The Best Thanksgiving Turkey Stock? HRL, SEB & IBA

Thanksgiving is around the corner meaning investors might want to take a closer look at turkey stocks like Hormel Foods Corporation (NYSE: HRL), Seaboard Corporation (NYSEMKT: SEB) and Industrias Bachoco, S.A.B. de C.V. (NYSE: IBA) – the last major publicly traded turkey stocks available for investors. Moreover, the Wall Street Journal has pointed out that corn prices are the lowest in more than three years and fewer birds are in production as some producers cut back on their flocks this year due to weaker turkey commodity prices. Feed prices, which make up about 70% of the cost of a turkey, had soared with the price of corn which hit the $8 a bushel level but a recent bumper crop has sent corn prices plunging to about the $4 a bushel level.

With that in mind, here is a closer look at three potential Thanksgiving turkey stocks for investors:

Hormel Foods Corporation. Founded by George A. Hormel in 1891, large cap Hormel Foods Corporation is primarily involved in the production of a variety of meat and food products and the marketing of those products throughout the United States and internationally. The Jennie-O Turkey Store, Inc is a wholly-owned subsidiary of Hormel Foods Corporation and is one of the largest turkey processors (traditional and value-added turkey products for retail, foodservice and deli markets) and marketers in the world. Hormel Foods Corporation is scheduled to report fourth quarter earnings before the market opens today and it should be noted that other meat processors have been hitting highs lately while Tyson Foods, Inc (NYSE: TSN) has been rising over a week since its earnings point. For the fiscal year, analysts expect Hormel Foods Corporation to report a 6% revenue rise to $2.30 billion for the quarter and earnings of $1.92 per share, but it should be mentioned that there was a third quarter revenue drop after three straight quarters of rising revenue plus profit has fallen in each of the last two quarters (14% year-over-year for last quarter and 2% for the second quarter). Otherwise, Hormel Foods Corporation has a trailing P/E of 22.82 and a forward P/E of 18.95 plus a forward dividend of $0.68 for a 1.6% dividend yield. On Monday, large cap Hormel Foods Corporation fell 1.07% to $42.44 (HRL has a 52 week trading range of $30.23 to $44.22 a share) for a market cap of $11.20 billion plus the stock is up 36% since the start of the year and up 194.7% over the past five years.

Seaboard Corporation. A diversified conglomerate that operates a number of agriculture, food, transport and ocean transport businesses worldwide, mid cap Seaboard Corporation's divisions include Butterball, PrairieFresh, Daily's and Seaboard Marine. Seaboard Corporation's Butterball division is the largest producer of turkey products in the US producing approximately 1 billion pounds of turkey each year that are distributed throughout the country and in more than 30 countries. Butterball operates five processing plants located in North Carolina, Arkansas and Missouri, plus its wholly owned subsidiary, Packing Company, is a pork packing plant located in Montgomery, Ill. that produces a variety of private label and branded items for retail and foodservice application in the continental US. It should be noted that earlier this month, it was reported that there is a shortage of Butterball's fresh, never-frozen whole turkeys in sizes 16 pounds (the average weight of most Thanksgiving turkeys) and up but the company expects to be back at full capacity in time for the Christmas holiday. According to a company statement:

"We experienced a decline in weight gains on some of our farms causing a limited availability of large, fresh turkeys. While we are continuing to evaluate all potential causes, we are working to remedy the issue."

However, only a fraction of the turkeys produced in the US every year are sold as fresh (85% of turkeys are flash-frozen) and Butterball is not the only producer plus its just one division of fairly well diversified Seaboard Corporation. Otherwise, Seaboard Corporation has a trailing P/E of 16.09, no forward dividend and only a few hundred shares trade on an average trading day. On Monday, mid cap Seaboard Corporation fell 1.12% to $2,738.89 (SEB has a 52 week trading range of $2,193.21 to $2,948.24 a share) for a market cap of $3.26 billion plus the stock is up 8.3% since the start of the year and up 215.9% over the past five years.

Industrias Bachoco, S.A.B. de C.V. Founded in 1952 and listed in 1997 on the NYSE, Mexico based small cap Industrias Bachoco would be more of an indirect Thanksgiving turkey play as its one of the ten largest poultry producers globally whose main business lines are: chicken, eggs, balanced feed, swine and turkey and beef value-added products. Industrias Bachoco owns and manages more than a thousand facilities, organized in nine production complexes and 64 distribution centers in Mexico plus a production complex in the United States. It was back in July that Industrias Bachoco announced it had reached an agreement to acquire the breeding assets in Arkansas of Morris Hatchery Inc., an operation with the capacity of around 350 thousand laying hens producing hatching eggs. Back in October, Industrias Bachoco reported 3Q13 net sales totaled Ps. 9,437.0 million for a 4.7% year over year decrease mainly due to lower chicken prices in the Mexican market along with a drop in chicken volume compared to 3Q12. These declines were partially offset by an increase in egg sales while other business lines reported mixed results. Net income came in at Ps. 353.5 million verses net income of Ps. 627.5 million. According to the CEO: "This was a typical third quarter for the Company, in terms of seasonality, with chicken prices at their weakest." In addition, results had been strong for the same period last year. Otherwise, Industrias Bachoco has a trailing P/E of 8.73 and a forward dividend of $0.52 for a dividend yield of 1.3%. On Monday, small cap Industrias Bachoco fell 0.37% to $40.11 (IBA has a 52 week trading range of $25.58 to $43.12 a share) for a market cap of $2.01 billion plus the stock is up 43.7% since the start of the year and up 194.1% over the past five years.

Finally, here is a closer look at the long term performance of all three potential Thanksgiving turkey stocks:

As you can see, its been a healthy feast for investors over the longer term albeit shares have been rather flat over the near term.

The Optimal Use Of Financial Leverage In A Corporate Capital Structure

A company needs financial capital in order to operate its business. For most companies, financial capital is raised by issuing debt securities and/or by selling common stock. The amount of debt and equity that makes up a company's capital structure has many risk and return implications. Therefore, corporate management has an obligation to use a thorough and prudent process for establishing a company's target capital structure. The capital structure is how a firm finances its operations and growth by using different sources of funds.

Empirical Use of Financial Leverage

Financial leverage is defined as the extent to which fixed-income securities and preferred stock are used in a company's capital structure. Financial leverage has value due to the interest tax shield that is afforded by the U.S. corporate income tax law. The use of financial leverage also has value when the assets that are purchased with the debt capital earn more than the cost of the debt that was used to finance them. Under both of these circumstances, the use of financial leverage increases the company's profits. With that said, if the company does not have sufficient taxable income to shield, or if its operating profits are below a critical value, financial leverage will reduce equity value and thus reduce the value of the company.

