To make money in stocks, you need to tie together various threads of information to see what it might mean for your investments. Right now, a pair of disparate data points has caught my attention: rising oil prices and a trio of unloved stocks that may really benefit from it. Tie them together, and you may be looking at a pair of the most profitable trades of 2011.
The oil vs. gas conundrum
A clear theme emerged in 2010: oil prices rose ever higher while natural gas prices have been stuck in neutral. Oil now stands at $90 a barrel while natural gas trades for less than $4.50 per million per British thermal units (MMBtu). That's a 20-to-1 ratio. Yet researchers at Rice University note that the ratio wasn't always this stark: Historically, the two energy sources were valued at around 10-to-1 and when natural gas prices spiked a few years ago, the ratio fell to 6-to-1.
Permalink: [618] Top Stocks To Buy - 3 Best Stocks That Will Benefit In 2011
The ratios are very important. Adjusting for the relative energy content for a gallon of oil versus an equivalent amount of natural gas, the 10-to-1 ratio means that powering a car or truck with gasoline was cheaper than with natural gas. With the current move to a 20-to-1 ratio, natural gas is notably less expensive than gasoline. If oil prices keep rising, as many suspect, natural gas will become even cheaper.
Pickens has friends
A few years ago, legendary oilman T. Boone Pickens implored policy makers to pave the way for more natural gas-fueled cars. His plea largely fell on deaf ears. Then again, he made that push when the 10-to-1 oil-to-gas ratio was in place. These days, he's got plenty of company, starting with foreign-policy hawks that would love to see the United States reduce its dependence on Middle Eastern oil. Environmentalists are on board as well, noting that natural gas, while not as clean as wind or solar, still burns cleaner than oil-based fuel.
With support from the left and the right, and with the economics never more compelling, the timing appears right for Washington to finally alter our energy policy to boost the number of vehicles on the road burning natural gas. Congress tried to generate legislation on this front last summer, but a chaotic environment forced the issue to the back-burner. Industry watchers expect the legislation to be raised again this spring. The odds of success have improved: as noted earlier, the economics have improved and Congress is looking for the few issues that have true bipartisan support.
Out of favor
I hate to recommend stocks that are already doing well. As fate would have it, my three favorite plays on the trend have seen their share prices fall sharply recently: Clean Energy Fuels (Nasdaq: CLNE) trades for half of its 52-week high, while Westport Innovations (Nasdaq: WPRT) and Fuel Systems Solutions (Nasdaq: FSYS) have each lost roughly 30% of their value in the past three months. Part of the downturn in these names can be attributed to the frustratingly slow pace in which Washington operates. Supporters of these companies have thrown in the towel -- which is precisely the time to look for value.
Westport Innovations is a leading player in the natural-gas fueled truck market, partnering with major truck engine manufacturers such as Cummins (NYSE: CMI), Kenworth, Peterbilt, and Volvo to modify traditional truck engines to run on natural gas. Demand has been strong: Westport's sales have risen from just $34 million in fiscal 2006 to a projected $245 million in fiscal 2012. Trouble is, the company remains unprofitable and quarterly results remain lumpy. That's why you should be prepared for the occasional bad quarter yet to come. Until legislation is passed, shares may stay in the mid-teens.
Clean Energy Fuels, which is backed by T. Boone Pickens, has taken a different approach. The company has built a network of natural gas re-fueling stations that could see rising traffic as more natural gas-powered vehicles are on the road. Yet, the real focus for the company has thus far been on corporate and government fleets, many of which have already made the move to natural gas. An expanding network of stations is expected to boost sales roughly 50% in 2011 to around $300 million, finally enabling the company to break even. Congressional legislation would help to ignite this business model, and expansion plans could take sales to $500 million within a few years.
Fuel Systems has the most geographically diverse business model, selling components that go into modified engines in Europe and South America as well, where the natural gas-powered vehicle industry is farther along. In contrast to its peers, the company is solidly profitable and trades for around 16 times projected 2011 profits.
The Stock Formerly Known as 'Just Don't Sell Us' Soars on Earnings
The stock ticker formerly known as J(ust) D(on't) S(ell) U(s) continues its revival as 'Internet Revolution 2: The Mobile Strikes Back' is bringing back a lot of the 1999 names. JDS Uniphase - the poster child for NASDAQ excess in 1999 - reported a stellar quarter with raised guidance, and the stock has gained nearly 25%. I first mentioned the name on the site almost a year ago around $11 [Mar 1, 2010: Fantastic Action in Small and Mid Cap Networking Space] and again a month after [Apr 6, 2010: Just Don't Sell Us Continues Lazarus Like Move] near $13.
This is the highest the stock has traded since 2006, and anyone who has held from the top in 1999 is probably only down 86% after this move up.
Permalink: [619] Top Stocks To Buy - The Stock Formerly Known as 'Just Don't Sell Us' Soars on Earnings
JDSU is taking other optical networking names such as Finisar (FNSR) and Ciena (CIEN) right up with it.
JDSU came in at $0.29 v expectation of $0.19 EPS, and revenue jumped 38% to $473.5M vs expectation of $438.6M. Gross margin jumped nicely to 48.8% versus the year ago 44.6%, and quarter ago 47.4%.
* Test and measurement product revenue was up 27% from Q1, and up 30%, year over year. Communications and optical products revenue was 14% from Q1 and up 70% from the prior-year period.
Guidance change vs analysts $420.8M.
* For the third quarter of fiscal 2011, ending April 2, 2011, the Company expects non-GAAP net revenue to be in the range of $440 to $460 million.
MILPITAS, CA--(Marketwire - 02/03/11) - JDSU (NASDAQ:JDSU - News) (TSX:JDU - News) today reported results for its second fiscal quarter ended January 1, 2011.
On a GAAP basis, net revenue for the second fiscal quarter of 2011 was $473.5 million and net income was $23.6 million, or $0.10 per share. This compares to net revenue of $405.2 million and net income of $0.1 million, or break-even earnings per share for the prior quarter, and net revenue of $342.9 million and net loss of $(19.5) million, or $(0.09) per share for the second fiscal quarter of 2010.
On a non-GAAP basis, net revenue for the second fiscal quarter of 2011 was $477.2 million and net income was $67.0 million or $0.29 per share. This compares to non-GAAP net revenue of $411.3 million and net income of $44.8 million, or $0.20 per share for the prior quarter, and non-GAAP net revenue of $343.8 million and net income of $26.6 million or $0.12 per share for the second fiscal quarter of 2010.
"In fiscal Q2 JDSU reported record revenues, gross margin and operating margin, which exceeded our operating model target," said Tom Waechter, JDSU's President and Chief Executive Officer. "This is an exciting time for JDSU. Our market drivers are strong, our innovation engine and pipeline for new products is robust, and we continue to increase our operating leverage."
Financial Overview - Second Fiscal Quarter Ended January 1, 2011
All numbers in this section are non-GAAP unless stated otherwise.
-- Net revenue of $477.2 million increased 16.0% compared to the prior
quarter and increased 38.8% compared to the second quarter of
fiscal 2010.
-- Gross margin was 48.8% compared to 47.4% in the prior quarter and
44.6% in the second quarter of fiscal 2010.
-- Operating margin was 15.3% compared to 10.8% in the prior quarter
and 8.2% in the second quarter of fiscal 2010.
-- Communications Test and Measurement revenue of $231.4 million
increased by 26.6% compared to the prior quarter and increased
30.8% compared to the second quarter of fiscal 2010. Revenue from
this segment represented 48.5% of total net revenue.
-- Communications and Commercial Optical Products revenue of $191.1
million increased 13.8% compared to the prior quarter and increased
70.2% compared to the second quarter of fiscal 2010. Revenue from
this segment represented 40.0% of total net revenue.
- Optical Communications revenue of $168.4 million increased 17.8%
compared to the prior quarter and increased 76.2% compared to
the second quarter of fiscal 2010.
- Commercial Lasers revenue of $22.7 million decreased 9.2%
compared to the prior quarter and increased 35.9% compared to
the second quarter of fiscal 2010.
-- Advanced Optical Technologies revenue of $54.7 million decreased
9.6% compared to the prior quarter and remained flat compared to the
second quarter of fiscal 2010. Revenue from this segment represented
11.5% of total net revenue.
-- Americas' customers represented 51% of total net revenue for the
quarter. EMEA and Asia-Pacific customers represented 26% and 23%,
respectively, of total net revenue.
-- The Company held $ 655.3 million in total cash and generated $60.7
million of cash from operations for the quarter ended January 1,
2011.
Business Outlook
For the third quarter of fiscal 2011, ending April 2, 2011, the Company expects non-GAAP net revenue to be in the range of $440 to $460 million.
Conference Call
The Company will discuss these results and other related matters at 2:00 p.m. Pacific Time on February 3, 2011 in a live webcast, which will also be archived for replay on the Company's website at www.jdsu.com/investors. The Company will post and distribute slides outlining the Company's latest financial results concurrent with this earnings press release. These slides will now be available prior to management's presentation in order to provide the investment community with additional time for review and analysis. These slides are supplementary and will not be discussed during the earnings call. They will be posted on www.jdsu.com/investors under the "Financial Information" section. This press release is being furnished as a Current Report on Form 8-K with the Securities and Exchange Commission, and will be available at www.sec.gov.
About JDSU
JDSU (NASDAQ:JDSU - News) (TSX:JDU - News) enables broadband and optical innovation in the communications, commercial and consumer markets. JDSU is a leading provider of communications test and measurement solutions and optical products for telecommunications service providers, cable operators, and network equipment manufacturers. JDSU is also a leading provider of innovative optical solutions for medical/environmental instrumentation, semiconductor processing, display, brand authentication, aerospace and defense, and decorative applications. More information is available at www.jdsu.com.
Forward-Looking Statements
This press release contains, and the discussions in our subsequent conference call will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include: (i) any anticipation or guidance as to future financial performance, including future revenue, gross margin, operating expense, operating margin, EBITDA, cash flow and other financial metrics; and (ii) the Company's beliefs regarding the purpose, usefulness and efficacy of non-GAAP results and the measures and items the Company includes in the same, as well as any benefits to investors the Company believes its non-GAAP measures provide. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the Company's ability to predict future financial performance continues to be difficult due to, among other things: (a) continuing general limited visibility across many of our product lines exacerbated by the current credit and financial market uncertainty, as well as the migration to vendor managed inventory programs; (b) quarter-over-quarter product mix fluctuations, which can materially impact profitability measures due to the broad gross margin range across our portfolio; (c) consolidation of our customer base, which, in the shorter term limits demand visibility, and, in the longer term, could reduce our business potential; (d) average selling prices continue to decline across our businesses; (e) our Communications Test and Measurement business is notable for seasonality and a significant level of in-quarter book-and-ship business, further limiting our forecasting abilities; (f) we are currently engaged in various product and manufacturing transfers, site consolidations and product discontinuances, which has caused and may cause short term disruptions; and (g) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand.
For more information on these and other risks affecting the Company's business, please refer to the "Risk Factors" section included in the Company's Annual Report on Form 10-K for the fiscal year ended July 3, 2010 filed with the Securities and Exchange Commission. The forward-looking statements contained in this news release are made as of the date hereof and the Company does not assume any obligation to update the reasons why actual results could differ materially from those projected in the forward-looking statements.
The following financial tables are presented in accordance with GAAP, unless otherwise specified.
-SELECTED FINANCIAL DATA-
JDS UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
---------------- ----------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
------- ------- ------- -------
Net revenue $ 473.5 $ 342.9 $ 878.7 $ 640.7
Cost of sales 245.6 192.2 463.4 360.6
Amortization of acquired technologies 14.1 12.5 28.2 24.8
------- ------- ------- -------
Gross profit 213.8 138.2 387.1 255.3
------- ------- ------- -------
Operating expenses:
Research and development 60.2 41.5 116.6 81.3
Selling, general and administrative 109.5 95.2 216.7 187.9
Amortization of other intangibles 8.0 6.5 16.6 13.5
Restructuring and related charges 2.5 8.0 2.8 13.1
------- ------- ------- -------
Total operating expenses 180.2 151.2 352.7 295.8
------- ------- ------- -------
Income (loss) from operations 33.6 (13.0) 34.4 (40.5)
Interest and other income (expense), net 1.6 1.6 5.1 5.0
Interest expense (6.4) (6.3) (12.7) (12.2)
Gain on sale of investments - - - -
------- ------- ------- -------
Income (loss) from continuing
operations before income taxes 28.8 (17.7) 26.8 (47.7)
Provision of income taxes 5.2 1.7 3.1 2.4
------- ------- ------- -------
Income (loss) from continuing
operations, net of tax 23.6 (19.4) 23.7 (50.1)
Loss from discontinued operations, net
of tax - (0.1) - (1.3)
------- ------- ------- -------
Net income (loss) $ 23.6 $ (19.5) $ 23.7 $ (51.4)
======= ======= ======= =======
Basic net income (loss) per share from:
Continuing operations $ 0.11 $ (0.09) $ 0.11 $ (0.23)
Discontinued operations - - - (0.01)
------- ------- ------- -------
Net income (loss) $ 0.11 $ (0.09) $ 0.11 $ (0.24)
======= ======= ======= =======
Diluted net income (loss) per share
from:
Continuing operations $ 0.10 $ (0.09) $ 0.10 $ (0.23)
Discontinued operations - - - (0.01)
------- ------- ------- -------
Net income (loss) $ 0.10 $ (0.09) $ 0.10 $ (0.24)
======= ======= ======= =======
Shares used in per share calculation:
Basic 222.9 218.3 222.4 217.9
Diluted 229.1 218.3 228.2 217.9
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited) (audited)
January 1, July 3,
2011 2010
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 408.6 $ 340.2
Short-term investments 212.3 227.4
Restricted cash 34.4 32.5
Accounts receivable, net 339.2 271.8
Inventories, net 145.1 125.7
Prepayments and other current assets 72.6 77.0
---------- ----------
Total current assets 1,212.2 1,074.6
---------- ----------
Property, plant and equipment, net 214.6 183.0
Goodwill 66.4 66.0
Intangible assets, net 316.4 357.4
Long-term investments 4.8 5.1
Other non-current assets 16.3 17.5
---------- ----------
Total assets $ 1,830.7 $ 1,703.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 147.3 $ 137.4
Accrued payroll and related expenses 81.9 62.9
Income taxes payable 22.9 19.8
Deferred revenue 64.9 45.3
Accrued expenses 59.4 47.7
Other current liabilities 37.6 37.8
---------- ----------
Total current liabilities 414.0 350.9
---------- ----------
Long-term debt 276.3 267.1
Other non-current liabilities 183.2 176.9
Total stockholders' equity 957.2 908.7
---------- ----------
Total liabilities and stockholders' equity $ 1,830.7 $ 1,703.6
---------- ----------
JDS UNIPHASE CORPORATION
REPORTABLE SEGMENT INFORMATION
(in millions)
(unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
-------- -------- -------- --------
Net revenue:
Communications Test and
Measurement $ 231.4 $ 176.9 $ 414.2 $ 320.3
Communications and Commercial
Optical Products 191.1 112.3 359.1 213.4
Advanced Optical Technologies 54.7 54.6 115.2 108.7
Deferred revenue related to
purchase accounting adjustment (3.7) (0.9) (9.8) (1.7)
-------- -------- -------- --------
Net revenue $ 473.5 $ 342.9 $ 878.7 $ 640.7
======== ======== ======== ========
Operating income (loss):
Communications Test and
Measurement $ 44.8 $ 31.5 $ 66.4 $ 49.5
Communications and Commercial
Optical Products 34.0 3.2 58.2 1.7
Advanced Optical Technologies 17.7 19.6 39.8 40.2
Corporate (23.4) (26.2) (46.9) (53.1)
-------- -------- -------- --------
Total segment operating income 73.1 28.1 117.5 38.3
Unallocated amounts:
Stock-based compensation (10.0) (12.0) (19.0) (23.1)
Acquisition-related charges and
amortization of intangibles (25.9) (19.9) (54.7) (40.0)
Loss on disposal of long-lived
assets - (0.5) - (1.0)
Restructuring and related charges (2.5) (8.0) (2.8) (13.1)
Realignment and other charges (1.1) (0.7) (6.6) (1.6)
Interest and other income 1.6 1.6 5.1 5.0
Interest expense (6.4) (6.3) (12.7) (12.2)
-------- -------- -------- --------
Income (Loss) from continuing
operations before income taxes $ 28.8 $ (17.7) $ 26.8 $ (47.7)
-------- -------- -------- --------
Use of Non-GAAP (Adjusted) Financial Measures
The Company provides non-GAAP net revenue, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA financial measures as supplemental information regarding the Company's operational performance. The Company evaluates Company-wide segment performance using, among other things, the measures disclosed in this release for the purposes of evaluating the Company's historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company's core operating performance. The Company believes its "core operating performance" represents the Company's performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from "core operating performance" those items, such as those relating to restructuring, investing, stock-based compensation expense and non-cash activities that management does not believe are reflective of such ordinary, ongoing and customary course activities.
