What’s a Good Small Cap Real Estate Services Stock? CBG, JLL, KW & FSRV

Midcaps CBRE Group Inc (NYSE: CBG) and Jones Lang LaSalle Inc (NYSE: JLL) are probably the better known real estate services stocks with the latter surging 12.36% yesterday on impressive earnings, but small cap stocks Kennedy-Wilson Holdings Inc (NYSE: KW) and FirstService Corporation (NASDAQ: FSRV) are also important real estate services providers that you may have overlooked. After all, real estate services stocks like the following would offer exposure to real estate by being invested in property as well as generating revenue from transactions, property management and other services:   

Kennedy-Wilson Holdings Inc. Founded in 1977 as a real estate auction business, Kennedy-Wilson Holdings is an international real estate investment and services firm providing a diversified array of real estate investments and services from 24 offices in the US, UK, Ireland, Spain and Japan. Specifically, KW Investments covers multifamily, office and residential property acquisitions (including condominium conversions) as well as note purchases while KW Services includes property services for third-party and company-owned assets, auction and conventional sales, research and investment management. Last month, Kennedy-Wilson Holdings announced the pricing of its underwritten public offering of 6,000,000 shares of its common stock at a public offering price of $18.50 per share with the proceeds going for general corporate purposes (including future acquisitions and co-investments) and to repay the $50.0 million outstanding balance under its unsecured revolving credit facility. Kennedy-Wilson Holdings also acquired a portfolio of eight shopping centers out of administration and located throughout England and Scotland for £250 million ($388 million). In addition, Kennedy-Wilson Holdings announced that KW Residential, LLC, the company's unconsolidated Japanese venture, refinanced part of its multifamily portfolio with a $110 million eight year fixed-rate loan at 1.36% and it was noted that since 2010, they have been able to lower their average interest rate across the portfolio from 2.6% to 1.4% to save $22 million in interest payments over the term of the current loans. Otherwise and back in August, Kennedy-Wilson Holdings reported that Adjusted Net Income for the second quarter 2013 came in at $13.8 million verses Adjusted Net Income of $3.0 million. Kennedy-Wilson Holdings is also scheduled to report earnings on Tuesday, November 5, after the market closes. On Tuesday, Kennedy-Wilson Holdings rose 1.87% to $20.18 (KW has a 52 week trading range of $11.83 to $20.25 a share) for a market cap of $1.63 bil! lion plus the stock is up 47.5% since the start of the year, up 44% over the past year and up 124.5% over the past five years.

Top 5 Value Companies To Own For 2014

FirstService Corporation. Founded in 1989 by Jay Hennick from Superior Pools, the swimming pool management business he started as a teenager, FirstService Corporation has three service platforms: 1) Colliers International, one of the top global players in commercial real estate services, 2) FirstService Residential, North America's largest manager of residential communities; and the 3) Property Services division, one of North America's largest providers of property services delivered through company-owned operations, franchise systems and contractor networks. Last Wednesday, FirstService Corporation reported a 9% revenue increase to $608.3 million while adjusted EBITDA rose 11% to $55.4 million. The founder and CEO noted:

"Each of our service lines reported strong revenue growth; both Colliers International and FirstService Brands grew their EBITDA by more than 30%; we completed the re-branding at FirstService Residential; we redeemed our outstanding convertible debentures and we successfully completed the sale of Field Asset Services."

He ended by saying that FirstService Corporation is positioned better than ever to deliver strong growth in revenue and profits in the future. FirstService Corporation's FirstService Residential also recently acquired Curry Association Management, Missouri's largest residential property management company. On Tuesday, FirstService Corporation rose 0.80% to $41.34 (FSRV has a 52 week trading range of $26.88 to $42.55 a share) for a market cap of $1.41 billion plus the stock is up 50.3% since the start of the year, up 39% over the past year and up 270.4% over the past five years.

Finally, here is a look at the performance of small cap real estate services stocks Kennedy-Wilson Holdings Inc and FirstService Corporation verses midcaps CBRE Group Inc and Jones Lang LaSalle Inc:

As you can see from the above chart, the performance of small cap FirstService Corporation is pretty close to the performance of CBRE Group Inc while small cap Kennedy-Wilson Holdings has been the laggard albeit its still a decent performance for long term investors.

European Stocks Erase Drop as Investors Await U.S. GDP

European stocks were little changed, with the Stoxx Europe 600 Index completing its biggest monthly gain since October 2011, as a report showed the U.S. economy expanded at a faster-than-expected pace.

Anheuser-Busch InBev NV jumped 6.9 percent after the maker of Stella Artois lager posted earnings that beat estimates. Invensys Plc added 1.1 percent after Schneider Electric SA agreed to buy the company for 3.4 billion pounds ($5.2 billion).

The Stoxx Europe 600 Index added 0.1 percent to 299.58 at the close of trading London, after earlier climbing as much as 0.4 percent and dropping as much as 0.5 percent. The gauge rallied 5.1 percent in July as Federal Reserve President Ben S. Bernanke said the central bank remains flexible on the pace of its bond-buying program. The Fed will reveal the outcome of a two-day policy meeting after European markets close today.

"The U.S. is the engine of global recovery, so the question is how sustainable the economic improvement can be," said Lorenzo Carcano, senior portfolio manager at B Metzler Seel Sohn & Co KGaA in Frankfurt. "It's important to look forward and listen to any guidance from Bernanke on the development of the economy, and it's very key that he manages market expectations. I expect his wording to be cautious, but at some point the Fed will have to reduce stimulus."

Fed Meeting

Bernanke has said that low inflation and high unemployment mean the central bank needs to continue buying bonds. The Fed will leave the benchmark interest rate at 0.25 percent when it announces its decision, according to every economist in a Bloomberg survey. The central bank may begin to reduce its bond-purchase program in September, economists predicted in a separate survey.

The U.S. economy, the world's largest, grew at a 1.7 percent annual rate in the second quarter, after expanding at a revised 1.1 percent pace in the first three months of the year, according to a report from the Commerce Department. Economists had predicted a 1 percent expansion for the period, according to the median estimate in a Bloomberg survey.

A separate release showed that companies in the U.S. hired a net 200,000 workers in July, the highest reading this year. Economists had projected a gain of 180,000 for the month. The ADP Research Institute's report showed that private employers increased their workforce by a revised 198,000 in June.

National benchmark indexes advanced in 11 of the 18 western-European markets today. Germany's DAX rose 0.1 percent, and France's CAC 40 added 0.2 percent. The U.K.'s FTSE 100 climbed 0.8 percent.

Beverage Makers

AB InBev jumped 6.9 percent to 72.38 euros, its biggest advance since May 2010. Second-quarter organic normalized earnings before interest, taxation, depreciation and amortization rose 5.8 percent as the company sold more expensive beer in the U.S. Analysts surveyed by Bloomberg had predicted growth of 3.7 percent for the period.

Diageo Plc, which brews Guinness beer, Johnnie Walker whisky and Smirnoff vodka, rose 3.2 percent to 2,054 pence. The world's biggest distiller posted operating profit excluding some items of 3.53 billion pounds, compared with a 3.48 billion-pound median estimate.

SABMiller Plc added 2.6 percent to 3,220.5 pence, as a gauge of 30 food and beverage companies on the Stoxx 600 posted its biggest gain in almost four weeks.