Given the importance of a company's capital structure, the first step in the capital decision making process is for the management of a company to decide how much external capital it will need to raise to operate its business. Once this amount is determined, management needs to examine the financial markets to determine the terms in which the company can raise capital. This step is crucial to the process, because the market environment may curtail the ability of the company to issue debt securities or common stock at an attractive level or cost. With that said, once these questions have been answered, the management of a company can design the appropriate capital structure poli! cy, and construct a package of financial instruments that need to be sold to investors. By following this systematic process, management's financing decision should be implemented according to its long-run strategic plan, and the manner in which it wants to grow the company over time.

The use of financial leverage varies greatly by industry and by business sector. There are many industry sectors in which companies operate with a high degree of financial leverage. Retail stores, airlines, grocery stores, utility companies, and banking institutions are classic examples. Unfortunately, the excessive use of financial leverage by many companies in these sectors has played a paramount role in forcing a lot of them to file for Chapter 11 bankruptcy. Examples include R.H. Macy (1992), Trans World Airlines (2001), Great Atlantic & Pacific Tea Co (A&P) (2010), and Midwest Generation (2012). Moreover, excessive use of financial leverage was the primary culprit that led to the U.S. financial crisis between 2007 and 2009. The demise of Lehman Brothers (2008) and a host of other highly levered financial institutions are prime examples of the negative ramifications that are associated with the use of highly levered capital structures.

Overview of the Modigliani and Miller Theorem on Corporate Capital Structure

The study of a company's optimal capital structure dates back to 1958 when Franco Modigliani and Merton Miller published their Nobel Prize winning work "The Cost of Capital, Corporation Finance, and the Theory of Investment." As an important premise of their work, Modigliani and Miller illustrated that under conditions where corporate income taxes and distress costs are not present in the business environment, the use of financial leverage has no effect on the value of the company. This view, known as the Irrelevance Proposition theorem, is one of the most important pieces of academic theory that has ever been published.

Unfortunately, the Irrelevance Theorem, like mo! st Nobel ! Prize winning works in economics, require a number of impractical assumptions that need to be accepted to apply the theory in a real world environment. In recognition of this problem, Modigliani and Miller expanded their Irrelevance Proposition theorem to include the impact of corporate income taxes, and the potential impact of distress cost, for purposes of determining the optimal capital structure for a company. Their revised work, universally known as the Trade-off Theory of capital structure, makes the case that a company's optimal capital structure should be the prudent balance between the tax benefits that are associated with the use of debt capital, and the costs associated with the potential for bankruptcy for the company. Today, the premise of the Trade-off Theory is the foundation that corporate management should be using to determine the optimal capital structure for a company.

Impact of Financial Leverage on Performance

Perhaps the best way to illustrate the positive impact of financial leverage on a company's financial performance is by providing a simple example. The Return on Equity (ROE) is a popular fundamental used in measuring the profitability of a business as it compares the profit that a company generates in a fiscal year with the money shareholders have invested. After all, the goal of every business is to maximize shareholder wealth, and the ROE is the metric of return on shareholder's investment.

In the table below, an income statement for Company ABC has been generated assuming a capital structure that consists of 100% equity capital. Capital raised was $50 million dollars. Since only equity was issued to raise this amount, total value of equity is also $50 million. Under this type of structure, the company's ROE is projected to fall between the range of 15.6 and 23.4%, depending on the level of the company's pre-tax earnings.



In comparison, when Company ABC's capital structure is re-engineered to consist of 50% debt capital and 50% equity capital, the company's ROE increases dramatically to a range that falls between 27.3 and 42.9%.



As you can see from the table above, financial leverage can be used to make the performance of a company look dramatically better than what can be achieved by solely relying on the use of equity capital financing.



Since the management of most companies relies heavily on ROE to measure performance, it is vital to understand the components of ROE to better understand what the metric conveys.

A popular methodology for calculating ROE is the utilization of the DuPont Model. In its most simplistic form, the DuPont Model establishes a quantitative relationship between net income and equity, where a higher multiple reflects stronger performance. However, the DuPont Model also expands upon the general ROE calculation to include three of its component parts. These parts include the company's profit margin, its asset turnover, and its equity multiplier. Accordingly, this expanded DuPont formula for ROE is as follows:



Based on this equation, the DuPont Model illustrates that a company's ROE can only be improved by increasing the company's profitability, by increasing its operating efficiency, or by increasing its financial leverage.

Measurement of Financial Leverage Risk

Corporate management tends to measure financial leverage by using short-term solvency ratios. Like the name implies, these ratios are used to measure the ability of the company to meet its short-term obligations. Two of the most utilized short-term solvency ratios are the current ratio and acid-test ratio. Both of these ratios compare the company's current assets to its current liabilities. However, while the current ratio provides an aggregated risk metric, the acid-test ratio provides a better assessment of the composition of the company's current assets for purposes of meeting its current liability obligations since it excludes inventory from current assets.

Capitalization ratios are also used to measure financial leverage. While there are many capitalization ratios that are used in the industry, two of the most popular metrics are the long-term-debt-to-capitalization ratio and the total-debt-to-capitalization ratio. The use of these ratios is also very important for measuring financial leverage. However, these ratios can be easily distorted if managemen! t leases the company's assets without capitalizing the assets' value on the company's balance sheet. Moreover, in a market environment where short-term lending rates are low, management may elect to use short-term debt to fund both its short- and long-term capital needs. Therefore, short-term capitalization metrics also need to be used to conduct a thorough risk analysis.

Coverage ratios are also used to measure financial leverage. The interest coverage ratio, also known as the times-interest-earned ratio, is perhaps the most well-known risk metric. The interest coverage ratio is very important because it provides an indication of a company's ability to have enough pre-tax operating income to cover the cost of its financial burden. The funds-from-operations-to-total-debt ratio, and the free-operating-cash-flow-to-total-debt ratio are also important risk metrics that are used by corporate management.

Factors Considered in the Capital Structure Decision-Making Process

There are many quantitative and qualitative factors that need to be taken into account when establishing the company's capital structure. First, from the standpoint of sales, a company that exhibits high and relatively stable sales activity is in a better position to utilize financial leverage, as compared to a company that has lower and more volatile sales.

Second, in terms of business risk, a company with less operating leverage tends to be able to take on more financial leverage than a company with a high degree of operating leverage.