The Company believes that providing this information to its investors, in addition to the GAAP presentation, allows investors to see Company results "through the eyes" of management. The Company further believes that providing this information allows Company investors to both better understand the Company's financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.
The non-GAAP adjustments described in this release have historically been excluded by the Company from its non-GAAP measures. The non-GAAP adjustments, and the basis for excluding them, are outlined below.
Revenue from acquisition related deferred revenue: The Company excludes the fair value adjustment to acquisition related deferred revenue when calculating non-GAAP revenue. The Company believes that the non-GAAP revenue provides useful information for the investors as they review for underlying trends in the business and facilitate the investors' comparisons of the Company's revenue performance with prior and future periods and to the Company's peers.
Cost of goods sold, costs of research and development and costs of selling, general and administrative: The Company has incurred periodic expenses, included in its GAAP presentation of gross margin and operating expenses that may include (i) additional depreciation from changes in estimated useful life and the write-down of certain property and equipment that has been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as retention bonuses and employee relocation costs related to a formal restructuring plan, (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation under authoritative guidance, (v) other non-recurring charges comprising mainly of one-time acquisition, integration and other costs. The Company excludes these items, for the purposes of calculating non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA, when it evaluates the continuing operational performance of the Company. The Company believes that the impact of these items does not reflect expected future gross profits or operating expenses nor does the Company believe that they provide a meaningful evaluation of current versus past core operational performance.
Gain or loss on sale of available for-sale investments and impairment of investments: The Company has sold investments or adjusted the value of investments from time to time based on market conditions. The Company's activities in this respect are included in the Company's GAAP presentation of net income (loss) and net income (loss) per share. The Company's core business does not include making financial investments in third parties, and such investments do not constitute a material portion of the Company's assets. Moreover, the amount and timing of gains and losses and adjustments to the value of investments are unpredictable. Consequently, the Company believes that gains or losses on these sales and adjustments to the value of investments are not related to the ongoing core business and operating performance of the Company. This item is grouped under Interest and other income (expense), net. The Company excludes these items, for the purposes of calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, when it evaluates the continuing operational performance of the Company. The Company believes this GAAP measure is not indicative of the Company's core operating performance.
Amortization of intangibles from acquisitions: The Company records amortization expense related to intangibles. These expenses are included in its GAAP presentation of cost of goods sold and operating expense, related to the various acquisitions it has made. Management excludes these items, for the purposes of calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, when it evaluates the continuing operational performance of the Company. The Company believes that eliminating this expense from operating income is useful to investors because it believes the GAAP measure, alone, is not indicative of its core cost of goods sold and operating expenses and performance.
Non cash interest expense: The Company incurs non-cash interest expense accounted for under the authoritative guidance on convertible debt instruments, which requires to separately account for the liability (debt) and equity (conversion option) components of such instruments. The Company believes that eliminating this item, for the purposes of calculating non-GAAP net income (loss) and non-GAAP net income (loss) per share, is useful to investors. The Company describes the impact of this guidance, in its fiscal 2010 annual report on Form 10-K. The Company believes this GAAP measure is not indicative of its core operating performance.
Interest, taxes, depreciation, amortization, and other adjustments: The Company's calculation of EBITDA excludes interest, taxes, depreciation, and amortization. The Company's calculation of Adjusted EBITDA also excludes items that are not part of its "core operating performance" which are described in detail in the aforementioned paragraphs. Management believes adjusted EBITDA is indicative of the Company's core operational cash flow.
Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net income (loss) is net income (loss). The GAAP measure most directly comparable to non-GAAP net income (loss) per share is net income (loss) per share. The GAAP measure most directly comparable to adjusted EBITDA is income (loss) from operations. The Company believes that these GAAP measures alone are not indicative of its core operating expenses and performance.
The following tables reconcile preliminary GAAP measures to non-GAAP measures:
JDS UNIPHASE CORPORATION
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
--------------------------- -----------------------------
January 1, January 2, January 1, January 2,
2011 2010 2011 2010
------------ -------------- ------------- --------------
Net Net Net Net
income Diluted income Diluted income Diluted income Diluted
(loss) EPS (loss) EPS (loss) EPS (loss) EPS
----- ----- ------ ------ ------ ----- ------ ------
GAAP measures $23.6 $0.10 $(19.5) $(0.09) $ 23.7 $0.10 $(51.4) $(0.24)
Items
reconciling
GAAP net
income & EPS to
Non-GAAP net
income & EPS:
Related to net
revenues:
Deferral of
revenues
related
purchase
accounting 3.7 0.02 0.9 - 9.8 0.04 1.7 0.01
Related to cost
of sales:
Stock-based
compensation
expenses 1.1 - 1.4 0.01 2.4 0.01 2.5 0.01
Other
non-recurring
charges 0.2 - 0.4 - 0.5 - 0.5 -
Amortization
of acquired
developed
technologies 14.1 0.06 12.5 0.06 28.2 0.13 24.8 0.11
----- ----- ------ ------ ------ ----- ------ ------
Total related
to gross
profit 19.1 0.08 15.2 0.07 40.9 0.18 29.5 0.13
----- ----- ------ ------ ------ ----- ------ ------
Related to
operating
expenses:
Research and
development:
Stock-based
compensation
expenses 2.1 0.01 2.4 0.01 3.9 0.02 4.6 0.02
Other
non-recurring
charges - - - - 0.2 - - -
Selling,
general and
administrative:
Stock-based
compensation
expenses 6.8 0.03 8.2 0.04 12.7 0.06 16.0 0.07
Other
non-recurring
charges 1.0 - 0.3 - 6.0 0.03 1.1 0.01
Amortization
of intangibles 8.0 0.04 6.5 0.03 16.6 0.07 13.5 0.06
Loss on
disposal of
long-lived
assets - - 0.5 - - - 1.0 0.01
Restructuring
and related
charges 2.5 0.01 8.0 0.04 2.8 0.01 13.1 0.06
----- ----- ------ ------ ------ ----- ------ ------
Total related
to operating
expenses 20.4 0.09 25.9 0.12 42.2 0.19 49.3 0.23
----- ----- ------ ------ ------ ----- ------ ------
Interest and
other income (0.8) - 0.7 - (4.2) (0.02) (1.5) (0.01)
Non-cash
interest
expense 4.7 0.02 4.2 0.02 9.2 0.04 8.4 0.04
Discontinued
operations - - 0.1 - - - 1.3 0.01
----- ----- ------ ------ ------ ----- ------ ------
Total related
to net income
& EPS 43.4 0.19 46.1 0.21 88.1 0.39 87.0 0.40
----- ----- ------ ------ ------ ----- ------ ------
Non-GAAP
measures $67.0 $0.29 $ 26.6 $ 0.12 $111.8 $0.49 $ 35.6 $ 0.16
===== ===== ====== ====== ====== ===== ====== ======
Note: Certain totals may not add due to rounding
JDS UNIPHASE CORPORATION
RECONCILIATION OF GAAP NET REVENUE TO NON-GAAP NET REVENUE
(in millions, unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
--------- --------- --------- ---------
GAAP net revenue $ 473.5 $ 342.9 $ 878.7 $ 640.7
Deferral of revenues related to
purchase accounting adjustment 3.7 0.9 9.8 1.7
--------- --------- --------- ---------
Non-GAAP net revenue $ 477.2 $ 343.8 $ 888.5 $ 642.4
========= ========= ========= =========
Note: Certain totals may not add due to rounding
JDS UNIPHASE CORPORATION
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in millions, unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
-------- -------- -------- --------
GAAP net income (loss) $ 23.6 $ (19.5) $ 23.7 $ (51.4)
Interest and other income (1.6) (1.6) (5.1) (5.0)
Interest expense 6.4 6.3 12.7 12.2
Provision for income taxes 5.2 1.7 3.1 2.4
Depreciation 16.1 14.5 30.9 29.9
Amortization 22.1 19.0 44.8 38.3
-------- -------- -------- --------
EBITDA 71.8 20.4 110.1 26.4
-------- -------- -------- --------
Costs related to restructuring
and related charges 2.5 8.0 2.8 13.1
Costs related to stock based
compensation expense 10.0 12.0 19.0 23.1
Costs related to purchase
accounting adjustment 3.7 0.9 9.9 1.7
Costs related to other
non-recurring activities 1.2 0.7 6.6 1.6
Loss on disposal of long-lived
assets - 0.5 - 1.0
Discontinued operations - 0.1 - 1.3
-------- -------- -------- --------
Adjusted EBITDA $ 89.2 $ 42.6 $ 148.4 $ 68.2
======== ======== ======== ========
Note: Certain totals may not add due to rounding
This is the highest the stock has traded since 2006, and anyone who has held from the top in 1999 is probably only down 86% after this move up.
Permalink: [619] Top Stocks To Buy - The Stock Formerly Known as 'Just Don't Sell Us' Soars on Earnings
JDSU is taking other optical networking names such as Finisar (FNSR) and Ciena (CIEN) right up with it.
JDSU came in at $0.29 v expectation of $0.19 EPS, and revenue jumped 38% to $473.5M vs expectation of $438.6M. Gross margin jumped nicely to 48.8% versus the year ago 44.6%, and quarter ago 47.4%.
* Test and measurement product revenue was up 27% from Q1, and up 30%, year over year. Communications and optical products revenue was 14% from Q1 and up 70% from the prior-year period.
Guidance change vs analysts $420.8M.
* For the third quarter of fiscal 2011, ending April 2, 2011, the Company expects non-GAAP net revenue to be in the range of $440 to $460 million.
MILPITAS, CA--(Marketwire - 02/03/11) - JDSU (NASDAQ:JDSU - News) (TSX:JDU - News) today reported results for its second fiscal quarter ended January 1, 2011.
On a GAAP basis, net revenue for the second fiscal quarter of 2011 was $473.5 million and net income was $23.6 million, or $0.10 per share. This compares to net revenue of $405.2 million and net income of $0.1 million, or break-even earnings per share for the prior quarter, and net revenue of $342.9 million and net loss of $(19.5) million, or $(0.09) per share for the second fiscal quarter of 2010.
On a non-GAAP basis, net revenue for the second fiscal quarter of 2011 was $477.2 million and net income was $67.0 million or $0.29 per share. This compares to non-GAAP net revenue of $411.3 million and net income of $44.8 million, or $0.20 per share for the prior quarter, and non-GAAP net revenue of $343.8 million and net income of $26.6 million or $0.12 per share for the second fiscal quarter of 2010.
"In fiscal Q2 JDSU reported record revenues, gross margin and operating margin, which exceeded our operating model target," said Tom Waechter, JDSU's President and Chief Executive Officer. "This is an exciting time for JDSU. Our market drivers are strong, our innovation engine and pipeline for new products is robust, and we continue to increase our operating leverage."
Financial Overview - Second Fiscal Quarter Ended January 1, 2011
All numbers in this section are non-GAAP unless stated otherwise.
-- Net revenue of $477.2 million increased 16.0% compared to the prior
quarter and increased 38.8% compared to the second quarter of
fiscal 2010.
-- Gross margin was 48.8% compared to 47.4% in the prior quarter and
44.6% in the second quarter of fiscal 2010.
-- Operating margin was 15.3% compared to 10.8% in the prior quarter
and 8.2% in the second quarter of fiscal 2010.
-- Communications Test and Measurement revenue of $231.4 million
increased by 26.6% compared to the prior quarter and increased
30.8% compared to the second quarter of fiscal 2010. Revenue from
this segment represented 48.5% of total net revenue.
-- Communications and Commercial Optical Products revenue of $191.1
million increased 13.8% compared to the prior quarter and increased
70.2% compared to the second quarter of fiscal 2010. Revenue from
this segment represented 40.0% of total net revenue.
- Optical Communications revenue of $168.4 million increased 17.8%
compared to the prior quarter and increased 76.2% compared to
the second quarter of fiscal 2010.
- Commercial Lasers revenue of $22.7 million decreased 9.2%
compared to the prior quarter and increased 35.9% compared to
the second quarter of fiscal 2010.
-- Advanced Optical Technologies revenue of $54.7 million decreased
9.6% compared to the prior quarter and remained flat compared to the
second quarter of fiscal 2010. Revenue from this segment represented
11.5% of total net revenue.
-- Americas' customers represented 51% of total net revenue for the
quarter. EMEA and Asia-Pacific customers represented 26% and 23%,
respectively, of total net revenue.
-- The Company held $ 655.3 million in total cash and generated $60.7
million of cash from operations for the quarter ended January 1,
2011.
Business Outlook
For the third quarter of fiscal 2011, ending April 2, 2011, the Company expects non-GAAP net revenue to be in the range of $440 to $460 million.
Conference Call
The Company will discuss these results and other related matters at 2:00 p.m. Pacific Time on February 3, 2011 in a live webcast, which will also be archived for replay on the Company's website at www.jdsu.com/investors. The Company will post and distribute slides outlining the Company's latest financial results concurrent with this earnings press release. These slides will now be available prior to management's presentation in order to provide the investment community with additional time for review and analysis. These slides are supplementary and will not be discussed during the earnings call. They will be posted on www.jdsu.com/investors under the "Financial Information" section. This press release is being furnished as a Current Report on Form 8-K with the Securities and Exchange Commission, and will be available at www.sec.gov.
About JDSU
JDSU (NASDAQ:JDSU - News) (TSX:JDU - News) enables broadband and optical innovation in the communications, commercial and consumer markets. JDSU is a leading provider of communications test and measurement solutions and optical products for telecommunications service providers, cable operators, and network equipment manufacturers. JDSU is also a leading provider of innovative optical solutions for medical/environmental instrumentation, semiconductor processing, display, brand authentication, aerospace and defense, and decorative applications. More information is available at www.jdsu.com.
