and CNBC discussing his model, and also posted a detailed breakdown (link opens PDF) on his blog.

Party like it's 2009
Apple now has over $154 per share in net cash just sitting on the books, which implies that Trainer values the rest of the business at just $86. His estimates would put Apple's market cap at $225 billion, and its enterprise value at just $80 billion. In comparison, Microsoft's current market cap is $281 billion, and the software giant has an enterprise value of $220 billion.

However, any valuation of any stock that relies entirely on one single metric is inherently flawed and incomplete. Investors should utilize a wide range of quantitative metrics -- combined with qualitative assessments of the fundamental business -- to formulate an overall view.

Digging deeper into Trainer's model (linked above), he's effectively assuming that Apple's net operating profit after tax, or NOPAT, will suddenly plunge to fiscal 2009 levels of around $8 billion, which is what would happen if you abruptly slash its ROIC to 52%. For comparison, I estimate Apple's NOPAT last quarter alone at $9.3 billion, with $38.7 billion over the past 12 months. This is how his estimate compares to Apple's actual figures.

Source: SEC filings and author's calculations. Fiscal quarters shown. TTM = trailing-12-months.

Trainer broadly proclaims that Apple is "destined to be just another consumer electronics company," which somehow implies that Apple's business will implode overnight. His estimates effectively ignore the iPad altogether, which was released after 2009 and remains young. Trainer also assumes that Apple will become free cash flow negative to the tune of $3.6 billion, compared to the $44 billion in positive free cash flow that Apple's generated over the past four quarters.

To be fair, if Apple's fundamentals did self-destruct at the tweaking of a spreadsheet cell, then a $240 price target could be warranted. In reality, companies don't tend to see operating profits plunge by 80% at the drop of a hat, and investors would gradually observe any potential deterioration as it occurs over many quarters.

By the same rationale, I can apply some tweaks of my own, except I'll play bull to Trainer's bear. By my estimates, if Apple were to sell a bazillion iPhones tomorrow, it would be worth a millionty dollars per share today. 

The good news is that Apple's business doesn't rely on Trainer's spreadsheet.

There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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More Expert Advice from The Motley Fool

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Why Latin America is a Hotbed For Solar Growth

If you're a company looking to grow in the solar industry you have to have an eye on Latin America. It's sunny, energy prices are high, and countries are desperate for investment in new energy infrastructure. 

That's a perfect combination of factors for the solar industry and it's why some of the industry's largest players see Latin America as a key to the industry's future. Interestingly, solar energy's growth won't be dampened by low oil or coal prices because those energy sources supplied just 14% and 6% of electricity according to a 2010 report from The World Bank. Instead, it's hydro power that supplies most of the region's energy and it's under pressure from environmental groups because of its impact on Latin America's ecosystem. As a result, countries are turning to solar energy for new electricity production and the boom is just getting started.

SunEdison's Chile power plant, which was once the largest merchant solar plant in the world. Image source: SunEdison.

Where Latin American Solar stands today

GTM Research expects 2014 to see 805 megawatts installed in Latin America, more than 500% growth from a year ago. That's not a lot compared to 6.5 gigawatts, or eight times as much, installed in the U.S., but Latin America is a very nascent market that's growing quickly.

Next year, Latin America is expected to grow to 2.3 gigawatts and be over 3.6 gigawatts by 2018. Companies are just beginning to learn where and how solar energy will be economical and allowed into the grid, and as they do the opportunity grows. The amazing thing is that most of this growth is happening simply based on market forces.

Who said solar is too expensive?

Here's the amazing thing about solar in Latin America: It's growing without subsidies.

SunPower is also one of the largest utility scale solar plant builders in the world. Image source: SunPower.

Merchant power plants, which sell power to the electric grid at spot prices, are competitive in the market today. In Chile, SunEdison (NYSE: SUNE  ) built the 50 megawatt Maria Elena Project that was the largest merchant solar power plant until earlier this year when SunPower (NASDAQ: SPWR  ) completed its 70 megawatt Salvador Project. 

With the cost of solar energy only coming down, the potential in Latin America is incredible. Residential and commercial markets have yet to be developed and as they are the opportunity to save consumers money by going solar is incredible. Just imagine how many millions of lives would be improved by installing solar panels and energy storage in the region, giving consumers full control of their power. 

Who is winning in Latin America?

The next question for investors is who is winning in this potentially lucrative market? For now, the winners are some of the biggest solar developers in the U.S.

I mentioned SunEdison and SunPower as major players already and First Solar (NASDAQ: FSLR  ) is in the mix as well. It has a 141 megawatt plant in Chile and a growing pipeline in the region. For now, SunEdison is the market leader and it could use the region as a hub for an emerging markets yieldco it has planned.

I'd look for Latin America, particularly Mexico and Chile, to be a boon for these three companies in the future and SunPower in particular will move into the distributed market as well. This is just another growth opportunity for solar companies, presenting a very bright opportunity for investors.

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Prudential Financial Inc.: 3 Key Takeaways From 3Q Earnings

After almost all major insurance companies, including American International Group (NYSE: AIG  ) and MetLife (NYSE: MET  ) reported their quarterly earnings, Prudential Financial (NYSE: PRU  ) was among the last companies in the sector that reported their results last Thursday: And they were not as bad as many would want you to believe.

Prudential Financial reported weaker earnings year over year and missed analyst estimates mainly due to higher investment losses on derivatives. Nonetheless, Prudential Financial brings a lot of value to the table for investors who can see past short-term disappointment and look at the bigger picture.

1. Missing analyst estimates
If there is something such as a capital crime on Wall Street, it is missing consensus estimates of the analyst community. And, unfortunately, Prudential Financial did just that: It reported an after-tax adjusted operating income of $2.20 per share, which was sharply lower than last year's $2.89 per share. Analysts also expected higher operating income of $2.41 per share, which translates into an earnings miss of nearly 9%.

