Perion: A Misunderstood And Unappreciated Merger

Summary

On the morning of 09/16, Perion (PERI) announced a long-rumored deal: an all stock "merger" with a much larger but private Conduit division Conduit Connect. The details of the deal are quite simple. Perion will issue 57 to 60 million additional shares, which would give current shareholders a 19% stake in the new company, Conduit and its shareholders will get the remaining 81%. The deal, expected to close in January 2014, is expected to be immediately accretive, assuming Conduit will continue to do as well as before the merger.

The market first reaction was of complete dismay, nicely summarized in this article, with PERI equity plunging at one point over 12%. While Perion recouped most of the losses the next two days, the deal, in my opinion, is incredibly good for Perion shareholders. The investors were blinded by the disappointment of not having an immediate 30-40% pay-off if Perion was bought outright.

Chart 1: Perion equity price near the announcement

(click to enlarge)

I previously wrote a short article describing my due diligence of Conduit Connect. In this article, I will go more into detail about the justification for the merger, why I think the market reaction was misplaced, and what the new company may look like.

Current business

Perion used to be called Incredimail, a "freemium" flagship e-mail application. Several years ago, it drastically changed its business model from trying to upgrade its existing customers to a paid application to installing an Incredimail toolbar and changing browser search to MyStart which was running on top with Google (GOOG) search but displayed additional "sponsored" links. In the last two years, Perion has been very busy buying two privately held companies Sweetpacks and Smilebox, which also made "freemium" applications and converting them to the same business model.

In contrast, a much larger Conduit doesn't really promote its own applications (it has a start-up business for mobile which is separate.) Instead, it provides a platform for other businesses to create a custom toolbar. You can look at my previous article to better understand how Conduit Community Toolbar works.

Chart 2: Incredimail Toolbar with the start page vs. Conduit Community Toolbar with the start page (in a couple of favors):

Incredimail:

(click to enlarge)

Conduit:

(click to enlarge)

(click to enlarge)

Rational for a merger

To understand the merger, we have to see how each company benefits from it. In short, Conduit realizes the gains for its founders and investors by getting liquid public shares in the company, while Perion gains the scale and the synergies.

Conduit is a private Israeli company with an estimated $320 million of revenue and $94 million in net earnings (my rough estimates for this year). Unfortunately, there is limited information about the company's financials, its strategy and its revenue because it's private. From the press we can learn that JP Morgan invested $100 million in April last year getting a 7.3% stake. This stake would put private company valuation at about $1.3 billion ($100/0.073). It appears that the company paid $220 to $320 million dividend to its shareholders after the investment, which is quite a statement in support of the company exceptional profitability. Ronen Shilo, the founder, and employees still hold 22% stake in the company. Compared to its partner, Perion is a minnow with an "enterprise value" of only $140 million.

Conduit flagship service offering (and its "cash cow&q! uot;), Co! nduit Community Toolbar, is responsible for the majority of its revenue and was first introduced in 2005. In 2011, the company realized that toolbar business, while very profitable and still fast growing, will eventually slow down and introduced new mobile products, which are not quite yet successful. Today, it combines two business segments: Conduit Connect - a toolbar and several smaller desktop applications business responsible for most of its revenue and an upstart mobile business, which may not be yet profitable, but has a high potential (at least in the eyes of the management). Conduit Connect, responsible for 99% of the revenue, is merging with Perion forming a new company, leaving behind a few non-toolbar apps in the Conduit hands (mobile and some other non-toolbar applications).

Chart 3: New Perion (sources: Perion presentation):

(click to enlarge)

I concluded that Conduit decided to merge to monetize its cash cow business and concentrate on building new apps. Its founder has no interest in running a public company with all the baggage of meeting earnings per share expectations, conducting conference calls, and having to disclose everything the company does. Interestingly enough, the founder and the investors will be subject to the lock-up and Conduit management will be put on Perion board.

So what's in it for Perion? First of all, Perion gets tremendous economy of scale putting it on the map as the major "paid" search company and a major acquisition target.

Chart 4: Perion search market share (sources: Perion presentation):

(click to enlarge)

InterActiveCorp (IACI) bought Ask.com for $1.85 billion in 2005. The new Perion will be worth only about 40% of that. After the merger, Perion will leapfrog its much larger rivals: Babylon and AVG (A! VG). Fina! lly, Perion should be able to increase its operating margins as it can spread its SG&A costs over a much larger base (Conduit EBITDA margin is 32% vs. Perion's 23%). Perion will keep its senior management team intact: Josef Mandelbaum will remain its CEO and Yacov Kaufman its CFO. Perion has successfully orchestrated a roll-up acquisitions of privately-held Sweetpacks and Smilebox, so I have high confidence that they know how to integrate a new business.