Forward-Looking Statements
This press release contains, and the discussions in our subsequent conference call will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include: (i) any anticipation or guidance as to future financial performance, including future revenue, gross margin, operating expense, operating margin, EBITDA, cash flow and other financial metrics; and (ii) the Company's beliefs regarding the purpose, usefulness and efficacy of non-GAAP results and the measures and items the Company includes in the same, as well as any benefits to investors the Company believes its non-GAAP measures provide. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the Company's ability to predict future financial performance continues to be difficult due to, among other things: (a) continuing general limited visibility across many of our product lines exacerbated by the current credit and financial market uncertainty, as well as the migration to vendor managed inventory programs; (b) quarter-over-quarter product mix fluctuations, which can materially impact profitability measures due to the broad gross margin range across our portfolio; (c) consolidation of our customer base, which, in the shorter term limits demand visibility, and, in the longer term, could reduce our business potential; (d) average selling prices continue to decline across our businesses; (e) our Communications Test and Measurement business is notable for seasonality and a significant level of in-quarter book-and-ship business, further limiting our forecasting abilities; (f) we are currently engaged in various product and manufacturing transfers, site consolidations and product discontinuances, which has caused and may cause short term disruptions; and (g) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand.
For more information on these and other risks affecting the Company's business, please refer to the "Risk Factors" section included in the Company's Annual Report on Form 10-K for the fiscal year ended July 3, 2010 filed with the Securities and Exchange Commission. The forward-looking statements contained in this news release are made as of the date hereof and the Company does not assume any obligation to update the reasons why actual results could differ materially from those projected in the forward-looking statements.
The following financial tables are presented in accordance with GAAP, unless otherwise specified.
-SELECTED FINANCIAL DATA-
JDS UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
---------------- ----------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
------- ------- ------- -------
Net revenue $ 473.5 $ 342.9 $ 878.7 $ 640.7
Cost of sales 245.6 192.2 463.4 360.6
Amortization of acquired technologies 14.1 12.5 28.2 24.8
------- ------- ------- -------
Gross profit 213.8 138.2 387.1 255.3
------- ------- ------- -------
Operating expenses:
Research and development 60.2 41.5 116.6 81.3
Selling, general and administrative 109.5 95.2 216.7 187.9
Amortization of other intangibles 8.0 6.5 16.6 13.5
Restructuring and related charges 2.5 8.0 2.8 13.1
------- ------- ------- -------
Total operating expenses 180.2 151.2 352.7 295.8
------- ------- ------- -------
Income (loss) from operations 33.6 (13.0) 34.4 (40.5)
Interest and other income (expense), net 1.6 1.6 5.1 5.0
Interest expense (6.4) (6.3) (12.7) (12.2)
Gain on sale of investments - - - -
------- ------- ------- -------
Income (loss) from continuing
operations before income taxes 28.8 (17.7) 26.8 (47.7)
Provision of income taxes 5.2 1.7 3.1 2.4
------- ------- ------- -------
Income (loss) from continuing
operations, net of tax 23.6 (19.4) 23.7 (50.1)
Loss from discontinued operations, net
of tax - (0.1) - (1.3)
------- ------- ------- -------
Net income (loss) $ 23.6 $ (19.5) $ 23.7 $ (51.4)
======= ======= ======= =======
Basic net income (loss) per share from:
Continuing operations $ 0.11 $ (0.09) $ 0.11 $ (0.23)
Discontinued operations - - - (0.01)
------- ------- ------- -------
Net income (loss) $ 0.11 $ (0.09) $ 0.11 $ (0.24)
======= ======= ======= =======
Diluted net income (loss) per share
from:
Continuing operations $ 0.10 $ (0.09) $ 0.10 $ (0.23)
Discontinued operations - - - (0.01)
------- ------- ------- -------
Net income (loss) $ 0.10 $ (0.09) $ 0.10 $ (0.24)
======= ======= ======= =======
Shares used in per share calculation:
Basic 222.9 218.3 222.4 217.9
Diluted 229.1 218.3 228.2 217.9
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited) (audited)
January 1, July 3,
2011 2010
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 408.6 $ 340.2
Short-term investments 212.3 227.4
Restricted cash 34.4 32.5
Accounts receivable, net 339.2 271.8
Inventories, net 145.1 125.7
Prepayments and other current assets 72.6 77.0
---------- ----------
Total current assets 1,212.2 1,074.6
---------- ----------
Property, plant and equipment, net 214.6 183.0
Goodwill 66.4 66.0
Intangible assets, net 316.4 357.4
Long-term investments 4.8 5.1
Other non-current assets 16.3 17.5
---------- ----------
Total assets $ 1,830.7 $ 1,703.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 147.3 $ 137.4
Accrued payroll and related expenses 81.9 62.9
Income taxes payable 22.9 19.8
Deferred revenue 64.9 45.3
Accrued expenses 59.4 47.7
Other current liabilities 37.6 37.8
---------- ----------
Total current liabilities 414.0 350.9
---------- ----------
Long-term debt 276.3 267.1
Other non-current liabilities 183.2 176.9
Total stockholders' equity 957.2 908.7
---------- ----------
Total liabilities and stockholders' equity $ 1,830.7 $ 1,703.6
---------- ----------
JDS UNIPHASE CORPORATION
REPORTABLE SEGMENT INFORMATION
(in millions)
(unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
-------- -------- -------- --------
Net revenue:
Communications Test and
Measurement $ 231.4 $ 176.9 $ 414.2 $ 320.3
Communications and Commercial
Optical Products 191.1 112.3 359.1 213.4
Advanced Optical Technologies 54.7 54.6 115.2 108.7
Deferred revenue related to
purchase accounting adjustment (3.7) (0.9) (9.8) (1.7)
-------- -------- -------- --------
Net revenue $ 473.5 $ 342.9 $ 878.7 $ 640.7
======== ======== ======== ========
Operating income (loss):
Communications Test and
Measurement $ 44.8 $ 31.5 $ 66.4 $ 49.5
Communications and Commercial
Optical Products 34.0 3.2 58.2 1.7
Advanced Optical Technologies 17.7 19.6 39.8 40.2
Corporate (23.4) (26.2) (46.9) (53.1)
-------- -------- -------- --------
Total segment operating income 73.1 28.1 117.5 38.3
Unallocated amounts:
Stock-based compensation (10.0) (12.0) (19.0) (23.1)
Acquisition-related charges and
amortization of intangibles (25.9) (19.9) (54.7) (40.0)
Loss on disposal of long-lived
assets - (0.5) - (1.0)
Restructuring and related charges (2.5) (8.0) (2.8) (13.1)
Realignment and other charges (1.1) (0.7) (6.6) (1.6)
Interest and other income 1.6 1.6 5.1 5.0
Interest expense (6.4) (6.3) (12.7) (12.2)
-------- -------- -------- --------
Income (Loss) from continuing
operations before income taxes $ 28.8 $ (17.7) $ 26.8 $ (47.7)
-------- -------- -------- --------
Use of Non-GAAP (Adjusted) Financial Measures
The Company provides non-GAAP net revenue, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA financial measures as supplemental information regarding the Company's operational performance. The Company evaluates Company-wide segment performance using, among other things, the measures disclosed in this release for the purposes of evaluating the Company's historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company's core operating performance. The Company believes its "core operating performance" represents the Company's performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from "core operating performance" those items, such as those relating to restructuring, investing, stock-based compensation expense and non-cash activities that management does not believe are reflective of such ordinary, ongoing and customary course activities.
The Company believes that providing this information to its investors, in addition to the GAAP presentation, allows investors to see Company results "through the eyes" of management. The Company further believes that providing this information allows Company investors to both better understand the Company's financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.
The non-GAAP adjustments described in this release have historically been excluded by the Company from its non-GAAP measures. The non-GAAP adjustments, and the basis for excluding them, are outlined below.
Revenue from acquisition related deferred revenue: The Company excludes the fair value adjustment to acquisition related deferred revenue when calculating non-GAAP revenue. The Company believes that the non-GAAP revenue provides useful information for the investors as they review for underlying trends in the business and facilitate the investors' comparisons of the Company's revenue performance with prior and future periods and to the Company's peers.
Cost of goods sold, costs of research and development and costs of selling, general and administrative: The Company has incurred periodic expenses, included in its GAAP presentation of gross margin and operating expenses that may include (i) additional depreciation from changes in estimated useful life and the write-down of certain property and equipment that has been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as retention bonuses and employee relocation costs related to a formal restructuring plan, (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation under authoritative guidance, (v) other non-recurring charges comprising mainly of one-time acquisition, integration and other costs. The Company excludes these items, for the purposes of calculating non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA, when it evaluates the continuing operational performance of the Company. The Company believes that the impact of these items does not reflect expected future gross profits or operating expenses nor does the Company believe that they provide a meaningful evaluation of current versus past core operational performance.
Gain or loss on sale of available for-sale investments and impairment of investments: The Company has sold investments or adjusted the value of investments from time to time based on market conditions. The Company's activities in this respect are included in the Company's GAAP presentation of net income (loss) and net income (loss) per share. The Company's core business does not include making financial investments in third parties, and such investments do not constitute a material portion of the Company's assets. Moreover, the amount and timing of gains and losses and adjustments to the value of investments are unpredictable. Consequently, the Company believes that gains or losses on these sales and adjustments to the value of investments are not related to the ongoing core business and operating performance of the Company. This item is grouped under Interest and other income (expense), net. The Company excludes these items, for the purposes of calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, when it evaluates the continuing operational performance of the Company. The Company believes this GAAP measure is not indicative of the Company's core operating performance.
Amortization of intangibles from acquisitions: The Company records amortization expense related to intangibles. These expenses are included in its GAAP presentation of cost of goods sold and operating expense, related to the various acquisitions it has made. Management excludes these items, for the purposes of calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, when it evaluates the continuing operational performance of the Company. The Company believes that eliminating this expense from operating income is useful to investors because it believes the GAAP measure, alone, is not indicative of its core cost of goods sold and operating expenses and performance.
Non cash interest expense: The Company incurs non-cash interest expense accounted for under the authoritative guidance on convertible debt instruments, which requires to separately account for the liability (debt) and equity (conversion option) components of such instruments. The Company believes that eliminating this item, for the purposes of calculating non-GAAP net income (loss) and non-GAAP net income (loss) per share, is useful to investors. The Company describes the impact of this guidance, in its fiscal 2010 annual report on Form 10-K. The Company believes this GAAP measure is not indicative of its core operating performance.
Interest, taxes, depreciation, amortization, and other adjustments: The Company's calculation of EBITDA excludes interest, taxes, depreciation, and amortization. The Company's calculation of Adjusted EBITDA also excludes items that are not part of its "core operating performance" which are described in detail in the aforementioned paragraphs. Management believes adjusted EBITDA is indicative of the Company's core operational cash flow.
Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net income (loss) is net income (loss). The GAAP measure most directly comparable to non-GAAP net income (loss) per share is net income (loss) per share. The GAAP measure most directly comparable to adjusted EBITDA is income (loss) from operations. The Company believes that these GAAP measures alone are not indicative of its core operating expenses and performance.
The following tables reconcile preliminary GAAP measures to non-GAAP measures:
JDS UNIPHASE CORPORATION
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
--------------------------- -----------------------------
January 1, January 2, January 1, January 2,
2011 2010 2011 2010
------------ -------------- ------------- --------------
Net Net Net Net
income Diluted income Diluted income Diluted income Diluted
(loss) EPS (loss) EPS (loss) EPS (loss) EPS
----- ----- ------ ------ ------ ----- ------ ------
GAAP measures $23.6 $0.10 $(19.5) $(0.09) $ 23.7 $0.10 $(51.4) $(0.24)
Items
reconciling
GAAP net
income & EPS to
Non-GAAP net
income & EPS:
Related to net
revenues:
Deferral of
revenues
related
purchase
accounting 3.7 0.02 0.9 - 9.8 0.04 1.7 0.01
Related to cost
of sales:
Stock-based
compensation
expenses 1.1 - 1.4 0.01 2.4 0.01 2.5 0.01
Other
non-recurring
charges 0.2 - 0.4 - 0.5 - 0.5 -
Amortization
of acquired
developed
technologies 14.1 0.06 12.5 0.06 28.2 0.13 24.8 0.11
----- ----- ------ ------ ------ ----- ------ ------
Total related
to gross
profit 19.1 0.08 15.2 0.07 40.9 0.18 29.5 0.13
----- ----- ------ ------ ------ ----- ------ ------
Related to
operating
expenses:
Research and
development:
Stock-based
compensation
expenses 2.1 0.01 2.4 0.01 3.9 0.02 4.6 0.02
Other
non-recurring
charges - - - - 0.2 - - -
Selling,
general and
administrative:
Stock-based
compensation
expenses 6.8 0.03 8.2 0.04 12.7 0.06 16.0 0.07
Other
non-recurring
charges 1.0 - 0.3 - 6.0 0.03 1.1 0.01
Amortization
of intangibles 8.0 0.04 6.5 0.03 16.6 0.07 13.5 0.06
Loss on
disposal of
long-lived
assets - - 0.5 - - - 1.0 0.01
Restructuring
and related
charges 2.5 0.01 8.0 0.04 2.8 0.01 13.1 0.06
----- ----- ------ ------ ------ ----- ------ ------
Total related
to operating
expenses 20.4 0.09 25.9 0.12 42.2 0.19 49.3 0.23
----- ----- ------ ------ ------ ----- ------ ------
Interest and
other income (0.8) - 0.7 - (4.2) (0.02) (1.5) (0.01)
Non-cash
interest
expense 4.7 0.02 4.2 0.02 9.2 0.04 8.4 0.04
Discontinued
operations - - 0.1 - - - 1.3 0.01
----- ----- ------ ------ ------ ----- ------ ------
Total related
to net income
& EPS 43.4 0.19 46.1 0.21 88.1 0.39 87.0 0.40
----- ----- ------ ------ ------ ----- ------ ------
Non-GAAP
measures $67.0 $0.29 $ 26.6 $ 0.12 $111.8 $0.49 $ 35.6 $ 0.16
===== ===== ====== ====== ====== ===== ====== ======
Note: Certain totals may not add due to rounding
JDS UNIPHASE CORPORATION
RECONCILIATION OF GAAP NET REVENUE TO NON-GAAP NET REVENUE
(in millions, unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
--------- --------- --------- ---------
GAAP net revenue $ 473.5 $ 342.9 $ 878.7 $ 640.7
Deferral of revenues related to
purchase accounting adjustment 3.7 0.9 9.8 1.7
--------- --------- --------- ---------
Non-GAAP net revenue $ 477.2 $ 343.8 $ 888.5 $ 642.4
========= ========= ========= =========
Note: Certain totals may not add due to rounding
JDS UNIPHASE CORPORATION
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in millions, unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
January January January January
1, 2011 2, 2010 1, 2011 2, 2010
-------- -------- -------- --------
GAAP net income (loss) $ 23.6 $ (19.5) $ 23.7 $ (51.4)
Interest and other income (1.6) (1.6) (5.1) (5.0)
Interest expense 6.4 6.3 12.7 12.2
Provision for income taxes 5.2 1.7 3.1 2.4
Depreciation 16.1 14.5 30.9 29.9
Amortization 22.1 19.0 44.8 38.3
-------- -------- -------- --------
EBITDA 71.8 20.4 110.1 26.4
-------- -------- -------- --------
Costs related to restructuring
and related charges 2.5 8.0 2.8 13.1
Costs related to stock based
compensation expense 10.0 12.0 19.0 23.1
Costs related to purchase
accounting adjustment 3.7 0.9 9.9 1.7
Costs related to other
non-recurring activities 1.2 0.7 6.6 1.6
Loss on disposal of long-lived
assets - 0.5 - 1.0
Discontinued operations - 0.1 - 1.3
-------- -------- -------- --------
Adjusted EBITDA $ 89.2 $ 42.6 $ 148.4 $ 68.2
======== ======== ======== ========
Note: Certain totals may not add due to rounding
Best Long Term Profit Stocks For 2012
Short-term volatility can test an investor's mettle. But if you get in during a boom cycle, like copper and iron ore are in today, you can win big. Here's how.