And if investors hate anything, it is missing expectations. Correspondingly, shares of Prudential Financial were sold off sharply on Thursday and closed down 5% lower.

2. One-off effects impacting Prudential Financial's results
When it comes to insurance companies, it is very important to differentiate whether losses happen on the insurance side, which is Prudential Financial's underwriting, or on the investment side of the business.

This is an important distinction, because it can give investors vital clues about the quality of an insurance company's earnings.

Prudential Financial, for instance, saw further premium momentum in the third quarter of 2014 in its financial services business with total premiums reaching $5.9 billion, up more than 9% year over year, which is clearly a good sign.

Prudential Financial also benefited from higher account values across its product portfolio: Retirement account values were up 14% to $356.1 billion, annuity account values rose 6% to $156.8 billion, and funds in Prudential Financial's asset management division grew 11% to $543.7 billion.

Though Prudential Financial's premium growth and insurance operations look solid, realized investment losses negatively affected third quarter results and are largely to blame for Prudential Financial's weaker than expected earnings.

In the most recent quarter, the insurance company reported $1.13 billion in pre-tax net realized investment losses, of which $970 million relate to derivatives, into which Prudential Financial enters for hedging purposes.

Prudential Financial's third-quarter net realized investment losses last year only stood at $556 million, which implies that investment losses more than doubled compared to last year. However, investment losses are technically one-off items, which means they are not of a recurring nature. Consequently, investors should not make the mistake to overemphasize the occurrence of such losses or expect the company to continue to post losses in the coming quarters.

3. The big picture
In light of weaker performance results, it is important to realize how far Prudential Financial has already come. By the same token, investors should not always expect a company to have an easy ride from one record quarter to the next.

Setbacks do occur occasionally, especially if derivatives are involved whose market values can fluctuate greatly in any given quarter, but Prudential Financial's earnings and profitability trend should not be discounted solely because of its softer third-quarter performance.

Source: Prudential Financial Investor Presentation June 9, 2014, Prudential Financial EPS and ROE development 2010-2013

The Foolish Takeaway
Of all the insurance companies delivering earnings this season, Prudential Financial has probably disappointed the most. But softer earnings were largely the result of investment losses in Prudential Financial's derivatives portfolio, which should not be treated as recurring items that will similarly affect the company's future profitability.

In fact, with ongoing premium growth and rising account values, which attest to Prudential Financial's strong insurance franchise, the dip in share price might actually be a buying opportunity.

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Turnkey Investing 101: What to Avoid and How to Know if It's Right for You

Turnkey investing is a very hot topic in real estate circles and seems to only be getting hotter. On a daily basis in the BiggerPockets Forums there could be from half a dozen to two dozen conversations involving turnkey real estate. Those conversations may involve questions from new investors to advertisements of opportunities, but almost all of them get comments from investors who hate the concept. Some are uninformed opinions, and others are comments from experience, but all seem to point to two clear conclusions:

There is no definition of what turnkey real estate really means. The worst investment you can make is a cheap $40,000 turnkey property!

Read this article carefully, and pay close attention to the end. If you are thinking about buying turnkey investments, there are many great opportunities all around the country, but there are probably more out there that are not. Investors are often their own worst impediment to making turnkey portfolios work, and I give a few ideas at the end regarding which investors this concept works for best!

What is turnkey real estate?
To be very brief, turnkey real estate involves a model where an investor purchases a property -- usually for long-term buy and hold -- that another investor or company has purchased, renovated and put under in-house management with a tenant. That is my definition of a turnkey real estate investment. However, and unfortunately for investors everywhere, every week there are new turnkey companies popping up and creating their own spin on what it means to be "turnkey."

Some companies own all of the services, while some do not. Some offer a completed property with tenant, some do not. Some companies are fully capitalized, while others need to use an investor's money. Still other companies act as a real estate broker working off the MLS and then broker all of the after-purchase renovation and management services as well.

I am not here to tell you as an investor which one of these definitions is correct. I have been in this business for a number of years now and have seen all of the good (and most of the bad) and can honestly say that the word "turnkey" no longer has any true meaning. It is defined by the seller and marketed and sold to the buyer. As an investor, this is a major issue when you begin to investigate buying turnkey investments because different companies will have a different definition of the word "turnkey" to fit their model.

Related: What Are The Different Kinds of Turnkey Properties?

What I will tell you is that no matter the definition, there is one type of investment that I have seen fail every time when it comes to turnkey properties. In my opinion, the real blame for this failure falls on the constant marketing of turnkey investments and the lack of experience on the part of turnkey companies. Everyone markets the same thing and attaches the same emphasis on return and service without thought about how those two things are going to be delivered.

If you are looking to invest in real estate through a turnkey provider, exercise extreme caution when it comes to the marketing and pricing of properties. There are two absolutes when it comes to this business: turnkey investments sold at super cheap prices with super high returns are the riskiest investment you can make today. No matter how sincere a company or turnkey provider may be, it is impossible to maintain long-term relationships and high-level management and service without building in the revenue.

High quality renovations, high quality customer service and high quality long-term investments are not words that can be used by super cheap, low-end property turnkey sellers. They do not go hand in hand.

The worst turnkey investment
I started as an active real estate investor and had many opportunities to invest all over the country. My business was extremely successful, which gave me all the capital I needed to make lots of mistakes! I didn't know it at the time, but my biggest mistakes were the properties I was investing in for passive income. I was buying a lot of properties in Memphis, where I had spent part of my time growing up and where my family was still investing. The properties were turnkey for all intents and purposes even though that term wasn't really out there at the time. What attracted me most (looking back it is easy to see why I, like many new investors, was attracted) were the low prices and low barrier of entry into real estate. I was buying cheap properties with little work being done to them -- and what on paper were fantastic double-digit returns.