Third, in terms of growth, faster growing companies are likely to rely more heavily on the use of financial leverage, because these types of companies tend to need more capital at their disposal than their slow growth counterparts.

Fourth, from the standpoint of taxes, a company that is in a higher tax bracket tends to utilize more debt to take advantage of the interest tax shield benefits.

Fifth, a company that is less profitable tends to use more fi! nancial l! everage, because a less profitable company is typically not in a strong enough position to finance its business operations from internally generated funds.

The capital structure decision can also be addressed by looking at a host of internal and external factors. First, from the standpoint of management, companies that are run by aggressive leaders tend to use more financial leverage. In this respect, their purpose for using financial leverage is not only to increase the performance of the company, but to also help ensure their control of the company.

Second, when times are good, capital can be raised by issuing either stocks or bonds. However, when times are bad, suppliers of capital typically prefer a secured position, which in turn puts more emphasis on the use of debt capital. With this in mind, management tends to structure the capital makeup of the company in a manner that will provide flexibility in raising future capital in an ever-changing market environment.

The Bottom Line

In essence, corporate management utilizes financial leverage primarily to increase the company's earnings per share and to increase its return-on-equity. However, with these advantages come increased earnings variability and the potential for an increase in the cost of financial distress, perhaps even bankruptcy. With this in mind, the management of a company should take into account the business risk of the company, the company's tax position, the financial flexibility of the company's capital structure, and the company's degree of managerial aggressiveness when determining the optimal capital structure.

Jefferies Analyst Sees Possibility of Microsoft Bid on BlackBerry (MSFT)

According to Jefferies analyst Peter Misek, software company Microsoft Corporation (MSFT) is now more likely to acquire BlackBerry.

On September 2, Microsoft announced that it had agreed to purchase Nokia's devices and services business. After this deal is finalized, the analyst sees Microsoft taking a closer look at BlackBerry.

The analyst noted that having both the Nokia business as well as BlackBerry assets, MSFT would be “1) the definitive #3 handset player with better carrier access and production economies of scale; 2) the leader in enterprise mobile devices with support from the U.S. gov’t; 3) a key player in MDM, an area they would love to get into and purchasing private leaders in the space would be pricey.”

Misek also reported that other bidders may include International Business Machines (IBM) and Samsung. He also suggested the possibility of BlackBerry splitting into several pieces.

3 Big Stocks on Traders' Radars

BALTIMORE (Stockpickr) -- Put down the 10-K filings and the stock screeners. It's time to take a break from the traditional methods of generating investment ideas. Instead, let the crowd do it for you.

>>5 Stocks Under $10 Set to Soar

From hedge funds to individual investors, scores of market participants are turning to social media to figure out which stocks are worth watching. It's a concept that's known as "crowdsourcing," and it uses the masses to identify emerging trends in the market.

Crowdsourcing has long been a popular tool for the advertising industry, but it also makes a lot of sense as an investment tool. After all, the market is completely driven by the supply and demand, so it can be valuable to see what names are trending among the crowd.

While some fund managers are already trying to leverage social media resources like Twitter to find algorithmic trading opportunities, for most investors, crowdsourcing works best as a starting point for investors who want a starting point in their analysis. Today, we'll leverage the power of the crowd to take a look at some of the most active stocks on the market today.

>>5 Big Short-Squeeze Stocks Ready to Pop

These "most active" names are the most heavily-traded names on the market -- and often, uber-active names have some sort of a technical or fundamental catalyst driving investors' attention on shares. That's especially true now that earnings season is officially underway. And when there's a big catalyst, there's often a trading opportunity.

Without further ado, here's a look at today's stocks.

Bank of America

Nearest Resistance: $14.75

Nearest Support: $14

Catalyst: Technical Setup

>>5 Big Trades for a September Bounce

Bank of America (BAC) is no stranger to making the list of the NYSE's most active stocks purely because of its size -- the $155 billion bank is one of the most visible names in the financial sector. But today's price action is especially warranted thanks to a technical setup taking shape in shares of BAC.

BofA has been trending lower in the near-term since the middle of July, but since its price action has been constrained in a tight range, that correction has at least been easily measured. Today, BAC is testing trendline resistance; a breakout above $14.75 should be seen as a buy signal for the big bank.

Louisiana-Pacific

Nearest Resistance: $17.50

Nearest Support: $14.75

Catalyst: Ainsworth Lumber Acquisition

>>5 Stocks Insiders Love Right Now

Small-cap building product manufacturer Louisiana-Pacific (LPX) is up more than 10% today on big volume, following news that the Nashville-based firm was acquiring Canadian lumber firm Ainsworth Lumber. The news came at the same time as a ratings hike from DA Davidson to "buy" -- not long after a similar upgrade at Deutsche Bank. That increasing analyst sentiment for LPX is helping to spur upside potential after a pretty poor start to the year.

Technically, LPX is forming a double bottom pattern, a reversal setup that's formed by two major swing lows that bottom out at approximately the same price level. The double bottom triggers a buy signal when and if LPX pushes through resistance at $17.50.

Petrobras

Nearest Resistance: $15

Nearest Support: $13.50

Catalyst: Libra Auction Announcement

>>5 Rocket Stocks to Buy in September

Last up is Petrobras (PBR), the $94 billion Brazilian oil and gas supermajor that's been a volatile name for the last month on emerging market news. Shares of PBR are up close to 6% in this afternoon's trading following the announcement that Brazil's government will auction off the Libra offshore oil field on Oct. 21. The deal is likely to be the most expensive energy project in history -- and it'll also likely mean that the buyer will have to partner up with Petrobras to develop the project.

PBR has been consolidating sideways in a tight rectangle pattern since the last week of July, and while today's move higher is big, it's not big enough to break PBR free of that sideways channel. Resistance at $15 is the level to watch for that. Expect a move through $15 to get followed up by more of the same.

PBR has been a volatile name of late, so make sure you keep a tight stop in place if you decide to trade PBR.

To see these stocks in action, check out the at Most-Active Stocks portfolio on Stockpickr.



-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

>>5 Foreign Stocks to Trade for Gains

>>5 Stocks Under $10 Making Big Moves

>>5 Sin Stocks Ready for Dividend Boosts

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

Microsoft Keeps Gaining Smartphone Momentum

Microsoft (NASDAQ: MSFT  ) Windows Phone is finally making a dent in the market. After initially launching in 2010 with an innovative new tile interface, replacing the legacy Windows Mobile platform, the software giant has now grown to become the No. 3 smartphone player.