Likely future strategy

As I described earlier, Conduit and Perion have a highly complementary strategy. Conduit Connect doesn't have its own free software but its toolbar is much more advanced than Perion's in its customization options.

Chart 5: Conduit toolbar customization interface (Source: my prior article about Perion):

(click to enlarge)

It's likely that Incredimail/Perion start page and toolbar will be retired and the Perion's apps: Smilebox, Incredimail, and Sweetpacks will use Conduit Community bar instead. This is one of the obvious synergies I see in the new company. They will only need to support the development of a single toolbar and a single "start" page, freeing up expensive development resources.

Perion has agreements with Google, Bing, Yahoo, and Ask.com on paid search revenue sharing while Conduit has an agreement with Bing for US markets (the majority of toolbar users) and Google for non-US users.

Google has updated its installation policies for AdWords affiliates such as browser toolbar makers which became active for most companies early this year. This change led to a number of articles on Seeking Alpha making a short case for AVG and Perion as well as some rebuttals from me and other authors. The biggest flaw in the "short case" was a failure to recognize that Google is not the only game in town. While Google commands a dominant 68% search market share, Bing (MSFT! ) with 18! % and Yahoo (YHOO) with 11% are desperate to keep pace and do not impose equally onerous terms on its affiliates. Conduit dumped Google for Bing almost three years ago for US users. I speculate that the new company will become a predominantly Bing shop (Yahoo also runs on Bing with revenue sharing) removing remaining headwinds from Google policy changes, which put a dent in Perion's and Conduit's revenue this year. If Perion switches to Conduit's search page and toolbar, the switch to Bing for US users would become immediate and automatic.

I also expect that Perion will keep on buying small private software shops on the cheap, just like it did with Sweetpacks and Smilebox, and integrate them into Conduit platform with the Bing as a default search. This "roll-up" strategy will be much cheaper going forward as all toolbar and search business will scale up having a customization platform without any significant additional costs.

Valuation of a new company

There was very little known for certain about Conduit financials until the merger announcement. Last private valuation put Conduit at $1.3 billion. Doing a quick math on the announced merger, the new company should be worth approximately $155/19% = $816 million, which would imply only $660 enterprise value for Conduit Connect. So what happened to the remaining $640 million of Conduit valuation? This article sheds some light on the topic. First of all, Conduit may have paid out as much as $320 million as a dividend. Secondly, the transaction doesn't include Conduit cash, which will be probably distributed to Conduit's shareholders. Finally, even though they only represent 1% of Conduit's revenue, some of the newer apps not included in the transaction, may be quite valuable due to its high potential. However, a large chunk of the Conduit revenue was apparently lost due to Google's new paid search policies starting this year. Perion's presentation provided with pro-forma income statement which shows this significant adjustment. Th! e good ne! ws is, of course, that the revenue hit by now has been largely absorbed by Conduit and the future looks brighter with still $160 million in revenue generated in the first half of this year. In any case, Perion is paying only two times the revenue ($660/(2 * $160)) and 7 times net income ($660/(2 *47) - a very low multiple for a still growing business!

Table 6: Conduit financials (source: Perion presentation):

(click to enlarge)

(click to enlarge)

Combining Perion's and Conduit's number allows us to compare a "new Perion" to its peer group: AVG, IACI, AOL (AOL), and Blucora (BCOR). The numbers are nothing short of incredible demonstrating how grossly the new company is underpriced.

Table 7: Valuation of "new Perion" vs. its peer group:

(click to enlarge)

Note: I use the double of last 6 month earnings and revenues because the new Google policy took place this year, which may have impacted every company. I used only GAAP estimates to be on safe side. PERI net income was substantially impacted by amortization and other expenses related to acquisition of Smilebox. Non-GAAP net income multiple is 8.5x.

I believe that the closest comp to "new PERI" is AVG as it has a very similar business model and impacted by the same changes and is of similar size. By this measure, PERI is now trading at about a 45% discount.

Conclusion:

In conclusion, I'd like to leave the readers with this slide, which reflects Perion's management view of the new combined company.

I am a bit skeptical that a 58% growth rate can be sustained, at least without acquisitions. I am more optimistic about th! e margin ! improvements, as I found a large number of synergies allowing for further efficiency improvements beyond what each company accomplished on its own.

Table 8: Combined company (source: Perion presentation):

(click to enlarge)

The new company will have a projected P/E of 8, no debt, and presents a highly desirable acquisition target. Even the most conservative analysis shows that PERI is at least 45% undervalued.