The sky's the limit. The sky is falling. In the short term, that pretty much describes the behavior of commodity stocks.
And it's all too easy to get caught up on the drama of those short-term moves, because the possible profits, if you can outguess the market, are all too tempting. (I know because I get caught up in it myself.)
But for most of us who aren't blessed with market-beating 20/20 foresight, playing the short-term volatility of commodity stocks isn't the best way to make money in this sector.
Permalink: [620] Top Stocks To Buy - Best Long Term Profit Stocks For 2012
For most of us most of the time, the long-term swings between scarce supply (sending prices up, up, up) and scarce demand (sending prices down, down, down), which can last for years and years, are the best sources of profits.
And right now, the long-term pattern says we're in an upswing that has at least two more years to run before we see a significant downside challenge.
Why do I think that? Supply and demand tell me so. I'm going to end this post with my take on the supply/demand picture for several important industrial commodities. But first, let me try to put the current short-term volatility in some context.
Why a Short-Term View Is So Appealing
The potential rewards in the short term are what get our attention. Iron miner Vale, (NYSE: VALE) was up 42% from the August 2010 low to the January high. One-stock commodity portfolio BHP Billiton, (NYSE: BHP) was up 44% from the August low to the February high. Molybdenum and copper miner Thompson Creek Metals (NYSE: TC), was up 88% from the August low to its January high.
But the volatility? Who can stand the drops? Look at just one stock, Freeport McMoRan Copper & Gold (NYSE: FCX).
On Jan. 11, shares had rallied to $60.90. Two weeks later, on Jan. 25, the stock had dropped 12.6% to $53.22.
On Nov. 11, 2010, it traded at $54.01. On Nov. 17, it was $48.42. That's a 10.3% drop in just six days.
But by Nov. 11, the stock had soared 62% from its Aug. 25, 2010, low of $33.33.
Just in case this volatility wasn't enough to make you insane, hovering over all of these moves is the memory of the great commodity rally of 2007, when Freeport McMoRan climbed 86%, and the great commodity collapse of 2008, when the stock dropped 74%. And the volatility in 2008 was even more severe than that if you look at just the last six months of the year. Freeport McMoRan fell from $61.65 on June 13, 2008, to $9.03 on Dec. 3.
If this kind of short-term volatility is what you focus on, you're paying attention to the wrong time frame. You need to be investing on a scale of years, not weeks or months.
Look at oil, for example. In 1980, the average US price of oil was $37.42 a barrel. In 1998, oil sold for an average of $11.91 a barrel. That's 18 years of solid losses in oil stocks and other shares that depended on the commodity.
But 1998 marked the bottom. By 2004, the average price per barrel hit $37.66, the same as it had been in 1980, on its way to a peak near $150 in 2008.
With oil demand sagging because of the world economic crisis, oil fell back to the $30s, where it had been in 1980 and 2004. It then began a climb back to a price near $100 a barrel, as demand recovered along with the global economy and the crisis in Egypt drove up fears of a disruption to global supply.
The long-term pattern for many other commodities looks similar. Copper on the London Metal Exchange, for example, sold for $2,710 a metric ton in 1990, $3,050 a metric ton in 1995, and $1,730 a ton in 1998. It then began a slow, steady climb to $1,880 a ton in 2003 and to $2,950 in 2004 before rocketing up to its current price. Last week, copper hit an all-time record price of $9,955 a ton.
But we're not living in an age when all industrial commodities climb inexorably higher. The big counterexample is natural gas. In January 2002, natural gas sold for $2.50 per 1,000 cubic feet in the United States. It then moved up to $4.43 in 2003, and to $8.01 in 2006.
Since then, though, the price of natural gas has been in what began as a slow decline (to $7.38 in January 2008), then turned into a rout (to $4.60 in January 2009), and now has become a lasting depression. Natural gas traded at $5.14 per thousand cubic feet in January 2010, raising hopes that the economic recovery was about to lift prices permanently. But then it fell—and fell and fell—until it hit $3.34 in December 2010.
So what's a commodity investor to do?
Best Long Term Profit Stocks For 2012: Profit from These Three Principles
Here are my core tenets for commodity investing:
1) Find a Commodity That Is in a Multi-Year Boom
Or, rephrased, find one that is currently behaving like copper and not like natural gas. I don't mean the obvious profits you'd see this year as copper climbs to a record high, while natural gas mopes along the bottom. I want you to think about the longer-term benefit of investing in a commodity that's riding the boom end of a cycle. If you buy and hold, you may suffer a painful 15% loss in a few days, but as long as the commodity cycle that underlies your commodity stock is in a long-term uptrend, this kind of volatility is survivable.
Buying in during a long-term boom cycle can save you from the worst effects of truly terrible timing. Seeing a stock drop from $61.65 to $9.03 in six months is the kind of excruciating loss that can devastate a portfolio if you then sell at the bottom. But Freeport McMoRan didn't just fall from $61.65 to $9.03 in six months; it rebounded to $29.48 by June 2009, then hit $43.66 by January 2010 on its way to $56.76 at the Feb. 4, 2011, close. You could have had the terrible bad luck to buy at the $61.65 top in June 2008, but if you held on, two and a half years later, you'd be looking at a loss of less than 10%.
I'm not recommending this as an investment strategy, mind you. Spending 30 months to get back to within 10% of the money you started with is still a loss—of both money and time. But it's not the worst thing that can happen to a commodity, or an investor.
2) Understand What's Driving the Commodity Cycle
Let's go back to our friends copper and natural gas. We've already established that, given a choice, you'd much rather own the copper cycle than the natural gas cycle—at least right now. What's the difference between the two cycles at the moment? Sure, one is up and the other is down, but there's more to the difference than that.
The US natural gas industry is currently in the midst of a huge expansion of supply from unconventional sources. The rest of the global industry is following that same path, using technologies pioneered in the United States. The world is, therefore, looking at a big increase in natural gas supply that's likely to run for years. That doesn't necessarily mean that the price of natural gas is headed down, but it does mean that any price increase is dependent solely on an increase in demand—in this case, an increase in demand large enough to outpace the increase in supply.
Contrast that with copper. It's not that copper miners aren't trying to increase supply; it's that they're having a hard time doing it. For example, in the Jan. 20 guidance for 2011 that went along with the release of its 2010 financial report, Freeport McMoRan said that 2011 copper and gold sales would be slightly below earlier forecasts because of a drop in the grade of ores being mined at its Grasberg mine.
This problem—lower-quality ores that require a mining company to move more earth to get the same amount of copper—isn't limited to Freeport McMoRan. Companies across the copper-mining industry face the same conditions. Rio Tinto (NYSE: RIO), for example, recently announced that it had mined 16% less copper in 2010 than in 2009. Copper, unlike natural gas, has both rising demand and constrained supply working in its favor.
3) Make Sure You Can Really Tell Where Supply Is Heading
If you want to own the coppers of the commodity world and not the natural gases, then you should value—really value—supply transparency.
Oil, I'd argue, has very low supply transparency. For instance, we have no more than educated guesses about the condition of the big oil reserves in Saudi Arabia. How badly, if at all, have they been damaged by production techniques over the last decade or so? We know very little about how hard it will be to increase production from the oil fields of Iraq, or how much more damage Venezuela will do to its oil industry, or what kind of environmental restrictions Canada will impose on its oil sands industry.
Contrast that with copper, where the big uncertainties are geopolitical and the possible deviations from consensus outcomes in unstable countries like the Democratic Republic of the Congo would reduce supply, rather than expand it. I'd put iron ore, coal, and potash fertilizer in the transparency-of-supply group, along with copper. I'd put oil, natural gas, and aluminum in the less-transparent supply group.
What to Buy Now? Best Long Term Profit Stocks For 2012 Here
My three basic tenets translate now into a rough hierarchy of commodities, and a few stocks to consider at each level.
At the top of the heap, I'd put copper. It's hard to increase supply, demand is increasing with global growth, and supply is relatively transparent. My three favorite stocks in this commodity are Freeport McMoRan Copper & Gold (NYSE: FCX), Thompson Creek Metals (NYSE: TC), and Southern Copper (NYSE: SCCO).
* For more on Freeport McMoRan, see this post
* For more on Thompson Creek and its transformation from a molybdenum miner to a molybdenum and copper miner, see this post
Next I'd put iron ore. Iron doesn't have quite the same supply problems as copper, but India has been reporting what seem to be significant (perhaps only temporary) supply disruptions. Meanwhile, global demand for iron is growing even faster than it is for copper. My favorite stock in this industry is Vale (NYSE: VALE). It gets the nod over BHP Billiton in my book because it has more concentration in iron than its Australian rival does.
I've got a positive rating on both coal and potash fertilizer, but they sit a step below copper and iron on my list because they don't have the supply problems of copper or even iron ore. It looks like the world has plenty of coal in accessible deposits to meet soaring demand. In potash, Potash of Saskatchewan, (NYSE: POT) still has idle capacity that it can bring into production when demand and price justify it.
In these two sectors, I'd favor the Australian coal producers BHP Billiton (NYSE: BHP), Macarthur Coal, OTC: MACDY), and Whitehaven Coal (OTC: WHITF), because of their proximity to the big coal markets of India and China (for more on Australia's coal miners and the recent floods there, see this post). In the potash sector, I think the most interesting pick is Vale, which is making a big, government-favored push into the fertilizer market in Brazil.
Best Long Term Profit Stocks For 2012: Two Risks to Keep in Mind
Investors face two big bumps with commodity stocks in these sectors. The first is the fear, likely to send the market into repeated swoons in the first half of 2011, that growth will slow in China. (I've suggested cutting back exposure to copper stocks for the first few months of 2011 for investors who want to reduce their exposure to a China slowdown. So far that sector retreat has failed to materialize.)
The second risk, and I think this is a factor for 2012 or so, is the amount of new mining capacity set to come on line from 2013 to 2015 in just about every mining sector. The fear is that this new capacity could send prices down. But I think the reality is that, at least for my two top-rated commodities, copper and iron, the addition to supply won't be enough to keep up with demand.
The global supply deficit in copper will reach 822,000 metric tons in 2011, according to Barclays Capital. That's a lot of supply to make up even when the copper industry is projecting a record amount of capital investment in 2011.
At the time of publication, Jim Jubak did not own shares of any of the companies mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned in this post. The fund did own shares of BHP Billiton, Freeport McMoRan, Macarthur Coal, Southern Copper, Thompson Creek, Vale, and Whitehaven Coal as of the end of December.
The sky's the limit. The sky is falling. In the short term, that pretty much describes the behavior of commodity stocks.
And it's all too easy to get caught up on the drama of those short-term moves, because the possible profits, if you can outguess the market, are all too tempting. (I know because I get caught up in it myself.)
But for most of us who aren't blessed with market-beating 20/20 foresight, playing the short-term volatility of commodity stocks isn't the best way to make money in this sector.
Permalink: [620] Top Stocks To Buy - Best Long Term Profit Stocks For 2012
For most of us most of the time, the long-term swings between scarce supply (sending prices up, up, up) and scarce demand (sending prices down, down, down), which can last for years and years, are the best sources of profits.
And right now, the long-term pattern says we're in an upswing that has at least two more years to run before we see a significant downside challenge.
Why do I think that? Supply and demand tell me so. I'm going to end this post with my take on the supply/demand picture for several important industrial commodities. But first, let me try to put the current short-term volatility in some context.
Why a Short-Term View Is So Appealing
The potential rewards in the short term are what get our attention. Iron miner Vale, (NYSE: VALE) was up 42% from the August 2010 low to the January high. One-stock commodity portfolio BHP Billiton, (NYSE: BHP) was up 44% from the August low to the February high. Molybdenum and copper miner Thompson Creek Metals (NYSE: TC), was up 88% from the August low to its January high.
But the volatility? Who can stand the drops? Look at just one stock, Freeport McMoRan Copper & Gold (NYSE: FCX).
On Jan. 11, shares had rallied to $60.90. Two weeks later, on Jan. 25, the stock had dropped 12.6% to $53.22.
On Nov. 11, 2010, it traded at $54.01. On Nov. 17, it was $48.42. That's a 10.3% drop in just six days.
But by Nov. 11, the stock had soared 62% from its Aug. 25, 2010, low of $33.33.
Just in case this volatility wasn't enough to make you insane, hovering over all of these moves is the memory of the great commodity rally of 2007, when Freeport McMoRan climbed 86%, and the great commodity collapse of 2008, when the stock dropped 74%. And the volatility in 2008 was even more severe than that if you look at just the last six months of the year. Freeport McMoRan fell from $61.65 on June 13, 2008, to $9.03 on Dec. 3.
If this kind of short-term volatility is what you focus on, you're paying attention to the wrong time frame. You need to be investing on a scale of years, not weeks or months.
Look at oil, for example. In 1980, the average US price of oil was $37.42 a barrel. In 1998, oil sold for an average of $11.91 a barrel. That's 18 years of solid losses in oil stocks and other shares that depended on the commodity.
But 1998 marked the bottom. By 2004, the average price per barrel hit $37.66, the same as it had been in 1980, on its way to a peak near $150 in 2008.
With oil demand sagging because of the world economic crisis, oil fell back to the $30s, where it had been in 1980 and 2004. It then began a climb back to a price near $100 a barrel, as demand recovered along with the global economy and the crisis in Egypt drove up fears of a disruption to global supply.
The long-term pattern for many other commodities looks similar. Copper on the London Metal Exchange, for example, sold for $2,710 a metric ton in 1990, $3,050 a metric ton in 1995, and $1,730 a ton in 1998. It then began a slow, steady climb to $1,880 a ton in 2003 and to $2,950 in 2004 before rocketing up to its current price. Last week, copper hit an all-time record price of $9,955 a ton.
But we're not living in an age when all industrial commodities climb inexorably higher. The big counterexample is natural gas. In January 2002, natural gas sold for $2.50 per 1,000 cubic feet in the United States. It then moved up to $4.43 in 2003, and to $8.01 in 2006.
Since then, though, the price of natural gas has been in what began as a slow decline (to $7.38 in January 2008), then turned into a rout (to $4.60 in January 2009), and now has become a lasting depression. Natural gas traded at $5.14 per thousand cubic feet in January 2010, raising hopes that the economic recovery was about to lift prices permanently. But then it fell—and fell and fell—until it hit $3.34 in December 2010.
So what's a commodity investor to do?
Best Long Term Profit Stocks For 2012: Profit from These Three Principles
Here are my core tenets for commodity investing:
1) Find a Commodity That Is in a Multi-Year Boom
Or, rephrased, find one that is currently behaving like copper and not like natural gas. I don't mean the obvious profits you'd see this year as copper climbs to a record high, while natural gas mopes along the bottom. I want you to think about the longer-term benefit of investing in a commodity that's riding the boom end of a cycle. If you buy and hold, you may suffer a painful 15% loss in a few days, but as long as the commodity cycle that underlies your commodity stock is in a long-term uptrend, this kind of volatility is survivable.
Buying in during a long-term boom cycle can save you from the worst effects of truly terrible timing. Seeing a stock drop from $61.65 to $9.03 in six months is the kind of excruciating loss that can devastate a portfolio if you then sell at the bottom. But Freeport McMoRan didn't just fall from $61.65 to $9.03 in six months; it rebounded to $29.48 by June 2009, then hit $43.66 by January 2010 on its way to $56.76 at the Feb. 4, 2011, close. You could have had the terrible bad luck to buy at the $61.65 top in June 2008, but if you held on, two and a half years later, you'd be looking at a loss of less than 10%.