Invensys advanced 1.1 percent to 496.3 pence after Schneider (SU) Electric said it will buy the company for the equivalent of 502 pence a share. Schneider, which posted first-half earnings today and reaffirmed its Ebita-margin forecast for 2013, added 3.3 percent to 59.91 euros.

Peugeot Gains

PSA Peugeot Citroen, which yesterday won European Commission approval for a 7 billion-euro guarantee from the French government, surged 6.7 percent to 9.60 euros. The carmaker posted an operating loss of 65 million euros in the first half, a narrower deficit that the 295.8 million-euro average of analyst estimates compiled by Bloomberg.

HeidelbergCement AG increased 5.5 percent to 57.74 euros. The cement maker said sales in North America and a recovering market in the U.K. helped profit in the second quarter beat analysts' estimates.

Eutelsat Communications SA (ETL) declined 6.2 percent to 21.02 euros after predicting sales will grow by more than 2.5 percent for the year 2013 to 2014. The company, which operates 31 satellites, forecast growth of more than 5 percent for the following two years through June 2016. JPMorgan Chase & Co. cut its price target for the stock to 24 euros from 33 euros, saying analysts' will probably reduce their estimates following the company's revised guidance.

The number of shares trading hands in Stoxx 600-listed companies was 12 percent lower than the average of the past 30 days, data compiled by Bloomberg show.

The VStoxx Index, which measures the cost of protecting against swings on the Euro Stoxx 50 Index, gained 1.2 percent to 19.06.

Top Internet analyst has 10 IPO questions for T…

SAN FRANCISCO -- Twitter's IPO roadshow kicks off Friday and one of Wall Street's top Internet analysts, Mark Mahaney of RBC Capital Markets, has armed investors with a list of questions for the social media company.

Roadshows let company executives meet prospective investors ahead of an IPO so they can discuss strategies and risks. Twitter's roadshow starts in New York and runs into early November, hitting other cities including Chicago, San Francisco and Los Angeles.

Twitter set a price range for its IPO late Thursday, putting a cautious valuation on its business. Its shares are on course for a public market debut in mid-November.

Mahaney has been ranked the top Internet analyst by Institutional Investor for the past five years. He joined RBC in January after being fired from Citigroup. His ouster came after Citi paid a $2 million fine to settle charges that the bank improperly disclosed research on Facebook ahead of its $16 billion IPO in May 2012. The settlement agreement said Mahaney failed to supervise a junior analyst who improperly shared Facebook research with the TechCrunch news website.

Despite that black mark, Mahaney is still considered one of the top Internet analysts on the street. In a carefully worded note to investors early Friday, Mahaney share the following questions ahead of Twitter's roadshow:

1. What are your most important strategies for growing your user base and the engagement of your user base?

2. What are your most important strategies for growing your advertiser base and the engagement/spend of your advertiser base?

3. What different advertising solutions can Twitter offer over time?

4. In which International markets has Twitter had the most success in terms of growing users and generating revenue?

5. How do you improve your International user monetization over time?

6. Why are Twitter's Gross Margins low relative to Facebook and LinkedIn?

7. Where can Twitter's EBITDA margins go long-term?

8. How do you ! think about building out your employee base?

9. How does Twitter think about M&A as a growth strategy?

10. What is life like in the Tenderloin?

Follow Alistair Barr on Twitter @alistairmbarr

GM Launches New Pickups, but Ford's F-150 Still Owns the Truck Market

The U.S. full-size pickup market is incredibly lucrative for automakers, producing as much as $10,000 in profit per vehicle sold. Recently, General Motors (NYSE: GM  ) has been a step behind segment-leader Ford (NYSE: F  ) in this market. Combined sales of the Chevy Silverado and GMC Sierra were approximately 575,000 last year, while Ford sold 645,000 of its F-Series trucks.

GM revamped its Silverado and Sierra full-size pickups for the 2014 model year with the goal of boosting its share of the full-size pickup segment. The new GM trucks will feature better fuel efficiency than the outgoing models, and GM is also offering more premium options in an attempt to raise its average transaction prices.

The 2014 Chevy Silverado (courtesy of General Motors)

These new 2014 pickups began hitting dealer lots recently, and interest in the new trucks -- combined with a rebounding housing market -- has helped GM post strong growth in full-size pickup sales recently. However, Ford has still managed to stay a step ahead in terms of sales volumes. With a redesigned F-150 hitting the market next year, GM doesn't have much time to make its move if it wants to take the market share crown from Ford.

Full-size pickup sales soar
GM dealers sold nearly 60,000 Silverado and Sierra pickups in June, producing a second straight strong result after selling more than 59,000 in May. According to GM executives, roughly 90% of last month's truck sales were 2013 models, but 2014 models are starting to flow steadily onto dealer lots. Despite the prevalence of 2013 inventory in dealer stocks, incentive spending has been moderate in the face of a strong demand environment.

As strong as GM's results have been in the past two months, Ford has managed to keep its lead in the full-size pickup market. Last month, Ford dealers nationwide sold more than 68,000 F-Series trucks, marking the highest June sales since 2005. Ford posted even more impressive pickup sales numbers in May, as customers purchased 71,604 F-Series trucks. That marked the first time monthly F-Series sales eclipsed the 70,000 mark since 2007.

Is Ford pulling away?
After GM's pickups outsold Ford's F-Series trucks through the first two months of the year, Ford has come roaring back in the last four months. In the second quarter, F-Series trucks outsold GM's full-size pickups by roughly 15%. Through the end of June, Ford maintained an 11% lead over GM in full-size pickup sales for the year, nearly as good as last year's 12% differential.

If you're a GM shareholder, there's no need to panic -- yet. The 2014 Silverados and Sierras have been turning at a very high rate, spending on average just 10 days on dealer lots before selling. This indicates that demand for the 2014 trucks outstrips supply by a wide margin. As GM delivers more 2014 models to dealers, the company may have an opportunity to regain some share from Ford.

That said, Ford has achieved a ton of momentum with its relatively dated F-Series trucks, just when it was supposed to be GM's time to shine. With Ford's next-generation trucks expected to offer significant fuel-economy improvements over today's F-Series pickups, GM needs to seize the day if it hopes to challenge Ford's dominance of this segment.

Foolish bottom line
Pretty much anyone selling a full-size pickup in the U.S. has posted nice sales gains in 2013, due to resurgent demand. GM has been no exception, and the company sold more than 59,000 full-size pickups in both May and June. However, Ford has turned in even more impressive performances, averaging nearly 70,000 pickup sales in the last two months.

Last month, I pointed out that the lingering distaste for GM among many Americans could hurt its efforts to gain market share in the pickup segment. It's still early, but if GM doesn't start to reap the benefits of its new truck architecture soon, it could signal that the next-generation pickup market will tilt even more heavily toward Ford.

Ford and GM may be duking it out in the highly profitable U.S. pickup market, but they are also looking to profit overseas.  China is already the world's largest auto market – and it's set to grow even bigger in coming years. A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market," names two global giants poised to reap big gains that could drive handsome rewards for investors. You can read this report right now for free -- just click here for instant access.

Is Constellation Brands a Buy Post-Earnings?

With shares of Constellation Brands (NYSE:STZ) trading around $59, is STZ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Constellation Brands produces and markets beverage alcohol. The company sells wine across various categories, including table wine, sparkling wine, and dessert wine; and spirits under the Robert Mondavi Brands, Clos du Bois, Estancia, Black Box, Arbor Mist, Blackstone, Rex Goliath, Simi, Toasted Head, Mark West, Ravenswood, Franciscan Estate, Ruffino, Wild Horse, Kim Crawford, Mount Veeder, Nobilo, Inniskillin, Jackson-Triggs, SVEDKA Vodka, Black Velvet Canadian Whisky, and Paul Masson Grande Amber Brandy brand names.