Source: Perion: A Misunderstood And Unappreciated Merger

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

This is an Alpha-Rich Idea
Alpha-Rich ideas are our best money-making long and short investment ideas. They are released exclusively to Seeking Alpha Pro users 24 hours before publication. Learn more about Seeking Alpha Pro.

Weighing the thrills and spills of small ETFs

Bloomberg News

Some things just seem more dangerous — and perhaps more thrilling — when they're small. Like cars. And planes. And, for some investors, exchange-traded funds.

Currently, 33 of the 50 best-performing ETFs of 2013 are funds that began the year with less than $100 million in assets. The market-beating performance of these smaller ETFs has attracted $1.2 billion in new cash this year, compared to $3.8 billion pulled in by the 17 bigger ETFs.

While these up-and-comers are having their day in the sun, many experienced growing pains that potential investors in small ETFs should be aware of. Buying an ETF that has less than $100 million in assets and has rocketed up the charts is risky, and not just because you're buying momentum. Typically, the smaller the ETF, the less it trades and the wider the bid/ask spread, meaning that the prices at which you can buy or sell are pretty far apart. To mitigate this, investors can use a limit order instead of a market order when buying or selling a small ETF, or any ETF.

For many of these niche products, one year in the sun is what they need to become more viable to a wider range of investors. Their Catch-22 is that for them to be perceived as less risky money needs to flow in and boost volume, shrink spreads and remove the risk that the ETF will be closed for lack of assets. If an ETF does decide to close, it notifies investors at least 30 days in advance so they can sell their shares. Investors who purposely or unknowingly hold on to the ETF until the day of liquidation get the cash equivalent of the value of the assets at the time of sale -- which could be either more or less depending on how the ETF's sector is doing.

Here's a look at some of the more dramatic rags-to-riches stories of 2013. Each of these ETFs is up more than 30 percent and has broken through the all-important $100 million asset level. Potential buyers should be aware that, as the ads say, past performance is not indicative of the future.

1. Guggenheim Spin-Off ETF (CSD)

CSD, which tracks recently spun-off companies, has gone from $67 million to $280 million in assets, a 317 percent jump. It tries to capture the performance of companies in their growth spurt between six months and thirty months of being spun off. Half of CSD is in small-cap stocks; the other half is in mid- and large-cap stocks.


2. PowerShares Dynamic Media Portfolio (PBS)

Assets in PBS have risen from $86 million to $226 million, a 162 percent jump. Both traditional media and social media stocks have been on fire this year. This ETF gives a mixture of both with large allocations to Time Warner Inc. (TWX) and CBS Corp. (CBS), as well as LinkedIn Corp. (LNKD) and Yahoo! Inc. (YHOO). It's weighted based on a stock's fundamentals, such as its earnings and price momentum, as opposed to market capitalization.

3. DB X-Trackers MSCI Japan Hedged Equity Fund (DBJP)

DBJP has grown from $5 million to $157 million, a 3,040 percent rise in assets. It lives in the long shadow cast by the WisdomTree Japan Hedged ETF (DXJ),! which has grown to $10.6 billion since its 2006 inception and which also hedges out yen exposure. DBJP'S 33 percent return so far this year is 5.6 percent more than that of DXJ. That's because DBJP holds three times more financial stocks, which have done very well this year, than DXJ.

4. PowerShares DWA SmallCap Technical Leaders Portfolio (DWAS)

DWAS has gone from $13 million to $302 million, a 2,223 percent jump. It tracks 200 small-cap stocks picked from a universe of 2,000 purely for their relative performance strength using technical analysis. This is a quasi-active ETF that is beating its competition, the iShares Russell 2000, by 10 percent over

ZIOPHARM Oncology Has Proven All That It Needs to Prove (ZIOP)

Back on July 16th, I pointed out ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) was a budding superstar. Though I suggested waiting for the stock to cool off before stepping into it (and it did cool off, by the way), ZIOP has since walked its way above the key line in the sand that was acting like a ceiling then. Though there's still one more hurdle shares need to clear before being a "must-have" stock, the heavy lifting's been done.

First things first. ZIOP is - the name implies - a cancer-drug developer. Though almost all hopes were on Palifosfamide drug a few months ago only to have its failure pull the rug out from underneath shares, the market's starting to recall that ZIOPHARM Oncology still has six more drugs in its pipeline. The slow perk-up from the stock in the meantime is being driven by the value of that pipeline.

The real story here, however, is the chart.

Top 5 Oil Companies To Watch For 2014

With my last look at ZIOP about three weeks ago, the horizontal ceiling at $2.96 was the key. The stock actually ended up edging above that line the next day (busting my expectation at the time), but fell back under $2.96 the day after that. That's not a bad thing though. In fact, that may have been the best thing that could have happened to ZIOPHARM Oncology. It bled off much of the overbought pressure. In the meantime, shares have quietly walked back above the $2.96 ceiling, and have since turned it into a floor. Better still, the 20-day moving average line (blue) has moved into place as a floor. Putting it all together, it says the buyers are not only serious, but methodical and calculated.