I'm not recommending this as an investment strategy, mind you. Spending 30 months to get back to within 10% of the money you started with is still a loss—of both money and time. But it's not the worst thing that can happen to a commodity, or an investor.
2) Understand What's Driving the Commodity Cycle
Let's go back to our friends copper and natural gas. We've already established that, given a choice, you'd much rather own the copper cycle than the natural gas cycle—at least right now. What's the difference between the two cycles at the moment? Sure, one is up and the other is down, but there's more to the difference than that.
The US natural gas industry is currently in the midst of a huge expansion of supply from unconventional sources. The rest of the global industry is following that same path, using technologies pioneered in the United States. The world is, therefore, looking at a big increase in natural gas supply that's likely to run for years. That doesn't necessarily mean that the price of natural gas is headed down, but it does mean that any price increase is dependent solely on an increase in demand—in this case, an increase in demand large enough to outpace the increase in supply.
Contrast that with copper. It's not that copper miners aren't trying to increase supply; it's that they're having a hard time doing it. For example, in the Jan. 20 guidance for 2011 that went along with the release of its 2010 financial report, Freeport McMoRan said that 2011 copper and gold sales would be slightly below earlier forecasts because of a drop in the grade of ores being mined at its Grasberg mine.
This problem—lower-quality ores that require a mining company to move more earth to get the same amount of copper—isn't limited to Freeport McMoRan. Companies across the copper-mining industry face the same conditions. Rio Tinto (NYSE: RIO), for example, recently announced that it had mined 16% less copper in 2010 than in 2009. Copper, unlike natural gas, has both rising demand and constrained supply working in its favor.
3) Make Sure You Can Really Tell Where Supply Is Heading
If you want to own the coppers of the commodity world and not the natural gases, then you should value—really value—supply transparency.
Oil, I'd argue, has very low supply transparency. For instance, we have no more than educated guesses about the condition of the big oil reserves in Saudi Arabia. How badly, if at all, have they been damaged by production techniques over the last decade or so? We know very little about how hard it will be to increase production from the oil fields of Iraq, or how much more damage Venezuela will do to its oil industry, or what kind of environmental restrictions Canada will impose on its oil sands industry.
Contrast that with copper, where the big uncertainties are geopolitical and the possible deviations from consensus outcomes in unstable countries like the Democratic Republic of the Congo would reduce supply, rather than expand it. I'd put iron ore, coal, and potash fertilizer in the transparency-of-supply group, along with copper. I'd put oil, natural gas, and aluminum in the less-transparent supply group.
What to Buy Now? Best Long Term Profit Stocks For 2012 Here
My three basic tenets translate now into a rough hierarchy of commodities, and a few stocks to consider at each level.
At the top of the heap, I'd put copper. It's hard to increase supply, demand is increasing with global growth, and supply is relatively transparent. My three favorite stocks in this commodity are Freeport McMoRan Copper & Gold (NYSE: FCX), Thompson Creek Metals (NYSE: TC), and Southern Copper (NYSE: SCCO).
* For more on Freeport McMoRan, see this post
* For more on Thompson Creek and its transformation from a molybdenum miner to a molybdenum and copper miner, see this post
Next I'd put iron ore. Iron doesn't have quite the same supply problems as copper, but India has been reporting what seem to be significant (perhaps only temporary) supply disruptions. Meanwhile, global demand for iron is growing even faster than it is for copper. My favorite stock in this industry is Vale (NYSE: VALE). It gets the nod over BHP Billiton in my book because it has more concentration in iron than its Australian rival does.
I've got a positive rating on both coal and potash fertilizer, but they sit a step below copper and iron on my list because they don't have the supply problems of copper or even iron ore. It looks like the world has plenty of coal in accessible deposits to meet soaring demand. In potash, Potash of Saskatchewan, (NYSE: POT) still has idle capacity that it can bring into production when demand and price justify it.
In these two sectors, I'd favor the Australian coal producers BHP Billiton (NYSE: BHP), Macarthur Coal, OTC: MACDY), and Whitehaven Coal (OTC: WHITF), because of their proximity to the big coal markets of India and China (for more on Australia's coal miners and the recent floods there, see this post). In the potash sector, I think the most interesting pick is Vale, which is making a big, government-favored push into the fertilizer market in Brazil.
Best Long Term Profit Stocks For 2012: Two Risks to Keep in Mind
Investors face two big bumps with commodity stocks in these sectors. The first is the fear, likely to send the market into repeated swoons in the first half of 2011, that growth will slow in China. (I've suggested cutting back exposure to copper stocks for the first few months of 2011 for investors who want to reduce their exposure to a China slowdown. So far that sector retreat has failed to materialize.)
The second risk, and I think this is a factor for 2012 or so, is the amount of new mining capacity set to come on line from 2013 to 2015 in just about every mining sector. The fear is that this new capacity could send prices down. But I think the reality is that, at least for my two top-rated commodities, copper and iron, the addition to supply won't be enough to keep up with demand.
The global supply deficit in copper will reach 822,000 metric tons in 2011, according to Barclays Capital. That's a lot of supply to make up even when the copper industry is projecting a record amount of capital investment in 2011.
At the time of publication, Jim Jubak did not own shares of any of the companies mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned in this post. The fund did own shares of BHP Billiton, Freeport McMoRan, Macarthur Coal, Southern Copper, Thompson Creek, Vale, and Whitehaven Coal as of the end of December.
Top Stock Picks For 2012
Top Stock Picks For 2012: Yongye International
by Jim Trippon, editor Global Profits Alert
Yongye International (YONG) is a leading developer, manufacturer, and distributor of plant and animal nutrient products in the People's Republic of China.
Its plant nutrient product can significantly increase the plant's output and nutritional value and improve its taste.
As a result of receiving greater value in the marketplace, Yongye says its product helps increase farmers' incomes and improves their living standards. Directly addressing the need for greater e#ciency and more environmentally friendly require?
ments in the agricultural sector, Yongye's products dramatically increase the quality of crops and yields, and improve the health of livestock, according to the firm. The company is striking for its valuation with a bargain basement PEG ratio of only 0.15 Yongye has impressive financials with gross margins above 57 percent and a profit margin of 24.86 percent. Earnings per share are expected to climb 43 percent next year.
While the company has only been in operation a short amount of time, its predecessor, Inner Mongolia Yongye Company, had over 15 years' operational history which it has passed on to Yongye.
From this experience, Yongye International says it aims to inherit its predecessor com?pany's managerial experience and corporate culture to continue emulating its long-term success.
Learn more about this financial newsletter at Jim Trippon's Global Profits Alert.
Top Stock Picks For 2012: Uranium Resources
by Brendan Coffey, editor of Cabot Green Investor
Zero emissions is the holy grail of green technology as the world looks to grapple with the converging pressures of tight fossil fuel supplies, air quality issues and global warming.
I see the push for zero emissions reviving a technology once largely written o": nuclear power. In light of this, my top pick for 2011 is Uranium Resources (URRE). At this moment, some 60 nuclear plants are under construction worldwide. In the U.S., where nuclear plant construction has been dormant for decades, as many as eight new plants are scheduled to be built by 2020.
China, the fastest growing energy user in the world, should be a major driver in the market: It's building 30 nuclear reactors right now to add to its existing 12 and has an additional 157 planned.
In the next 20 years, global annual uranium demand is projected to double and the supply pressure is already starting to be seen.
From May to December 2010, uranium prices rocketed up 50% and appear set for a stronger 2011 as the market prepares for the end of the Megatons to Megawatts program in 2012.
Uranium Resources is a small uranium miner in Texas, which has produced 8 million pounds of the commodity in its 33 years of operation.
The real value in URRE isn't in its mining abilities however—it's a relatively high-cost producer, and it stopped mining for the first part of 2010 due to soft prices. Rather, over the years it has amassed parcels in New Mexico that hold over 101 million pounds of uranium, giving URRE the eighth-largest uranium reserves in the world.
By comparison, industry leader Cameco has just nine times the reserves of Uranium Resources but 50 times the market value.
That makes URRE ripe for a takeover. Until then, its share price tends to trade in tandem with uranium's price, meaning the coming year should benefit shareholders regardless of whether a takeover bid materializes.
Learn more about this financial newsletter at Brendan Coffey's Cabot Green Investor.
Top Stock Picks For 2012: Scientific Games
by Jason Shade, editor Texting Trader
As is the case with most of my trades and recommendations, my stock prediction for 2011 is a company that many of my peers are not giving much attention.
Scientific Games (SGMS) is a turnaround story that intrigues me and I select owning it as my top stock idea of 2011.
SGMS is an $882 million global leader in providing customized, end-to-end gaming solutions to lottery and gaming organizations worldwide.
Scientific Games' integrated array of products and services include instant lottery games, lottery gaming systems, terminals and services, and internet applications, as well as server-based interactive gaming machines. Scientific Games serves customers in approximately 50 countries.
After peaking at a high of $40 in 2007, this legalized gaming services provider has seen its shares collapse during the recent economic crisis.
The stock bottomed out earlier this year at $6.58 following a weak quarterly earnings report in which the company reported a .04 a share miss with revenues that also were on the light side.
Whether it was this earnings report or the prior three years of underperformance, the board and investors decided to reinstate SGMS's Chairman and former CEO Lorne Weil as CEO of the company.
Weil was at the helm during the stock's last major run from 2000 to 2005 and his returning to lead the firm is a positive catalyst for the success of SGMS and its potential return to prosperity.
Investors also can take heart in the recent binge of insider buying that accompanied Weil's return to the C-suite.
In December, management and insiders accumulated more than 4 million shares of company stock between the prices of $7.89 and $9.75 a share. One buyer of particular interest is long-time Wall Street investor Ron Perelman. Perelman now owns more than 30 million shares of the company stock. Most of his ownership is at much higher prices, including a large purchase of 400,000 shares at $14.26 a share last March.
Finally, you can't have a good corporate turnaround story without improving business fundamentals. Herein lies the challenge to management, the company and its stock. The last earnings report was anemic, but there are encouraging signs demonstrating that SGMS is committed into cleaning up its balance sheet and positioning the firm for sustainable growth in the coming years.
At the end of November, the company retired nearly $80 million in short term debt by issuing Senior Subordinated Notes due in 2018.
SGMS already boasts an 80% market share in the U.S. lottery market. Thus, the real growth engine for the firm will come from emerging markets.
SGMS is already focusing on growing these markets by working on gaining a larger footprint in the China market where its instant ticket retail sales have posted an impressive 28% gain in the latest quarter.
Following this success is a recent agreement signed between SGMS and China Sports Lottery Printing which o"ers great growth opportunities for this fast-expanding market. I find this even more intriguing as we have seen gaming stocks such as Wynn Resorts and Las Vegas Sands provide investors with huge gains based on their sales growth in Macau.
At some point, I expect analysts and investors alike to begin waking up to the Asian growth story happening at SGMS.
Like all companies, SGMS does face competitive pressures in all markets. In fact, last year the firm reported operating margins of 23%, a 5 year low for the company. This will need to be monitored over the next couple of quarters along with EPS and revenue growth.
Nevertheless, I see the recent management shakeup, swell of insider buying and market expansion in Asia to o"er investors a compelling turnaround story worth gambling on. I have a 12-month price target of $17 on SGMS.
Top Stock Picks For 2012: Seadrill
by Elliott Gue, editor The Energy Strategist
Seadrill (SDRL) is the best-placed contract driller in my coverage universe. The company doesn't produce or explore for oil and natural gas; rather, it is in the business of owning drilling rigs that are leased out to major producers for a daily fee known as a day rate.
There are three major reasons to buy Seadrill. First, the company has the youngest and most advanced ?eet of drilling rigs of any of the major contractors.
Second, Seadrill's rigs are primarily booked under long-term contracts at attractive rates for several years into the future, providing a guaranteed backlog of cash how regardless of the path of commodity prices.
And finally, Seadrill has a policy of paying out sizeable quarterly dividends supported by its backlog of rig contracts.
In the most recent quarter, Seadrill paid $0.65 per share, equivalent to an annualized yield of approximately 8 percent at the current price.
I see the company boosting its payout to around $0.75 per quarter by the fourth quarter of 2011; given strong investor preference for income-paying stocks, a growing dividend will continue to drive further upside in the stock.
Seadrill owns a feet of sixteen deepwater drilling rigs including ten semi-submersibles and six drillships.
The average operating Seadrill rig is less than five years old and that only includes the 13 rigs currently working on contracts.
The remaining 10 rigs in the feet were all built between 2008 and 2010 and are of the most modern and capable design.
All are ultra-deepwater rigs able to drill in waters more than 10,000 feet deep and are powerful enough to complete wells more than 6 miles in length.
Deepwater operations are only going to get more complex in coming years; as a result, producers need the most advanced, state-of-the-art rigs In addition to its deepwater feet, Seadrill also owns around 20 shallow-water jackup rigs and 17 tender rigs that are used to ferry people and equipment and to support o "shore drilling operations.
Seadrill has a backlog of over $8.5 billion in contracts covering its deepwater rigs, $2 billion covering its jack-ups and $1.5 billion for tender rigs.
Since these revenues are essentially guaranteed under long-term deals signed with major oil and gas producers, this represents a highly visible stream of cash?ow over the next few years.
With a ?eet that's ideal for the current market, a growing 8 percent yield and opportunities to grow via new rig construction, the stock rates a buy under $38.
Top Stock Picks For 2012: Siga Technologies
by Dennis Slothower, editor Stealth Stocks
Last year for my favorite stock pick, I recommended IMAX which more than doubled. This year I would like to recommend Siga Technologies Inc. (SIGA), a bio-defense company that o"ers the same kind of upside potential for 2011.
In 2004, the US started an initiative called Project BioShield, which gave the government the right to purchase and stockpile vaccines and drugs to fight anthrax, smallpox and other potential agents of bio-terror.
SIGA is a leader in the development of pharmaceutical agents to fight potential bio-warfare pathogens and their ST-246 drug is considered to be the only known cure for smallpox, which the government is keenly interested in.
Recently, BARDA has stated their intent to award SIGA a $500 million contract, with options that potentially could be as high as $2.8 billion in orders. However, SIGA is being challenged in court by a competitor as being too big as a company to qualify for the government contract.
In fairness, BARDA has announced plans for a market survey to determine, whether there are any qualified small businesses with the capacity to produce an adequate supply of smallpox antiviral medication for the National Strategic Stockpile. It is unlikely that a small company will be able to meet the government's needs as the drugs expire and need to be constantly replaced.
It is expected that SIGA will win this contract and if so investors could be rewarded with a double or triple in appreciation.
Top Stock Picks For 2012: PMC Sierra
by Paul McWilliams, editor Next Inning
PMC Sierra (PMCS) is a top speculative investment for the coming year. The company is a leader in the field of integration. By integrating more functions into a single chip, the company has doubled its market share in the SAS storage market as the industry moved from 3Gbs to 6Gbs."
The company is also building significant traction with its single-chip "RAID on a Chip" solution and has leveraged its integration talent to become one of the dominant suppliers in the FTTx space serving both GPON and EPON requirements.