It also produces and markets wine kits and beverage alcohol refreshment drinks; and bulk wine and other related products, as well as provides related services. In addition, Constellation Brands imports, markets, and sells the Modelo Brands beer. Its products are primarily sold to wholesale distributors, importers, retailers, on-premise locations, and government alcohol beverage control agencies in the United States, Canada, the United Kingdom, Australia, and internationally.

On Thursday morning, Constellation Brands reported earnings and revenue figures that surpassed analyst expectations. A revaluation of its original 50 percent stake in Crown Imports and a completed acquisition of the remaining portion offered a significant boost to earnings. “As previously discussed, we expect most of our growth for the wine and spirits business to be generated during the second half of the year resulting from the timing of product shipments,” stated the President and CEO, Robert S. Sands.

T = Technicals on the Stock Chart Are Strong

Constellation Brands stock has been exploding to the upside in recent months. The stock is currently trading slightly below all-time high prices but looks ready to move higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Constellation Brands is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

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

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Constellation Brands Options	24.93%	23%	21%

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

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

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

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

E = Earnings Are Increasing Quarter-Over-Quarter

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

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	92.00%	-28.95%	-17.71%	11.54%
Revenue Growth (Y-O-Y)	109.02%	6.08%	10.79%	9.45%
Earnings Reaction	2.92%*	-3.57%	0.28%	-0.66%

Constellation Brands has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Constellation Brands’ recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Constellation Brands stock done relative to its peers, Molson Coors Brewing Company (NYSE:TAP), Beam (NYSE:BEAM), Brown-Forman (NASDAQ:BFB), and sector?

	Constellation Brands	Molson Coors	Beam	Brown-Forman	Sector
Year-to-Date Return	68.72%	16.43%	8.79%	7.65%	14.37%

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

Conclusion

Constellation Brands is a producer and marketer of alcohol products with a worldwide presence. Recent earnings news has investors upbeat about the company. The stock has been exploding to the upside and is now trading slightly below all-time high prices. Over the last four quarters, earnings have been mixed while revenues have been rising which has produced conflicting feelings among investors about earnings announcements. Relative to its peers and sector, Constellation Brands has been a year-to-date performance leader. Look for Constellation Brands to OUTPERFORM.

Goodyear Tire & Rubber Drops 6% on Deutsche Bank Downgrade

Goodyear Tire & Rubber (GT) is looking a mite threadbare today, as its shares have plunged 6% to $21.27 at 3:07 p.m.

Associated Press

The drop is being attributed to Deutsche Bank’s decision to cut Goodyear to Hold from Buy:

We have increasingly focused our attention on the steady drumbeat of new tire capacity announcements, and the record high levels of capex from the Global Tire Industry. Based on this, we have revisited our proprietary Global Tire Industry Supply/Demand analysis. Our conclusion is that the mid-term (i.e. 2-3 years) outlook for margins (due to supply/demand and competitiveness) may not be as clear as it has been in over the past 2-3 years. While we still see Goodyear's shares as attractively valued based on our near term estimates, intermediate term uncertainty leads us to take a more Neutral stance on Goodyear's shares.

Cooper Tire & Rubber (CTB) has gained 1% to $24.86 today, but its trading more on whether investors expect its acquisition by Apollo Tyres to be completed. Car-part companies, however, are also exhibiting weakness today. TRW Automotive (TRW) has fallen 0.8% to $77.91, Lear (LEA) has dipped 0.4% to $74.78 and American Axel and Manufacturing (AXL) is off 0.5% to $18.99.

Cyrusone: Illusions Of Value

As I started my due diligence on Cyrusone (CONE), I was excited. Here was a stock that had a good story - it rents out space in datacenters, has a dividend yield and trades at a low valuation while showing decent growth.

Using Equinix (EQIX) and Rackspace Hosting (RAX) as comparables, I was pumped up. CONE was projecting $135 million in EBITDA for 2013 (at the midpoint of guidance). On a $445 million market capitalization with $277.7 million in net debt, it traded at an EV/EBITDA of just 5.4 times. Compare that to EQIX at 13 times or RAX at 15 times. This was a bargain and growing revenues at a 18% clip year-on-year, too, above EQIX's 10% or RAX's 15%.

While going through the business, it was obvious that this was not a direct cloud computing services purveyor. Instead it rents the infrastructure where other entities can collocate their servers and build their clouds. Still, the attractiveness was obvious, as long as there's more demand for data and cloud computing, there will be more demand for the infrastructure CONE provides.

Indeed, a bullish thesis could even be conceived in which selling the picks, shovels and denim might well turn more profitable than participating in the cloud computing gold rush. In short, it was all coming together:

The story - associated with cloud computing, profiting from it;The valuation, both in absolute terms and when compared to other similar competitors;And the growth, which came from opening new data centers and filling them up, relentlessly.

It was perhaps too good to be true

The birth of CONE was non-effusive; it came from the spin-off and IPO of the datacenter unit of Cincinnati Bell (CBB). Perhaps one could believe that not being a green field company, people didn't go as gaga on it. It came from a telecom dinosaur, after all.

But that wasn't really the main problem with CONE. In a market so infatuated with anything tech, there had to be some kind of reason for institutions not to transform this cloud computing stock into a roc! ket. And indeed, there is a reason. The reason has to do with how CONE is structured. The following is from a company presentation:

(click to enlarge)

This structure has deep implications. It means Cincinnati Bell still holds 8.5% of the quoted CONE stock, but most importantly, it still holds 66.1%, or 2/3rds, of the operating entity. Think about it for a second, CBB still holds 2/3rds of the business.

Now, since CONE doesn't yet have much in the way of net earnings, the impact from this is not very evident in its P&L, as we can see below (Source: Q2 2013 10-Q, red highlight is mine):

(click to enlarge)

Indeed, at this point the CBB's interest in the operating subsidiary even reduces the net loss.

But the valuation impact is massive. This stems from the fact that when we're calculating an EV/EBITDA, the EV has to account for minority interests in the business, and CBB holds 2/3rds of the operating subsidiary. Either that, or one has to consider that 2/3rds of the EBITDA really doesn't belong to CONE, which is the easier way to correct it.

And if 2/3rds of the EBITDA doesn't belong to CONE, then its supposedly cheap EV/EBITDA of 5.4 times is actually an EV/EBITDA of 16.2 times, which is more expensive than either EQIX or RAX. So much for the valuation argument.

CONE remains an interesting business in that its story is in the right sector to attract speculators, and it's posting enough growth that such speculators might well make their entrance. At the same time, at $445 million in market capitalization any speculative interest will easily take the stock higher. But for a sensitive valuation-oriented investor knowing the structure of this business removes most interest.

Conclusion

At ! first sig! ht CONE seems attractive in terms of story, valuation and growth, but a careful analysis of its organizational structure shows that CBB still owns 2/3rds of the underlying business. This means that the company is not as attractively valued as it might seem. Indeed, it's more expensive than either EQIX or RAX.

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Still, it wouldn't be surprising in the present feverish Fed-infused market for CONE to attract speculative interest. It's just that the illusive valuation removes the interest for valuation-sensitive investors.