The next - and likely last - hurdle ZIOPHARM Oncology shares are facing is the 200-day moving average line (green) at $3.35. There's also a ceiling at $3.30, where ZIOP topped out a couple of times since my last look. But, if ZIOP can get over the 200-day line at $3.35, it will by default have cleared the newly-developed ceiling at $3.30.

Waiting until shares move above this resistance area is prudent, as it wipes away much of the risk that ZIOPHARM isn't really ready to break to new highs. That may be an unnecessary precaution, though. There's a lot of support and a lot of momentum already in place here. No risk, no reward.

If you'd like to get more trading ideas and setups like this one, sign up for the free SmallCap Network e-newsletter today! You'll get stock picks, market calls, and more.

European Stocks Rise as Telecommunication Companies Climb

European stocks advanced, following a two-day decline, as telecommunications companies climbed, outweighing U.S. consumer confidence and regional manufacturing reports that trailed economists' estimates.

Telecom Italia (TIT) SpA gained 1.7 percent as Telefonica SA agreed to increase its stake in the phone operator. Nokia Oyj added 2.4 percent after a U.S. judge found that HTC Corp. violated two of its patents. Total (FP) SA climbed 2.6 percent after Barclays Plc raised its rating on the oil producer. Burckhardt Compression Holding AG slid 7.3 percent after saying fiscal first-half net income will decline from the year-earlier period.

The Stoxx Europe 600 Index added 0.2 percent to 313.2 at the close in London. The equity benchmark has climbed 5.3 percent in September, extending its rally this year to 12 percent, as the Fed refrained from reducing its monthly bond buying. The gauge has risen 9.9 percent in the current quarter, on course for its biggest gain in four years. It is trading at 14.3 times projected earnings, compared with a high of 15.7 times in October 2009.

"In the medium to long term, European equities still look attractive," Herbert Perus, who helps oversee about $36 billion as head of equities at Raiffeisen Capital Management in Vienna, said by phone. "Valuations are still cheap and more investors will buy European stocks. In the very short term, the rally we saw over the last few weeks may come off a bit. If we get a clear statement from the Fed, that would help markets."

Consumer Confidence

In the U.S., the Conference Board's consumer-confidence index slipped to 79.7 this month from a revised 81.8 in August. The median forecast of economists surveyed by Bloomberg had called for a reading of 79.9.

A measure of manufacturing in the region covered by the Fed Bank of Richmond shrank in September. The factory index, which covers North Carolina, South Carolina, the District of Columbia, Maryland, Virginia and most of West Virginia, dropped to 0 from 14 last month. Economists in a Bloomberg survey had predicted the gauge would decline to 12.

In Germany, the Ifo institute's business-climate index, based on a survey of 7,000 executives, advanced to 107.7 from a revised 107.6 in August. That missed the median economist forecast in a Bloomberg News survey of 108.

National benchmark indexes advanced in 14 out of 18 western-European markets. The U.K.'s FTSE 100 increased 0.2 percent and Germany's DAX added 0.3 percent, while France's CAC 40 climbed 0.6 percent.

Telecom Italia

Telecom Italia climbed 1.7 percent to 60 euro cents. Telefonica agreed to pay 324 million euros ($437 million) to increase its stake in Telco SpA, a holding company that owns 22.4 percent of Telecom Italia, to 66 percent from 46 percent.

Nokia, the Finnish phonemaker that has agreed to sell its handsets business to Microsoft Corp. (MSFT), climbed 2.4 percent to 4.91 euros. HTC infringed on two patent rights held by Nokia, U.S. International Trade Commission Judge Thomas Pender said in a notice yesterday. A six-member commission will review the judge's findings before deciding whether to block any imports.

Total added 2.6 percent to 43.20 euros after Barclays raised its recommendation on the stock to equal weight, which is similar to hold, from underweight. The brokerage said Europe's third-biggest oil company can better control its capital expenditure than it had predicted. Total gave detailed capital-spending plans for exploration and production at its investor day, according to Barclays.

Close Brothers Group Plc gained 4.9 percent to 1,189 pence as the British financial services company said full-year net income rose 20 percent to 119.4 million pounds ($191 million). Its asset-management unit swung to a profit of 4 million pounds from a 4.3 million-pound loss a year earlier.

Burckhardt Slides

Burckhardt tumbled 7.3 percent to 358.25 Swiss francs, its biggest decline in two years, after saying that lower-than-expected gross margins on two major compressor-system projects will lead the company to make provisions in the six months through September.

