Hot Small Cap Companies For 2014

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What's next for Microsoft?
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Hot Small Cap Companies For 2014: Achillion Pharmaceuticals Inc.(ACHN)

Achillion Pharmaceuticals, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of treatments for infectious diseases. The company focuses on the development of antivirals for the treatment of chronic hepatitis C; and the development of antibacterials for the treatment of resistant bacterial infections. Its drug candidates for the treatment of chronic HCV include ACH-1625, a protease inhibitor, which is in phase IIa clinical trial for the treatment of chronic HCV; ACH-2684, a pangenotypic protease inhibitor, which is in phase I clinical trial for the treatment of chronic HCV infection; and NS5A inhibitors for the treatment of chronic HCV infection, including ACH-2928, which is to enter a phase I clinical trial, as well as various additional NS5A inhibitors in preclinical development. Its pipeline of product candidates also includes ACH-702 and ACH-2881 for drug resistant bacterial infections; elvucitabine for HIV infection; and AC H-1095 for HCV infection. The company was founded in 1998 and is based in New Haven, Connecticut.

Advisors' Opinion:

• [By Brian Nichols]

  Achillion is an odd play because it has both the most upside and the most downside of any stock on this list. The company's developing and testing its hepatitis C treating drug, ACH-1625, which is currently in phase II. The results of initial testing have consisted of ups and downs, but after many years and a long process, ACH-1625, appears to be on the right track for an FDA approval.

  The upside in shares of ACHN comes from two places: encouraging data from trials and its likelihood of being acquired. In my opinion, ACHN has a very high chance of being acquired in the next 6 months. Both Pharmasset (VRUS) and Inhibitex (INHX) were acquired over the last 5 months with insanely large premiums. VRUS was purchased at a 81% premium and INHX for a 182% premium. ACHN is perhaps the most speculative, but it could also be purchased the cheapest.

  The stock's recently pulled back after a downgrade and is trading much lower over the last couple weeks. The stock's trend reminds me so much of INHX; the month following the VRUS acquisition when INHX traded higher by nearly 300%. But then after the one-month gain, INHX lost its momentum and traded lower by 40% before being acquired with a 182% premium. INHX traded higher after the VRUS purchase because investors thought it would also be acquired, because of its hepatitis C candidate. ACHN is following the same trend, from November 12 till January 13 the stock more than doubled, but has since retraced.

  At $10 I think ACHN is a buy, it does have a good HCV candidate, and I believe that big pharma will bid to acquire ACHN in the near future. However, the risk in ACHN is if the company's not acquired, then it could have significant loss over the next year. But in a competitive biotechnology industry I believe the reward is worth the risk, and that a large pharma company will take the chance and purchase ACHN in an attempt to stay competitive and capitalize on the trend of investors being bullish on HCV treating drugs.

• [By Wyatt Research]

  The developer of treatments for infectious diseases has seen its shares rise 280 percent in the past year, and last month had a successful sale of 1.44 million more shares that raised $60.9 million.

Hot Small Cap Companies For 2014: bebe stores inc.(BEBE)

bebe stores, inc. engages in the design, development, and production of women?s apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21 to 34-year-old woman. As of July 2, 2011, it operated 252 retail stores, and an online store at bebe.com in the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in south east Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey. The company was founded in 1976 and is headquartered in Brisbane, California.

Advisors' Opinion:

• [By Wyatt Research]

  The women's apparel retailer reported fiscal fourth-quarter sales and same-store sales both rose 7 percent. The stock is up 30 percent year-to-date.

Top 10 Safest Stocks To Invest In Right Now: Rackspace Hosting Inc(RAX)

Rackspace Hosting, Inc. operates in the hosting and cloud computing industry. It provides information technology (IT) as a service, managing Web-based IT systems for small and medium-sized businesses, as well as large enterprises worldwide. The company?s service suite includes dedicated hosting comprising customer management portal and other management tools that manage data center, network, hardware devices, and operating system software; and cloud computing that enables customers to provide and manage a pool of computing resources, as well as delivery of computing resources to business when they need them. It offers cloud servers, cloud files, and cloud sites, as well as cloud applications, such as email, collaboration, and file back-ups; and hybrid hosting that provides a combination of dedicated hosting and cloud computing services. The company also offers customer support services. It sells its service suite through direct sales teams, third-party channel partners, an d online ordering. The company was formerly known as Rackspace.com, Inc. and changed its name to Rackspace Hosting, Inc. in June 2008. Rackspace Hosting, Inc. was founded in 1998 and is headquartered in San Antonio, Texas.

Advisors' Opinion:

• [By Sherry Jim]  

  This computing specialist that provides web-based IT systems has soared 60%+ in the past year.  With a P/S above 3 and Price to Cash of 10 this stock is poised to continue to soar and outperform it’s peers. $25 in a year is a realistic bet.

Hot Small Cap Companies For 2014: Hot Topic Inc.(HOTT)

Hot Topic, Inc., together with its subsidiaries, operates as a mall- and Web-based specialty retailer in the United States. The company operates Hot Topic and Torrid store concepts, as well as an e-space music discovery concept, ShockHound. Its Hot Topic stores sell music/pop culture-licensed merchandise, including tee shirts, hats, posters, stickers, patches, postcards, books, novelty accessories, CDs, and DVDs; and music/pop culture-influenced merchandise comprising women?s and men?s apparel and accessories, such as woven and knit tops, skirts, pants, shorts, jackets, shoes, costume jewelry, body jewelry, sunglasses, cosmetics, leather accessories, and gift items for young men and women primarily between the ages of 12 and 22. The company?s Torrid stores sells casual and dressy jeans and pants, fashion and novelty tops, sweaters, skirts, jackets, dresses, hosiery, shoes, intimate apparel, and fashion accessories for various lifestyles for plus-size females primarily betw een the ages of 15 and 29. As of July 30, 2011, it operated 636 Hot Topic stores in 50 states, Puerto Rico, and Canada; 145 Torrid stores; and Internet stores, hottopic.com and torrid.com. The company was founded in 1988 and is headquartered in City of Industry, California.

Advisors' Opinion:

• [By Wyatt Research]

  The teen retailer reported its same-store sales rose 0.4 percent, with same-store sales at its Torrid chain for overweight teens rising 7 percent. Analysts were expecting a decline.

Hot Small Cap Companies For 2014: Texas Instruments Incorporated(TXN)

Texas Instruments Incorporated engages in the design and sale of semiconductors to electronics designers and manufacturers worldwide. The company?s Analog segment offers high-performance analog products comprising standard analog semiconductors, such as amplifiers, data converters, and interface semiconductors; high-volume analog and logic products; and power management semiconductors and line-powered systems. Its Embedded Processing segment includes DSPs that perform mathematical computations to process and enhance digital data; and microcontrollers, which are designed to control a set of specific tasks for electronic equipment. The company?s Wireless segment designs, manufactures, and sells application processors and connectivity products. Its Other segment offers smaller semiconductor products, which include DLP products that are primarily used in projectors to create high-definition images; and application-specific integrated circuits. This segment also provides handhe ld graphing and scientific calculators, as well as licenses technologies to other electronic companies. The company serves the communications, computing, industrial, consumer electronics, automotive, and education sectors. Texas Instruments Incorporated sells its products through a direct sales force, distributors, and third-party sales representatives. It has collaboration agreements with PLX Technology Inc.; Neonode, Inc.; and Ubiquisys Ltd. The company was founded in 1938 and is headquartered in Dallas, Texas.

Advisors' Opinion:

• [By Paul Goodwin]  

  How do they make their money? TXN makes the PA Duplexer Module and the CDMA PA that goes into every iPhone. With a PEG ratio of 0.2 reveals huge discount compared to peers. This is a cash rich company and one I feel will be a strong performer within the next year.

• [By Fabian]

  Texas Instruments investment returned 46.3% during the past year. The amount of investment is $403 Million. Miller reduced his TXN holdings by 25% during the last quarter of 2010. Since then the stock returned 11.1%. David Tepper also bought TXN during the third quarter.

Hot Small Cap Companies For 2014: OmniVision Technologies Inc.(OVTI)

OmniVision Technologies, Inc. designs, develops, and markets semiconductor image-sensor devices. The company offers CameraChip image sensors, which are single-chip solutions that integrate various functions, such as image capture, image processing, color processing, signal conversion, and output of a processed image or video stream for use in various consumer and commercial mass-market applications; and CameraCube imaging devices that are image sensors with integrated wafer-level optics. It also provides companion chips used to connect its image sensors to various interfaces, including the universal serial bus and other industry standard interfaces; and companion digital signal processors that perform compression in standardized still photo and digital video formats. In addition, the company designs and develops software drivers for Linux, Mac OS, and Microsoft Windows, as well as for embedded operating systems, such as Blackberry OS, Palm OS, Symbian, Windows CE, Windows Embedded, and Windows Mobile. Its products are used in mobile phones, notebooks, Webcams, digital still and video cameras, commercial and security and surveillance, and automotive and medical applications, as well as in entertainment devices. The company sells its products directly to original equipment manufacturers and value added resellers, as well as indirectly through distributors worldwide. OmniVision Technologies, Inc. was founded in 1995 and is based in Santa Clara, California.