Source: Cyrusone: Illusions Of Value

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Oracle Passes IBM To Become World’s No.2 Software Company

Oracle (NASDAQ: ORCL) CEO Larry Ellison will use just about any excuse he can to brag about the company he founded. He discovered a new path, as Oracle used IBM’s (NYSE: IBM) earnings release to claim that the century old corporation had fallen to the No.3 spot in global software sales.  If so, that would mean Oracle now holds the No.2 spot behind Microsoft (NASDAQ: MSFT). The change in positions says a great deal about the power of Oracle’s enterprise customer base, and the erosion of some of IBM’s core businesses.

Oracle management wrote:

Given IBM’s recently announced quarterly results, we would like to take this opportunity to point out that Oracle’s software business has been growing faster than IBM’s software business and now Oracle has moved up to become the number 2 software company in the world while IBM has slipped to number 3.

Over IBM’s last four quarters, they reported software revenue totaling $25.7 Billion, while during Oracle’s last 4 quarters, we reported software revenue totaling $27.8 Billion.

IBM Software and Oracle Software (in millions): ORACLE Q2’13 Q3’13 Q4’13 Q1’14 LTM IBM Q4’12 Q1’13 Q2’13 Q3’13 LTM

GAAP	$6,649	$6,672	$8,428	$6,084	$27,833
External	$7,915	$5,572	$6,423	$5,798	$25,708

In the last quarter, IBM’s revenue dropped 4% to $23.7 billion from the same period last year. Software sales also performed badly:

Revenues from the Software segment were $5.8 billion, up 1 percent (up 2 percent, adjusting for currency) compared with the third-quarter of 2012.  Software pre-tax income increased 2 percent and pre-tax margin increased to 36.8 percent.

While what Oracle says may be true, a large portion of its growth has come from M&A, a process which Ellison has mastered. Based on years of results, he is as good as any large company CEO at integrating new businesses into the parent.

So, Ellison’s claims may been an asterisk next to them. To IBM, and Oracle’s other competitors, that does not matter. Oracle is beating their brains out.

3 Predictions for Blackrock Stock

When it comes to big, publicly owned investment management companies, there's little doubt which one investors love best: Blackrock  (NYSE: BLK  )  is top of the heap. Rated "four stars" by The Motley Fool's CAPS supercomputer, Blackrock easily eclipses smaller rival State Street  (NYSE: STT  ) , rated three stars, and larger rival UBS  (NYSE: UBS  )  -- an anemic two stars. But why?

After all, Blackrock isn't an obvious bargain. It costs nearly 19 times trailing earnings, and carries a forward P/E ratio of nearly 15, more expensive than either of its rivals, who trade in the upper 12s.

So today, let's take a look at why it might be that investors prefer Blackrock, and whether the stock's likely to maintain its outperformance, or fade back into the pack of also-rans. We'll begin with a couple of predictions from Wall Street's best and brightest analysts ... and then I'll give you a prediction of my own.

Prediction No. 1: Superior sales
One reason investors appear to favor Blackrock stock over the alternatives is pretty simple: Of the three, it's the fastest grower.

As you can see in the chart below, last year, Blackrock generated the least revenue of the three firms named. But analysts expect this to change in a jiffy. Crystal balls are notoriously hard to read, but the Street thinks we'll see Blackrock take the No. 2 position away from State Street as early as this year, then keep on outgrowing its rivals through 2016.

Prediction No. 2: Superb earnings
A corollary to this trend -- if this is indeed how things play out for Blackrock stock -- is that analysts see more potential for the company's faster revenue grower to result in fast-growing earnings, as well. Let's take a look at how analysts see this trend working.

Now ... don't get too excited at the height of Blackrock's "bars" up there. The main reason Blackrock stock earns more per share than its rivals do is because it simply has fewer shares outstanding, and fewer shares among which to divide up its profits.

More important than the company's per-share profit is the fact that Blackrock's growing this profit at a faster rate than its rivals -- about 13.4% per annum. (And maybe even faster than that. We don't have a reliable estimate for Blackrock's 2016 earnings, yet). In contrast, estimates call for 12% long-term earnings growth at UBS, and only 11.4% at State Street.

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Prediction No. 3: All good things must come to an end
And now it's time for that prediction I promised you up above. Investors clearly love the rapid rate of growth at Blackrock -- both the growth it's produced in the past, and the growth it's expected to produce in the future. They're also probably pleased with the fact that Blackrock stock has gone up 55% over the past year in response to the company's continued success.

But, while the earnings growth may continue, I expect anyone counting on another 55% bull run in the stock will be disappointed.

The reason: At nearly 20 times earnings today, Blackrock stock already prices in its potential for 13.4% future earnings growth, and even its generous 2.4% dividend yield. The stock also looks expensive based on its price-to-book value ratio of 1.8. At a P/B valuation 25% more expensive than State Street, and 38% more than UBS, Blackrock stock is simply overpriced.

Can 'Avatar' Save Disney's Animal Kingdom?

Alamy The afternoon exodus of turnstiles clicking the wrong way may soon be coming to an end at Disney's (DIS) Animal Kingdom. Disney announced over the weekend that an entire land themed to James Cameron's "Avatar" -- complete with at least two E-ticket attractions -- should open at the animal-themed park by early 2017. The addition of the fictional Na'vi tribe's lush Pandora moon landscape should help shake the park's negative tag of being a half-day park. It's been more than two years since Disney and Cameron announced that "Avatar" -- a 21st Century Fox (FOXA) property -- would be coming to Florida. At the time, the parties earmarked a $400 million investment and squared away several acres at Animal Kingdom for the project. However, things had been relatively quiet since then. After spending billions to acquire Marvel and Lucasfilm, it was only natural to wonder if Disney was having second thoughts about its blue-hued plan to use the section of the park that had originally been slated for the mythical Beastly Kingdom, before Disney settled for installing the far more modest Camp Minnie-Mickey. We're Back on Pandora Marvel and Lucasfilm properties would've been an odd fit, even for a park that stretches the scope of being an animal park to include talking bugs in a 3-D show, a track-wrecking yeti, and a time-traveling dinosaur-hunting thrill ride. Marvel itself comes with unique challenges. Marvel's most prolific characters are tied to a licensing deal with Comcast's (CMCSA) Islands of Adventure in the Universal Orlando Resort that prohibits their appearance at any of Disney's Florida parks. Since things had become so quiet on the "Avatar" front lately, it was easy to speculate that Disney was working on a deal to buy those rights from Comcast. That never happened. However, now that Disney has come clean with some more details and offered up impressive concept art, it seems as if the family entertainment giant has made the right call by dreaming up an experience where park guests will be able to take a leisurely boat ride through the bioluminescent forests of Pandora, or take the thrills up a notch by flying alongside the movie's mountain banshees. Scaling Everest A bit of back story: Animal Kingdom had a rocky reception after it opened in 1998. Outside of the magnetic Kilimanjaro Safari motorized trek through real animal habitats, many visitors were left heading for the exits after a few hours at the park. (I didn't win too many fans with a scathing rebuke at the time, but the park was a disappointment in its first few years.) The park went on to close as early as 5 p.m. some days, and attendance fell in each of its first four years. That turned around when Disney expanded the park to include popular stage shows and the Expedition Everest roller coaster. The park that had attracted 8.6 million guests in its first full year -- falling to 7.3 million by 2003 -- drew nearly 10 million guests last year, according to Themed Entertainment Association. Naturally Animal Kingdom can do even better, and the Avatar expansion will also include the introduction of a new nighttime show -- away from the live animal staging areas -- that will help keep guests at the park longer. It's going to be a long wait until early 2017 -- or the more likely late 2016 soft opening -- but at least Animal Kingdom can capitalize on the favorable momentum that's been building over the years before it shakes the distinction of being a park that can be knocked off in a few hours. Despite the uptick in attendance, the park is still closing at just 6 p.m. this week (7 p.m. on Saturdays). There's a lot of dinner business that the park is missing out by being so incomplete. That will change. It's better to be Na'vi than naive. Disney knows it needs "Avatar" at this point, and by the looks of things, when it arrives, it's going to be spectacular.