Deutsche Wohnen AG slipped 2.2 percent to 13.25 euros as a statement showed Blackstone Group LP is selling 8.15 million shares, or a 4.8 percent stake, in the German residential landlord. The price guidance has narrowed to 13.05 euros to 13.10 euros a share, people familiar with the matter said.

Suedzucker AG dropped 3.3 percent to 21.10 euros. The maker of sugar and starch said it might miss its May forecast of 825 million euros for full-year operating profit following its CropEnergies unit's purchase of bioethanol producer Ensus Ltd. in July.

"It is more challenging to achieve this target due to the current cautious business development and effects from the integration of Ensus at CropEnergies," it said in a statement.

The volume of shares changing hands in companies listed on the Stoxx 600 was 6 percent greater than the average of the past 30 days, according to data compiled by Bloomberg.

Top 10 Warren Buffett Companies To Own For 2014

The�Berkshire Hathaway� (NYSE: BRK-A  ) (NYSE: BRK-B  ) annual meeting is attended by throngs of Berkshire faithful. For some shareholders at the meeting, it's probably impossible for Berkshire CEO Warren Buffett to�ever be wrong in their eyes. If we're being realistic, though, Buffett does indeed have his slip-ups. As partner-in-crime Charlie Munger put it:

"Just because Warren thought something years ago doesn't make it a law of nature."

With that in mind, I rounded up the team of Fools who attended this year's Berkshire meeting to ask in what ways Buffett disappointed them during the meeting.

Brendan Mathews: Toward the end of the meeting, a shareholder asked about IBM's (NYSE: IBM  ) moat. Warren basically sidestepped the question, saying he didn't understand IBM's moat as well as Coca-Cola's (NYSE: KO  ) . According to Buffett, He likes IBM's financial policies and thinks it will do well, but he feels more conviction in Coca-Cola, Wrigley, Heinz (NYSE: HNZ  ) , and Burlington Northern Santa Fe.

Top 10 Warren Buffett Companies To Own For 2014: Great Pacific International Inc(GPI.V)

Great Pacific International Inc., a junior oil and gas company, engages in the exploration and development of oil and gas properties. It holds interests in properties located in Alberta, Canada; and Texas, the United States. The company was incorporated in 1993 and is based in Ladner, Canada.

Top 10 Warren Buffett Companies To Own For 2014: Information Services Group Inc.(III)

Information Services Group, Inc. operates as a fact-based sourcing advisory company principally in the Americas, Europe, and the Asia Pacific. It provides strategic consulting, benchmarking and analytics, managed services, and research services with a focus on information technology, business process transformation, and enterprise resource planning. The company serves financial services, telecom, healthcare and pharmaceuticals, manufacturing, transportation and travel, and energy and utilities industries; and state and local governments and airport and transit authorities. Information Services Group, Inc. was founded in 2006 and is based in Stamford, Connecticut.

Best Dividend Stocks To Invest In Right Now: Pan Global Resources Inc. (PGZ.V)

Pan Global Resources Inc. engages in the acquisition, exploration, and development of mineral properties. It holds an option to acquire 51% interest in 2 lithium/potash/borate mineral prospects, known as Jadar West and Valjevo, in the Republic of Serbia; and an additional 7 licenses in the process of application in the Republic of Serbia and the Republic of Bosnia. The company was formerly known as Mosam Capital Corp. and changed its name to Pan Global Resources Inc. in December 2009. Pan Global Resources Inc. was incorporated in 2006 and is based in Vancouver, Canada.

Top 10 Warren Buffett Companies To Own For 2014: Blackrock Global (BOE)

BlackRock Global Opportunities Equity Trust is a closed ended equity mutual fund launched by BlackRock, Inc. The fund is managed by BlackRock Advisors, LLC. It invests in the public equity markets across the globe. The fund invests in the stocks of companies operating across diversified sectors. It primarily invests in all cap companies. The fund benchmarks the performance of its portfolio against the S&P Global Broad Market Index. BlackRock Global Opportunities Equity Trust was formed on May 31, 2005 and is domiciled in the United States.

Advisors' Opinion:

• [By Robert Rapier]

  Whiting Petroleum (WLL) is one of Continental's biggest competitors in the Bakken. Whiting is the second-largest oil producer in North Dakota, averaging 82,500 barrels of oil equivalent (BOE) of production in 2012, across more than 700,000 acres of leased land.

Top 10 Warren Buffett Companies To Own For 2014: Gems Tv Holdings Limited(AM3.SI)

Gems TV Holdings Limited does not have significant operations. Previously, it was engaged in the manufacturing and trading of jewellery, gemstones, handicrafts, carved collectibles, valuable metals, and other related products in Asia and the Americas. The company is based in George Town, the Cayman Islands.