Advisors' Opinion:

• [By Karim]  

  They make the 5-megapixel sensors in the camera of every iPhone. Along with this they carry a strong balance sheet and upbeat earnings expectations boding well for future growth.

3 Dow Laggards of 2013

This year the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has been a steady climber, reaching new all-time closing and intraday trading highs. The index is up 17.92% since the beginning of the year. However, not all components of the index have experienced this upward price momentum. Here is a look at the bottom three companies that have been holding back the Dow so far this year, why they have been struggling, and where they may be heading.

IBM (NYSE: IBM  ) -- Year-to-date return: 1.2%
IBM has fluctuated considerably over 2013. Expectations for the first quarter proved to be overstated when the company reported a rare earnings miss. Revenue and EPS both fell short of consensus estimates. Among other challenges, IBM cited weakness in the yen and an inability to close certain software deals before the quarter ended. IBM was also plagued by industrywide decline in hardware sales and competition from Oracle and others.

Looking ahead, I believe IBM has the best opportunity of these three Dow laggards to catch up with the index. Several analysts have cut their price targets on IBM, but the company is in a position to outperform its hardware-oriented counterparts because it derives more than half of its revenue from its services division and has a strong stream of software-licensing revenue.

IBM has stuck with its original EPS guidance of $16.70 for the year. If it can get back on track and meet its quarterly goals (IBM announces second-quarter numbers today after markets close) and finish the year strong, then I think it has a chance to make up some of its lost ground.

Caterpillar (NYSE: CAT  ) -- YTD return: -1.62%
Heavy-equipment manufacturer Caterpillar has had its performance hampered by a hefty decline in overseas demand for its products coupled with falling commodity prices. Falling commodity prices mean tighter margins for mining companies who lose the capital to reinvest in new equipment from Caterpillar. As a result, Caterpillar's mining segment saw a 23% decline in sales in the first quarter. Construction spending has not increased enough to make up for losses incurred in the mining segment. Cost-cutting efforts and layoffs have been implemented to try to salvage some of the bottom line. All of the above has contributed to a lackluster stock performance since the year began.

Some opportunity exists for Caterpillar. America appears to be on the outset of a housing shortage as demand for housing far outpaces the available supply. Prices are rising, and supply is falling, indicating that an influx of new-home construction will be needed to keep pace with demand. Demand for heavy equipment is rising in South America, especially in Brazil, which is preparing for the summer Olympics and World Cup. In the near term, I'm not convinced these opportunities will be enough to counter the economic headwinds outlined above. I expect general underperformance for the next six to 12 months.

Alcoa (NYSE: AA  ) -- YTD return: -6.57%
Alcoa, the global leader in aluminum production, has been by far the worst-performing stock in the Dow year to date. Falling commodities prices are a big threat to the company: Aluminum spot prices are down more than 15% since January, creating serious concerns about Alcoa's ability to grow its revenue. Alcoa's credit was also downgraded by Moody's to junk status back in May. Moody's cited pressures from within the aluminum industry and from falling prices.

To counter the issues facing its bottom line, Alcoa has initiated a serious cost-control effort with a goal of cutting $750 million by the end of 2013. It is this move that seems to be keeping Alcoa from ending up like its competitors Rio Tinto and Aluminum Corp of China, which are down 29% and 34%, respectively, year to date.

The outlook for aluminum is bleak, with little indication of when global demand for the metal will turn around. Alcoa faces a large degree of uncertainty and unfavorable conditions through the rest of 2013. These ongoing concerns have manifested themselves in Alcoa's poor performance as of late.

The market has not been kind to these three companies so far in 2013, and their poor performances have held the Dow back. Moving forward, keep an eye out for economic indicators like commodity prices, housing starts, and exchange rates on the yen to give you an idea of when these companies may start turning things around.

If you'd like to learn about three Dow stocks with great future prospects, then check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Iceberg Ahead for Dell Shareholders

As each week goes by, the situation at Dell (NASDAQ: DELL  ) looks more and more like a repeat of the Titanic. There's an iceberg ahead, but nobody seems capable of doing anything about it. As Michael Dell and Carl Icahn struggle for control of this once-great company, ordinary shareholders' interests are increasingly being left by the wayside. As a result, Dell stock has been slowly losing altitude.

DELL Six-Month Price Chart. Data by YCharts.

It would be wrong to say there's no hope of a successful buyout. The original offer made by Michael Dell and Silver Lake -- to buy the company for $13.65 a share -- is still on the table. Moreover, the two parties have offered to raise their bid to $13.75 per share, if the special committee overseeing the proposed transaction agrees to change the voting rules to exclude non-votes, rather than counting them as "no" votes.

Unfortunately, the original proposal does not seem to have enough shareholder support to go through, while the revised proposal is unlikely to make it to a vote, as the special committee is worried that it will seem unfair to change the rules. Yet the "fair" result is likely to be the worst one for shareholders: a stalemate that prevents any "value-unlocking" activity and leads to a big decline in Dell stock.

Last-minute maneuvers
Earlier this month, shareholders were supposed to vote on the original $13.65 buyout proposal from Michael Dell and Silver Lake. However, with shareholders split roughly 50/50 for and against the transaction, Dell and Silver Lake realized that the buyout proposal was likely to fail. The problem was language in the original agreement that counted non-votes as votes against the buyout proposal.

As a result, Dell and Silver Lake offered to raise their bid from their previous "best and final offer" of $13.65 to $13.75, as long as the special committee overseeing the process agrees to change the voting rules so that non-votes are excluded (i.e., counted as abstentions). Both the price increase and the proposed rule change were intended to smooth the way for Dell to go private. The vote was then rescheduled for this Friday.

Not surprisingly, Carl Icahn of Icahn Enterprises (NASDAQ: IEP  ) and his supporters -- who have vehemently opposed the Dell buyout for months -- are loudly protesting the proposed rule change. (After all, it would presumably end their hopes of gaining control of Dell.) Pressure from shareholders who oppose the buyout will make it difficult or impossible for the Dell special committee to change the voting rules, even if it would make sense to do so.

Plenty of downside
While Icahn and his group believe that Dell could increase shareholder value by changing Dell's capital structure, it's hard to imagine a scenario where Icahn would be able to carry out those plans. Michael Dell has no intention of leaving the company if the go-private transaction fails.

Moreover, while Icahn's group may have enough votes to sink the go-private transaction, it is highly unlikely that they have enough votes to take control of the board. Michael Dell cannot vote on the go-private deal because of his conflict of interest, but if the deal falls through, his 16% ownership stake in the company will come back into play. Since he will certainly vote against Icahn's proposed board, Icahn will have to get far more than 50% of the "unaffiliated" stockholders to support his proposal. Given that the vote totals have reportedly been very close to 50-50 so far, Icahn seems certain to fall short.

Unfortunately, that would leave Dell in "status quo" mode. With analysts expecting adjusted EPS to plummet to $1 this year (from $1.72 last year) due to PC market weakness and margin compression, the status quo is not something Dell shareholders should look forward to. The Dell special committee estimated early this month that Dell's stock could trade between $5.85 and $8.67 if the buyout fails.

Bad situation
Dell shareholders have no good options right now. The ongoing battle between Carl Icahn and Michael Dell is turning ordinary investors into collateral damage. Neither Icahn nor Dell appears to have enough votes to enact their preferred scenario. However, both sides have dug in and so neither is likely to give up and sell to the other. Right now, Dell (the company) needs leadership and stability, yet the proxy battle is causing chaos. At the end of the day, Dell's competitors are likely to be the only ones who are happy.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

1 Giant Leap for MannKind

MannKind (NASDAQ: MNKD  ) took one giant leap over the past few days. Shares have soared more than 30% since last week, after the company reported results for the first quarter. Was the news that great? Not really.

It wasn't that there was bad news. Actually, nothing announced by MannKind last week came as a big surprise. The financial results were about where most expected them to be.

Clinical trials for Afrezza are still under way, so there wasn't any significant development on that front. About the only real news to come regarding those trials was that the patient dropout rate was slightly higher than the original protocol. However, MannKind overenrolled those studies, so there isn't a problem to be concerned about.

But still, shares are up a lot in a span of only a few days. Why is that the case? There are a couple of factors at work.