United States

Walt Disney (DIS)

Attendance:

2008: 118,000,000

2009: 119,100,000

2010: 120,600,000

1) Walt Disney Parks and Resorts

United Kingdom 

Attendance:

2008: 35,200,000

2009: 38,500,000

2010: 41,000,000

2) Merlin Entertainments Group

United States

Attendance:

2008: 25,700,000

2009: 23,700,000

2010: 26,300,000

3) Universal Studios Recreation Group

Spain

Attendance:

2008: 24,900,000

2009: 24,800,000

2010: 25,800,000

4) Parques Reunidos

United States

Six Flags, Inc. (SIX)

Attendance:

2008: 25,300,000

2009: 23,800,000

2010: 24,300,000

5) Six Flags Inc.

United States

Attendance:

2008: 23,000,000

2009: 23,500,000

2010: 22,400,000

6) SeaWorld Parks & Entertainment

United States

Cedar Fair, L.P. (FUN)

Attendance:

2008: 22,700,000

2009: 21,100,000

2010: 22,800,000

7) Cedar Fair Entertainment Company

 People's Republic of China

Attendance:

2008: 13,400,000

2009: 15,800,000

2010: 19,300,000

8) OCT Parks China

United States

Attendance:

2008: 8,300,000

2009: N/A

2010: 9,600,000

9) Herschend Family Entertainment Corporation

France

Kinder Morgan Energy Partners Misses Q3 EPS Estimates; Raises Dividend (KMP)

Kinder Morgan Energy Partners L.P. (KMP) announced its third quarter earnings results on Wednesday after the closing bell.

This pipeline company reported earnings of 51 cents per share, which came in below analyst expectations of 62 cents. Revenues, however, came in at $3.28 billion versus the expected $3.07 billion – largely due to higher oil prices.

Kinder Morgan Energy Partners also announced on Wednesday that it will increase its quarterly dividend to $1.35, or $5.40 annualized; prior to this, the company’s dividend was $1.32 quarterly, or $5.28 annualized. The dividend will be payable on November 14, 2013 to shareholders of record as of October 31, 2013.

Hot Growth Stocks For 2014

Commenting on the company’s performance, CEO Richard Kinder noted “KMP had a strong third quarter as our stable and diversified assets continued to grow and produce incremental cash flow.”

Kinder Morgan Energy Partners shares traded 0.46% higher during Wednesday’s session. Year-to-date, the stock is down 4.56%.

3 Sturdy Stocks For A Rocky Market

While we seem to have skipped past the debt ceiling issue, it is quite possible we will see continued turbulence ahead. Given the high valuations (23x cyclically adjusted P/E for S&P; 16.5x TTM and 23x TTM for Russell 2000), weak economic conditions, and political uncertainty in the US and abroad investors need to be extra careful when allocating new funds to the stock market. What stocks hold up best in a tough market? Generally large-cap companies with 1) leading market positions (2) strong competitive advantages (3) large amounts of recurring revenue which will hold up even if the economy turns south and (4) strong balance sheets (net debt < 2x EBITDA). These companies are likely to show profits which hold up well in tough conditions - in fact, the companies featured in this article saw profit declines of no more than 10% in the great recession and saw a quick rebound thereafter (all have consistently achieved new record results in each 2010, 2011, and 2012). Based on these criteria, here are three stocks which should perform well even if things get ugly:

Assa Abloy

Domiciled in Sweden, Assa Abloy (ASAZY.PK) is the largest lock maker in the world with a global market share of nearly 12%. While the construction market has been difficult since the financial crisis, Assa has continued to increase revenue and operating profit every year since 2010 and is on track to do so again in 2013. While commercial construction has been subdued, the aftermarket (which represents ~70% of the total lock market) is driven by changes in tenancy, renovation, and extensions have not been very cyclical and provides the company with a steady stream of profits. Assa has been cobbled together through 150+ acquisitions since the early 1990s and while management has done a good job of rationalizing facilities, there remain opportunities to increase manufacturing efficiencies. Similarly, the company's back office is still running dozens of IT systems (as a result of acquisitions) but management plans to cons! olidate these over the next few years. Further, Assa remains an active consolidator of the locks industry - it should be able to add 5% per year to sales via acquisitions (as an aside, those interested in micro-caps should have a look at Securidev in France which trades at less than half the private market value Assa has paid for lock makers on average over the past decade). Having the highest margins in the industry, Assa is able to achieve significant synergies on acquired businesses and earn good returns on capital for its shareholders through M&A. Thus even in a difficult economy, we expect Assa will continue to grow its operating profit given its steady after market revenue, opportunity to improve results through cost cutting, and through value accretive M&A. While its shares are not cheap, at 19x earnings, shares could offer investors with a five year holding period and an 8-10% annualized return.

SAP

SAP (SAP), the German ERP software leader has underperformed the broader market in 2013 as investors have cast aside large software companies in favor of cloud pure plays. While the stock has been a bore recently, there are many things to like about SAP. First, it has a leading position in complex ERP systems for large corporations. These systems are incredibly sticky (99% retention). Companies spend tens, and in some cases hundreds of millions of dollars and 3-5 years to implement these systems and almost never rip them out. In addition to getting paid a fee for the initial sale of the system, SAP receives a maintenance fee of 20-22% of the initial sales price every year. These revenues represent over half the company's revenue (and a greater % of profit). This provides a very stable revenue and profit stream for the company - even in a weak macro environment (despite the economy falling off a cliff between 2008 and 2009, SAP reported less than a 10% decline in operating profit). Similarly the company has exciting growth opportunities with its HANA in-memory database which, when ! coupled w! ith other product cross selling opportunities should allow the company to grow its operating profit in excess of 10% annually (comprised of high single digit revenue growth and some operating leverage). Trading at just over 15x earnings, shares look to have 30% upside.

Wal-Mart

Wal-Mart (WMT), the world's largest retailer's shares are on sale. Investors were disappointed with first half results and sold off the shares. While the retail environment is difficult (both in developed and developing markets - Wal-Mart's Mexican business reported a nasty October same store sales decline), Wal-Mart remains one of the best retailers in the world. It sells primarily necessities and should hold up well in a tough environment (operating profit increased 5% between 2008 and 2009 despite the huge economic headwind). With numerous competitive advantages including: unparalleled purchasing power, a valuable brand that customers trust, and world class logistics. Nobody buys cheaper and Wal-Mart is able to offer customers a great value while earning a nice margin for itself - an advantage which becomes more pronounced in a difficult economy. The company still has exciting growth opportunities ahead of it both domestically where it will roll out more Neighborhood Market grocery stores (just over 300 today but room for up to 1100) and expanding online sales (which are just a fraction of Amazon's). The company generates in excess of $13 billion of free cash flow annually - virtually all of which is being returned to shareholders via dividends and share repurchases. Selling at less than 13x earnings, Wal-Mart looks to have 20% upside even if the economy takes a tumble.