Top 10 Warren Buffett Companies To Own For 2014: ANN Inc (ANN)

ANN INC., incorporated in 1988, through its wholly owned subsidiaries, is a specialty retailer of women�� apparel, shoes and accessories sold primarily under the Ann Taylor and LOFT brands. The Company�� Ann Taylor and LOFT brands offers a range of career and casual separates, dresses, tops, weekend wear, shoes and accessories. It offers updated past season sellers from the Ann Taylor and LOFT merchandise collections at its Ann Taylor Factory and LOFT Outlet stores, respectively, and the clients can also shop online at www.anntaylor.com and www.LOFT.com (together, Online Stores), or by phone at 1-800-DIAL-ANN and 1-888-LOFT-444. As of January 28, 2012, it operated 953 retail stores in 46 states, the District of Columbia and Puerto Rico, consisted of 280 Ann Taylor stores, 500 LOFT stores, 99 Ann Taylor Factory stores and 74 LOFT Outlet stores.

Substantially all of the Company�� merchandise is developed by its in-house product design and development teams, who design merchandise exclusively for the Company. A small percentage of its merchandise is purchased through branded vendors, which is selected to complement its in-house assortment. The Company sourced merchandise from approximately 138 manufacturers and vendors in 19 countries. Approximately 42% of its merchandise unit purchases originated in China, 13% in the Philippines, 14% in Indonesia, 14% in India, and 13% in Vietnam. The Company�� wholly owned subsidiary, AnnTaylor Distribution Services, Inc., owns its 256,000-square-foot distribution center located in Louisville, Kentucky. The distribution center is located on approximately 27 acres. Its merchandise is distributed to stores, including the Online Stores, through this facility.

An average Ann Taylor store is approximately 5,500 square feet in size. The Company operates two Ann Taylor flagship stores, one located in New York City and one located in Chicago. LOFT stores average approximately 5,800 square feet. The Company also operates one LOFT flagship store! on the ground floor of 7 Times Square, its corporate headquarters, in New York City. During the fiscal year ended January 28, 2012 (fiscal 2011), it opened 14 LOFT stores that averaged approximately 5,500 square feet. Ann Taylor Factory stores average approximately 7,100 square feet. LOFT Outlet stores average approximately 7,000 square feet. During fiscal 2011, its LOFT Outlet stores were 38 new stores that averaged approximately 7,600 square feet.

Top 10 Warren Buffett Companies To Own For 2014: Bridge Capital Holdings(BBNK)

Bridge Capital Holdings operates as the bank holding company for Bridge Bank, National Association that provides commercial and retail banking services to small and medium size commercial businesses, business professionals, and retail customers primarily in California. Its depository and corporate banking services comprise cash and treasury management solutions, interest-bearing term deposit accounts, checking accounts, ACH payment and wire solutions, fraud protection, remote deposit capture through Smart Deposit Express, courier services, and online banking. The company?s lending solutions include working capital lines of credit; structured finance (asset-based lending and factoring); small business administration loans; commercial real estate loans; energy project financing; growth capital loans; equipment financing; letters of credit; and corporate credit cards. In addition, it serves clients operating internationally through services, such as foreign exchange (FX paym ents and hedging); letters of credit; and export/import financing. The company operates two branch offices in the Silicon Valley region, as well as five loan production offices in San Francisco, Pleasanton, and Orange County, California; Dallas, Texas; and Reston, Virginia. Bridge Capital Holdings was founded in 2000 and is headquartered in San Jose, California.

Top 10 Warren Buffett Companies To Own For 2014: United Natural Foods Inc.(UNFI)

United Natural Foods, Inc., together with its subsidiaries, distributes natural, organic, and specialty foods, as well as non-food products in the United States. It carries approximately 60,000 products, consisting of national brand, regional brand, private label, and master distribution products in 6 product categories: grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements, bulk and food service products, and personal care items. The company serves approximately 17,000 customer locations primarily located across the United States, which include independently owned natural products retailers, supernatural chains, conventional supermarkets, and food service centers. Its other distribution channels include international mass market chains and buying clubs. The company also owns and operates natural products retail stores. As of August 1, 2009, it had 13 natural products retail stores located primarily in Florida. In addition, the com pany engages in the international importing, roasting, packaging, and distribution of nuts, seeds, dried fruits, and snack items. It sells these items in bulk in its own packaged snack lines, EXPRESSnacks, Woodfield Farms, and Woodstock Farms, as well as through private label packaging arrangements. The company was founded in 1978 and is headquartered in Providence, Rhode Island.