Most recently, PMCS announced its acquisition of Israeli based Wintegra -- a private company and the world leader in network processors for access networks. "
The market for network processors in access applications, which includes broadband wireless backhaul, is just now building traction, and Wintegra will likely dominate the market for at least the next few years."" As I see it, the acquisition makes a ton of sense from many perspectives." First, as I noted, Wintegra is the leader in a market that is set to expand rapidly during the next few years. "
Second, once we factor in the Wintegra balance sheet and PMCS minority ownership (yes, PMCS was a venture" investor in Wintegra), PMCS paid only about $205M net for the company. "
Third, PMCS and Wintegra" have worked together for years and in many of the design wins you'll find a PMCS and a Wintegra chip sitting side-by-side. "
This means there is a very good integration opportunity for PMCS to put the functions of both chips into a single chip, and by doing so extend competitive advantages and lower costs.
The short story is that in spite of the fact that the company has topped the earnings consensus for six out of the last seven quarters, and equaled it for the" seventh, Wall Street still insists on slapping the stock with a huge risk discount. "
I believe as PMCS maintains this practice of topping Wall Street projections the risk discount will be removed, and with that, the forward price to earnings (valuation multiple) will rise considerably.
Top Stock Picks For 2012: PowerShares DB Agriculture ETF
by Gene Inger, editor The Inger Letter
One of the easiest ways to participate in the long-term demand for corn, wheat, cotton etc. is with a soft commodity-based exchange traded fund.
We recommend the PowerShares DB Agriculture ETF (DBA), our top pick for 2011. We believe the economy is entering a period of 'hyper-stag?ation', where prices for life's necessities -- such as gasoline, food and utility rates -- will rise persistently over time.
The owerShares DB Agriculture ETF -- soft commodity-oriented exchange traded fund -- is one of the easiest ways to participate in the long-term demand for corn, wheat, cotton etc. is
This ETF has shown fairly steady progression over time. Given steady in?ation in food costs, soft commodities are likely to rise, with periodic bouts of selling and volatility. We think an investment retained over time in 'soft commodities', is relatively low risk contrasted to volatility in markets such as Oil, or the extended Gold market for now. Why? With Asian demand bound to increase over time, soft-commodity demand will too.
Nevertheless we caution investors against chasing strength; rather, one strategy to avoid timing is to scale into one's position over time. If you scale-in, you get benefits of ensuing pullbacks while holding an initial stake.
Top Stock Picks For 2012: Canadian Oil Sands Trust
by David Dittman, contributing editor Canadian Edge
Canadian Oil Sands Trust (COSWF) has clearly lagged broad-based and energy-sector benchmarks alike over the trailing 12 months. A series of unplanned turnarounds at the Syncrude operation, of which Canadian Oil Sands owns 36.7 percent, have analysts questioning whether rising costs will ever allow Canadian Oil Sands to really benefit from elevated oil prices.
And the very skeptical wonder if actual output will ever match Syncrude's capacity potential. All in all, after years of hype and outperformance the bar is now set rather low for Canadian Oil Sands. The stock is likely to revert back to its usual pattern of trading in sympathy with crude oil prices, a relationship that did break down in 2010.
New demand from Asia, old demand in the developed world and a desire from investor for hard assets will keep the per barrel price of oil elevated over the next 12 months.
Canadian Oil Sands will restrain the excruciating growth of unplanned turnaround costs, and Syncrude will get on the path to realizing its potential.
At the new rate of CAD0.20 per share per quarter, the stock will yield about 3 percent. The stock has taken a hit in the second half of 2010, and management has shown it will boost the payout to re?ect upside oil-price surprises. Soon-to-convert Canadian Oil Sands Trust is a solid total return play on one of the world's most intriguing resource stories, set up for capital appreciation as well as dividend growth. Buy it up to $28.
Top Stock Picks For 2012: Catlin Group
by Vivian Lewis, editor Global Investing
Insurers benefit when things go wrong. That explains our latest pick, Catlin Group (CNGRY). Incorporated and regulated in Bermuda, listed primarily in London as CGL, the stock's ADR is equal to two British shares.
It is the largest syndicator at Lloyd's of London, the reinsurance business. It's also a favorite holding of institutional investors.
It very conservatively invests its premiums, in cash and fixed income with only 2.5% in hedge funds, yet it managed to produce a return on equity of 1.8% in H1 and of 2.9% in 2009 and Q3.
It keeps raising its dividend, more steadily if you buy in sterling than the ADR. Given its current yield of 6% I'm satisfied with the payout but Citigroup analysts say it will go to 7.7%..
It's a family businees, under CEO Steve Catlin, established as a Lloyd's underwriter in 1984.
It's green, funding the Catlin Arctic Survey to measures the thickness and density of ice foes in the Arctic Sea and carbon dioxide absorption (ocean acidification). Nice but not why to buy.
Rather, you should buy because Catlin is a globally diversified insurance business operating 88-89% in US dollars. It is quick to develop new businesses to benefit from macro-economic trends.
It shifted its casualty lines from insuring British solicitors and surveyors, to hot button more profitable US insurance lines: medical malpractice; directors and o#cers (D&O) insurance; cover for architects, engineers, and construction and design professions; and environment risk.
Catlin justifies these new lines (priced by its experienced actuaries) as "short tail" controlled latent risk cover for underserved niches.
Longer-tail risk is very selectively underwritten by Catlin based on claims made. (Tails refer to the extremes of a normal curve, the unexpected events. Longer-tails mean unexpected payouts.)
"Crysalis" is innovative oil production insurance, launched in Feb for oil and gas drillers. New business is booming post-Gulf of Mexico, and not just from US drillers.
BP's disaster explains the rush for Crysalis cover. BP had a Bermuda "captive" (self-financed) insurance firm.
What it will be able to collect for its captive, say industry sources, is $1.5-3.5 bn. Against this, the economic loss from the Gulf disaster is $40 bn. And since the Macondo sank, BP shareholders losses from the stock's drop topped $73 bn, a compelling argument for buying insurance. Crysalis standard contracts cap the amount of cover per event at $200 mn, and per company at $100 mn, shortening the tail.
Not everything went Catlin's way. Its first half earnings were nipped 8% from prior year by Chilean earthquake claims and the Gulf of Mexico. However, we had a benign hurricane season.
And for all the dollar's appeal, getting a decent investment return is not easy in the present QE2 environment.
If in?ation takes o", claims will be higher and coverage from investment income lower. But then Catlin can raise its premiums. And it may have shifted the policies it o"ers into another currency.
Citi expects the total payout next year for this "undervalued" (rated low risk, high return) share to come to 23.4% in sterling, and 16.6% in dollars at its target price of $12.80. Citi's 2010 profit forecast is $369 million, vs $243.8 million in 2009 and $384.9 million in 2008. (Per share, the hit was even greater in 2009 because Catlin did a rights o "ering to invest more during the crisis.).
Its Sept. quarter saw Catlin premium income up 9% and earned income up 13%. Market cap is $1.982 billion, with the ADR stock at $11.50. It has an A.M. Best A rating from the insurance watchdog.
Its combined ratio, a key metric, is 97% -- meaning expenses are 97% of premium income so underwriting was 3% to the good before any investment income. Buy CNGRY.
Top Stock Picks For 2012: Aflac
by Richard Moroney, editor Dow Theory Forecasts
Aflac (AFL) represents a top year-ahead pick based on its solid operating momentum and modest valuation. In our proprietary ranking system (known as Quadrix), the stock earns an Overall score of 99. At 10 times trailing earnings, the shares trade 33% below the five-year average P/E ratio of 15.
The insurer's sales rose 13% in the first nine months of this year, while free cash how rose 12%. At 10 times trailing earnings, shares trade 32% below the three-year average P/E ratio. Arac continues to grow in Japan (about 75% of sales), but growth in the U.S. (roughly 25%) has been tougher to find.
Management remains cautious about its U.S. outlook, but it should benefit as small companies, which make up a large portion of the domestic business, begin to hire again. A?ac -- yielding 2.2% -- is a Focus List Buy and a holding on our Long-Term Buy list.
Top Stock Picks For 2012: Allot Communications
by Ian Wyatt, editor Small Cap Investor PRO
The smartphone revolution -- with web-browsing, video-watching, music-streaming mobile devices -- has made bandwidth a scarce resource.
That's where Allot Communications (ALLT) comes in. Allot is an Israeli company that develops deep packet inspection (DPI) technology specifically designed to manage bandwidth use Consumers want phones that let them listen to music, surf the web, watch video, and access a wide array of applications. Maybe even occasionally make a call or two. Allot's solutions are critical for Internet Service Providers (ISP), cable companies, landline operators, mobile phone companies, businesses and governments.
The company has consistently grown overseas in Europe, Asia, and South America. The U.S. still represents a huge growth market, if and when regulations permit carriers to implement Allot's technology. Allot's third quarter was a good one. The company increased revenue by 36 percent to $14.7 million year-over-year.
Quarter-over-quarter revenue also increased, by 8 percent, marking the sixth consecutive quarter of sequential revenue growth. On a GAAP basis, Allot earned $0.03 per share, a nice improvement over a $0.10 loss in the third quarter of 2009.
But what I really like here is that the company ended the quarter with $56.2 million in cash and essentially zero debt. Allot is a play on the future growth of smartphones, and the near certainty that service providers will segment bandwidth in order to design service plans tailored to customer behavior.
What's more, this tiny company is a potential takeout candidate and management has shown an ability to orchestrate acquisitions in the past.
Top Stock Picks For 2012: Cisco Systems
by Lou Basenese, editor White Cap Research
One a theme that hasn't worked in, well, forever - large cap technology stocks; many large cap tech are trading at historically low valuations.
As a contrarian, I'm picking the most contrarian large cap technology stock out there: Cisco Systems (CSCO), which could be a top-performer in 2011. Cisco also happens to be one of the cheapest of the large cap tech stocks.
I'm well aware the network equipment maker isn't exactly enjoying halcyon days. After all, when the company reported third quarter results, it lowered guidance. And investors dumped the stock en masse. Shares fell 16% in a single day. Mind you, that's a colossal move for a $100 billion market cap company.
Here's the thing - the shares are dirt cheap, trading at almost a 40% discount to their historical price-to-earnings ratio. In fact, at 14 times earnings, Cisco's the cheapest it's been in over a decade.
Not only that, it remains the dominant player in the space. Its Ethernet switches, which move data along local networks, control 70% of the market.
Meanwhile, its closest competitor only boasts a 10% market share. Cisco's routers, which move data across long distances, also enjoy similar market share advantages. I'm sorry, folks. Internet tra#c is only headed in one direction. Straight up By as much as 50% per year, according to some estimates.
And such a steady increase all but guarantees steady demand for Cisco's products. Especially since switching costs in the industry are high. In short, this dominant market leader, which expects to grow earnings up to 15% per year, is just too darn cheap.
While most investors fear buying stocks bouncing around their 52-week lows, don't fear this one. A historically low valuation, $39 billion cash pile and a newly announced $10 billion worth of stock repurchases provide ample downside protection.
by Jim Trippon, editor Global Profits Alert
Yongye International (YONG) is a leading developer, manufacturer, and distributor of plant and animal nutrient products in the People's Republic of China.
Its plant nutrient product can significantly increase the plant's output and nutritional value and improve its taste.
As a result of receiving greater value in the marketplace, Yongye says its product helps increase farmers' incomes and improves their living standards. Directly addressing the need for greater e#ciency and more environmentally friendly require?
ments in the agricultural sector, Yongye's products dramatically increase the quality of crops and yields, and improve the health of livestock, according to the firm. The company is striking for its valuation with a bargain basement PEG ratio of only 0.15 Yongye has impressive financials with gross margins above 57 percent and a profit margin of 24.86 percent. Earnings per share are expected to climb 43 percent next year.
While the company has only been in operation a short amount of time, its predecessor, Inner Mongolia Yongye Company, had over 15 years' operational history which it has passed on to Yongye.
From this experience, Yongye International says it aims to inherit its predecessor com?pany's managerial experience and corporate culture to continue emulating its long-term success.
Learn more about this financial newsletter at Jim Trippon's Global Profits Alert.
Top Stock Picks For 2012: Uranium Resources
by Brendan Coffey, editor of Cabot Green Investor
Zero emissions is the holy grail of green technology as the world looks to grapple with the converging pressures of tight fossil fuel supplies, air quality issues and global warming.
I see the push for zero emissions reviving a technology once largely written o": nuclear power. In light of this, my top pick for 2011 is Uranium Resources (URRE). At this moment, some 60 nuclear plants are under construction worldwide. In the U.S., where nuclear plant construction has been dormant for decades, as many as eight new plants are scheduled to be built by 2020.
China, the fastest growing energy user in the world, should be a major driver in the market: It's building 30 nuclear reactors right now to add to its existing 12 and has an additional 157 planned.
In the next 20 years, global annual uranium demand is projected to double and the supply pressure is already starting to be seen.
From May to December 2010, uranium prices rocketed up 50% and appear set for a stronger 2011 as the market prepares for the end of the Megatons to Megawatts program in 2012.
Uranium Resources is a small uranium miner in Texas, which has produced 8 million pounds of the commodity in its 33 years of operation.
The real value in URRE isn't in its mining abilities however—it's a relatively high-cost producer, and it stopped mining for the first part of 2010 due to soft prices. Rather, over the years it has amassed parcels in New Mexico that hold over 101 million pounds of uranium, giving URRE the eighth-largest uranium reserves in the world.
By comparison, industry leader Cameco has just nine times the reserves of Uranium Resources but 50 times the market value.
That makes URRE ripe for a takeover. Until then, its share price tends to trade in tandem with uranium's price, meaning the coming year should benefit shareholders regardless of whether a takeover bid materializes.
Learn more about this financial newsletter at Brendan Coffey's Cabot Green Investor.
Top Stock Picks For 2012: Scientific Games
by Jason Shade, editor Texting Trader
As is the case with most of my trades and recommendations, my stock prediction for 2011 is a company that many of my peers are not giving much attention.
Scientific Games (SGMS) is a turnaround story that intrigues me and I select owning it as my top stock idea of 2011.
SGMS is an $882 million global leader in providing customized, end-to-end gaming solutions to lottery and gaming organizations worldwide.
Scientific Games' integrated array of products and services include instant lottery games, lottery gaming systems, terminals and services, and internet applications, as well as server-based interactive gaming machines. Scientific Games serves customers in approximately 50 countries.
After peaking at a high of $40 in 2007, this legalized gaming services provider has seen its shares collapse during the recent economic crisis.
The stock bottomed out earlier this year at $6.58 following a weak quarterly earnings report in which the company reported a .04 a share miss with revenues that also were on the light side.
Whether it was this earnings report or the prior three years of underperformance, the board and investors decided to reinstate SGMS's Chairman and former CEO Lorne Weil as CEO of the company.
Weil was at the helm during the stock's last major run from 2000 to 2005 and his returning to lead the firm is a positive catalyst for the success of SGMS and its potential return to prosperity.
Investors also can take heart in the recent binge of insider buying that accompanied Weil's return to the C-suite.
In December, management and insiders accumulated more than 4 million shares of company stock between the prices of $7.89 and $9.75 a share. One buyer of particular interest is long-time Wall Street investor Ron Perelman. Perelman now owns more than 30 million shares of the company stock. Most of his ownership is at much higher prices, including a large purchase of 400,000 shares at $14.26 a share last March.
Finally, you can't have a good corporate turnaround story without improving business fundamentals. Herein lies the challenge to management, the company and its stock. The last earnings report was anemic, but there are encouraging signs demonstrating that SGMS is committed into cleaning up its balance sheet and positioning the firm for sustainable growth in the coming years.
At the end of November, the company retired nearly $80 million in short term debt by issuing Senior Subordinated Notes due in 2018.
SGMS already boasts an 80% market share in the U.S. lottery market. Thus, the real growth engine for the firm will come from emerging markets.