Best Value Companies To Own In Right Now

While we may be in for a rocky road ahead, I expect the shares of these companies to outperform the broader market over a 3-5 year horizon.

Source: 3 Sturdy Stocks For A Rocky Market

Disclosure: I am long ASAZY.PK, SAP, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

12 “Triple F” Stocks to Sell

Popular Posts: 7 Biotechnology Stocks to Buy Now4 Pharmaceutical Stocks to Buy Now17 Oil and Gas Stocks to Sell Now Recent Posts: 12 “Triple F” Stocks to Sell 7 “Triple A” Stocks to Buy 5 Machinery Stocks to Buy Now View All Posts

This week, 12 stocks get F’s (“strong sell”) in Portfolio Grader‘s three main grading categories, Total Grade, Overall Fundamental Grade, and Quantitative Grade.

These are the worst of the worst in the entire Portfolio Grader database. This week, there are 4,253 stocks and only these 12 get failing marks in all categories to make the dreaded “Triple F” stocks list. Here they are:

Aluminum Corporation of China Limited Sponsored ADR Class H (NYSE:) is a producer of aluminium, with operations in bauxite mining, alumina refining, primary aluminium smelting, and aluminium fabrication. It also provides ancillary products and services. The price of ACH is down 20.2% since the first of the year. This is worse than the S&P 500, which has seen a 12.1% increase over the same period. .

Cliffs Natural Resources (NYSE:) is an international mining and natural resources company. Shares of CLF have slipped 39.3% since the first of the year. As of Oct. 11, 2013, 31.1% of outstanding Cliffs Natural Resources shares were held short. .

Cypress Semiconductor Corporation (NASDAQ:) is engaged in the design, development, manufacture, and marketing of high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value. Since the first of the year, CY has dropped 17%. .

Devon Energy Corporation (NYSE:) explores, develops, and transports oil, gas, and natural gas liquids. .

Enerplus Corporation (NYSE:) is an oil and gas exploration and production company that owns a large, diversified portfolio of income-generating crude oil and natural gas properties. .

Eagle Rock Energy Partners, L.P. (NASDAQ:) engages in gathering, compressing, treating, processing, transporting, marketing, and trading natural gas, as well as fractionating and transporting natural gas liquids. Shares of EROC are trading 16.1% lower than at the start of the year. .

Exelixis, Inc. (NASDAQ:) is a development-stage biotechnology company dedicated to the discovery and development of small-molecule therapeutics for the treatment of cancer and other serious diseases. As of Oct. 11, 2013, 22.7% of outstanding Exelixis, Inc. shares were held short. .

Navistar International Corporation (NYSE:) manufactures and markets medium and heavy trucks, school buses, mid-range diesel engines, and service parts. As of Oct. 11, 2013, 13% of outstanding Navistar International Corporation shares were held short. .

Newfield Exploration Company (NYSE:) is an independent oil and gas company which explores, develops, and acquires oil and natural gas properties. .

Swift Energy Company (NYSE:) develops, explores, acquires and operates oil and natural gas properties, primarily those that are onshore and in the inland waters of Louisiana and Texas. Since January 1, SFY has slumped 23.6%. As of Oct. 11, 2013, 21.4% of outstanding Swift Energy Company shares were held short. .

Thompson Creek Metals Company Inc. (NYSE:) is an integrated North American primary producer of molybdenum. Since January 1, TC has tumbled 10.3%. As of Oct. 11, 2013, 10.8% of outstanding Thompson Creek Metals Company Inc. shares were held short. .

Walter Energy (NYSE:) is a producer and exporter of metallurgical coal for the global steel industry. The price of WLT is 56.4% lower than at the first of the year. As of Oct. 11, 2013, 13.3% of outstanding Walter Energy shares were held short. .

Louis Navellier’s proprietary Portfolio Grader stock ranking system assesses roughly 5,000 companies every week based on a number of fundamental and quantitative measures. Stocks are given a letter grade based on their results — with A being “strong buy,” and F being “strong sell.” Explore the tool here.

5 Rocket Stocks Ready for Blastoff

BALTIMORE (Stockpickr) -- 10 days. That's how far away the U.S. currently sits from running out of money and theoretically defaulting on the national debt. That realization is gut-punching the markets this morning.

>>5 Stocks Poised for Breakouts

The prospect of a default is bizarre. On one hand, ratings agencies are setting the risks of default pretty low right now -- and so are prices for securities most tightly tied to treasuries. On the other hand, Treasury officials have been publicly reminding congress that we'll default if they don't act now.

So yes, there's a gun to the head of the market right now, the chamber is probably empty.

Even as stocks correct this fall, there's still an opportunity popping up in some of the market's strongest names. That's why we're turning to a new set of Rocket Stocks for this week.

>>5 Cash-Hoarders to Triple Your Gains

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 217 weeks, our weekly list of five plays has outperformed the S&P 500 by 92%.

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

Walt Disney

If it's been a great year for stocks, it's been an even better one for shareholders of Walt Disney (DIS). The $117 billion entertainment giant is up more than 31% since the calendar flipped over to January, almost doubling the S&P 500's climb year-to-date. Disney's unmatched collection of intellectual property, and its ability to turn that portfolio into cash throughout its business, gives the firm some big advantages in 2013 and beyond.

>>5 Big Stocks to Trade (or Not)

When people think Disney, they think Mickey Mouse. And while the anthropomorphic mouse is certainly a cornerstone of Disney's business, its TV network properties are the real cash cow. Disney earned around half of its profits through television networks such as ABC, A&E and the Disney Channel. ESPN, though, is the star of the show. ESPN is the most valuable network in the world, capturing a bigger part of your cable bill than any other network out there -- and it's all thanks to football. Despite shelling out more than $1.8 billion each year to the NFL for Monday Night Football broadcast rights, the network's model has proven immensely profitable.

Meanwhile, Disney's theme parks are starting to enjoy the other side of the cyclical downdraft that hindered them during the Great Recession. Because Disney is highly integrated, it's able to take popular characters from a film and move them into TV, theme parks and merchandise, multiplying the value of its efforts and trimming costs. Finally, the decision to purchase of Pixar in 2006 was transformational for DIS, and should help to bring in consistent blockbusters in a way that Disney's animation studios haven't by themselves.

Priceline.com

Priceline.com (PCLN) is another firm that's seen strong performance numbers in 2013. In fact, it's even managed to one-up Disney with a 71% gain since the first trading session in January. Breakneck growth on Priceline's income statement has been fuelling the growth in its share price.

>>3 Huge Tech Stocks on Traders' Radars

Priceline.com is one of the biggest travel sites in the world. The firm dug out an economic moat by becoming the most popular "Name Your Own Price" travel site, connecting bargain-conscious consumers with excess inventory hotels and airlines were trying to fill at lower prices. While that's niche has changed more recently, Priceline's dominance in online travel hasn't. Priceline's biggest growth driver in recent years has been in international markets like Europe and China, where the firm's foothold is less dominant and travel pricing is less commoditized.

The decision to purchase travel content site Kayak should pan out to be a good one for PCLN. While the acquisition wasn't cheap, content site visitors are stickier than the web traffic that visits Priceline's homepage. With a new traffic driver, Priceline should be able to spread the benefits across its whole network.