First, MLV Capital initiated coverage on MannKind with a buy rating and a $6 price target. Second, I think investors are beginning to sense some excitement that the time is near for Afrezza to finally shine. That is particularly emphasized by the company's discussion about talks with potential partners for commercializing the drug.

Of course, no one at MannKind is throwing any names around at this point. However, the company is in discussions with multiple interested parties. Some have a global presence, and others are regional players.

My view is that a global company would be the best bet. Plenty of commentators, including Yours Truly, have speculated about which specific company should partner with MannKind. Please forgive me for jumping into those waters yet again.

Eli Lilly (NYSE: LLY  ) still looks like a solid contender in my view. The company has several insulin products on the market already, notably Humalog. It also has some late-stage diabetes candidates with solid potential.

The fact is, though, that Lilly needs another blockbuster drug to make up for several big-sellers in its portfolio that have lost and will lose patent exclusivity. Al Mann, MannKind's founder and CEO, does a pretty good job of persuading anyone who will listen that Afrezza will be a big blockbuster. It wouldn't surprise me in the least if someone from Lilly has heard Al's pitch in person recently.

I wouldn't rule out the tag team of Bristol-Myers Squibb (NYSE: BMY  ) and AstraZeneca (NYSE: AZN  ) , either. These two companies have been joined at the hip when it comes to diabetes ever since the Amylin deal last year. They recently merged their diabetes marketing teams into a new headquarters. My hunch is that the companies would at least entertain the idea of partnering with MannKind.

Sanofi (NYSE: SNY  ) is another player with a global reach that would be a good fit. The French drugmaker already has a huge moneymaker insulin with Lantus. However, Lantus goes off-patent in a few years. Sanofi does have other diabetes products on the market and in the pipeline, but I think that an inhalable insulin would make a good addition to the lineup.

There are a number of others who could be in the midst of talks with MannKind. I'll end my speculation for now, since it's nothing but guessing at this point. I don't think, though, that predicting positive results from the clinical trials for Afrezza is too speculative. Good results are likely, in my opinion.

I also think that MannKind's shares will enjoy upward movement as the August date for releasing those clinical results draws near. If the company happens to announce a partnership deal around the same time, then there will be plenty of buzz about a giant leap for MannKind.

The future of MannKind?
Will MannKind's disruptive technology revolutionize the way diabetes is treated around the world -- or will the FDA put the kibosh on this product before it even hits the market? In a new premium research report on MannKind, these complex issues are made crystal clear, in addition to showing you why to buy or sell the stock today. To find out more click here to grab your copy today.

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More Expert Advice from The Motley Fool

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

Carmakers Care About Your Safety. They Really Do.

The Connected Car Conference -- or C3, if you wish to get your geek on -- was a big hit at CE Week in New York City. Thanks largely to navigation and entertainment apps on Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOG  ) smartphones, it's easy to marvel at how far we've come in bringing our outside world inside our vehicle. But C3 also concentrated on the future, and what automakers and their partners are doing to increase your car's usefulness and safety. 

Our roving reporter Rex Moore talked with General Motors (NYSE: GM  ) Chief Technology Officer Tim Nixon at the conference. His Chevrolet MyLink system offers Pandora (NYSE: P  ) and Sirius XM (NASDAQ: SIRI  ) for entertainment, a BringGo navigation system that runs from your smartphone so your maps are never out of date, and Apple's Siri Eyes Free, which allows you to interact with Siri without having to view the screen. In fact, the screen won't even light up while your car is in motion.

In the following video, Tim talks about the possibility of legislation involving safety in the vehicle, and why it wouldn't be a problem for GM.

Go for a ride
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 big rewards for investors. You can read this report right now for free -- just click here for instant access.

The Hidden Factor Behind Boeing's Massive Profits

It's earnings season, and for defense stocks, investors will be looking at how defense-spending cuts are affecting defense companies' profits. Yet there's one defense giant for which investors will be more concerned about commercial profits than government profits. I'm talking about Boeing (NYSE: BA  ) , and, more pointedly, why commercial airline sales, such as for the 787 Dreamliner, have such a massive impact on Boeing's stock. 

Photo: Dave Sizer, via Wikimedia Commons. 

Money, money, money
As defense contractors go, Boeing is one of the largest defense companies in the world -- it's second only to Lockheed Martin (NYSE: LMT  ) in terms of revenue. But,where Lockheed gets an estimated 95.1% of its revenue from defense, Boeing only gets 38.4% from defense. The rest comes from commercial sales.  

10 Best Stocks To Buy Right Now

A large portion of that commercial revenue comes from commercial airline sales. In fact, there's an estimated $100 billion-a-year jet market, for which a number of plane manufacturers compete. However, in the midst of that competition, Boeing is one of the top dogs and really sees major competition only from European Aeronautical Defense and Space's (NASDAQOTH: EADSY  ) Airbus. The rivalry between these two giants is intense, to say the least, because commercial airline revenue has a key impact on the companies' bottom line.  

Case in point: In its quarterly report, released on Wednesday, Boeing stated that it received $40 billion in new commercial aviation orders, beat projected profits, increased full-year-revenue guidance, and increased its operating margin for commercial airline production to 10.7 -- up from 10.2 during the same time last year. Furthermore, commercial aviation revenue rose 15%, while defense revenue remained flat. Following this news, Boeing's stock soared. Clearly, commercial aviation revenue is paramount to Boeing's bottom line. 

What to watch
Boeing has a number of lucrative planes available for commercial sale, but one that investors should keep especially close tabs on is the Dreamliner. It represents an evolution in aviation technology and is also Boeing's next-generation plane that airlines look at when they're going for modernization and improved fuel economy. For example, at this year's Paris Air Show, GE Capital Services, British Airways, Air Lease, United Airlines, and Singapore Airlines all placed orders for the 787-10 version of the Dreamliner -- which amounted to $30 billion in sales.

Right now, the Dreamliner's main competition is Airbus' A350. Both planes are next-gen, medium-sized planes, built for long-haul flights, and come with the bonus of improved fuel savings. Also, the A350 took its maiden voyage at this year's Paris Air Show -- and now that it's flying and not just a concept, Airbus' A350 will become more of a threat to Boeing's Dreamliner sales. Still, Boeing maintains that the Dreamliner gets better gas mileage, but Airbus counters the claim by saying the A350 is quieter and has lower operating costs.

What will happen with Dreamliner sales vs. A350 sales is anyone's guess. But considering how the Dreamliner affected Boeing's stock when it was grounded, and again when it was released from that grounding, investors should keep a close eye on the growing competition between the A350 and Dreamliner.

Boeing has a lot going for it, and it could make an excellent investment. However, there are risks to consider. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies, including Boeing, that could take off when the global economy gains steam. Click here to read the free full report!

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It's a Marvel: Disney Extends Hasbro Contract

Was all that worrying for nothing? When entertainment mogul Disney (NYSE: DIS  ) bought cartoon character powerhouse Marvel Entertainment for $4 billion a few years back, Hasbro (NASDAQ: HAS  ) investors felt waves of trepidation that the biscuit wheels were about to come off the gravy train. While the toymaker had just inked a licensing deal for the portfolio's 8,000 or so characters at the time, the agreement only ran to 2017, and you could hear the doomsday countdown clock start ticking in the background.

This morning, though, both companies announced that they had agreed to extend their royalty arrangement through 2020, and for a cool guaranteed royalty payment of $80 million by Hasbro, the day of reckoning has been put off for a few more years. Maybe things aren't so bad after all.

Maybe, but Marvel's characters are an integral part of Hasbro's success, and when the studios aren't releasing one of their iconic figures to the big screen, the toymaker is the one that suffers. In its second-quarter earnings announcement also just released this morning, Hasbro said its boys segment suffered a 35% plunge in revenues based in part on tough comparisons its Marvel IP had with the year-ago period. Sales tumbled to $253.7 million from $389.1 million last year, too much of a decline to make up for the increase in revenues experienced in the categories of girls (up 43%), games (up 19%), and preschool (up 4%).

Although today's news gives the toymaker a few more years of breathing space, it highlights the importance of Marvel -- and movies generally -- to Hasbro's bottom line. 

The new extended contract actually has its genesis in Hasbro's licensing agreement with Lucasfilm, the owner of the Star Wars franchise that Disney also acquired last year for $4 billion. Hasbro has licensing rights to the characters and the cartoons that appear on its Hub television network are a perennial revenue enhancer. The TV channel is still a small portion of Hasbro's overall revenue picture, and won't challenge anytime soon Disney's own TV work or that of Viacom's (NASDAQ: VIAB  ) Nickelodeon, but it is gaining critical acclaim if not more revenues. 

Hasbro's contract with Lucasfilm extends to 2020 and with both properties now part of the House of Mouse, Disney sought to align both contracts, which is why the toymaker was able to get the contract for Marvel extended. Yet because there are three more Star Wars films planned by the time the agreement runs out, Hasbro has agreed to pay Disney $225 million in guaranteed royalties, with $75 million due at the signing.