There have been numerous reasons why Windows Phone is gaining relevance and momentum, but none are more important than strengthening relationships with OEMs and carriers. After all, for a software maker to sell its operating system, it needs someone to make the hardware and someone else to deliver the actual service.

Microsoft is getting second chances at numerous domestic carriers. Windows Phone 7 didn't fare very well on Verizon Wireless initially, but Big Red just recently launched a slew of Windows Phone 8 devices. Microsoft's history with Sprint is similar, with the HTC Arrive running Windows Phone 7 being quietly discontinued last year. Sprint is now about to launch the HTC 8XT, its first Windows Phone 8 device, in a week.

On the OEM front, Nokia (NYSE: NOK  ) is easily Microsoft's most important hardware partner. The Finnish company ships the majority of all Windows Phones in the world today, but that hasn't stopped Microsoft from expanding its OEM partnerships. Thus far, Microsoft's most prominent hardware partners are Nokia, Samsung, and HTC. Let's add another major vendor: LG Electronics.

LG's director of India Soon H. Kwon recently told Light Reading India that the South Korean company has a Windows Phone 8 device in the works. The smartphone is still in development at LG's South Korean headquarters. LG continues to gauge the market opportunity and hasn't specified any launch plans quite yet. Kwon reiterated LG's commitment to Google Android -- even though a separate LG exec said the company has no interest in building a new Nexus for Google -- but is confident that Windows Phone will keep gaining momentum as Microsoft continues to put more weight behind it.

LG recently ranked as the No. 3 smartphone vendor in the world behind Samsung and Apple. It more than doubled unit shipments in the first quarter relative to the prior year, and is preparing to launch a new Android flagship, the Optimus G2. LG is a vendor that Microsoft definitely wants in its corner as it continues to strengthen its position with carriers and OEMs alike.

Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access The Motley Fool's latest free report: "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Today's 3 Best Stocks

In a case of buy the rumor, sell the news, investors exited their positions quicker than you could say "sell" following the Federal Open Market Committee's meeting on lending rates.

As expected, the Federal Reserve will be targeting historically low lending rates near 0% moving forward, but it did note that it sees diminished downside risks. This leaves the door open for an eventual paring back of the Fed's monthly $85 billion bond-buying program and could actually pave the way for an interest-rate increase.

Today's news is really a Catch-22 for investors. On one hand, the Fed is remaining accommodative in its target lending rates and is pointing toward a stronger economy. On the other hand, though, a stronger economy will remove the need for QE3 and low interest rates, which are the primary factors supporting this stock market rally.

All told, the S&P 500 (SNPINDEX: ^GSPC  ) sank 22.88 points (-1.39%) to close at 1,628.93. Despite a wild day in terms of volatility, three companies managed to calm investors' nerves by moving decisively higher.

Leading the index higher was software and cloud company Adobe Systems (NASDAQ: ADBE  ) , which added 5.6% after reporting strong second-quarter results. For the current quarter, Adobe added 221,000 new cloud subscribers despite reporting a 10% decline in revenue to $1.01 billion and a decline in adjusted-EPS to $0.36. Looking ahead, Adobe is forecasting that its third-quarter cloud subscriptions should be at least as much as, if not more than, what it brought in during the second quarter. While Adobe's cloud software is crucial to its growth, I think the valuation here may be a bit out of whack and would suggest sticking to the sidelines as Adobe continues its transition.

Shares of graphics chip and processor maker NVIDIA (NASDAQ: NVDA  ) -- which I recently highlighted as a great dividend you can buy right now -- advanced 3.1% after announcing plans to license its graphics technology. Specifically, NVIDIA plans to license its Kepler architecture, which could give it a way to get into America's best-selling smartphone and tablet, made by Apple (NASDAQ: AAPL  ) . What will be interesting is to see if Apple will bite, given that it designs its own processor technology for the iPhone and iPad. However, without the need to use the entire processing system, companies like Apple could pick and choose what they want to license, giving both companies a potential win-win scenario.

Finally, tire maker Goodyear Tire & Rubber (NASDAQ: GT  ) added 2.1% following a positive mention from CNBC commentator Pete Najarian. As always, I would suggest looking beyond the fleeting opinions of analysts and instead focus on the long-term outlook for Goodyear, which I'd say is strong. If we see even the slightest rebound in European tire demand, Goodyear could soar. Rubber prices have remained well off their highs, and Chinese demand should only increase from here on out. If I were you, I'd add Goodyear to my Watchlist.

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A Fool Looks Back

Microsoft (NASDAQ: MSFT  ) isn't selling too many of the Windows RT-fueled Surface tablets, so it's doing what so many others have done after failing to make a dent in the iPad market: Mr. Softy's discounting its stuff.

On Friday, Microsoft began offering free touch-keyboard covers -- a $119 value -- with every Surface RT purchase. That's a good deal for anyone wanting an RT, especially since the magnetically attaching keyboards have been a major part of the slick marketing campaign for Microsoft's original tablet. However, a steep price discount, if not a discontinuation of the model entirely, is probably not too far away.

Microsoft missed with its originally overpriced tablet, which runs on a new operating system that isn't compatible with earlier Windows applications. The software giant eventually got it right with the higher-priced Surface that runs Windows 8.

It's a mystery why Microsoft would be doing this, unless it's part of a drawn-out fire sale.

Briefly in the news
And now let's take a quick look at some of the other stories that shaped our week.

OmniVision (NASDAQ: OVTI  ) investors are seeing the big picture. Shares of the image sensor maker moved higher after posting better-than-expected quarterly results. Revenue soared 54%, and OmniVision's profit of $0.31 a share blew away the $0.21 analysts were targeting. Nokia (NYSE: NOK  ) is no longer the leading smartphone seller in Finland. Tech tracker IDC reports that Samsung outsold Nokia in its home country this past quarter. So much for the hometown hero. Vringo (NASDAQ: VRNG  ) got another tech giant to pay up, but it won't be much. The company announced a patent-infringement settlement with Mr. Softy in which Vringo will receive $1 million and enter into a licensing deal with the world's largest software company.

Health check
Obamacare will undoubtedly have far-reaching effects. The Motley Fool's new free report "Everything You Need to Know About Obamacare" lets you know how your health insurance, your taxes, and your portfolio will be affected. Click here to read more. 

Why Procter & Gamble Is Poised to Bounce Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, consumer products gorilla Procter & Gamble (NYSE: PG  ) has earned a respected four-star ranking.  

With that in mind, let's take a closer look at Procter & Gamble, and see what CAPS investors are saying about the stock right now.