Franklin Resources

In a lot of ways, asset management firm Franklin Resources (BEN) is a leveraged bet on stock prices. After all, the firm has more than $815 billion in assets under management spread across stocks, bonds and hybrid funds -- so as asset prices rise, so too do the fees that Franklin is able to charge for the cash under its watch. So far, betting on BEN has been a pretty good move in 2013 -- and I think that will continue to be the case into the fourth quarter.

>>5 Big Trades to Take Now

Franklin Resources is the fifth-largest asset manager in the U.S., positioning that helps the firm court big money without alienating retail investors who feel burned by the big banks. BEN's team of 130,000 advisors provides a direct way to attract assets across all of its investment styles, although the skew definitely favors fixed income. While bonds generally earn smaller management fees than equities do, as investors warm up to the equity market, Franklin Resources should see its profitability warm up in kind.

Franklin's net margins are huge, with around 27% of every dollar in management fees working its way to shareholders as profits. A big part of that profitability comes from a better-than-average customer retention rate. Customer acquisition costs are some of the biggest hurdles for asset managers, so BEN's positioning works out very well.

With rising analyst sentiment in shares this week, we're betting on BEN.

Under Armour

A lot has changed at Under Armour (UA) in the last few years. In that short time, UA has gone from making niche apparel for hardcore athletes to mainstream gear that can be found in more than 100 company-owned stores across the country and thousands of other brick-and-mortar retailers. But UA's performance-focused roots continue to drive the firm's ability to collect top dollar.

>>5 Stocks Insiders Love Right Now

Sports apparel is a big market, but it's a saturated one, so few up-and-comers have successfully challenged the foothold from brands like Nike (NKE). But Under Armour has. The firm's extension in to new categories like footwear about five years ago should continue to drive top-line growth and premium dollars from consumers who see Under Armour as a performance brand.

As Under Armour battled the big name sportswear companies here at home, the firm really hasn't paid a whole lot of attention abroad. In total, overseas sales only make up under 10% of the firm's total revenues; but that lack of international exposure provides ample growth opportunities once UA starts to exhaust its top-line expansion stateside. Shares of UA are far from cheap right now, but the value of the brand and the potential for bigger markets offset the rich price tag.

PetSmart

Pet supply retailer PetSmart (PETM) has a big trend pushing at its back in 2013. Americans love their pets, and to show it, they're spending more on Fido and Whiskers than ever before. That higher per-capita pet spending has been translating to bigger sales numbers at PetSmart's 1,250 big box stores.

>>5 Short-Squeeze Stocks Ready to Pop in October

PetSmart sells pet food, supplies, services and even small pets at its locations. As pets get treated more and more like full fledged family members, so is their allotment of the family budget. That's drastically changed the sales mix at stores like PetSmart, as more emphasis on higher-quality all natural pet foods and more expensive and elaborate toys and grooming products fill the shelves. That focus on quality also translates to higher margins for PETM. More than half of sales come from consumables such as food and treats, which means repeat business.

Another important margin driver is services. Grooming, boarding, and training only make up around 11% of PetSmart's total sales, but they're rich in margin and tend to be sticky. After all, pet owners are less likely to switch their boarding to unfamiliar places purely for cost. Analysts are turning bullish on PetSmart from a sentiment standpoint this week, so we're betting on shares.

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.

RELATED LINKS:

>>5 Trades to Take for October Gains

>>5 Stocks Under $10 Triggering Breakout Trades

>>5 Stocks Under $10 Set to Soar

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

European Stocks Rise on Signs of Compromise on U.S. Debt

European stocks rose the most in more than five weeks amid signs U.S. lawmakers will agree on a compromise deal to avoid an unprecedented default.

Ladbrokes Plc rallied to a two-week high after a report that Playtech Plc founder Teddy Sagi may have acquired an almost 3 percent stake in the bookmaker. CGG gained 2.1 percent after saying third-quarter vessel-production rate jumped to a record. Rheinmetall AG declined after Moody's Investors Service lowered its debt rating.

The Stoxx 600 added 1.7 percent to 310.29, its highest level since Sept. 2, as U.S. President Barack Obama prepared to meet Republican lawmakers to discuss the federal budget and debt limit. The benchmark gauge yesterday declined for a third day amid concern that the impasse may lead to a default.

"It's very important for the markets that we got this news of a possible short-term deal and that Republicans and Democrats are having further discussions," Andreas Lipkow, a senior market strategist at Kliegel & Hafner AG in Berlin, said by telephone. "The tone earlier this week was very negative and everyone was very concerned."

The VStoxx Index, which measures the volatility that options traders expect in the Euro Stoxx 50 Index, tumbled 15 percent, the most in 13 months. The volume of shares changing hands on Stoxx 600-listed companies was 22 percent greater than the average of the past 30 days, data compiled by Bloomberg showed.

10th Day

House Republican and Senate Democratic leaders are open to a short-term increase in the $16.7 trillion debt limit, said congressional aides of both parties who spoke on condition of anonymity. Economists say a failure by the world's largest borrower to repay its debt will devastate stock markets and throw the U.S. and world economies into a recession.

House Republican leaders are presenting their members with a proposal to raise the debt limit for six weeks without policy conditions, said a congressional aide familiar with the details. The move would lessen the risk of a U.S. default one week from a lapse in borrowing authority.

The U.S. government is in its 10th day of a partial shutdown and has just a week before the government's borrowing authority lapses Oct. 17. Obama meets with 18 House Republican leaders and committee chairmen at 4:35 p.m. in Washington.

In Europe, the Bank of England left its benchmark interest rate unchanged today. Reports showed industrial output in France rose 0.2 percent in August, the first increase in four months. That fell short of the median estimate of economists surveyed by Bloomberg News, which forecast a 0.6 percent gain. A similar measure of output in Italy dropped 0.3 percent in August. Economists had projected a 0.6 percent increase.

National Markets

National benchmark indexes advanced in all 18 western European markets. The U.K's FTSE 100 rallied 1.5 percent, France's CAC 40 jumped 2.2 percent and Germany's DAX climbed 2 percent. Spain's IBEX 35 (IBEX) surged 2.4 percent to its highest level since July 2011.

Ladbrokes (LAD) rallied 2.9 percent to 185 pence, posting the biggest two-day gain since April 2009. A mystery buyer, thought to be Sagi, bought a stake in the U.K. bookmaker, the Telegraph reported. The deal, through Shore Capital, was just below the 3 percent disclosure limit, according to the Telegraph. The purchase fueled speculation about a possible bid, the newspaper said.

CGG jumped 2.1 percent to 15.83 euros. The oilfield surveyor said third-quarter vessel-production rate increased to 94 percent, from 90 percent in the same quarter last year and 92 percent in the second quarter of this year.

Lenders Rally

A gauge of bank shares in the Stoxx 600 rallied 2.5 percent. Commerzbank AG added 5.9 percent to 9.36 euros. Banco Popolare SC rallied 1 percent to 1.40 euros, while Intesa Sanpaolo SpA jumped 2.2 percent to 1.78 euros.

Arkema SA (AKE) added 4.7 percent to 83.93 euros. UBS AG raised its rating on the French chemicals maker to a buy from neutral, saying the stock is undervalued. The firm also boosted its price target to 100 euros from 80 euros.

Hays Plc gained 2.2 percent to 118.1 pence. The U.K's largest professional-recruitment agency said first-quarter net fees rose 2 percent from last year on a comparable basis.