As we saw with Marvel, Hasbro's Star Wars relationship is also key because the first-quarter dropoff in sales would have been a lot worse had there not been Star Wars toys put into the sales channel in anticipation of the May 2013 release of Star Wars Episode 1: The Phantom Menace, which was re-released in 3-D. They've also got other tie-ins with the franchise scheduled for the back half of the year, including an Angry Birds Star Wars II release.

While it's interesting that Disney would agree to extend the contract rather than bring production in-house with its own considerable marketing muscle, it seems to me Hasbro was negotiating from a position of weakness. It needs those portfolios more than Disney needs the toymaker, which has had a longtime relationship with Hasbro's rival Mattel (NASDAQ: MAT  ) and could always switch over if it wanted.

The countdown clock may have been reset again, but I'm not particularly worried. Analysts had expected Hasbro to fall apart after Disney pulled its portfolios from the toymaker, but that didn't happen. Not only have they extended the agreement for an additional period of time, but Marvel character-based cartoons appear on Hasbro's Hub, something Wall Street didn't think would happen either.

Once the deadline draws near again, it is possible Disney decides to cut out the middleman after 2020, but they could also be just as pleased with how Hasbro has handled Marvel's characters, and while the House of Mouse might not get all the profits as it would if it brought development in-house, it avoids the costs as well and spreads the risk. Armageddon may have been avoided after all.

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Top 5 Warren Buffett Companies To Invest In 2014

In the cutthroat grocer business, a vote of confidence from a big-time investor goes a long way. If that vote of confidence comes in the form of a billion-dollar investment from Warren Buffett, then it becomes a saving grace. U.K.-based grocery giant Tesco (LSE: TSCO  ) has faced difficult headwinds in recent years, losing market share to competitors and navigating an anemic European economy. Its U.S. branch, called Fresh & Easy, caused company profits to drop 96% and led management to pull the curtains on the five-year-old chain. For Tesco, there's plenty of bad news, but many investors still have faith that the Oracle of Omaha sees something here. Should you be looking at Tesco?

Do you know Tesco?
Though not a household name in the United States, Tesco is the largest retailer in the United Kingdom. It is a behemoth of a company -- many times the size of Whole Foods Market and Safeway, or any other U.S. grocer, with the exception of Wal-Mart (NYSE: WMT  ) . It may be in part that Tesco resembles a smaller, younger version of the latter that Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) owns more than 5% of the outstanding shares. Buffett often talks about his biggest mistake in investing -- not buying Wal-Mart in the '80s because it was a few cents more than he wanted to pay. The cost to shareholders over time, he says, is in the billions. So perhaps this is an effort to right one of his few mistakes in the past.

Top 5 Warren Buffett Companies To Invest In 2014: Optical Cable Corporation (OCC)

Optical Cable Corporation designs, manufactures, markets, and sells fiber optic, and copper data communications cabling and connectivity solutions primarily for the enterprise market in the United States and internationally. The company offers fiber optic cables for military field applications, and indoor and outdoor use; and copper datacom cables, including unshielded and shielded twisted pair for copper network installations. It also provides fiber optic connectivity products, such as fiber optic wall mounts, cabinet mounts and rack mount enclosures, pre-terminated fiber optic enclosures, fiber optic connectors, splice trays, fiber optic jumpers, plug and play cassette modules, pre-terminated fiber optic cable assemblies, adapters, and accessories; and copper connectivity products, including category compliant patch panels, jacks, plugs, patch cords, faceplates, surface mounted boxes, distribution and multi-media boxes, copper rack mount and wall mount enclosures, cable assemblies, cable organizers, and other wiring products for datacenter, telecommunications closet, equipment room, and workstation applications. In addition, the company offers data cabinets, wall-mount enclosures, cable management systems, and open frame relay racks for commercial and residential use; various enclosures, modules, and modular outlets for single dwelling and multiple dwelling residential uses; and cellular distribution system, a distributed antenna system for in-building enhancement of wireless communications signals. Further, it provides applied interconnect systems, such as specialty fiber optic connectors and connectivity components, ruggedized copper datacom connectors, and related systems and solutions for military and harsh environment applications. The company sells its products to distributors, original equipment manufacturers, value-added resellers, and end-users. Optical Cable Corporation was founded in 1983 and is headquartered in Roanoke, Virginia .

Top 5 Warren Buffett Companies To Invest In 2014: UGI Corporation (UGI)

UGI Corporation distributes, stores, transports, and markets energy products and related services in the United States and internationally. It distributes propane to approximately 2.3 million residential, commercial/industrial, motor fuel, agricultural, and wholesale customers in 50 states through 2,100 propane distribution locations; and sells, installs, and services propane appliances, including heating systems. The company also distributes liquid petroleum gas (LPG) to residential, commercial, industrial, agricultural, and automobile fuel customers for space and water heating, cooking, process heat, forklifts, transportation, construction work, manufacturing, crop drying, power generation, and irrigation; and provides logistic and storage services to third-party LPG distributors. In addition, it distributes natural gas to approximately 600,000 customers primarily in the portions of 46 eastern and central Pennsylvania counties through its distribution system of 12,000 mi les of gas mains; and supplies electricity to approximately 60,000 customers in northeastern Pennsylvania through 2,100 miles of transmission and distribution lines, and 13 transmission substations. Further, the company is involved in the retail sale of natural gas, liquid fuels, and electricity to approximately 18,000 commercial and industrial customers at approximately 43,000 locations. Additionally, it operates electric generation facilities, which include solar and landfill gas facilities; a natural gas liquefaction, storage, and vaporization facility; propane storage and propane-air mixing stations; and rail transshipment terminals. The company also manages natural gas pipeline and storage contracts; and develops, owns, and operates pipelines, gathering infrastructure, and gas storage facilities. In addition, it provides heating, ventilation, air conditioning, refrigeration, and electrical contracting services. The company was founded in 1882 and is based in King of Pru ssia, Pennsylvania.

Best Stocks To Buy Right Now: Taitron Components Incorporated(TAIT)

Taitron Components Incorporated engages in the distribution of brand name electronic components, as well as the supply of original designed and manufactured (ODM) electronic components. The company offers various discrete semiconductors, which include rectifiers, diodes, transistors, optoelectronic devices, commodity integrated circuits, and passive components. Its ODM products are marketed in wild animal feeders, timers for DC motor, public street light controllers, battery testers, universal remote control devices, and battery chargers industries. The company also provides engineering and turn-key services, focusing on providing ODM services for various projects. It serves electronic distributors, contract electronic manufacturers, and original equipment manufacturers. The company sells its products primarily in the United States, Mexico, Brazil, Taiwan, China, and Canada. It has strategic alliances with Princeton Technology Corporation and Teamforce Co. Ltd. The company was founded in 1989 and is headquartered in Valencia, California.

Top 5 Warren Buffett Companies To Invest In 2014: Penn National Gaming Inc.(PENN)

Penn National Gaming, Inc. and its subsidiaries own and manage gaming and pari-mutuel properties in the United States. It operates approximately 27,000 gaming machines; 500 table games; and 2,000 hotel rooms in 23 facilities in 16 jurisdictions, including Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Mississippi, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, West Virginia, and Ontario. The company was formerly known as PNRC Corp. and changed its name to Penn National Gaming, Inc. in 1994. Penn National Gaming, Inc. was founded in 1982 and is based in Wyomissing, Pennsylvania.

Advisors' Opinion:

• [By Quickel]

  Penn National Gaming(PENN) squeaked past its guidance through improved cost controls, and investors praised its efforts.

  But expectations were low, and its upbeat outlook shouldn't be viewed as a message that regional markets are recovering. "Going forward, we project soft regional gaming revenue results over the next three to six months, as we do not expect to see a significant increase in consumer spending patterns given the uncertain economic environment," J.P. Morgan analyst Joseph Greff wrote in a note.

  Penn National raised its full-year earnings guidance to $1.18 from $1.13 a share, and up its revenue outlook by $26 million to $2.44 billion from $2.41 billion.

  During the second quarter, the company earned $9.2 million, or 9 cents a share, compared with $28.5 million, or 27 cents, in the year-ago period. Excluding items, Penn actually earned 29 cents a share, a penny higher than estimates.

  Revenue rose 3% to $598.3 million, higher than the $597.1 million Wall Street projected. The upside was driven by both better revenues and margins and was generally broad-based across many properties, especially larger venues in Charlestown, Lawrenceburg and Grantville, Pa.

  Penn National rolled out table games in West Virginia and Pennsylvania during the quarter, which should be a growth catalyst moving forward. The company also plans to open a slot facility in Maryland on Sept. 30 and expects its Toldeo, Ohio, location to open in the first-half of 2012. Its Columbus project is slated to open in the second-half of 2012.