SGMS is already focusing on growing these markets by working on gaining a larger footprint in the China market where its instant ticket retail sales have posted an impressive 28% gain in the latest quarter.
Following this success is a recent agreement signed between SGMS and China Sports Lottery Printing which o"ers great growth opportunities for this fast-expanding market. I find this even more intriguing as we have seen gaming stocks such as Wynn Resorts and Las Vegas Sands provide investors with huge gains based on their sales growth in Macau.
At some point, I expect analysts and investors alike to begin waking up to the Asian growth story happening at SGMS.
Like all companies, SGMS does face competitive pressures in all markets. In fact, last year the firm reported operating margins of 23%, a 5 year low for the company. This will need to be monitored over the next couple of quarters along with EPS and revenue growth.
Nevertheless, I see the recent management shakeup, swell of insider buying and market expansion in Asia to o"er investors a compelling turnaround story worth gambling on. I have a 12-month price target of $17 on SGMS.
Top Stock Picks For 2012: Seadrill
by Elliott Gue, editor The Energy Strategist
Seadrill (SDRL) is the best-placed contract driller in my coverage universe. The company doesn't produce or explore for oil and natural gas; rather, it is in the business of owning drilling rigs that are leased out to major producers for a daily fee known as a day rate.
There are three major reasons to buy Seadrill. First, the company has the youngest and most advanced ?eet of drilling rigs of any of the major contractors.
Second, Seadrill's rigs are primarily booked under long-term contracts at attractive rates for several years into the future, providing a guaranteed backlog of cash how regardless of the path of commodity prices.
And finally, Seadrill has a policy of paying out sizeable quarterly dividends supported by its backlog of rig contracts.
In the most recent quarter, Seadrill paid $0.65 per share, equivalent to an annualized yield of approximately 8 percent at the current price.
I see the company boosting its payout to around $0.75 per quarter by the fourth quarter of 2011; given strong investor preference for income-paying stocks, a growing dividend will continue to drive further upside in the stock.
Seadrill owns a feet of sixteen deepwater drilling rigs including ten semi-submersibles and six drillships.
The average operating Seadrill rig is less than five years old and that only includes the 13 rigs currently working on contracts.
The remaining 10 rigs in the feet were all built between 2008 and 2010 and are of the most modern and capable design.
All are ultra-deepwater rigs able to drill in waters more than 10,000 feet deep and are powerful enough to complete wells more than 6 miles in length.
Deepwater operations are only going to get more complex in coming years; as a result, producers need the most advanced, state-of-the-art rigs In addition to its deepwater feet, Seadrill also owns around 20 shallow-water jackup rigs and 17 tender rigs that are used to ferry people and equipment and to support o "shore drilling operations.
Seadrill has a backlog of over $8.5 billion in contracts covering its deepwater rigs, $2 billion covering its jack-ups and $1.5 billion for tender rigs.
Since these revenues are essentially guaranteed under long-term deals signed with major oil and gas producers, this represents a highly visible stream of cash?ow over the next few years.
With a ?eet that's ideal for the current market, a growing 8 percent yield and opportunities to grow via new rig construction, the stock rates a buy under $38.
Top Stock Picks For 2012: Siga Technologies
by Dennis Slothower, editor Stealth Stocks
Last year for my favorite stock pick, I recommended IMAX which more than doubled. This year I would like to recommend Siga Technologies Inc. (SIGA), a bio-defense company that o"ers the same kind of upside potential for 2011.
In 2004, the US started an initiative called Project BioShield, which gave the government the right to purchase and stockpile vaccines and drugs to fight anthrax, smallpox and other potential agents of bio-terror.
SIGA is a leader in the development of pharmaceutical agents to fight potential bio-warfare pathogens and their ST-246 drug is considered to be the only known cure for smallpox, which the government is keenly interested in.
Recently, BARDA has stated their intent to award SIGA a $500 million contract, with options that potentially could be as high as $2.8 billion in orders. However, SIGA is being challenged in court by a competitor as being too big as a company to qualify for the government contract.
In fairness, BARDA has announced plans for a market survey to determine, whether there are any qualified small businesses with the capacity to produce an adequate supply of smallpox antiviral medication for the National Strategic Stockpile. It is unlikely that a small company will be able to meet the government's needs as the drugs expire and need to be constantly replaced.
It is expected that SIGA will win this contract and if so investors could be rewarded with a double or triple in appreciation.
Top Stock Picks For 2012: PMC Sierra
by Paul McWilliams, editor Next Inning
PMC Sierra (PMCS) is a top speculative investment for the coming year. The company is a leader in the field of integration. By integrating more functions into a single chip, the company has doubled its market share in the SAS storage market as the industry moved from 3Gbs to 6Gbs."
The company is also building significant traction with its single-chip "RAID on a Chip" solution and has leveraged its integration talent to become one of the dominant suppliers in the FTTx space serving both GPON and EPON requirements.
Most recently, PMCS announced its acquisition of Israeli based Wintegra -- a private company and the world leader in network processors for access networks. "
The market for network processors in access applications, which includes broadband wireless backhaul, is just now building traction, and Wintegra will likely dominate the market for at least the next few years."" As I see it, the acquisition makes a ton of sense from many perspectives." First, as I noted, Wintegra is the leader in a market that is set to expand rapidly during the next few years. "
Second, once we factor in the Wintegra balance sheet and PMCS minority ownership (yes, PMCS was a venture" investor in Wintegra), PMCS paid only about $205M net for the company. "
Third, PMCS and Wintegra" have worked together for years and in many of the design wins you'll find a PMCS and a Wintegra chip sitting side-by-side. "
This means there is a very good integration opportunity for PMCS to put the functions of both chips into a single chip, and by doing so extend competitive advantages and lower costs.
The short story is that in spite of the fact that the company has topped the earnings consensus for six out of the last seven quarters, and equaled it for the" seventh, Wall Street still insists on slapping the stock with a huge risk discount. "
I believe as PMCS maintains this practice of topping Wall Street projections the risk discount will be removed, and with that, the forward price to earnings (valuation multiple) will rise considerably.
Top Stock Picks For 2012: PowerShares DB Agriculture ETF
by Gene Inger, editor The Inger Letter
One of the easiest ways to participate in the long-term demand for corn, wheat, cotton etc. is with a soft commodity-based exchange traded fund.
We recommend the PowerShares DB Agriculture ETF (DBA), our top pick for 2011. We believe the economy is entering a period of 'hyper-stag?ation', where prices for life's necessities -- such as gasoline, food and utility rates -- will rise persistently over time.
The owerShares DB Agriculture ETF -- soft commodity-oriented exchange traded fund -- is one of the easiest ways to participate in the long-term demand for corn, wheat, cotton etc. is
This ETF has shown fairly steady progression over time. Given steady in?ation in food costs, soft commodities are likely to rise, with periodic bouts of selling and volatility. We think an investment retained over time in 'soft commodities', is relatively low risk contrasted to volatility in markets such as Oil, or the extended Gold market for now. Why? With Asian demand bound to increase over time, soft-commodity demand will too.
Nevertheless we caution investors against chasing strength; rather, one strategy to avoid timing is to scale into one's position over time. If you scale-in, you get benefits of ensuing pullbacks while holding an initial stake.
Top Stock Picks For 2012: Canadian Oil Sands Trust
by David Dittman, contributing editor Canadian Edge
Canadian Oil Sands Trust (COSWF) has clearly lagged broad-based and energy-sector benchmarks alike over the trailing 12 months. A series of unplanned turnarounds at the Syncrude operation, of which Canadian Oil Sands owns 36.7 percent, have analysts questioning whether rising costs will ever allow Canadian Oil Sands to really benefit from elevated oil prices.
And the very skeptical wonder if actual output will ever match Syncrude's capacity potential. All in all, after years of hype and outperformance the bar is now set rather low for Canadian Oil Sands. The stock is likely to revert back to its usual pattern of trading in sympathy with crude oil prices, a relationship that did break down in 2010.
New demand from Asia, old demand in the developed world and a desire from investor for hard assets will keep the per barrel price of oil elevated over the next 12 months.
Canadian Oil Sands will restrain the excruciating growth of unplanned turnaround costs, and Syncrude will get on the path to realizing its potential.
At the new rate of CAD0.20 per share per quarter, the stock will yield about 3 percent. The stock has taken a hit in the second half of 2010, and management has shown it will boost the payout to re?ect upside oil-price surprises. Soon-to-convert Canadian Oil Sands Trust is a solid total return play on one of the world's most intriguing resource stories, set up for capital appreciation as well as dividend growth. Buy it up to $28.
Top Stock Picks For 2012: Catlin Group
by Vivian Lewis, editor Global Investing
Insurers benefit when things go wrong. That explains our latest pick, Catlin Group (CNGRY). Incorporated and regulated in Bermuda, listed primarily in London as CGL, the stock's ADR is equal to two British shares.
It is the largest syndicator at Lloyd's of London, the reinsurance business. It's also a favorite holding of institutional investors.
It very conservatively invests its premiums, in cash and fixed income with only 2.5% in hedge funds, yet it managed to produce a return on equity of 1.8% in H1 and of 2.9% in 2009 and Q3.
It keeps raising its dividend, more steadily if you buy in sterling than the ADR. Given its current yield of 6% I'm satisfied with the payout but Citigroup analysts say it will go to 7.7%..
It's a family businees, under CEO Steve Catlin, established as a Lloyd's underwriter in 1984.
It's green, funding the Catlin Arctic Survey to measures the thickness and density of ice foes in the Arctic Sea and carbon dioxide absorption (ocean acidification). Nice but not why to buy.
Rather, you should buy because Catlin is a globally diversified insurance business operating 88-89% in US dollars. It is quick to develop new businesses to benefit from macro-economic trends.
It shifted its casualty lines from insuring British solicitors and surveyors, to hot button more profitable US insurance lines: medical malpractice; directors and o#cers (D&O) insurance; cover for architects, engineers, and construction and design professions; and environment risk.
Catlin justifies these new lines (priced by its experienced actuaries) as "short tail" controlled latent risk cover for underserved niches.
Longer-tail risk is very selectively underwritten by Catlin based on claims made. (Tails refer to the extremes of a normal curve, the unexpected events. Longer-tails mean unexpected payouts.)
"Crysalis" is innovative oil production insurance, launched in Feb for oil and gas drillers. New business is booming post-Gulf of Mexico, and not just from US drillers.
BP's disaster explains the rush for Crysalis cover. BP had a Bermuda "captive" (self-financed) insurance firm.
What it will be able to collect for its captive, say industry sources, is $1.5-3.5 bn. Against this, the economic loss from the Gulf disaster is $40 bn. And since the Macondo sank, BP shareholders losses from the stock's drop topped $73 bn, a compelling argument for buying insurance. Crysalis standard contracts cap the amount of cover per event at $200 mn, and per company at $100 mn, shortening the tail.
Not everything went Catlin's way. Its first half earnings were nipped 8% from prior year by Chilean earthquake claims and the Gulf of Mexico. However, we had a benign hurricane season.
And for all the dollar's appeal, getting a decent investment return is not easy in the present QE2 environment.
If in?ation takes o", claims will be higher and coverage from investment income lower. But then Catlin can raise its premiums. And it may have shifted the policies it o"ers into another currency.
Citi expects the total payout next year for this "undervalued" (rated low risk, high return) share to come to 23.4% in sterling, and 16.6% in dollars at its target price of $12.80. Citi's 2010 profit forecast is $369 million, vs $243.8 million in 2009 and $384.9 million in 2008. (Per share, the hit was even greater in 2009 because Catlin did a rights o "ering to invest more during the crisis.).
Its Sept. quarter saw Catlin premium income up 9% and earned income up 13%. Market cap is $1.982 billion, with the ADR stock at $11.50. It has an A.M. Best A rating from the insurance watchdog.
Its combined ratio, a key metric, is 97% -- meaning expenses are 97% of premium income so underwriting was 3% to the good before any investment income. Buy CNGRY.
Top Stock Picks For 2012: Aflac
by Richard Moroney, editor Dow Theory Forecasts
Aflac (AFL) represents a top year-ahead pick based on its solid operating momentum and modest valuation. In our proprietary ranking system (known as Quadrix), the stock earns an Overall score of 99. At 10 times trailing earnings, the shares trade 33% below the five-year average P/E ratio of 15.
The insurer's sales rose 13% in the first nine months of this year, while free cash how rose 12%. At 10 times trailing earnings, shares trade 32% below the three-year average P/E ratio. Arac continues to grow in Japan (about 75% of sales), but growth in the U.S. (roughly 25%) has been tougher to find.
Management remains cautious about its U.S. outlook, but it should benefit as small companies, which make up a large portion of the domestic business, begin to hire again. A?ac -- yielding 2.2% -- is a Focus List Buy and a holding on our Long-Term Buy list.
Top Stock Picks For 2012: Allot Communications
by Ian Wyatt, editor Small Cap Investor PRO
The smartphone revolution -- with web-browsing, video-watching, music-streaming mobile devices -- has made bandwidth a scarce resource.
That's where Allot Communications (ALLT) comes in. Allot is an Israeli company that develops deep packet inspection (DPI) technology specifically designed to manage bandwidth use Consumers want phones that let them listen to music, surf the web, watch video, and access a wide array of applications. Maybe even occasionally make a call or two. Allot's solutions are critical for Internet Service Providers (ISP), cable companies, landline operators, mobile phone companies, businesses and governments.
The company has consistently grown overseas in Europe, Asia, and South America. The U.S. still represents a huge growth market, if and when regulations permit carriers to implement Allot's technology. Allot's third quarter was a good one. The company increased revenue by 36 percent to $14.7 million year-over-year.
Quarter-over-quarter revenue also increased, by 8 percent, marking the sixth consecutive quarter of sequential revenue growth. On a GAAP basis, Allot earned $0.03 per share, a nice improvement over a $0.10 loss in the third quarter of 2009.
But what I really like here is that the company ended the quarter with $56.2 million in cash and essentially zero debt. Allot is a play on the future growth of smartphones, and the near certainty that service providers will segment bandwidth in order to design service plans tailored to customer behavior.
What's more, this tiny company is a potential takeout candidate and management has shown an ability to orchestrate acquisitions in the past.
Top Stock Picks For 2012: Cisco Systems
by Lou Basenese, editor White Cap Research
One a theme that hasn't worked in, well, forever - large cap technology stocks; many large cap tech are trading at historically low valuations.
As a contrarian, I'm picking the most contrarian large cap technology stock out there: Cisco Systems (CSCO), which could be a top-performer in 2011. Cisco also happens to be one of the cheapest of the large cap tech stocks.
I'm well aware the network equipment maker isn't exactly enjoying halcyon days. After all, when the company reported third quarter results, it lowered guidance. And investors dumped the stock en masse. Shares fell 16% in a single day. Mind you, that's a colossal move for a $100 billion market cap company.
Here's the thing - the shares are dirt cheap, trading at almost a 40% discount to their historical price-to-earnings ratio. In fact, at 14 times earnings, Cisco's the cheapest it's been in over a decade.
Not only that, it remains the dominant player in the space. Its Ethernet switches, which move data along local networks, control 70% of the market.
Meanwhile, its closest competitor only boasts a 10% market share. Cisco's routers, which move data across long distances, also enjoy similar market share advantages. I'm sorry, folks. Internet tra#c is only headed in one direction. Straight up By as much as 50% per year, according to some estimates.
And such a steady increase all but guarantees steady demand for Cisco's products. Especially since switching costs in the industry are high. In short, this dominant market leader, which expects to grow earnings up to 15% per year, is just too darn cheap.