Before long, I had other investors around me asking what I was doing and what projects I was working on ... so I told them. These same investors were some of the first investors to push my family to start our turnkey company. Unfortunately, like I said, when we first started, we fell into the mind-set that super cheap properties with super high returns were great investments. We also believed that the best way to compete for investors was to offer cheap pricing. Keep the pricing low, and allow investors a low hurdle to their plans to build portfolios.

I speak from experience when I tell you that cheap properties -- defined by me as anything priced $50,000 and under -- make the worst turnkey investments. I have had them in my portfolio, and I have managed them in the past for other investors, and they are not profitable for anyone. We are currently managing over 2,700 turnkey investment properties, and here are our conclusions from reviewing factual data from managing those properties:

Two percent rent ratios are unicorns in the turnkey industry. They may pencil out as 2% properties, but you will pay in deferred maintenance what you should have paid for proper renovation and see your rent ratio cut to 1.5% or less. Turnkey providers who operate with these low price properties have two major issues to overcome and one, if not both, eventually force a change in model.

It is impossible to staff a turnkey company correctly with a focus on high-touch customer and tenant relations when selling low-cost properties. There is not enough room to build in the needed revenue to build and train a team properly. In the end the client and the tenant lose out, which both lead to problems for the company.

It is not realistic for an owner to plan to spend a vast majority of revenue on team and systems, in turn keeping their own income low. In my experience, many choose a different concept altogether called "stay small, keep it all." They choose to remain a small company while still marketing like a big company and simply keep the profit all to themselves. You can guess who loses out in this scenario!

Because renovations are often done at the lowest prices possible and some maintenance issues are deferred, those issues eventually have to be dealt with while a tenant is in place. At the same time, permits are a sticking point since permits can drive up pricing in some cases by 2% ($1,000 in permits for electric, water and gas on a $50,000 property). So often work is done without permits, which can lead to more issues in the future when deferred maintenance has to be addressed and no issues have ever been pulled for any work. At some point, the major work on a property is going to have to be permitted, and often that falls on the owner when they are dealing with deferred maintenance.

Tenants do not hang around properties with ongoing maintenance issues, and management companies do not survive when poorly renovated low-price properties eat up their time and resources. There simply is not enough money in the deal to operate on a high level and deliver on marketing promises to owners.

It is a vicious cycle, where the company does not make enough money to cover permits or to hire and train team members. At the same time, because of efforts to keep prices low, more work has to be done on an ongoing basis. Eventually a turnkey company owner realizes their time is worth more than they are earning, and they have to change their model.

Which investor should buy turnkey properties?
The answer is: any investor who values service and quality over hyped returns and wants a steady yield in return for a passive investment. Unfortunately, that does exclude a lot of investors who end up being sold turnkey investments anyway!

Related: The Lessons of 'Rent Ready' And Turnkey Investment Properties

Brand new investors who are struggling to come up with down payments on investment properties should avoid turnkey investing at all costs. These are the investors who are most likely going to get caught up in a cheap property offering. Remember that turnkey investments are categorized as passive for the most part. There are literally dozens of ways to get started investing in real estate in a passive manner without running the risk of buying cheap turnkey properties that cannot perform at a level you should expect.

What level of performance should you expect? Well, for starters, there should be no deferred maintenance. On an average 1,500 sq. ft. property, the renovation costs could easily reach $25,000 when all systems, roof, flooring, paint, locks, doors, hardware, lighting, permits, fence, aesthetics and trees planted near water and sewage lines are addressed.

On the management side, an investor should expect a property management company to be owned and operated by the turnkey company and to be 100% responsible for the performance of that property. The property management company should be staffed at a level where the tenants and investors both can get quick service and fast replies. In my opinion, customer service fits right under the property management column since most of the communication for an investor occurs after they purchase a property is going to involve property management.

Customer service, in my opinion, does not involve having an answering service take in coming calls so you can return them. Customer service means going above and beyond so an investor buying from 1,500 miles away feels they have competent, safe and secure investments. It means reaching out when there are issues and being proactive on move-outs, as well as maintenance and rental issues. Whether a company is any good at providing service is another story! They have to at least have the personnel and systems in place before they can do it!

Passive investing, especially in a turnkey investment, should be all about the highest level of service, consistent returns and a no-hassle experience as much as possible. None of those things occurred when I was buying the super cheap properties from far away. None of those things were important when we first stated buying and offering cheap properties. And none of those things are present today when investors turn to super-cheap turnkey investments. Turnkey should be held to a very high standard by investors if they want to have a good and profitable experience.

Are you a turnkey investor? What would you add to my assessment?

This article originally appeared on Bigger Pockets and is Copyright 2014 BiggerPockets,

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BlackBerry Reports Upbeat 1Q Results, Shares Surge

Achmad Ibrahim/APBlackBerry CEO John Chen WATERLOO, Ontario and TORONTO -- BlackBerry (BBRY) reported a smaller-than-expected quarterly loss Thursday as the smartphone company's cost cutting and other turnaround efforts started to pay off. Shares jumped more than 10 percent in early trade after BlackBerry burned through less cash than many expected and its gross profit margin rose from a year earlier. "The short trade is over in this name for now -- for now," said BGC analyst Colin Gillis. "They've got enough liquidity, [and] they've given us clear profitability targets." Excluding special items, the company drew down $255 million in cash in the period, significantly less than the $784 million it used in the fiscal fourth quarter. BlackBerry has been slashing costs and has more than halved its workforce over the last two years as part of a do-or-die attempt to turn its business around after losing ground to Apple's (AAPL) iPhone and Samsung Electronics devices that run on Google's (GOOG) Android system. Last year it forged a partnership with FIH Mobile, the Hong Kong-listed unit of Taiwanese electronics company Foxconn Technology, to help design, manufacture and sell some of its devices. As part of the deal it no longer pays the full upfront costs for parts used in its devices. Instead, Foxconn, the trading name of Hon Hai Precision Industry, takes a share of profits on each device in return for taking on the risk of inventory management. Gross profit margin rose to 46.7 percent in the fiscal first quarter to May 31, from 33.9 percent a year earlier. The Waterloo, Ontario-based company reported net income of $23 million, or 4 cents a share, compared with a loss of $84 million, or 16 cents, a year earlier. Excluding a one-time non-cash accounting gain and certain restructuring charges, the loss was $60 million, or 11 cents a share. Analysts, on average, had expected a loss of 25 cents a share, according to Thomson Reuters I/B/E/S. Quarterly revenue dropped to $966 million from $3.07 billion a year earlier. Cash rose to $3.1 billion from $2.7 billion on a sequential basis, helped by gains from the sale of real estate assets and a tax refund. -.