  The company repurchased 409,000 shares during the quarter. "[This] sends a message to investors on the value of its equity, but perhaps indicating the lack of near-term acquisition opportunities," J.P. Morgan analyst Joseph Greff wrote in a note.

Top 5 Warren Buffett Companies To Invest In 2014: Infinera Corporation(INFN)

Infinera Corporation provides optical networking equipment, software, and services to communications service providers, Internet content providers, cable operators, and subsea network operators worldwide. Its products include digital transport node (DTN) platform that utilizes photonic integrated circuit technology to enable digital processing and management of data with the capability to generate wavelength division multiplexing (WDM) wavelengths and to add, drop, switch, manage, protect, and restore network traffic digitally; line systems that provide the management communications channel between network nodes and allow customers to manage capacity on network; and ATN platform that is used to extend the digital optical network architecture benefits of the DTN platform, and used as standalone WDM access systems. The company also provides IQ Network Operating System, an embedded software operating system that enables customers to simplify and speed up the tasks they perfor m to deliver, differentiate, and manage services; and a set of standards-based network and element management tools and operations support system integration interfaces to manage DTN and ATN platforms. In addition, it offers various product support services, including hardware and software technical support, installation and deployment, spares management, first line maintenance, on-site technical support, product technical training, and extended product warranties. The company?s customers include competitive carriers, multiple system operators, incumbent carriers, research and education/government organizations, and resellers. Infinera Corporation markets and sells its products and related support services primarily through its direct sales force, as well as through distribution or support partners. The company, formerly known as Zepton Networks, was founded in 2000 and is headquartered in Sunnyvale, California.

Best Buy Is One Step Closer to J.C. Penney

Ron Johnson's flawed experiment to turn J.C. Penney (NYSE: JCP  ) around by opening branded mini-stores in the department-store chain is alive and well at Best Buy (NYSE: BBY  ) .

Shares of Best Buy moved higher on Thursday on news that Microsoft (NASDAQ: MSFT  ) will open hundreds of stores inside Best Buy's cavernous superstores this summer. Best Buy stock also moved nicely higher when Samsung announced an even larger mini-store initiative two months ago.

The market eventually soured on Johnson's vision when it failed to generate sales growth at J.C. Penney. A similar fate may also await Best Buy.

On paper, the move is brilliant. Best Buy has extra room. As consumers migrate to digital music, games, and movies, there's less reason for Best Buy to continue stocking CDs, software, and DVDs. Best Buy's recent fadeout of musical instruments also creates more space. The company is an empty-nester. Why shouldn't it rent out the extra rooms after its children move out?

The "store in a store" concept should also help attract shoppers, and that's been sorely lacking at Best Buy, with physical-store sales declining for most of the past two years.

Microsoft also has plenty to gain here by opening 500 stores -- some as big as 2,200 square feet -- inside Best Buy locations, where shoppers continue to choose non-Microsoft smartphones and tablets. It will be staffing the stores with 1,200 employees, and while that breaks out to two to three Microsoft ambassadors per location, that's two to three more people at Best Buy who can talk an undecided shopper into choosing its PC, mobile, and gaming solutions.

The ultimate question is whether two brands that aren't as cool as they were a decade ago can regain some of that swagger by teaming up. At least J.C. Penney has the luxury of fleshing out its makeover by picking out brands that are on the rise. Best Buy did that with Samsung earlier this year, but it may be a different story with Microsoft if shoppers avoid Lumia smartphones and Surface RT tablets the way they are outside of Best Buy. 

In what may prove to be a cruel case of foreshadowing, Microsoft's video promoting the new Best Buy stores features a single person checking it out.

Microsoft and Best Buy had better hope that isn't the case, just as Samsung may be wondering if it just got hosed by having to set up shop alongside Mr. Softy.

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Why Microsoft Shares Got Totally Crushed

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

What: Shares of Microsoft (NASDAQ: MSFT  ) got totally crushed today, down by 12% at the low, after the software giant reported disappointing earnings last night.

So what: Revenue in the quarter came in at $19.9 billion, which translated into earnings per share of $0.59. Both figures were shy of Street forecasts, but perhaps more troubling to investors was a large inventory charge related to Microsoft's Surface RT tablets.

Now what: Microsoft is taking a $900 million charge over its first foray into tablet hardware, which adversely affected the bottom line by $0.07. CFO Amy Hood confirmed that the write-down was partially related to the $150 price cut that was implemented this month. Meanwhile, the struggling PC market continues to take its toll on Microsoft's core businesses as its transition to a devices-and-services company remains uncertain.

Interested in more info on Microsoft? Add it to your watchlist by clicking here.

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What to Expect from Halliburton

Halliburton (NYSE: HAL  ) is expected to report Q2 earnings on July 22. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Halliburton's revenues will grow 0.4% and EPS will wither -10.0%.

The average estimate for revenue is $7.26 billion. On the bottom line, the average EPS estimate is $0.72.

Revenue details
Last quarter, Halliburton notched revenue of $6.97 billion. GAAP reported sales were 1.5% higher than the prior-year quarter's $6.87 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, non-GAAP EPS came in at $0.67. GAAP EPS were -$0.02 for Q1 compared to $0.68 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 14.0%, 630 basis points worse than the prior-year quarter. Operating margin was 12.9%, 640 basis points worse than the prior-year quarter. Net margin was -0.3%, 940 basis points worse than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $29.65 billion. The average EPS estimate is $3.16.

Investor sentiment

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Halliburton is outperform, with an average price target of $49.50.

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Add Halliburton to My Watchlist.

Is Tesla Motors Valuation Getting out of Hand?

When it comes to valuation, Tesla Motors' (NASDAQ: TSLA  ) stock price premium is second to none among auto manufacturers. The company trades at 142 times forward earnings estimates and about 15 times its trailing-12-month revenue. As if the six-month run-up of 188% since Jan. 1 wasn't enough, the stock has appreciated another 21% on top of that in the last month and a half. When is enough enough?

Tesla runs a lucrative operation
First, the positive. As Tesla Motors ramps up production, the company's manufacturing process benefits from greater economies of scale. This, of course, is no surprise -- it's a basic rule of thumb in business. But to what degree will Tesla benefit?

Already, the company has "reduced the hours required to build a car by almost 40% from December to March," asserts Tesla's first-quarter letter to shareholders.

Tesla Model S undergoing assembly. Source: Green Car Reports.

This, along with a number of other benefits associated with scale and $68 million in sales (12% of revenue) of its zero-emission vehicle credits, or ZEVs, helped the company double its gross margin from last quarter, to 17%.

In the first quarter, Tesla's gross margin of 17.15% outperformed a number of auto manufacturers. Ford (NYSE: F  ) , for instance, reported a gross profit margin of 16.21% during the same period -- and that was on sales of about 1.5 million vehicles. To make this comparison fair, however, it's important to note that Tesla's core auto business' gross margin was just 2% in the quarter, according to Morgan Stanley's Adam Jonas. ZEV credits were a major contributor to the company's 17% gross margin, says Jonas.

But here is where things get really interesting. In the first-quarter letter to shareholders the company reaffirmed its guidance for a gross margin of 25% by the fourth quarter of 2013, "assuming zero ZEV credit revenue".

Valuation
Can Tesla's improving gross profit margin save the company from the Street's lofty expectations? Probably not by itself, but it's definitely a start.

A gross margin of 25% is about 1.46 times the company's current gross margin of 17.15%. Taking Tesla's first-quarter gross profit of 96 million and multiplying it by 1.46, Tesla could earn a gross profit of 140 million every quarter at today's revenue levels and with a gross profit margin of 25% -- that's 560 million annually. In other words, Tesla trades at 25 times a very conservative estimate of 2014 gross profit. Conservative or not, 25 times 2014 gross profit is a significant premium. Ford trades at just three times its trailing-12-month gross profit. 

It's about expectations
Tesla will need far more than gross margin improvements to grow into its valuation. Fortunately, gross margin improvements are not the end of the story for Tesla. Last quarter alone the company's sales increased by 83% from the prior quarter. Can sales growth and gross margin improvement combined save the stock from its valuation?

The average analyst estimate for Tesla's 2014 revenue is 2.32 billion. Assuming a gross margin of 25%, Tesla's gross profit would equal 580 million in 2014. At today's price, that means Tesla is trading at about 23 times its 2014 gross profit, assuming a 25% gross profit margin and 2.32 billion in revenue (146% higher than Tesla's trailing-12-month revenue of 945 million). This is definitely a lofty expectation.