Advisors' Opinion:

• [By Paul Ausick]

  Big Earnings Movers: Ulta Salon, Cosmetics & Fragrance Inc. (NASDAQ: ULTA) is up 17.3% at $117.49, after posting a new 52-week high of $118.27 today. United Natural Foods Inc. (NASDAQ: UNFI) is up 12.9% at $67.72 after posting a new 52-week high of $69.35 earlier.

Top 10 Warren Buffett Companies To Own For 2014: Auric Pacific Group Limited(A23.SI)

Auric Pacific Group Limited, an investment holding company, primarily engages in the distribution of fast moving consumer food and non-food products. It distributes commercial and fine wines, spirits, cosmetics, and health supplements. The company also involves in the manufacturing of food products, including bread and bakery products, butter and cheese, dairy spread and margarine, buns, and cream rolls, as well as frozen food products, such as frozen pizzas, garlic bread, pies, and pastries under the Sunshine, Top-One, SSC, and Buttercup brands. In addition, it involves in the management and operation of a chain of food courts under Food Junction, Food Culture, FJ Square, The Food Place, and Food Garden brand names, as well as operates cafe-bakeries, bakery corners, restaurants, and food courts and outlets. Further, the company engages in the providing catering and central kitchen production services; leasing residential and commercial properties; and investing in funds a nd quoted investment securities. It operates in Singapore, Malaysia, Indonesia, Thailand, Hong Kong, and the People's Republic of China. Auric Pacific Group Limited was incorporated in 1988 and is headquartered in Singapore.

Top 10 Warren Buffett Companies To Own For 2014: Allot Communications Ltd.(ALLT)

Allot Communications Ltd. engages in developing, selling, and marketing Internet protocol service optimization and revenue generation solutions in Europe, the Middle East, Africa, the Americas, Asia, and Oceania. Its solutions are used to create policies to monitor network applications, enforce quality of service policies that guarantee mission-critical application performance, mitigate security risks, and leverage network infrastructure investments. The company offers traffic management systems, including Service Gateway platform for broadband service control and optimization based on DPI; and NetEnforcer traffic management system that inspects, monitors, and controls network traffic by application and by user. Its network management application suites comprise NetXplorer that provides service providers and enterprise customers a view of traffic on the network; and Subscriber Management Platform, a system that helps service providers build an intelligent service network d esigned to deliver the quality of experience. The company also offers ServiceProtector, which ensures service continuity, and guards network integrity against known and unknown threats, as well as enables surgical mitigation through immediate identification of denial of service attacks, zero day attacks, worms, zombie, and botnets. In addition, it provides MediaSwift that caches and accelerates popular Internet video. The company markets and sells its products to carriers, mobile operators, cable operators, educational institutions, governments, and enterprises, as well as wireless, wireline, and satellite Internet service providers. It sells it products through distributors, resellers, OEMs, value added resellers, and system integrators, as well as through direct sales. The company was formerly known as Ariadne Ltd. and changed its name to Allot Communications Ltd. in September 1997. Allot Communications Ltd. was founded in 1996 and is based in Hod-Hasharon, Israel.

What Would Interest Benjamin Graham Now?

Best Stocks To Invest In

NEW YORK (TheStreet) -- As the markets continue to rise despite clouds on the horizon, value investors are having to work very hard to find enticing stocks.

That's okay, we don't mind hard work, but admittedly, it does get a bit frustrating. This is not the first time this has happened, and it won't be the last. Sometimes you have to wait until the markets pull back, not that I relish a market correction just so that I can have a deeper bench of value ideas.

So, today I'll turn to the old master, Ben Graham, the father of value investing, and a stock screen based on one of his investment techniques. Markets and available information have changed dramatically since Graham's death in 1976, but the investment principles he espoused still have merit.