Apart from the health costs (which are worth considering), smoking can drain your finances. The average cost of a pack of cigarettes is $5.51, according to the American Lung Association. If you're a pack-a-day smoker, that means you're burning through $2,011.15 per year. That's enough to take your significant other on an one-week vacation -– including airfare, hotel and restaurants. If that's not compelling enough, consider this: If you invested $2,011 per year ($167 a month) for 10 years, compounding yearly at a reasonable 7 percent growth rate, you'll have $27,690 within a decade. And the power of compounding only picks up the longer it has to play out. Even if you never added to that stash after the first decade, at that rate, the value will about double every 10 years. And that's not even touching on any medical bills you may face.)

1. Smoking There's a reason that some people call the lottery a "voluntary tax" -- or, more harshly, a "tax on people who are bad at math." Even if you're "just" buying a $1 scratch-off ticket each day, you're still throwing your money away. The odds of winning small lottery prizes are low, and the payouts are stacked heavily in favor of lottery. And the odds of winning a large lottery drawing like Mega Millions or Powerball are one in hundreds of millions. To put it in perspective, you have a (much) better chance of being struck by lightning. And what if you're gambling with bigger stakes, such as slot machines or casino table games? Then we don't need to tell you how much you lose for every dollar you "make," because chances are, you're painfully aware of it.

Here's What You Should Do With Your Year-End Bonus

Getty Images For a lot of people, the end of the year is a time of celebration. Not just because of the holidays and family - but also for the big end-of-the-year bonus that gets paid out for all the work you've done over the last 12 months. More than half of all employers give out a year-end bonus that might be monetary in nature or come in the form of other benefits like gifts cards or employee gift registries. Monetary bonuses can differ in appearance too from direct paycheck compensation to 401(k) contributions. Some people refer to this type of bonus as a Christmas bonus. While bonuses have experienced a downward trend over the last few years due to the recession, the average bonus was about 1.3 months of salary in 2013, according to JobsDB.com. Wall Street Takes the Cake for Year-End Bonuses It's no secret that the biggest year-end bonuses go to those who work on Wall Street. These bonuses can run from a few thousand for a secretary to millions for higher-level management. In 2013, the average Wall Street bonus rose 15 percent to $164,530, according to The New York Times. That's still tame compared to the biggest bonuses paid out to Wall Street executives. The top three bonuses of 2013 - paid to Michael Farrell, Ian Cumming and Leslie Moonves - alone added up to around $84 million, according to Forbes. Farrell's bonus was earned on only a partial year of work. $29 million -– Michael Farrell, former CEO of Annaly Capital Management $27.5 million -– Ian Cumming, CEO of Leucadia National Corp. $27.5 million -– Leslie Moonves, CEO of CBS (CBS) While we can safely assume these people have a huge tax bill at the end of the year, you might be surprised to know that - whether you received one hundred thousand dollars or just a few hundred bucks - the tax rate on bonuses remains the same for most. How Your Bonus Gets Taxed The first thing you'll probably notice when receiving a bonus check is how much gets taken out in taxes. It's not complicated, and it is taxed under a different set of rules than your standard income is. Bonuses, commissions and prizes are all considered supplemental wages and are subject to a supplemental wage tax. If you have more than one million in supplemental wages for the year, your employer must withhold tax at the highest federal rate of 39.6 percent. If it's less than that amount, then it depends on how the wages are paid. If your bonus is not designated as a supplemental wage, taxes are withheld based on your W-4 form. However, if this income is noted separately, your employer must withhold 25 percent or combine your regular and supplemental earnings in one pay period and apply the regularly withholding rates. Note how this tax could differ from a graduated income tax, which is adjusted based on income bracket. Putting That Bonus to Work The most exciting part of getting a bonus is deciding how to spend it. Many financial planners like to use the 50-30-20 rule: 50 percent of your budget toward necessities (food, water, shelter, transportation etc.) and paying down debt, 30 for discretionary use, and 20 percent toward savings. Instant paydays are easy to celebrate and can provide an excuse for lavish spending, at least once a year; however, a more appropriate use of that bonus is to get yourself more organized financially. If you have debt, that bonus can wipe it out or at least reduce it substantially. You'll save money on interest payments over the long term and improve your credit score, as well, which will lead to even more savings moving forward. A good financial plan includes at least three to six months worth of emergency savings built up. If you haven't done that, you might consider funding an emergency account. You never know when the unexpected will happen and knowing that you're prepared take a lot of worry and stress out of unforeseen circumstances. The holiday season is also a period of budget busting, as the average shopper will spend $804.42 this year celebrating Christmas, Hanukkah or Kwanzaa, according to the National Retail Federation. Much of this spending will end up on credit cards, which could take shoppers several months to pay off, potentially at the detriment of their credit scores. Of course, working all year long and having nothing to show for it isn't a great reward system. If your finances are squared away, go ahead and splurge a little, as this could also be a good opportunity to indulge and fight off frugal fatigue. Take the family on vacation or buy something you know you'll enjoy. If you've made sure to put some of that bonus toward debt and savings to make financial progress, if needed, then you can spend the rest guilt free.