Procter & Gamble facts

Headquarters (founded)	Cincinnati (1837)
Market Cap	$210.7 billion
Industry	Household products
Trailing-12-Month Revenue	$83.7 billion
Management	Chairman/CEO Robert McDonald CFO Jon Moeller
Return on Equity (average, past 3 years)	16.3%
Cash/Debt	$7.0 billion / $33.4 billion
Dividend Yield	3%
Competitors	Johnson & Johnson  Kimberly-Clark

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 97% of the 7,650 members who have rated Procter & Gamble believe the stock will outperform the S&P 500 going forward.

Just yesterday, one of those Fools, rmhjah, tapped Procter & Gamble as a particularly solid opportunity:

Although not a sexy company and definitely not a company that will make you rich overnight, they are a solid company with quality management. I have no idea if the iPhone 21S will be a huge hit 35 years down the road from now but I'm pretty sure people will still use soap to clean their bodies and laundry. There's a pretty good chance that men will still shave 35 years down the road and people will still have children that use diapers. I'm not looking to beat the S&P every year or have wonderful hidden stock advice at neighborhood BBQ's. I'm looking to put my children through college and retire comfortably while collecting a nice inflationary beating dividend.

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong four-star rating, Procter & Gamble may not be your top choice.

We've found another stock we are incredibly excited about -- excited enough to dub it "The Motley Fool's Top Stock for 2013." We have compiled a special free report for investors to uncover this stock today. The report is 100% free, but it won't be here forever, so click here to access it now.

Dan Nathan Sees Unusual Options Activity In Energy Select Sector SPDR (ETF)

Related XLE Energy ETFs: Bargains Or Falling Knives? Fast Money Picks For October 15

On CNBC's Options Action, Dan Nathan spoke about a bullish options activity in Energy Select Sector SPDR (ETF) (NYSE: XLE). He explained that call options outnumbered put options 3 to 1 on a day when the ETF traded 1.76 percent higher.

Nathan said that he noticed a large trade in XLE and he finds it a little bit speculative. A trader bought the December 90 call for $1.15, sold two December 95 calls for a total of $0.60 and bought the December 100 call for $0.08. The trader bought 10,000 contracts and paid $0.63 for the call butterfly and he will achieve maximal profit of $4.37 if XLE trades at $95 on December expiration.

XLE closed the session on Wednesday at $85.75, which is just above its long-term support of $85, said Nathan. He explained that it is a good idea to use a strategy like a call butterfly because implied volatility is high.

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Jim Cramer's 'Mad Money' Recap: Buy, Buy, Buy on the Selloff

Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener.

NEW YORK (TheStreet) -- Sometimes selloffs can be bad, but most of the time they're opportunities to buy, buy, buy, Jim Cramer told his Mad Money viewers Tuesday. When the market gives you an opportunity, you should take it.

Cramer used this logic when considering buying United Technologies (UTX) for his charitable trust, Action Alerts PLUS, today. His thesis was that HVAC sales should be strong as the U.S. economy continues to heat up, something that was confirmed when HD Supply (HDS) reported earlier today. So when United Technology shares fell, he was ready to pounce.

Cramer admitted that perhaps his thesis is wrong, or he wasn't able to time the exact bottom in UTX, but that's why he invests for the longer term and buys positions in stages as stocks fall. He was too early recommending General Motors (GM) another Action Alerts PLUS holding, for example, and shares of Rite-Aid (RAD) still haven't settled since last week's recommendation. But that doesn't matter, Cramer said --  his theses for both these names remain intact. When stores put merchandise on sale at the mall, people flock to it, Cramer noted, so when the markets put your favorite stocks on sale, investors need to be ready to pounce. Off the Charts In the "Off The Charts" segment, Cramer went head to head with colleague Bob Lang over the chart of Allstate (ALL), a stock that's quietly been moving higher and is now just off its 52-week high. Looking at a daily chart of Allstate, Lang noticed the stock trading in a bullish channel, with higher highs and higher lows. The stock's volume has been confirming the move higher, and the Williams Oscillator, a measure of momentum, has been "embedded" in a long-term overbought condition for several weeks. Allstate's weekly chart tells a similar bullish story, with the stock seeing a long march higher for the past two years, with both the relative strength indicator, RSI, and MACD momentum indicator both confirming the bullish trend. On the fundamental side, Cramer said Allstate is still very inexpensive, trading at just 10 times earnings with an 8.5% growth rate. The company has been able to successfully combat rising costs with rising premiums and Allstate sports a solid 1.9% dividend as well. To watch replays of Cramer's video segments, visit the Mad Money page on CNBC. To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here. -- Written by Scott Rutt in Washington, D.C. To email Scott about this article, click here: Scott Rutt Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

What Happens When Markets Diverge

In my last column, I explained why, when you're considering investment ideas, you should always keep the bond market in mind. That's because stocks and bonds are inextricably interconnected.

They're inextricably interconnected because interest rates matter.

When expected relationships between stocks and bonds (interest rates) diverge, therefore, it's important to take notice, try to understand what is happening, and consider what the divergences could portend for both stocks and bonds.

Markets are experiencing a divergence now, and a lot of analysts are getting worried.

Stocks have been moving higher as the yield on the 10-year U.S. Treasury note has been falling ("bills" have a maturity of one year or less, "notes" go up to 10 years, and "bonds" have maturities of more than 10 years).

The 10-year Treasury note is now the "benchmark" interest rate that's widely watched and viewed as a proxy for the general direction of interest rates. It's currently yielding 2.53%. That means you give the Treasury your cash, and it gives you a note that pays you 2.53% annually for 10 years, and then you get your principal back.

When the U.S. Federal Reserve, which has been manipulating interest rates down to historic lows, said it was going to begin "tapering" its massive purchases of Treasury bills, notes and bonds, and mortgage-backed securities, the bond market got nervous. The Fed had managed rates down by exercising its quantitative easing (QE) program and announced it was paring back QE purchases because it saw the economy picking up.

(In its QE program, the Fed buys bonds from banks to flood those banks with cash in the hope that all that cash would trickle down into the economy.)

The yield on the 10-year note moved from about 2.25% to 3% in short order.

The thinking goes that if the economy is picking up it doesn't need the Federal Reserve to keep a lid on rates. That's because accelerating growth will increase demand for money and loans, which puts upward pressure on interest rates.

And letting the economy stand on its own two feet and letting interest rates rise modestly wouldn't be bad for the economy, right?