As Tesla's stock continues to rise, I'm withdrawing my buy recommendation. Importantly, however, I don't believe this means current investors should sell. I'm a big believer in holding onto companies as long as they are meeting or exceeding my original thesis -- and Tesla hasn't failed me on that front. In other words, I don't sell good businesses (no matter the valuation), but I do consider valuation when I make an initial buy decision.

As price increases relative to the underlying fundamentals, risk increases too. Tesla is too expensive to buy, but as a business firing on all cylinders I wouldn't sell it and pay taxes on my gain yet either.

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Airlines Have No Appetite for Fare Hikes

Last Thursday, United Continental (NYSE: UAL  ) attempted to raise fares by $10 per round-trip on most routes within the continental U.S. This represented the eighth time in 2013 that an airline instituted a broad-based fare increase, but the first since Delta Air Lines (NYSE: DAL  ) tried to raise fares in April.

However, by Monday, United had rolled back the fare increase after other carriers -- particularly Southwest Airlines (NYSE: LUV  ) -- did not match it. After this failure, airlines have a pretty poor "batting average" this year in terms of price increases; of the eight attempted fare hikes this year, just two have stuck!

Clearly, airlines have no appetite for fare hikes right now due to sluggish demand. With oil prices starting to creep up again, this could crimp profitability during the second half of 2013.

A legacy of fare hikes
The airline industry's renaissance over the last few years can be attributed in part to improved capacity discipline and pricing power. Even though oil prices rose steeply from 2009 to 2012, most of the major airlines were able to stay profitable by cutting unprofitable routes when necessary and raising fares on the remaining ones.

The fare increases occurred in waves; either all the major carriers would raise airfares, or none of them would. Since most travelers are very sensitive to price, no airline wants to have its prices consistently $10 higher than competitors.

In 2011, airlines attempted to raise airfares 22 times; of those attempts, nine were successful (or 10, according to some sources). Last year, airlines attempted 15 broad-based fare hikes, seven of which were successful. Thus, over those two years, nearly half of all fare hikes were successful. By contrast, airlines have not tried to raise fares as frequently this year, and have succeeded just twice.

Have we reached the breaking point?
There are a few good explanations for why airlines have had a harder time raising fares this year. First, having come into the year with higher fares (due to the past two years of fare hikes), there was less need for further fare increases. Second, while rising oil prices provided an impetus for frequent fare hikes in 2011 and (to a lesser extent) 2012, oil prices have remained relatively stable for most of 2013. Third, demand has been very uneven this year. While the airlines had a strong performance in June, most had to resort to discounting in order to fill seats in April and May.

In fact, airlines may have reached a breaking point with customers. Many travelers are simply not willing to pay any more for airline tickets. Peak season demand still seems fairly good, but airlines are having trouble filling seats at off-peak times without resorting to discounting. Customers' reluctance to swallow additional airfare increases has finally put a lid on the endless cycle of fare hikes.

The catch
Failed attempts to raise airfares are a routine part of the airline business. What makes this failure so interesting is the fact that oil prices recently started to creep up again. After bouncing around near $100 for most of the spring, Brent crude oil prices have spiked to $108 in the last three weeks.

Brent Crude Oil Spot Price, data by YCharts

In previous years, rising oil prices have provided an impetus to fare hikes. Since jet fuel is a big cost driver for the airlines, there was usually a consensus within the industry to raise ticket prices along with oil prices. Now, that logic seems to be breaking down. In fact, none of the other major carriers supported United's fare increase. By contrast, in 2011 and 2012, Southwest was the only airline to frequently oppose fare increases.

Foolish conclusion
So what does this failed fare hike mean for the airlines? If oil prices soon retreat, or airlines manage to raise fares within the next few weeks, the impact of this failed fare increase would be minimal. However, if oil prices remain elevated (and especially if they rise further from here), airlines will start to feel pressure on their bottom lines if airfares remain flat.

The stock market has recently become much more accepting of airlines, leading to spectacular gains for airline investors in 2013. However, the major airlines rebuilt their profitability through a consistent policy of raising fares in line with costs. If they are unable to continue doing so, major airlines could see a big drop-off in stock performance.

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Annual Reports Can "Hide" Valuable Assets

I recently took a deeper look at three important numbers from Magnum Hunter Resources (NYSE: MHR  ) long-delayed annual report. Today, I want to drill down even deeper into the report (which can be accessed here – link opens a PDF), and look at some areas that investors often overlook when considering an energy stock. In this case, I want to look at the company's "hidden" assets.

Value in the middle
When investing in an oil and gas company, investors typically choose a company based on where it's extracting its oil and gas. Some investors are looking to invest in hot oil plays like the Bakken, while others are seeking a more broad-based approach. What's important to realize is that sometimes, companies operating in developing plays run into problems caused by lack of pipeline and processing infrastructure. This can cause production reductions and impact returns.

In Magnum Hunter's two core operating areas, the Williston Basin and the Appalachian Basin, it has felt this impact directly. The company has been forced to endure production shut-ins because critical midstream assets, like those now in service by MarkWest (NYSE: MWE  ) , weren't yet available. Further, in order to access MarkWest's plants, Magnum Hunter has been building the pipeline infrastructure critical to connect its gas to these plants. As seen in the map below, Magnum Hunter's Eureka Hunter Pipeline is providing it with critical access to MarkWest's new Mobley plant:

Source: Magnum Hunter Resources Investor Presentation.

If Magnum Hunter had to wait for some other company to build these pipes, it might have been forced to wait even longer to be able to process its gas. This is one reason why many exploration and production companies are forced to expend capital on midstream assets; it can be the quickest way to be able to develop the oil and gas in the region. However, sometimes investors overlook these assets because the focus is on the oil and gas potential. That, in a sense, hides these assets from a company's value, which it can unlock through a sale or other form of monetization.

Magnum Hunter has been taking steps toward the full monetization of its midstream assets. The company sees the potential for more than $750 million in gross proceeds, or between $400 million and $500 million net. Magnum Hunter could use those proceeds to give it the balance sheet flexibility to invest in new oil and gas wells. This could prove critically important, as the company's long-term debt level has ballooned from just $26 million in fiscal year 2010, to the $986 million in reported in its first quarter 10-Q this year. Nearly $600 million of this debt carries an interest rate of 9.75%, so cash on hand will be necessary to make annual interest payments.

Drilling down into hidden value
The other hidden asset at Magnum Hunter is its Alpha Hunter Drilling business. The company owns several drilling rigs that it uses to drill wells on its acreage. In addition to this, the company does lease out these drilling rigs on the spot market, when idle. The value here is two-fold, as owning its own rigs saves the company money while it's also earning money when the rigs are leased out. Below, is a slide from the company's most recent investor presentation detailing its latest drill rig.

Source: Magnum Hunter Resources Investor Presentation.

A great example of the potential a hidden asset like this can have on a company is found at Oasis Petroleum (NYSE: OAS  ) . The company has been building out its Oasis Well Services business in an effort to lower its well costs in the Bakken. Oasis invested $24 million initially, which has been money well spent. The business is expected to save Oasis about half a million dollars per operated well. Not only that, but the company produces cash flow from the business to the tune of about $200,000 per gross well as its non-operated partners pay Oasis for the service. These savings have enabled Oasis to completely pay back its initial equipment investment.

Final Foolish thoughts
Dabbling in vertical integration by owning hidden assets like midstream assets, or an oil-field services business, can help an oil and gas producer lower costs, as well as give its production access to the marketplace. However, the capital spent to develop these assets represent somewhat of an opportunity cost, as the capital might be better spent at some point on its core business of increasing oil and gas production. That's why it's important for investors to drill down deeper into a company to see if there are assets that the market might be missing, because these hidden assets could yield significant future value. 

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Is Elon Musk Just Plain Hyperloopy?

We should know by now that no matter how over the top the best-laid plans of Elon Musk seem... well, you just can't dismiss them as wild fantasies likely to slip twixt cup and lip.

Seriously, if someone other than Elon Musk says he envisions a totally new mode of transportation that could move people between the downtowns of Los Angeles and San Francisco (380 miles) in 30 minutes, is not weather dependent, and would never crash, one would have to dismiss that as a Tom Swiftian pipe dream.

But that's just what Elon Musk announced last summer, and today he tweeted that real plans – alpha though those plans may be – for what he calls a Hyperloop transportation system, will be revealed by Aug. 12.

There is no doubt that Musk gets things done. Despite plenty of naysayers (myself included), his Tesla Motors (NASDAQ: TSLA  ) has managed to produce a luxury plug-in electric sedan approaching long-range viability that has been getting rave reviews from the likes of not only Car and Driver but also Consumer Reports.

The company has also managed to pull a non-GAAP profit out of its hat in this year's first quarter that allowed it to pay off its U.S. government loan early. It also saw its stock price quadruple since the beginning of the year.