Sideways Might Not Be So Bad for Markets

"Sideways" was a hit 2004 movie about a troubled guy who loved wine.

Today's stock market also is sideways, but without the wine.

The S&P 500 did edge up to a new record on Friday, finishing at 1900.53, its first close ever above 1900. But the broad S&P is up only 2.8% since the year began. The Dow Jones Industrial Average and Nasdaq Composite Index are even flatter for 2014, with the Dow up a tiny 0.18% and the Nasdaq up 0.22%.

It is rare for all three indexes to be up or down less than 3% this far into a new year. Before now, it had happened only twice, in 1980 and 2010, since the Nasdaq Composite's first full year in 1972, according to Bespoke Investment Group.

Both those years, like the current one, were times of economic anxiety. In 1980, investors faced stagflation. In 2010, the worries were similar to the current ones, focusing on U.S. and European prospects.

In each year, investors overcame their fears. The Dow rose 15% in 1980 and 11% in 2010. Today, despite concerns about sluggish U.S. and European growth and excessive borrowing and real-estate development in China, investors seem to be shrugging off their worries and buying stocks again.

Last week, the Dow managed a 0.70% gain, its best week since May 2. It finished at 16606.27, barely ahead for 2014 but just 0.65% from the record 16715.44 hit May 13.

"A sideways pattern on a chart is not a horrible thing after last year's 32% increase" in the S&P 500, said Michael Farr, president of Farr, Miller & Washington, which oversees $1.1 billion in Washington, D.C.

Mr. Farr worries that stocks aren't cheap after more than doubling in value since 2009. But he sees little sign either of an end to the U.S. recovery or of an inflation problem that would force the Federal Reserve to tighten monetary policy suddenly.

"I think the market is expensive," he said, "but I don't think it is stopping" its gains. He thinks stocks could drift mildly higher this year, giving corporate earnings a chance to catch up with last year's stock gains, making stocks less expensive.

Currently, the S&P 500 trades at 25 times its companies' average earnings for the past 10 years, according to widely followed data from Nobel-prize-winning Yale economist Robert Shiller. That is expensive, well above the historical average of about 16, but still below the excessive highs of 2007 and 2000.

One index that has been worrying investors is the Russell 2000 small-stock index, which has fallen 6.8% since its March 4 record. But even it is down only 3.2% since the year began.

More important, almost every other important stock category is showing gains, said Doug Ramsey, chief investment officer at Leuthold Group, which manages $1.6 billion in Minneapolis.

Normally, Mr. Ramsey says, individual stock groups such as transportation stocks, financials and utilities turn down before broader indexes such as the Dow and the S&P. That hasn't happened yet.

"As long as you are making new highs that are fairly broadly confirmed by leading groups, such as cyclical stocks, utilities, etc., we are probably destined to make even higher highs," Mr. Ramsey said. "It still looks like a very broad market," with few stock groups weakening, he said.

Mr. Ramsey said he wouldn't be surprised to see a dip, say 6% to 8%, over the summer; summer often features such a pullback. But he thinks it would be temporary.

High stock prices and the uncertain economy still have many investors worried, which helps explain why stocks are having so much trouble moving higher.

Money managers also are nervous about the likelihood that the Fed will start gradually raising its benchmark overnight interest rate as soon as mid-2015. While that is some time away, it is a reminder that the Fed is steadily becoming less friendly.

But market interest rates today still are much lower than most analysts had predicted, meaning bonds offer an unappetizing alternative to stocks. Many people still are afraid to miss out on future stock gains, which has helped prevent big declines.

John Kosar of Asbury Research in Schaumburg, Ill., is watching for signs that stocks are running out of steam, but so far he isn't finding them. Instead, he told clients Friday, three indicators suggest stocks could move higher, at least in the next few weeks.

First, computer-chip stocks, which had been trending down since early April, are rebounding. Because computer chips are basic components for technology products, gains for these stocks can precede broader tech-stock gains, Mr. Kosar said.

"Semiconductors typically lead technology and technology typically leads the U.S. broad market," he told clients.

In addition, investors are moving money to an exchange-traded fund tracking big Nasdaq stocks, also suggesting a tech recovery. And the S&P 500's monthly rate of change has turned positive, suggesting acceleration in the broad market.

As long as indicators like these stay strong, Mr. Kosar said, markets can head higher.

On top of all this, the economic news is improving.

An updated calculation of first-quarter U.S. economic growth is due Thursday, and Capital Economics warned on Friday that it could show a 0.6% contraction. But the research firm said other data suggest the economy is already rebounding. On Friday came news of a recovery in new-home sales. This week's reports on durable-goods orders and personal spending also could be upbeat, Capital Economics forecast.

What’s Ahead for Wal-Mart;Target Q3 Earnings

Anticipation of the Black Friday deluge is officially upon us with some eager shoppers already camping out at a Best Buy (BBY) in California hoping to score good deals.

At the moment, we aren't searching for deals and discounts. Yet we'd be remiss if we didn't write about two Black Friday biggies, Wal-Mart (WMT) and Target (TGT), which will report earnings in the coming days, were featured today in a note by Janney's David Strasser.

Regarding current overall retail themes, Strasser writes:

As cross currents continue to hit the U.S. consumer, promotions continue to increase earlier in the season as companies aggressively go after fewer dollars. Consensus growth forecasts are being challenged, with a low end consumer that is continuing to struggle. Recent data points show credit companies are pulling back on low end consumers and could add another headwind to this holiday season.

Wal-Mart's defensive characteristics "remain attractive" according to Strasser. He adds:

Business remains tough, but lower gas prices should provide a rare tailwind this holiday. We are modeling third-quarter earnings-per-share of $1.13, slightly ahead of the street at $1.12, driven by a flattish U.S. comp. Traffic remains key and becomes even more important in the back half of the year, as Walmart continues to lap SNAP benefits and anticipates $500 million of incremental healthcare costs this year.