Furthermore, if interest rates rise gently, investors and businesses will take that as a sign that the economy is indeed picking up, and that will be reflected in the demand for loans and money, which ultimately shows up in rising interest rates. So, if rates are rising, things are getting better.

However, things don't look like they're working out that way. And now I'm going to tell you what actually happened and what this means for your portfolio.

Interest Rates... and a Divergence from the Expected

At the first mention of tapering, the stock market turned sour. If the Fed was cutting back its QE buying and was going to let rates rise gently, a few considerations came to light.

First, the stock market has risen because interest rates have been artificially low. Cheap money, which allows investors and speculators to borrow at low rates to leverage up their positions, moves stocks higher, because more shares can be bought.

And when interest rates are inordinately low, stocks become a more viable investment alternative, on account of cheap money coming in to buy shares and because dividend yields on a lot of stocks pay considerably more than bills, notes, and bonds. Their yields are being held down.

With the beginning of the end of the Fed's interest-rate manipulation on the horizon, stocks sold off. After all, if the economy was getting better, rates were going to rise, and stocks were at all-time highs, how much further might they go if the boost they had gotten for years was being tapered back?

Then the divergence showed up.

The 10-year yield began to fall, while stocks regained ground and made another run higher.

As far as divergences go, and there are many relationships that sometimes diverge, this one grabbed a lot of attention.

Why was the yield on the 10-year going down and not up if the Fed was tapering, if the economy was getting better? And why were stocks going up?

Here's what's worrisome.

The 10-year yield goes down because investors are buying the notes. Why are investors rushing into government notes and bonds?

One theory is that there's a "flight to quality" going on. Big institutional investors are nervous because they think there's something wrong somewhere and they want to get into the safest trades.

Maybe there are macro fears, like fear that Russia will start a war, or that Iran will stir up trouble, or Syria will implode further, or Thailand will foster regional nervousness. Any number of worrisome global macro events might cause investors to run to safe investments.

Maybe Europe is heading into its third recession in the past five years? Maybe China's credit bubble will pop and cause a global panic?

Or, maybe the U.S. economy isn't getting better, and there won't be demand for loans and money. Maybe, after a miserable first-quarter GDP number, we're looking at another recession, more disinflation, and maybe deflation. Maybe investors are afraid of that and are buying notes and bonds now before their yields fall further.

Maybe investors are concerned that stocks have risen too far and if the economy isn't picking up their high prices won't be justified?

This divergence - yields dipping when they were expected to rise and stocks rising when they were expected to dip - is what has analysts and investors nervous.

Of course, I'm watching this divergence, and you should be, too.

No one knows for sure what this divergence is signaling, or whether it will self-correct, and what that correction will mean for stocks and bonds. But one thing's for sure: We all better keep a close eye on the stock market and the bond market.

Today's Top Investing Story: Many investors believe that with our presence in Iraq largely gone, defense tech firms will offer mediocre returns at best. But they couldn't be more wrong. This defense tech play is scorching the market...

Hedge Funds Hate These 5 Stocks -- Should You?

BALTIMORE (Stockpickr) -- If you go to any number of investment conferences around the world, you'll find no shortage of professional fund managers talking their book. The fact is that professional investors are only too happy to talk about the stocks they've been buying -- but they rarely pipe up about the names they're selling.

>>5 Rocket Stocks to Beat a Sideways Market

That's not surprising. For hedge fund managers, revealing the "sell list" is an act of contrition. Even disciplined investors don't like admitting spotlighting the names they're getting creamed on.

And consumer discretionary stocks are a perfect example of that. No other sector got sold off as hard as consumer discretionary stocks did in the first quarter of 2014. And that's giving us some crucial data to look at as summer fast approaches.

Investors love knowing what the pros are buying – that's only natural. But it's the sell list -- the names that institutional investors hate the most -- that represent some of the biggest conviction moves. Scouring fund managers' hate list is valuable for two important reasons: It includes names you should sell too, and it includes names that could soon present buying opportunities.

>>5 Hated Earnings Stocks You Should Love

Why would you buy a name that pro investors hate? Often, when investors get emotionally involved with the names in their portfolios, they do the wrong thing. The big performance gap between hedge funds and the S&P 500 Index in the last year is proof of that. So that leaves us free to take a more sober look at the names fund managers are capitulating on.

Luckily for us, we can get a glimpse at exactly which stocks top hedge funds' hate lists by looking at 13F statements. Institutional investors with more than $100 million in assets are required to file a 13F, a form that breaks down their stock positions for public consumption.

From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F. So far, 1,798 hedge funds filed the form for the most recent quarter, so by comparing one period's filing with another, we can get a sneak peek at how early filers are moving their portfolios around.

>>5 Stocks Ready to Break Out

Without further ado, here's a look at five stocks fund managers hate.

Amazon.com

Not long ago, Amazon.com (AMZN) was the name that could do no wrong. No profits? No problem! But that's changed pretty abruptly in 2014, as razor-thin margins suddenly became less tolerable for investors in the world's biggest online retailer. Year-to-date, AMZN is down more than 23% -- and funds have been selling shares all the way down. In the first quarter, funds sold 1.29 million shares of Amazon, unloading a nearly $400 million stake at current price levels.

>>5 Tech Stocks Entering Breakout Mode

That's enough to make Amazon the most-sold name on our institutional selling preview.

Amazon is the largest online retailer, moving $74.5 billion worth of merchandise last year. The firm's reach goes beyond traditional e-commerce, however; AMZN also owns a growing streaming service and a device ecosystem through its Kindle e-readers and tablets. Amazon is additionally one of the largest cloud computing names through its Amazon Web Services unit.

For years, Amazon has sacrificed margins for growth, commoditizing countless products and selling Kindles at or below cost to drive consumption of digital media. The idea is that AMZN can suddenly flip a switch and ramp up margins -- but the question of whether customers will remain sticky is less clear. For now, AMZN has lost its momentum but it retains a very lofty valuation. It makes sense to join the sellers in Amazon this summer.

Starbucks

Coffee shop giant Starbucks (SBUX) hasn't done much but give up 2013's gains ever since the calendar flipped to January. And so investors have been selling into the weakness: funds unloaded 4.83 million shares of SBUX last quarter, selling off a $343 million bet on the firm at today's share prices.

>>3 Stocks Rising on Unusual Volume

Starbucks is a $53 billion coffee company that runs a worldwide chain of more than 20,000 company-owned and licensed stores, as well as a packaged coffee products business whose products can be found on grocery shelves. The firm is largely responsible for creating a market for $5 cups of coffee, a lucrative business that's created more than a few competitors in the space. And that, in turn, has helped to fuel a strong growth story despite SBUX's current size.