While most investors fear buying stocks bouncing around their 52-week lows, don't fear this one. A historically low valuation, $39 billion cash pile and a newly announced $10 billion worth of stock repurchases provide ample downside protection.
How Egypt's Civil Unrest Could Spread to Asia, and What It Means for Your Investments!
In recent weeks we've seen riots in Algeria, a coup in Tunisia and a massive public uprising in Egypt. The catalyst: The combination of skyrocketing food prices and high, persistent unemployment.
But while most are focusing on the specific political shortcomings within the countries and dismissing the events as isolated and contained, the lessons learned from this global economic crisis give every reason to expect contagion ...
Permalink: [614] Top Stocks To Buy - How Egypt's Civil Unrest Could Spread to Asia, and What It Means for Your Investments!
Here's why ...
Spreading Discontent
This dangerous combination of persistent unemployment and rapidly rising food inflation isn't just specific to North Africa and the Middle East. Global unemployment remains at record levels. And world food prices rose to a record in January.
The expanding unrest is most vulnerable in those countries with low per capita income, where people may spend as much as 70 percent of their income on food. Moreover, the threat of civil disorder rises when those countries have significant income inequality and/or have gone through major economic stress where the outlook for a return to normalcy looks bleak.
In this environment, there are many countries that fit the bill. Take a look at how risks in other parts of the world stack up against Egypt and Tunisia.
The table below is a gauge of economic misery across the biggest countries in the world. This index was created by a former economic advisor to President Lyndon Johnson, Arthur Okun. It simply takes the sum of inflation and unemployment rates. According to his index, the higher the index value the more miserable life is in these countries.
You can see that Tunisia and Egypt, two countries that have already erupted in crisis, are among the most miserable.
Also note the position of the weakest euro-zone countries — Portugal, Ireland, Greece and Spain — all of which have been forced into stifling austerity plans by the IMF and their European neighbors.
We've already seen massive protests in recent months, both from those countries taking money ... and from those giving money. And growing inter-European political fractures and languishing economic activity promise more social volatility ahead.
Asia at Even Greater Risk!
Perhaps the biggest potential threat within this table is a spread of public uprising to the three Asian countries that have been important drivers of global economic recovery: Indonesia, India and China.
Food prices in Indonesia and India have risen 16 percent and 17 percent, respectively, over the past year. And while China's misery index is on the bottom of this list, it's risen 40 percent in the past year.
Remember, China still has the world's second largest poor population, with 135 million people living on less than one U.S. dollar a day. The largest poor population: India.
So a backlash in China or India could stop the global economic recovery dead in its tracks!
That's why, despite all of the global pressure on China to stop manipulating global trade through its weak currency advantage, it is unwilling to make meaningful concessions. The risk of losing exports, and therefore losing jobs, is a recipe for violent protests and too big of a risk for China's ruling Communist Party to take.
To be sure, major problems in China are major problems for the rest of the world. Yet, the pressures on China to strengthen the yuan will continue to grow, because its currency policy promises to keep the global economy imbalanced, and stuck in the current cycle of booms and busts.
If the China problem sounds like a conundrum, you're right, it is.
Still, recent meetings of world economic and financial leaders in Davos, Switzerland were filled with optimism about the global recovery.
But for all of the reasons I've touched on here, IMF chief Dominique Strauss-Kahn followed those meetings with warnings this week that the growing divisions between countries and within countries pose the risks of global protectionism and war.
If in fact, we see a spread of public backlash across the world, it's fair to expect global investors will, again, pull in their horns. And we'll likely see the risk aversion dynamic return to global markets in a hurry.
That means weaker global stock markets, falling commodities, a flight from emerging market currencies and a rise in the dollar.
But while most are focusing on the specific political shortcomings within the countries and dismissing the events as isolated and contained, the lessons learned from this global economic crisis give every reason to expect contagion ...
Permalink: [614] Top Stocks To Buy - How Egypt's Civil Unrest Could Spread to Asia, and What It Means for Your Investments!
- The subprime crisis was said to be contained. But it wasn't.
- The failing of major U.S. financial institutions was said to be contained. But it wasn't.
- The sovereign debt crisis in Greece was said to be contained. But it wasn't.
Here's why ...
Spreading Discontent
This dangerous combination of persistent unemployment and rapidly rising food inflation isn't just specific to North Africa and the Middle East. Global unemployment remains at record levels. And world food prices rose to a record in January.
The expanding unrest is most vulnerable in those countries with low per capita income, where people may spend as much as 70 percent of their income on food. Moreover, the threat of civil disorder rises when those countries have significant income inequality and/or have gone through major economic stress where the outlook for a return to normalcy looks bleak.
In this environment, there are many countries that fit the bill. Take a look at how risks in other parts of the world stack up against Egypt and Tunisia.
The table below is a gauge of economic misery across the biggest countries in the world. This index was created by a former economic advisor to President Lyndon Johnson, Arthur Okun. It simply takes the sum of inflation and unemployment rates. According to his index, the higher the index value the more miserable life is in these countries.
Also note the position of the weakest euro-zone countries — Portugal, Ireland, Greece and Spain — all of which have been forced into stifling austerity plans by the IMF and their European neighbors.
We've already seen massive protests in recent months, both from those countries taking money ... and from those giving money. And growing inter-European political fractures and languishing economic activity promise more social volatility ahead.
Asia at Even Greater Risk!
Perhaps the biggest potential threat within this table is a spread of public uprising to the three Asian countries that have been important drivers of global economic recovery: Indonesia, India and China.
Food prices in Indonesia and India have risen 16 percent and 17 percent, respectively, over the past year. And while China's misery index is on the bottom of this list, it's risen 40 percent in the past year.
Remember, China still has the world's second largest poor population, with 135 million people living on less than one U.S. dollar a day. The largest poor population: India.
So a backlash in China or India could stop the global economic recovery dead in its tracks!
That's why, despite all of the global pressure on China to stop manipulating global trade through its weak currency advantage, it is unwilling to make meaningful concessions. The risk of losing exports, and therefore losing jobs, is a recipe for violent protests and too big of a risk for China's ruling Communist Party to take.
To be sure, major problems in China are major problems for the rest of the world. Yet, the pressures on China to strengthen the yuan will continue to grow, because its currency policy promises to keep the global economy imbalanced, and stuck in the current cycle of booms and busts.
If the China problem sounds like a conundrum, you're right, it is.
Still, recent meetings of world economic and financial leaders in Davos, Switzerland were filled with optimism about the global recovery.
But for all of the reasons I've touched on here, IMF chief Dominique Strauss-Kahn followed those meetings with warnings this week that the growing divisions between countries and within countries pose the risks of global protectionism and war.
If in fact, we see a spread of public backlash across the world, it's fair to expect global investors will, again, pull in their horns. And we'll likely see the risk aversion dynamic return to global markets in a hurry.
That means weaker global stock markets, falling commodities, a flight from emerging market currencies and a rise in the dollar.
Drug Stocks Crumbling… What To Do Now!
Big Pharma stocks are core holdings for many investors. You might even have one or two in your own portfolio. If you do, I’m sorry to say I have bad news for you.
Drug stocks are facing major challenges in 2011.
For years, drug stocks like Pfizer (PFE), Johnson & Johnson (JNJ), Merck (MRK), and Eli Lilly (LLY) have posted steady double-digit earnings growth. Many of them have also provided a steady stream of income through regular dividends.
Permalink: [609] Top Stocks To Buy – Drug Stocks Crumbling… What To Do Now!
These two qualities have made drug stocks a staple in stock portfolios for decades.
Now, for the first time in a long while, many big name drug firms will see their growth rates slip into the single digits. Here’s why…
The biggest threat to earnings growth is also the hardest problem to solve. I’m talking about major revenue producing drugs losing their patent protection.
Drug stocks are facing major challenges in 2011.
For years, drug stocks like Pfizer (PFE), Johnson & Johnson (JNJ), Merck (MRK), and Eli Lilly (LLY) have posted steady double-digit earnings growth. Many of them have also provided a steady stream of income through regular dividends.
Permalink: [609] Top Stocks To Buy – Drug Stocks Crumbling… What To Do Now!
These two qualities have made drug stocks a staple in stock portfolios for decades.
Now, for the first time in a long while, many big name drug firms will see their growth rates slip into the single digits. Here’s why…
The biggest threat to earnings growth is also the hardest problem to solve. I’m talking about major revenue producing drugs losing their patent protection.
Your daily options trading wrap up.
Bullish flow detected in Quicksilver Resources (NYSE: KWK), with 9069 calls trading, or eight-times its recent average daily call volume.
Bullish flow detected in MEMC Electronic Materials (NYSE: WFR), with 13,918 calls trading, or two-times its recent average daily call volume.
Increasing volume is also being seen in Pfizer (NYSE: PFE), Hovnanian (NYSE: HOV), and CBS (NYSE: CBS).
Sentiment
Stocks are broadly higher on upbeat stock news and economic data Tuesday. Manufacturing numbers came into focus early after the ISM Index for January showed an increase to 60.8. Economists were expecting it to stay flat at 58.5. Meanwhile, Pfizer shares are trading up 5.5% among the best gainers in the Dow Jones Industrial Average after posting better than expected fourth quarter profits and announcing a share buyback. Baidu.com (NASDAQ: BIDU), Archer Daniels Midland (NYSE: ADM), and BP (NYSE: BP) are also seeing post-earnings gains. Ford (NYSE: F) and GM (NYSE: GM) are up on monthly auto and truck sales numbers. The Dow Jones Industrial Average has added 143 points and the tech-heavy NASDAQ gained 52. The CBOE Volatility Index (VIX) is up 1.83 to 17.70. Trading in the options market is very active Tuesday. With an hour left to trade, 10.3 million calls and 6.4 million puts traded so far.
Bullish Flow
Investors are sizing up Citi (NYSE: C) calls with 543,000 contracts traded, which is only 84% the usual, but compares to put volume of 137,000 contracts. The C Feb 5 Call is today’s second most actively traded options contract with 153,000 traded. The Weeklys (expiring Feb 4) are seeing action as well. 89,170 traded (99% on the offer). Shares are up 7 cents to $4.89 and the contract is 11 cents out-of-the-money with three days of life remaining. Open interest is only 2,704. Some investors might be opening positions in anticipation of Citi’s presentation tomorrow at a Morgan Stanley conference. The C Weekly 5.5 Calls have also seeing unusual interest, with some investors apparently paying a penny to open new positions. Meanwhile, implied volatility in Citi options is up 3% to 29.
Focus Media (NASDAQ: FMCN) adds $1.54 to $26.45 and options action is picking up in Feb, Mar and April 28 calls after Goldman Sachs upgraded the stock to Conviction Buy List from Buy before the open. 2,180 calls and 270 puts traded early in the day, or 18 times the typical volume for the first 30 minutes of trading.
Bearish Flow
The top options trades so far today are in the SPDR S&P 500 Trust (NYSE: SPY). Spyders have climbed $2 higher, to $130.68, and the SPY Feb 121 – 130 Put Spread trades at a $1.38, 50,000 times on the Chicago Board Options Exchange. It was part of a purchase of 70,000, according to a source on the exchange, and probably a short-term hedge. Feb options expire in 17 days.
Implied Volatility Mover
Baidu.com implied volatility (IV) is easing, as shares rally around earnings news. BIDU is up $10.28 to $118.91 and heading to session highs into the final hour of trading. 113,000 calls and 82,000 puts traded. BIDU Weekly (Feb 4) Calls at the 120 line are the most actives with 10,915 changing hands, as some players appear to be opening new positions in anticipation of additional gains through the end of the week. Feb 115 and 120 calls are actively traded as well. The Mar 90 is the most actively traded put. Implied volatility is down 26.5% to 33.5, compared to a 52-week high and low of 66 and 33. The 120 day SV is 35.1%; the 20 day is 24%.
Frederic Ruffy is the Senior Options Strategist at Whatstrading.com, a site dedicated to helping traders make sense of the complex and fragmented nature of listed options trading.
Bullish flow detected in Quicksilver Resources (NYSE: KWK), with 9069 calls trading, or eight-times its recent average daily call volume.
Bullish flow detected in MEMC Electronic Materials (NYSE: WFR), with 13,918 calls trading, or two-times its recent average daily call volume.
Increasing volume is also being seen in Pfizer (NYSE: PFE), Hovnanian (NYSE: HOV), and CBS (NYSE: CBS).
Sentiment
Stocks are broadly higher on upbeat stock news and economic data Tuesday. Manufacturing numbers came into focus early after the ISM Index for January showed an increase to 60.8. Economists were expecting it to stay flat at 58.5. Meanwhile, Pfizer shares are trading up 5.5% among the best gainers in the Dow Jones Industrial Average after posting better than expected fourth quarter profits and announcing a share buyback. Baidu.com (NASDAQ: BIDU), Archer Daniels Midland (NYSE: ADM), and BP (NYSE: BP) are also seeing post-earnings gains. Ford (NYSE: F) and GM (NYSE: GM) are up on monthly auto and truck sales numbers. The Dow Jones Industrial Average has added 143 points and the tech-heavy NASDAQ gained 52. The CBOE Volatility Index (VIX) is up 1.83 to 17.70. Trading in the options market is very active Tuesday. With an hour left to trade, 10.3 million calls and 6.4 million puts traded so far.
Bullish Flow
Investors are sizing up Citi (NYSE: C) calls with 543,000 contracts traded, which is only 84% the usual, but compares to put volume of 137,000 contracts. The C Feb 5 Call is today’s second most actively traded options contract with 153,000 traded. The Weeklys (expiring Feb 4) are seeing action as well. 89,170 traded (99% on the offer). Shares are up 7 cents to $4.89 and the contract is 11 cents out-of-the-money with three days of life remaining. Open interest is only 2,704. Some investors might be opening positions in anticipation of Citi’s presentation tomorrow at a Morgan Stanley conference. The C Weekly 5.5 Calls have also seeing unusual interest, with some investors apparently paying a penny to open new positions. Meanwhile, implied volatility in Citi options is up 3% to 29.
Focus Media (NASDAQ: FMCN) adds $1.54 to $26.45 and options action is picking up in Feb, Mar and April 28 calls after Goldman Sachs upgraded the stock to Conviction Buy List from Buy before the open. 2,180 calls and 270 puts traded early in the day, or 18 times the typical volume for the first 30 minutes of trading.
Bearish Flow
The top options trades so far today are in the SPDR S&P 500 Trust (NYSE: SPY). Spyders have climbed $2 higher, to $130.68, and the SPY Feb 121 – 130 Put Spread trades at a $1.38, 50,000 times on the Chicago Board Options Exchange. It was part of a purchase of 70,000, according to a source on the exchange, and probably a short-term hedge. Feb options expire in 17 days.
Implied Volatility Mover
Baidu.com implied volatility (IV) is easing, as shares rally around earnings news. BIDU is up $10.28 to $118.91 and heading to session highs into the final hour of trading. 113,000 calls and 82,000 puts traded. BIDU Weekly (Feb 4) Calls at the 120 line are the most actives with 10,915 changing hands, as some players appear to be opening new positions in anticipation of additional gains through the end of the week. Feb 115 and 120 calls are actively traded as well. The Mar 90 is the most actively traded put. Implied volatility is down 26.5% to 33.5, compared to a 52-week high and low of 66 and 33. The 120 day SV is 35.1%; the 20 day is 24%.
Frederic Ruffy is the Senior Options Strategist at Whatstrading.com, a site dedicated to helping traders make sense of the complex and fragmented nature of listed options trading.
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