Target, according to Strasser, continues to have room for improvement, and will be one to watch. When it comes to Target's CEO, Strasser writes:

We believe there are many opportunities for improvement, as Mr. Cornell fully embraces the CEO position. We are modeling third-quarter EPS of 47 cents, a penny below consensus as U.S. traffic continues to struggle, and the Canadian segment remains unprofitable.

Wal-Mart reports Thursday and is down 0.64% in trading this afternoon. Target reports on Nov. 19 and is up 0.02%. Competitors Kohl's (KSS) and Nordstrom (JWN) also report Thursday with Kohl's down 0.83% and Nordstrom has dropped 2.40%.

Time to Sell These 5 'Toxic' Stocks

BALTIMORE (Stockpickr) -- The S&P 500 and the Dow made new closing highs yesterday, but don't let that fool you into thinking everything that markets are in "up, up, and away mode." Stock selection matters more than ever in 2014, and that's not likely to change with the calendar in the next few months.

Must Read: Hedge Funds Hate These 5 Stocks -- Should You?

Even though the S&P 500 Index is up double digits year-to-date, nearly a third of the individual stocks in the S&P 500 are actually down this year. It's the exact same story in the Dow. In other words, it hasn't been hard to own stocks that are toxic to your portfolio in 2014.

Today, we're taking a closer technical look at five new names that are looking "toxic" this fall.

Just to be clear, the companies I'm talking about today aren't exactly junk. By that, I mean they're not next up in line at bankruptcy court. But that's frankly irrelevant; from a technical analysis standpoint, sellers are shoving around these toxic stocks right now. For that reason, fundamental investors need to decide how long they're willing to take the pain if they want to hold onto these firms in the weeks and months ahead. And for investors looking to buy one of these positions, it makes sense to wait for more favorable technical conditions (and a lower share price) before piling in.

For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better

So, without further ado, let's take a look at five "toxic stocks" you should be unloading.

Must Read: Sell These 5 Stocks Before It's Too Late

AstraZeneca

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Up first is $93 billion pharmaceutical firm AstraZeneca (AZN). AstraZeneca has been a stellar performer so far in 2014, rallying more that 22% since the calendar flipped to January. But that long streak of outperformance is starting to show some cracks this fall. Now, a bearish price pattern is threatening a drop in shares of AZN.

AstraZeneca is currently forming a descending triangle, a bearish price setup that's formed by horizontal support to the downside at $67.50 and downtrending resistance above shares. Basically, as AZN bounces in between those two technically significant price levels, it's getting squeezed closer to that $67.50 support line. If that level gets broken, then AZN is open to a lot more downside risk. This is a long-term price setup, and that means it comes with equally long-term trading implications if and when the breakdown does happen.

Follow Stockpickr on Twitter and become a fan on Facebook.

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

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji

Investing In The Smart Home Boom

The corporate race is on to dominate the rapidly expanding market for smart homes, dwellings in which appliance, heating, entertainment and security systems communicate with each and can be controlled remotely via smart phones and other digital devices.

Consumers want to save time, energy and money, and the automated home market could reach by $71 billion by 2018 — up from $33 billion in 2013, according to a recent study by Juniper Research.

Platform wars

How best to invest in the smart home boom? The real winners will be the companies that win the platform wars.

[Related -How the Chinese Slowdown Will Impact Your Investments]

Rival corporate alliances are vying to control the communication protocols and software standards to allow different home systems to talk to each other.

There are various smartphone apps out there that control a single functions such as the Google (GOOG) Nest smart thermostats, the LG (LGEPF) Smart ThinQ refrigerators and Sonos speakers.

Trouble is, these systems don't speak to the same language.

Google and Apple

To change all that, Google Nest recently purchased Revolv, a hub that let's consumers control all of their automated home devices from one master app on their smartphones.

[Related -Most Investors Will Miss This Powerful Buy Signal on Amazon's Chart]

Apple (AAPL) is preparing a new software platform dubbed HomeKit that centers around the iPhone that would work with with security systems, lights and household appliances that might enhance demand for its franchise smartphone.

Not to be outdone, Samsung is working on its Smart Home platform that would sync with its Galaxy line-up.

Other contenders include Belkin's WeMo, which is making a serious run to be the dominant player in the connected home with wireless technology that will control power and appliances.

It recently introduced Belkin's WeMo Smart LED Bulbs that will bring it into competition with other brands such as Philips Hue Personal Wireless Lighting and General Electric's (GE) Link lighting products.

Microsoft

For its, part Microsoft (MSFT) has chosen startup 10 companies, including Chai Energy, Heatworks, and Red Balloon Security, to participate in its accelerator program, in which companies receive investments and technical training to develop commercially viable strategies.

Amazon.com (AMZN) is reaching out to developers for various smart home projects and has devoted $55 million for such research at its Silicon Valley engineering center, Lab126.

There's the possibility that open standards such as SmartThings and ZigBee could prevail, which could through the market wide open.

And the telcos are in the race as well. Take the Time Warner Cable's Intelligent Home program that offers energy management and 24-hour video security services.

Much will ride on how enthusiastically consumers embrace these technologies.

A survey by research firm icontrol networks published earlier this suggested that tech enthusiasts are most likely to be interested in automated homes.

These younger consumers are most interested in family security and the convenience of automating the functions inside their homes.

 

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5 Rocket Stocks to Buy for Earnings Season Gains

BALTIMORE (Stockpickr) -- Earnings season is continuing to kill it this quarter. While all eyes ended the week on focused on the Fed and then the Bank of Japan's stimulus announcement, publicly traded companies have been quietly stomping analyst expectations across the board.

Must Read: Warren Buffett's Top 10 Dividend Stocks

Of the 363 S&P 500 components that have reported their numbers so far this earnings season, a whopping 81% have posted profits that beat Wall Street's expectations for the quarter. That's a staggering result. And with few exceptions, earnings beats are being followed up by big pops in those individual stocks.