If that's not enough, there's Musk's SpaceX, the private company that designs, builds, and successfully launches rockets to make deliveries to the International Space Station, missions that NASA's Space Shuttle used to perform.

But what in the world is the Elon Musk Hyperloop? He described it at last May's D11 conference as a "cross between a Concorde, a railgun, and air hockey table," a system that would cost "one-tenth of the cost" the planned California high-speed rail project.

He even said last year, when he talked to PandoDaily, that the Hyperloop could be made "self-powering if you put solar panels on it, you generate more power than you would consume in the system. There's a way to store the power so it would run 24/7 without using batteries. Yes, this is possible, absolutely."

There's one thing we do know of the Hyperloop. It won't run in a vacuum tunnel. Musk has already ruled that out. Speculation from Gizmag has the Hyperloop using electromagnetic pulses to push a capsule through a closed pneumatic tube at high subsonic speeds, say around Mach 0.90.

Elon Musk followers, mark Aug. 12 on your calendars as Hyperloop Day. I wouldn't bet on Musk's plans being just Hyperloop hype.

The Hyperloop will have to be for the future, but there is a good investment available today, a home-run opportunity that has been slipping under Wall Street's radar for months but won't stay hidden much longer. Forward-thinking energy players like GE and Ford have already plowed sizable amounts of research capital into this little-known stock... because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!

This Stock Is Leading the Dow's Charge

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is making big gains following some mixed reports on the economy. As of 1:20 p.m. EDT the Dow was up 134 points, or 0.88%, to 15,426. The S&P 500 (SNPINDEX: ^GSPC  ) is up 1.01% to 1,669.

There were two U.S. economic releases today.

Report

Period

Result

Previous

Initial unemployment claims	June 30 to July 6	360,000	344,000
Import price index	June	(0.2%)	(0.7%)

Source: MarketWatch U.S. Economic Calendar.

The unemployment claims report is the one to make note of. Unemployment claims rose this week by 16,000 to 360,000, well above analyst expectations of a rise to 349,000. The four-week moving average rose 6,000 to 351,750.

US Initial Claims for Unemployment Insurance data by YCharts.

Nevertheless, unemployment claims are steadily trending below last year's average of 360,000 to 370,000 and are well below the levels of the past three years. The economy is improving, albeit slowly.

Investors would do well to remember that the economy is not the same as the market. Both are being supported by the Federal Reserve's low federal-funds rate, as well as its monthly purchases of $85 billion worth of long-term assets. Today the market has found encouragement in the minutes of the June meeting of the Federal Open Market Committee, released yesterday. The minutes showed that the Federal Reserve will continue its quantitative easing for the time being, spurring on the economy and the market. The question investors need to ask themselves is whether this information is priced into the level the market is trading for. Investors pay a high price when things are going well and everyone is excited. This week's American Association of Individual Investors sentiment survey showed that 49% of those surveyed are bullish, above the long-term average of 39%, while only 18% are bearish, below the long term average of 30%.

Today's Dow leader is Intel (NASDAQ: INTC  ) , up 2.5%. Intel's stock got hit hard earlier in the week after it was downgraded by Evercore and Citigroup, who believe the chip maker will struggle as PC sales continue to weaken. PC sales experienced their worst quarterly drop in history in the first quarter of this year. This has been attributed to both the rise in mobile and consumers' discontent with Microsoft's new Windows 8 user experience. Intel is heavily dependent on the PC market, as its mobile offerings lag those of competitors in the field. While Intel is making major investments to catch up to the likes of ARM and Qualcomm, it remains to be seen who will win the race to dominate chip sales for the mobile market.

Want to get in on the smartphone phenomenon? 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! Yet 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 "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Best Canadian Stocks To Buy For 2014

TransCanada (NYSE: TRP  ) is known much more for its Keystone XL pipeline, but the company is also looking at other ways to profit just in case this project goes south. The company just recently announced that it will be spending approximately $450 million on solar projects through Canadian Solar (NASDAQ: CSIQ  ) over the next several years.�

This isn't the first time an oil company, or region for that matter, has made some big purchases of solar power. In hopes of increasing its oil exports via reducing domestic demand, countries in the Middle East expect to spend about $155 billion on solar projects across the Arabian Peninsula. Saudi Arabia alone expects to install nearly 10 times the current solar capacity in the U.S. today. What do oil companies see in solar? Tune in to the following video, where fool.com contributor Tyler Crowe discusses what is making solar power attractive for these companies and causing other oil companies to get on board with solar power.�

Best Canadian Stocks To Buy For 2014: Crown Castle International Corporation (CCI)

Crown Castle International Corp., through its subsidiaries, owns, operates, and leases towers and other wireless infrastructure primarily in the United States and Australia. Its infrastructure includes distributed antenna system (DAS) networks, as well as rooftop installations. The company involves in the rental of antenna space of its towers to wireless communications companies. It also provides network services relating to its towers, which primarily include antenna installations and subsequent augmentations, as well as additional services, such as site acquisition, architectural and engineering, zoning and permitting, other construction, and other services related network development. As of December 31, 2010, it owned, leased, or managed approximately 23,900 towers, including 43 completed DAS networks. The company was founded in 1994 and is headquartered in Houston, Texas.

Best Canadian Stocks To Buy For 2014: Aercap Holdings N.V. (AER)

AerCap Holdings N.V., through its subsidiaries, operates as an integrated aviation company worldwide. It engages in leasing and trading aircraft and engines; and selling parts. The company also provides aircraft management services, as well as aircraft and limited engine MRO services, and aircraft disassembly services through its repair stations. In addition, it offers aircraft services, including remarketing aircraft; collecting rental and maintenance payments, monitoring aircraft maintenance, monitoring and enforcing contract compliance, and accepting delivery and redelivery of aircraft; conducting ongoing lessee financial performance reviews; inspecting the leased aircraft; coordinating technical modifications to aircraft to meet new lessee requirements; conducting restructurings negotiations in connection with lease defaults; repossessing aircraft; arranging and monitoring insurance coverage; registering and de-registering aircraft; arranging for aircraft and aircraft engine valuations; and providing market research. The company?s management services include leasing and remarketing, cash management and treasury, technical advisory, and accounting and administrative services. As of March 31, 2011, it owned 272 aircraft and 95 engines, which it leased under operating leases to 118 lessees in 53 countries. The company was founded in 1995 and is headquartered in Schiphol, the Netherlands.

Top Oil Companies To Invest In 2014: Primerica Inc.(PRI)

Primerica, Inc., together with its subsidiaries, engages in the distribution of financial products on behalf of third parties to middle income households in the United States and Canada. The company operates in three segments: Term Life Insurance, Investment and Savings Products, and Corporate and Other Distributed Products. The Term Life Insurance segment underwrites term life insurance products. The Investment and Savings Products segment distributes mutual funds, variable annuities, fixed annuities, and segregated funds. The Corporate and Other Distributed Products segment provides mortgage loans, which include debt consolidation or refinance, and purchase money loans; unsecured loans; prepaid legal services that assist subscribers with legal matters, such as drafting wills, living wills and powers of attorney, trial defense, and motor vehicle-related matters; mail-order student life products; short-term disability benefit insurance; and auto and homeowners? insurance products. The company was founded in 1927 and is based in Duluth, Georgia.

Best Canadian Stocks To Buy For 2014: Spectrum Brands Holdings Inc.(SPB)

Spectrum Brands Holdings, Inc., together with its subsidiaries, operates as a consumer products company worldwide. It offers consumer batteries, including alkaline and zinc carbon batteries, rechargeable batteries and chargers, and hearing aid batteries and other specialty batteries; pet supplies, such as aquatic equipment and supplies, dog and cat treats, small animal foods, clean up and training aids, health and grooming products, and beddings; and home and garden control products comprising household insect controls, insect repellents, and herbicides. The company also provides electric shaving and grooming devices; small appliances, including small kitchen appliances and home product appliances; electric personal care and styling devices; and portable lighting. Its sells its products through various trade channels, including retailers, wholesalers and distributors, hearing aid professionals, industrial distributors, and original equipment manufacturers primarily under t he Rayovac, Remington, Varta, George Foreman, Black & Decker, Toastmaster, Farberware, Tetra, Marineland, Nature?s Miracle, Dingo, 8-in-1, Littermaid, Spectracide, Cutter, Repel, Hot Shot, Black Flag, and TAT brands. The company was headquartered in Madison, Wisconsin. As of January 7, 2011, Spectrum Brands Holdings, Inc. operates as a subsidiary of Harbinger Group Inc.

Why I'm Doubling Down on Apple Stock

As shares of Apple (NASDAQ: AAPL  ) dropped from more than $700 to less than $400 between September 2012 and April 2013, investors' concerns about the company multiplied rapidly. From a psychological perspective, this is not very surprising. While Apple stock was running up from less than $400 in late 2011 to its peak around $700, it was natural for investors (including me) to gloss over some of the company's weaknesses.