Like Amazon, Starbucks currently sports a hefty valuation. While balance sheet leverage is still minimal, the firm's debt load has been growing in the past few quarters. Likewise, serious challenges in the packaged coffee space from the likes of Keurig Green Mountain (GMCR) is threatening to unseat SBUX in its home turf; the firm's own entree into the single-serve coffee market has failed to gain the traction that investors hope for.

Low moats, significant competition and a big price tag make SBUX a less than invigorating name to own in 2014.

Best Buy

Electronics retailer Best Buy (BBY) has gone from a punch line to a turnaround story in the last year and change. After struggling through declining sales, management scandals, and economic turmoil, Best Buy is regaining profitability again thanks to its "Renew Blue" turnaround initiative. But it hasn't been enough to attract hedge funds in 2014: portfolio managers unloaded 10.66 million shares in the first quarter of this year. That amounts to more than 20% of institutional investors' holdings in BBY.

>>A Horrible Chart That's About to Get a Lot Better

Best Buy may have great reach with its huge footprint of nearly 2,000 stores across the world, but encroachment from the likes of Amazon.com has meant that many Best Buy locations have become physical showrooms for BBY's better-priced rivals. The restructuring plan has helped to trim substantial costs and make BBY dramatically more competitive in 2014, but none of that changes the fact that Best Buy's business is being fundamentally challenged.

On the upside, investors don't have to pay much for the business today. Shares trade at just 13 times earnings -- a tiny multiple for such a low-margin business. If BBY can squeeze just a few more basis points out of its margins, shares could move materially.

Ultimately, it's hard to call BBY a conviction buy at today's levels. Until the firm can give consumers a compelling reason to spend money inside BBY stores, this name is going to continue to trade at a discount.

TJX

Discount apparel and housewares retailer TJX (TJX) is a different story. Not only does this firm sport a very compelling traffic driver for its stores, TJX also benefits from outsized margins from the retail sector. So while fund managers sell shares of TJX Companies in 2014, it makes sense to be on the other side of the trade.

>>4 Big Stocks on Traders' Radars

TJX owns an attractive collection of discount retail names that includes T.J. Maxx, Marshall's and HomeGoods -- three store chains that benefit when consumers want to seek out a bargain. TJX is the standard bearer in the off-price retail segment, the firm's stores stock major brand name clothing, accessories and housewares at prices that are fairly dramatic discounts to their retail costs. That positioning helps to ensure limited competition from online discount retailers; the limited stock nature of the off-price retail business makes online sales difficult. Better, full-price retailers and manufacturers need TJX because the firm is willing to buy massive swaths of excess inventory.

Retail is extremely capital intense, and TJX provides a top-line boost to its suppliers with zero risk. On the consumer side, TJX's value proposition means that the firm stands to do well in the event of a surprise economic hiccup. Even so, funds sold off 6.87 million shares of TJX in the most recent quarter.

Coach

Last up is luxury handbag maker Coach (COH). Not long ago, Coach was a bloated name that was still sitting high on the last vestiges of its huge success in 2008. While other higher-end accessory brands were reeling from the spending cuts of the Great Recession, Coach took the calculated risk of offering lower-priced luxury goods to "mass affluent" consumers. That strategy paid off in spades as COH managed to attract more customers without diluting its storied brand.

Coach makes and retails handbags and other accessories (such as wallets and umbrellas) through a network of around 543 North American stores and a large presence online and in third party channels like department stores. In the last few years, overseas has been the big story -- and newer stores in markets such as China and Japan have warranted a hefty growth premium in the stock's price.

But that premium is all but evaporated now. COH currently trades for just 12.9 times trailing earnings, a price tag that puts a fat 3.2% dividend yield on shares at current levels. That's a big income check for a stock that's already delivering hefty internal growth rates.

While funds sold 3.22 million shares of the handbag maker, it looks buyable here now that a big correction has taken hold.

To see these stocks in action, check out the Institutional Sells portfolio on Stockpickr.



-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

>>Warren Buffett's 10 Favorite Growth Stocks

>>3 Tech Stocks Spiking on Big Volume

>>5 Toxic 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 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

Entrepreneur rebuilds old Land Rovers for urban…

LOS ANGELES — In an era when automotive luxury usually means the sleekest of sedans or crossovers, an entrepreneur here is offering a different kind of status vehicle, a rugged off-roader more at home fording the Ganges than crawling through the drive-thru at Wendy's.

Matt Perlman has made a business out of importing and refurbishing old Land Rover Defenders, the Jeep-type truck probably best known as the vehicle of choice for African safaris. It is a rugged, go-anywhere, easy-to-fix vehicle that is no longer sold in the U.S.

Nonetheless, Perlman says that since opening last year, his West Coast Defenders business has refurbished and sold more than 30 mid-1980s Defenders in the past year at prices from $95,000 to $110,000, depending on condition and body type. At any given moment, a bevy of the British vehicles are packed into the rear lot of his garage in this motoring metropolis' tony west side.

"Our main goal is to keep them as authentic as possible while bringing them into the 21st century," Perlman says.

After tracking down good prospects in Europe, Africa or Asia, Perlman goes through the Defender looking for anything that needs to be fixed or adding comforts based on what the new owners want — whether it's automatic transmissions, a more forgiving suspension or a navigation system.

Even Defenders in rough condition don't deter him as long as the underpinnings are sound. "The chassis is really all that matters," he says.

Buyers are typically like Perlman himself, drivers who want a vehicle that stands out from the crowd. That certainly describes the Defender.