The Dow and the S&P 500 both ended at new all-time closing highs on Friday, signaling that the correction in stocks to start October was just that - a correction. So, with momentum looking strong as we head into November, we're turning to a new set of Rocket Stock names to buy.

For the uninitiated, "Rocket Stocks" are our list of companies with short-term gain catalysts and longer-term growth potential. To find them, I run a weekly quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises to identify rising analyst expectations, a bullish signal for stocks in any market. After all, where analysts' expectations are increasing, institutional cash often follows. In the last 272 weeks, our weekly list of five plays has outperformed the S&P 500's record run by 80.23%.

Without further ado, here's a look at this week's Rocket Stocks.

Must Read: 5 Breakout Stocks Under $10 Set to Soar

Bank of America

Up first is Bank of America (BAC). After a rough start to 2014, BofA has been building momentum since the beginning of the summer, climbing more than 18% since the end of May. For comparison, the S&P 500 is only up 7% over that same stretch. And with some big black clouds resolved this year, BofA has a much clearer path to bigger profits ahead of it.

For a while, Bank of America has been the worst-in-breed of the big U.S. banks. The firm's acquisitions of Countrywide and Merrill Lynch in 2008 greatly increased BofA's mortgage book and securitization business, but it also exposed the firm to huge legal liabilities that have been an ongoing material drag on earnings. The firm's record $16.65 billion settlement with the government earlier this year resolves one of the biggest bearish pressures on shares.

From here, Bank of America has the scale to grow its margins materially in the years ahead -- the relatively commoditized nature of the banking business means that size matters, and BAC certainly has size. The prospect of higher interest rates, however far down the horizon, is another big potential catalyst for BofA; as rates rise, so too will the spread that the firm can earn on its loan book. Meanwhile, a buoyant equity market means good things for revenues over at the firm's investment banking and wealth management arms.

With rising analyst sentiment in Bank of America this week, we're betting on shares.

Must Read: 5 Stocks Insiders Love Right Now

Salesforce.com

$39 billion enterprise software company Salesforce.com (CRM) has seen its share price grow faster than the rest of the market in 2014: since January, this stock has rallied nearly 16%, leaving the S&P's otherwise solid 9% climb in the dust. And as Salesforce slowly transitions from high-growth mode to profit mode, investors should see more upside ahead.

Salesforce.com is the largest provider of customer relationship management software, with more than 100,000 customers. Those customers run its mission-critical business applications to interact with customer lists, doing everything from sending newsletters to tracking sales. Because the Salesforce platform is directly linked to bringing in revenue, the cost is easy to justify, and the firm has a deep economic moat. Salesforce was one of the first big enterprise tools "in the cloud" - as a result, the firm has a sticky recurring revenue base. Firms who invest time and money into integrating CRM's platform aren't likely to jump ship to a competitor.

Historically, Salesforce has focused on growth above profitability, spending as much as it could on customer acquisition at the expense of the bottom line. More recently, though, management has become more receptive to investors' demands for profits, and that fact should help to build value in shares of CRM in the coming quarters.

Must Read: 5 Big Stocks to Trade for Gains as QE3 Ends

LinkedIn

LinkedIn (LNKD) popped more that 12.8% on Friday, buoyed by a better-than-expected 49-cent per share profit for the third quarter, and attractive estimates for Q4. That move was enough to bring LNKD positive for 2014, a nice change after a very choppy year of trading. While investors pay more attention to LinkedIn's more prominent social networking peers, this $28 billion stock is quietly making leaps and bounds in its business.

LinkedIn is a professional social network that connects more than 300 million members with colleagues who can help them land jobs, fill them, or figure out business problems. LinkedIn's advantage can be summed up in a sentence: It's the only social network that's actually monetized helping users do what they want to do.

While other social media firms earn revenue by distracting their users from what they're trying to do (and getting them to click on ads while stalking their friends, for instance), LNKD makes money by helping users with the exact task they're trying to accomplish: find a job, network or hire someone. That may sound like a small distinction, but it's not. And as firms like Twitter (TWTR) search for new ways to generate revenue, LinkedIn is grabbing huge business-to-business ad and recruitment spending.

The realities of today's job market means that LinkedIn has become more of a necessity for employment candidates. That's particularly true as frustrated users get sick of the older legacy job search websites. Financially, LNKD is in good shape, with more than $2.3 billion in cash and zero debt. With rising analyst sentiment in shares of LinkedIn this week, we're betting on shares.

Must Read: 5 Breakout Stocks Under $10 Set to Soar

AvalonBay Communities

A buoyant housing market and record low interest rates have provided a windfall for investors in AvalonBay Communities (AVB) -- shares of the $20.5 billion housing REIT have rallied more than 31% since the start of January. Many income investors go gung-ho over conventional commercial REITs, while ignoring the housing REITs; that's a big mistake. AVB is one of the best-run residential real estate investment trusts, with interests in more than 80,000 units spread across some 250 apartment communities.

It's true that housing REITs don't have many of the same protections from tenants that commercial landlord REITs do. But that hasn't stopped AVB from earning meaningful returns. The firm focuses its portfolio on affluent metro areas like New York and San Francisco, and as a result, it has been able to maintain high occupancy rates for its apartment homes.

One of AVB's biggest benefits is its pipeline. Instead of acquiring existing apartments, the firm holds development rights to approximately 45 communities as of its most recent financial filings. That hands-on strategy means that AVB is able to collect bigger long-term returns on investment than a mere owner-operator could.

Right now, AvalonBay pays out a 3% dividend yield -- if the Fed follows the Bank of Japan's lead with another round of QE, that high dividend yield could make AVB one of the bigger beneficiaries of new money pouring into stocks.