"We see clear growth opportunities as a number of markets continue to improve, including some that have been challenging for some time, such as the U.K. and Asia," Chief Executive Officer Alistair Cox said in a statement.

Mediaset SpA rallied 5 percent to 3.47 euros. HSBC Holdings Plc lifted its price target on the broadcaster controlled by former Italian Prime Minister Silvio Berlusconi to 2.60 euros from 1.50 euros. The firm maintained its underweight recommendation, which is similar to sell.

Rheinmetall declined 0.9 percent to 42.38 euros. Moody's lowered its rating on the German armored-vehicle maker's senior unsecured notes due September 2017 to Ba1 from Baa3.

Gerresheimer AG dropped 3.4 percent to 43 euros. The company, which develops and produces specialty products made of glass and plastic, was cut to hold from buy at Kepler Cheuvreux.

"The key test for the stock will be the guidance for 2014," analyst Oliver Reinberg wrote in a note to clients.

Will BP Stock Find a Strong Bid?

With shares of BP (NYSE:BP) trading around $41, is BP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

BP is an integrated oil and gas company. The firm provides its customers with fuel for transportation, energy for heat and light, lubricants, and the petrochemicals products used to make items like paints, clothes, and packaging. It operates in two business segments: exploration and production, and refining and marketing. BP provides energy products to consumers and companies worldwide. Without the oil and gas products provided, many consumers and businesses would not be able to operate on a daily basis.

BP had a recent victory in court as the Fifth U.S. Circuit Court of Appeals in New Orleans decided recently that the claims administrator for the government, Patrick Juneau, needs to be more discriminating about claims related to BP's 2010 Deepwater Horizon oil spill, Reuters reports. The court also ruled to stop payments on claims that don't meet the new, stricter standards. After the spill, BP agreed to be responsible for economic losses but has complained that it's been forced to pay claims for people and businesses that were not harmed by the disaster.

T = Technicals on the Stock Chart Are Mixed

BP stock has not made significant progress in recent years. The stock is currently trading near mid-prices for the year so it may need to spend a little more time here. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, BP is trading between its key averages, which signal neutral price action in the near-term.

(Source: Thinkorswim)

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

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
BP Options	22.31%	96%	95%

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

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

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

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

E = Earnings Are Mixed Quarter-Over-Quarter

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

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	233.67%	192.30%	-78.97%	8.03%
Revenue Growth (Y-O-Y)	-0.74%	10.06%	7.51%	-4.72%
Earnings Reaction	-3.20%	2.28%	1.35%	2.78%

BP has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have mostly been pleased with BP’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has BP stock done relative to its peers, Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDSA), and sector?

	BP	Chevron	Exxon Mobil	Royal Dutch Shell	Sector
Year-to-Date Return	0.16%	7.93%	-1.18%	-7.25%	1.16%

BP has been an average relative performer, year-to-date.

Conclusion

BP is an oil and gas company that supplies energy products and services worldwide. The company saw a victory at the Fifth U.S. Circuit Court of Appeals in New Orleans recently, which may be a positive catalyst for the company. The stock has not made significant progress in recent years and is now trading near mid-prices for the year. Over the last four quarters, earnings have been rising while revenues have been mixed, which has left investors mostly pleased about recent earnings announcements. Relative to its weak peers and sector, BP has been an average year-to-date performer. WAIT AND SEE what BP does in coming quarters.

3 Capital Markets Stocks to Buy Now

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Three Capital Markets stocks are moving up in their overall rating this week, according to the Portfolio Grader database. Every one of these is graded an “A” (“strong buy”) or “B” overall (“buy”).

Northern Trust Corporation (NASDAQ:) earns a B this week, jumping up from last week’s grade of C. Northern Trust is a financial holding company that provides investment management, asset and fund administration, fiduciary, and banking solutions for corporations, institutions, and affluent individuals. .

THL Credit (NASDAQ:) is progressing from last week’s rating of B (“buy”) as the company improves to an A (“strong buy”) this week. THL Credit is a management investment company that invests mainly in private subordinated debt, also known as mezzanine debt. .

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Ares Capital Corporation (NASDAQ:) is seeing ratings go up from a B last week to an A this week. Ares Capital is a specialty finance company that invests mainly in first- and second-lien senior loans and mezzanine debt, which in some cases includes equity components like warrants. .

Louis Navellier’s proprietary Portfolio Grader stock ranking system assesses roughly 5,000 companies every week based on a number of fundamental and quantitative measures. Stocks are given a letter grade based on their results — with A being “strong buy,” and F being “strong sell.” Explore the tool here.

Better Call Saul? Beware Legal Fee Rules

 

Breaking Bad Screening Lab in Hollywood - Saul Goodman Bench (Photo credit: Pop Culture Geek)

Most people don't pay their lawyer in cash, and most lawyers aren't like Breaking Bad's Saul Goodman. Still, Saul has a kind of likable everyman quality that might make paying his fees not too painful. But however you pay legal fees and regardless of to whom, you can reduce their sting by observing six tax rules:

1. You Can't Deduct Personal Legal Bills. Personal means nondeductible, so the least desirable legal expenses are those of a purely personal nature. Examples include divorce or if a family member sues you for slander. But some legal matters of a personal nature can impact business or investment, making some deductible. See Stars and Their Legal Fees: Another Red Carpet?

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2. Fees for Tax Advice Are Deductible. These are always deductible, whether for tax planning or disputes. Any tax qualifies, including income, estate, gift, property, sales, use and excise tax. Plus, despite the general rule on personal legal fees, tax fees are deductible even if the taxes are purely personal.

3. Business Legal Fees Are Deductible. Legal fees in a trade or business are deductible. However, some fees must be capitalized and added to the basis of assets. For example, say you are trying to sell your business and spend $50,000 in legal fees. Can you deduct it against your income or must you add it to your basis in your company? Usually the latter.

4. Investment Legal Fees Are Miscellaneous Itemized Deductions. If legal expenses don't relate to your business but only to investments, you can still deduct them but usually only as a miscellaneous itemized deduction. That means a 2% threshold, phase-outs and (worst of all) Alternative Minimum Tax (AMT). See AMT Problems For Attorney Fees Remain. However, as with business legal fees, some investment legal fees must be capitalized to the basis of the assets (such as legal fees for the purchase of investment property).

5. Contingent Lawyer's Fees Are Tricky. If you recover $1 million in a lawsuit and owe 40% to your contingent fee lawyer, you might assume you have $600,000 of income. How could you possibly have to pay tax on the full $1 million? Answer: In Commissioner v. Banks, the U.S. Supreme Court ruled you've got income when your lawyer is paid. That means you need to worry about how to deduct the fees.

In a pure personal physical injury case (say an auto accident or slip-and-fall), the entire recovery is tax-free so it doesn't matter whether you consider the recovery including legal fees or the net. Unfortunately, there is often confusion about what is tax-free.

6. Legal Fees in Employment Cases Are Deductible. Most employment settlements are either wages (on a Form W-2) or non-wage income (on a Form 1099). If your lawyer takes 40%, you still must include 100% in your income. However, you can deduct the legal fees "above-the-line," before reaching adjusted gross income. That means you have no tax—no regular tax and no AMT—on the legal fees. See More on Attorney Fees Post-Banks.

Bottom Line? Tax deductions alleviate some of the pain of legal bills. There are often several ways of allocating fees, so planning pays off.

You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.