Apple Stock Price Chart, Dec. 2011-present. Data by YCharts.

By contrast, during its recent fall, Apple's flaws have come into clearer focus, and many people seem to have forgotten that it is still one of the most profitable companies in the world. A recent article in Fortune tried to take an even-handed approach, but still concluded that Apple has peaked. Author Adam Lashinsky argues that the company is "following" competitors with its new products and services like iTunes Radio, iOS 7 and possibly an iWatch.

In the midst of this chaos, an incredibly simple fact often gets overlooked: Even if investors were overly optimistic about Apple's prospects when they drove the Apple stock price up above $700 in September, isn't it very likely that the company is dramatically undervalued in the low-$400 range? That's what I concluded, which is why I significantly increased my position in Apple late last month.

Has Apple really peaked?
The debate about whether Apple has "peaked" makes for some very interesting theater, but can sometimes obscure more than it reveals, especially from an investing standpoint. There are two key points that investors should keep in mind when considering the future prospects of Apple and its stock.

The first point to consider is that it takes a good deal of hubris for analysts and other bystanders to proclaim that innovation is dead at Apple. While investors have become accustomed to the idea that leaks in the supply chain will give plenty of advance warning regarding Apple's plans, outsiders cannot really be sure of what the company is working on.

At most, one could argue that Apple has not debuted any innovative products since Steve Jobs died. However, there was a gap of more than five years between the iPod's debut in late 2001 and the announcement of the iPhone in early 2007. During that time, the company created lots of variations on the iPod (and iMac), but nothing truly "new."

Somebody who thought in 2005 that Apple had stopped innovating was proven wrong in dramatic fashion. However, the idea that Apple had peaked would never have even come up in 2005, simply because Apple stock traded for less than $40 back then. Apple just wasn't a big deal in 2005, whereas today it is constantly under the microscope.

A second point to consider is what people really mean when they speculate about whether Apple has peaked. If people are measuring the distance between Apple and competitors, then it is probably true that Apple has peaked. Apple was so far ahead of competitors in the smartphone and tablet arenas -- two humongous addressable markets -- by mid-late 2010 that it would be hard to replicate that dominance. For example, Apple had a staggering 71% share of smartphone profits in 2011.

However, if the question is whether Apple's earnings power has peaked -- and this is the key question if you're thinking about whether or not to buy Apple stock -- the answer is "probably not." Indeed, despite all of the pessimism surrounding Apple today, analysts still (on average) expect the company to grow revenue by more than 9% and EPS by more than 10% next year. That would still leave Apple's EPS a little below the record high it achieved in 2012, but any new product lines (or even higher-than-expected share repurchases) could lead to record EPS next year.

The big takeaway is that even if Apple never reopens its lead in the smartphone or tablet markets, and even if it never creates a new product that takes the world by storm, there is still room for the company to resume earnings growth by fully exploiting existing opportunities. One example is the often rumored idea of building a lower-cost iPhone that could be affordable to the middle class in developing countries.

Beyond a bargain
When I stated in the introduction that Apple stock's rapid decline from $700 to less than $400 seemed overdone, that actually underestimated the depth of the company's fall. From an enterprise value standpoint -- which adjusts for debt and excess cash to determine the value of the underlying business -- the drop in Apple's value was much steeper. After deducting Apple's cash, the company's enterprise value peaked at nearly $550 billion last September. As recently as late June, that had fallen nearly 60% to $225 billion.

Moreover, Apple has announced a big increase to its share repurchase program in the interim, raising confidence that excess cash will gradually be returned to shareholders through dividends and repurchases. That means that investors have less reason to discount or ignore the company's cash when determining Apple stock's proper value.

Could the Apple enterprise really be worth just $225 billion? Analysts currently expect Apple to earn over $37 billion for FY13, compared to last year's record earnings of $41.7 billion. Apple's enterprise valuation therefore bottomed at just six times earnings last month, and still sits well below seven times earnings. That represents a discount to the valuation of Hewlett-Packard, a company that has gone through much more turmoil over the last two years, and it represents a significant discount to Dell's current valuation.

In short, the recent Apple stock price only makes sense if you believe that the company's earnings will continue declining. However, it's important to note that while earnings declined this year, revenue growth continued. The earnings decline was entirely driven by lower gross margin. The bulk of the evidence points to this margin contraction being one-time in nature, not a long-term trend.

Foolish conclusion
If you believe that bargains do arise in the stock market, Apple stock today fits the bill. The company may not be as far ahead of competitors as it was two or three years ago, but it still has a unique brand name that provides an enviable moat. Moreover, despite a margin "correction," the company is still on pace to earn net income of approximately $37 billion this year.

Yet for all these advantages, Apple stock can be bought for less than seven times earnings (if you exclude the company's cash). Could something go wrong for Apple investors? It's always possible; the technology landscape can change rapidly. However, Apple provides a generous margin of safety for value investors -- enough to make me feel comfortable upping my holdings.

Are you worried that the competition will get the best of Apple?  The Motley Fool's tech team has compiled a special report that dives into the competitive advantages -- and disadvantages -- of Apple and four other tech heavyweights. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

Wolverine World Wide Beats Analyst Estimates on EPS

Wolverine World Wide (NYSE: WWW  ) reported earnings on July 9. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended June 15 (Q2), Wolverine World Wide met expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue grew significantly. Non-GAAP earnings per share dropped. GAAP earnings per share contracted.

Gross margins grew, operating margins contracted, net margins contracted.

Revenue details
Wolverine World Wide booked revenue of $587.8 million. The 11 analysts polled by S&P Capital IQ looked for revenue of $591.0 million on the same basis. GAAP reported sales were 88% higher than the prior-year quarter's $312.7 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.46. The 13 earnings estimates compiled by S&P Capital IQ anticipated $0.34 per share. Non-GAAP EPS of $0.46 for Q2 were 4.2% lower than the prior-year quarter's $0.48 per share. GAAP EPS of $0.36 for Q2 were 14% lower than the prior-year quarter's $0.42 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 41.0%, 320 basis points better than the prior-year quarter. Operating margin was 7.6%, 130 basis points worse than the prior-year quarter. Net margin was 3.0%, 360 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $711.2 million. On the bottom line, the average EPS estimate is $1.01.

Next year's average estimate for revenue is $2.74 billion. The average EPS estimate is $2.70.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 153 members out of 164 rating the stock outperform, and 11 members rating it underperform. Among 61 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 60 give Wolverine World Wide a green thumbs-up, and one give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Wolverine World Wide is hold, with an average price target of $49.09.

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Add Wolverine World Wide to My Watchlist.

1 Reason Wells Fargo Is Trading Down Today

Two hours into the trading day, Wells Fargo (NYSE: WFC  ) stock is down 0.6%. Each of the Big Four banks, as well as the market's three major indices, are all hovering right around the break-even point -- with some up, some down, and some sliding back and forth. Chalk this lackadaisical, can't-make-up-my-mind attitude to jitters over the start of earnings season.

Wells as bellwether
Second-quarter earnings season has actually kicked off already, with Alcoa (NYSE: AA  ) reporting yesterday. The aluminum giant met or beat analyst expectations, but the stock is trading down today. There's just no making some people happy.

On the financials front, both Wells and JPMorgan Chase (NYSE: JPM  ) are reporting their Q2 results this Friday. Alcoa is a closely watched stock since it's traditionally the first company to report, but the market also keeps a close eye on the big banks, where the financial crisis kicked off five years or so ago.

Foolish bottom line
The country's economic recovery is coming along nicely but is perceived to be fragile, and rightly so, for the most part. There have been too many times over the past few years when, just when it seemed some momentum was gathering, poof, away it went. Now, with the threat of the removal of quantitative easing, investor jitters are higher than ever.

Hence, a powerhouse industrial giant like Alcoa meets or beats expectations, but the stock still drops. It will likely be the same for banks this season: If investors don't see world-beating numbers, they may temporarily flee the scene. And there is some reason be fearful, at least on a short-term basis, when it comes to the big banks.

Since the Federal Reserve announced a timeline for the tapering of QE, the bond markets have been in turmoil. As such, interest rates have risen, and Wells Fargo and JPMorgan are the country's two largest home lenders. Not only that, but rising bond yields mean lower bond prices, which means assets held on banks' books are going to take a hit.

Last quarter, banks like Wells and JPMorgan reported big earnings growth on little or no revenue growth. The only way to pull off that trick is to cut internal costs, but you can only cut away so much fat before you start cutting into muscle. Earnings growth without revenue growth is unsustainable. For Wells and any of the other big banks, look for revenue growth for reassurance that your investment is on the right track. 

Learn more about Wells Fargo: the only big bank built to last
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