Must Read: 10 Stocks Billionaire John Paulson Loves in 2014

Delphi Automotive

Last up on this week's Rocket Stocks list is Delphi Automotive (DLPH), the $20 billion auto parts supply giant. Even if you don't know the Delphi name, there's a good chance you've seen its products: the firm supplies automakers with everything from electrical components and safety parts to powertrain systems. Former parent General Motors (GM) accounts for approximately a fifth of sales today.

As goes the car business, so goes Delphi. That's been a very good thing post-2009, as record-low interest rates and an aging global car fleet helped to spur major growth in car sales that continues today. Delphi enjoys a relatively strong moat -- since its customers must integrate Delphi's offerings deeply into their own car designs, it's difficult for an OEM like GM or Toyota (TM) to simply switch to a competitor's part.

Much like its customers, DLPH has made an about-face in terms of financial health post-2008. Not only has the firm been consistently profitable, but it also now sports a balance sheet with more than half of its total debt load covered by cash on hand. That lack of balance sheet leverage makes this Rocket Stock's performance look a whole lot more attractive this fall.

To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

Must Read: 5 Scary Stocks to Sell Before It's Too Late

Follow Stockpickr on Twitter and become a fan on Facebook.

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

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji

Government accuses AT&T of misleading 'unlimited data' customers

The FTC says AT&T reduced speeds for customers with unlimited data plans by nearly 90% in some cases. NEW YORK (CNNMoney) AT&T is back in the government's crosshairs.

The Federal Trade Commission announced a lawsuit Tuesday alleging that AT&T (T, Tech30) misled mobile customers with "unlimited" data plans, deliberately slowing their connection speeds in a practice known as throttling.

The FTC said AT&T "failed to adequately disclose" the fact that when unlimited customers reached a certain data limit in a billing cycle, it reduced their connection speeds by as much as 90%. As a result, the complaint alleged, many common smartphone applications -- like web browsing, GPS navigation and streaming video -- became "difficult or nearly impossible to use."

The commission said AT&T received thousands of complaints about the program, and that the throttling affected at least 3.5 million unique customers.

"AT&T promised its customers 'unlimited' data, and in many instances, it has failed to deliver on that promise," FTC chairwoman Edith Ramirez said.

AT&T called the allegations "baseless" and said it has been "completely transparent with customers since the very beginning." The company pointed to a 2011 press release announcing the throttling policy, and said it had notified the roughly 3% of its customers who were affected via text message.

"It's baffling as to why the FTC would choose to take this action against a company that, like all major wireless providers, manages its network resources to provide the best possible service to all customers," AT&T said.

Earlier this year, regulators at the Federal Communications Commission criticized a plan by Verizon (VZ, Tech30) to throttle the connections of unlimited-data customers. In response, Verizon abandoned the plan.

Tuesday's lawsuit comes just weeks after AT&T agreed to pay $105 million for "cramming" unauthorized charges on the monthly bills of its wireless customers. The charges -- typically $9.99 per month -- came from third-party services for things like trivia, horoscopes and love tips. AT&T was accused of keeping at least 35% of the fees, as well as obscuring the charges on bills and preventing customers from securing full refunds.

Paying thousands before health insurance even kicks in

  Health insurance: 5 basic questions to ask NEW YORK (CNNMoney) Got health insurance at work? You may still have to shell out thousands of dollars before it kicks in.

That's because more employers are offering consumer-directed health plans, which usually come with high deductibles. In 2015, 81% of large employers will offer at least one of these plans, up from 63% five years earlier.

Consumer-directed plans typically carry deductibles of $1,500 for individual coverage, more than three times higher than traditional policies, according to the National Business Group on Health.

And these plans will be the only choice for a growing number of workers. The share of larger employers offering only consumer-directed policies is jumping to 32% for 2015, up from 22% this year.

Deductibles are soaring for traditional insurance policies, too.

Deductibles for individual coverage at all firms have jumped to $1,217, on average, up 47% over the past five years, according to the 2014 Kaiser Family Foundation/Health Research & Educational Trust report. In high-deductible plans, they have hit $2,215.

Employers say they want more accountability, and higher deductibles force workers to take a larger role in their own care while shifting more of the costs to them.

Share your story: Are your health care deductibles going up?

Participants in these plans often have to pay more out of pocket -- not only for deductibles, but for doctors' visits, labs and procedures too.

On the plus side, they benefit from lower monthly premiums. Also, many emp! loyers contribute to savings accounts to help workers cover these costs. Annual checkups and preventative exams, such as colorectal screenings and mammograms, are free, as mandated by Obamacare.

Wells Fargo (WFC) switched to only consumer-directed plans in 2012. This year, the bank's employees can choose between two high-deductible policies -- one at $2,000 and the other at $3,000.

Doing so helped Wells Fargo keep plans affordable and allows it to offer a broad network of doctors and hospitals, said spokeswoman Richele Messick. "It gives them greater visibility into the cost of care and how they spend their health care dollars," she said.

Wells Fargo contributes up to $1,000 to workers' accounts, depending on their salary and the plan they choose. Employees can also earn up to $800 by participating in corporate wellness programs, including health screenings and quizzes.

For many, however, high-deductible health plans are a burden. They are nearly twice as likely to skip going to the doctor when sick or injured as those with traditional plans, according to a recent survey by the Associated Press-NORC Center for Public Affairs Research. Also, they are more likely to have difficulty paying other bills and to have decreased the amount they save.

Medical care has become more costly for the Vance family under a high-deductible plan.

Melissa Vance has had to go back to work. Her husband's employer just jacked up the family's deductible from $0 to $5,000. The Columbia, S.C., couple has four children with chronic conditions that require frequent lab work and costly medications.

Last year, Vance estimated she paid $2,000 for the family's health care. This year, the tab will likely surpass $10,000, which she said will take them years to pay off.

"I have a stack of bills I haven't even opened," ! said Vanc! e, who now works part-time as an administrative assistant. "I get nauseous every time I look at them."