In an era when luxury vehicles usually means the sleekest of sedans or crossovers, an entrepreneur here is offering a rugged off-roader more at home fording the Ganges than the drive-thru at Wendy's.  (Photo: Land Rover)View Fullscreen Matt Perlman, owner of West Coast Defenders, poses with one of the rugged Land Rover Defenders that he is fixing up and reselling at his Los Angeles facility. He has made a business out of importing and refurbishing the Land Rover Defender, a Jeep-type vehicle probably best known as the vehicle of choice for African safaris. It is a rugged, go-anywhere, easy-to-fix vehicle that is no longer sold in the U.S.  (Photo: Chris Woodyard, USA TODAY)View Fullscreen A line of mid-1980s Land Rover Defenders awaits upgrades outside of the West Coast Defenders shop. The outfit buys vintage Defenders in the U.S. and imports them from around the world, then brings them up to modern standards and resells them. It has sold about 30 so far.  (Photo: Chris Woodyard, USA TODAY)View Fullscreen "Our main goal is to keep them as authentic as possible while bringing them into the 21st century," Perlman says. After tracking down good prospects in Europe, Africa or Asia, Perlman goes through the Defender looking for anything that needs to be fixed or adding comforts based on what its new owners wants -- whether it's automatic transmissions, a more forgiving suspension or a navigation system.  (Photo: Chris Woodyard, USA TODAY)View Fullscreen Land Rover Defenders are so rugged that the roof, or in this case, a fender, have plating so they can be walked on. That feature comes in handy if you are outside the vehicle and trying to fend off a pride of lions that happen to walk by.  (Photo: Chris Woodyard, USA TODAY)View Fullscreen The 2012 Land Rover Defender 90 Hard Top in Fuji White driving off-road in Scotland.  (Photo: Land Rover)View Fullscreen They come in a fair amount of variety. There are both hardtops and those with removable roofs. Some have a 90-inch wheelbase while others are lengthened four-door models with 110-inch wheelbases. Some have benches in the rear on either side, while others have a pickup bed in back. One Defender that Perlman brought in from Texas had a snorkel, a breathing tube mounted next to the front roof pillar so that the engine can suck air while wading through hood-deep rivers.  (Photo: Land Rover)View Fullscreen A car fancier, he says he was first attracted to the Defender at age 15. He was a lawyer driving a BMW, but decided to act on his fondness for Defenders. He tracked down his first in Alabama. Soon, his friends were asking about them, and he started finding new ones. "My favorite part of this is finding the vehicles," he says.  (Photo: Land Rover)View Fullscreen It has been sold sporatically in the U.S., disappearing from 1987 to 1993 when only the Range Rover was in showrooms. Then, Land Rover imported only 500 into the U.S. in the belief that it needed to be rediscovered. The following year, 1994, in came another 3,000. But by 1996, Defenders could no longer meet toughening emissions requirements in the U.S., and they've been gone since.  (Photo: Land Rover)View Fullscreen They are being snapped up by luxury buyers who appear to be more into the rugged image than making full use of the Defenders' off-road skills. Angelina Jolie drove one in the movie in which she played fictional explorer Lara Croft. Queen Elizabeth, who, when she is not decked out in crown and gown, has been seen driving her Defender through the back woods of her country estates.  (Photo: Land Rover)View Fullscreen For all of its regal owners, it's hardly a fancy vehicle. Because the no-nonsense vehicle was created for the toughest work in the most primitive places, it is full of exposed bolts made to be easily removable -- or if no parts are available, easy to jury-rig. "With five tools, you could take the whole car apart," Perlman says.  (Photo: Land Rover)View Fullscreen Land Rover Defender driving off road through water.  (Photo: Land Rover)View Fullscreen Perlman sticks to finding mid-1980s models because they are easier to bring in under U.S. import laws. He says so far finding the vehicles has been tougher than finding customers.  (Photo: Land Rover)View Fullscreen Land Rover Defender. 10" Defender Camel Vehicle.  (Photo: Land Rover)View Fullscreen Land Rover Defender. 110" Matt Track Conversion.  (Photo: Land Rover)View Fullscreen Land Rover Defender in quarry.  (Photo: Land Rover)View Fullscreen Land Rover Defender. A 110" wading through a river.  (Photo: Land Rover)View Fullscreen Land Rover Defender. LR Heritage Defender 130 in fire engine mode.  (Photo: Land Rover)View FullscreenLike this topic? You may also like these photo galleries:ReplayAutoplayShow ThumbnailsShow CaptionsLast SlideNext Slide

They are being snapped up by luxury buyers who want to appear to be more into the rugged image than into making full use of the Defender's off-road prowess. They do, after all, show up in the hands of celebrities and royalty. Angelina Jolie drove one in the movie in which she played fictional explorer Lara Croft. Queen Elizabeth, when she is not decked out in crown and gown, has been seen driving her Defender on her country estates.

"I love getting people into these cars," Perlman says. Though it may look primitive, "It's an easy car to drive."

Because the no-nonsense vehicle was created for the toughest work in the most primitive places, it is full of exposed bolts made to make parts easily replaceable — or, if no parts are available, easy to jury-rig. "With five tools, you could take the whole car apart," Perlman says.

It's that kind of British can-do that made a name for Land Rover long before it became associated almost entirely with the plush Range Rover. Nothing was ever fancy about Defender. It was simply called the Land Rover 90 or 110 — denoting the length of the wheelbase — until 1990, when the Defender name was created, says Bob Burns, a Land Rover events manager who has kept on eye on the Defender in his 27 years with the company.

The Rover Co! . and suc! cessor British Leyland sold Land Rover vehicles in the U.S. from the 1950s through 1974. Then the brand was pulled out of the U.S. and didn't return until 1987, Burns says. It came back with the super-luxe Range Rover SUV, which found instant appeal among executives and celebrities for its creature comforts and rugged heritage.

But the Defender didn't reappear until 1993 when 500 were brought to the U.S. in an attempt to revive the model. In each of the following model years, 1994 and 1995, the company — by then owned by BMW — brought in a total about 5,000.

By 1996, Defenders could no longer meet toughening emissions requirements in the U.S., and they weren't sold for that model year. A few were imported for the 1997 model year, but Land Rover stopped selling them altogether because the relatively small sales value could not justify a list of other costly modifications required by U.S. law, says Burns.

The Defender continues to be sold in other parts of the world, and Land Rover — now owned by India's Tata — hasn't shut the door on reintroducing the model. "It's always on our radar," Burns says.

Perlman sticks to finding mid-1980s models because they are easier to bring in under U.S. import laws and require less modification to be legal on U.S. roads. He says finding suitable vehicles has so far been tougher than finding prospective customers.

A car fancier, Perlman says he was first attracted to the Defender at age 15. Later in life, he was a lawyer driving a BMW, but decided to act on his longtime fondness for Defenders, tracking down his first one in Alabama. Soon, his friends were asking about them, and he started finding more.

The thrill of the chase continues as part of the new business. "My favorite part of this is finding the vehicles," he says.

They come with a fair amount of variety. There are hardtops and those with removable roofs. Some have benches in the rear on either side, while others have a pickup bed in back. One Defender that Perlman! brought ! from Texas had a snorkel for the engine — a breathing tube mounted next to the front roof pillar so that the engine can suck air while fender-deep fording rivers.

Is Perlman's redoing of classic Defenders a solid business idea?

"He's absolutely on to something," says Land Rover's Burns. "They aren't making any more of them."