In selecting stocks for the defensive investor, Graham laid out the following criteria; criteria I've modified slightly since the last edition of The Intelligent Investor was published in 1973. Adequate Size: Graham excluded smaller companies; I've set the minimum market cap at $1 billion. Strong Financial Condition: Minimum ratio of current assets to current liabilities of two; long-term debt must be less than working capital. Earnings Stability: Graham required profits for at least 10 consecutive years: I am using seven years. Dividends: Graham required "uninterrupted" dividends for at least 20 years; I am using seven years here, as well. Earnings Growth: Graham sought a minimum increase of 33% in earnings per share in the past 10 years; I am using a minimum compounded annual growth rate in earnings of 5% over seven years. Moderate Price-to--Earnings Ratio: Average PE ratios should be less than 15 over the past three years. Moderate Ratio of Price to Assets: Graham sought companies with price-to-book ratios below 1.5, but would accept a higher PE ratio, if price to book was lower. This end result was that PE times price-to-book ratio should be less than 25.5. U.S. Companies: I excluded foreign companies and American depository receipts. Not surprisingly, the list is about as thin as I've ever seen it, and just four companies met the very stringent criteria. For perspective, when I wrote my initial column for TheStreet on this subject in May 2012, the following eight stocks made the cut: AVX Corp. (AVX), Diamond Offshore Drilling (DO), Halliburton (HAL), Helmerich & Payne (HP), Curtiss Wright (CW), UniFirst (UNF), Cash America (CSH) and Universal Corp. (UVV) That group is up an average of 37.4% since that column ran, versus 27.9% for the S&P 500. UNF data by YCharts Two companies from that initial list, tobacco company Universal Corp and pawn shop operator Cash America, still make the cut. The other current qualifiers are mining machinery company Joy Global (JOY) and oil and gas producer HollyFrontier (HFC). It's slim pickings at best, and time to dig a little deeper. At the time of publication, the author held no positions in any of the stocks mentioned. Follow @JonMHellerCFA This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Top 5 Value Stocks To Buy For 2014

The S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) both fell 0.7% today. Consistent with those losses, the VIX Index (VOLATILITYINDICES: ^VIX  ) , Wall Street's fear gauge, rose 2.4%, to close at 14.83. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

NV Energy: A utility with a low candlepower stock
Earlier this month, Berkshire Hathaway (NYSE: BRK-B  ) CEO and billionaire investor Warren Buffett told CNBC in a televised interview that "stocks are reasonably priced." Since then, the S&P 500 has gained roughly another 2%, but it appears that Buffett is still finding value in this market.

Top 5 Value Stocks To Buy For 2014: Tupperware Corporation(TUP)

Tupperware Brands Corporation operates as a direct seller of various products across a range of brands and categories through an independent sales force. The company engages in the manufacture and sale of kitchen and home products, and beauty and personal care products. It offers preparation, storage, and serving solutions for the kitchen and home, as well as kitchen cookware and tools, children?s educational toys, microwave products, and gifts under the Tupperware brand name primarily in Europe, Africa, the Middle East, the Asia Pacific, and North America. The company provides beauty and personal care products, which include skin care products, cosmetics, bath and body care, toiletries, fragrances, nutritional products, apparel, and related products principally in Mexico, South Africa, the Philippines, Australia, and Uruguay. It offers beauty and personal care products under the Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, Nuvo, and Swissgar de brand names. The company sells its Tupperware products directly to distributors, directors, managers, and dealers; and beauty products primarily through consultants and directors. As of December 26, 2009, the Tupperware distribution system had approximately 1,800 distributors, 61,300 managers, and 1.3 million dealers; and the sales force representing the Beauty businesses approximately 1.1 million. The company was formerly known as Tupperware Corporation and changed its name to Tupperware Brands Corporation in December 2005. The company was founded in 1996 and is headquartered in Orlando, Florida.

Top 5 Value Stocks To Buy For 2014: Caterpillar Inc.(CAT)

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It operates through three lines of businesses: Machinery, Engines, and Financial Products. The Machinery business offers construction, mining, and forestry machinery, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. It also manufactures diesel-electric locomotives; and manufactures and services rail-related products and logistics services for other companies. The Engines business provides diesel, heavy fuel, and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, marine, petrol eum, construction, industrial, agricultural, and other applications. It offers industrial turbines and turbine-related services for oil and gas, and power generation applications. This business also remanufactures Caterpillar engines, machines, and engine components; and offers remanufacturing services for other companies. The Financial Products business provides retail and wholesale financing alternatives for Caterpillar machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans and various forms of insurance to customers and dealers. It also offers financing for vehicles, power generation facilities, and marine vessels. The company markets its products directly, as well as through its distribution centers, dealers, and distributors. It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois.

Advisors' Opinion:

• [By Shauna O'Brien]

  Bank of America/Merrill Lynch reported on Tuesday that it has cut its estimates on Caterpillar Inc. (CAT).

  The firm, which currently has a “Neutral” rating on CAT, has lowered estimates on the company through 2015. Analysts currently have a $88 price target on CAT, suggesting a 1% increase from the stock’s current price of $86.88.

  Caterpillar shares were mostly flat during Tuesday morning trading. The stock has been mostly flat YTD.

• [By Rebecca McClay]

  Building roads and bridges takes a lot of heavy equipment, and that's exactly what Caterpillar (CAT) makes. Whether a project needs backhoes, excavators, pavers or the articulated trucks to get asphalt and other building materials from one location to another, the Peoria, Ill., manufacturer is the industry leader both in the U.S. and abroad.

Top 5 High Tech Stocks To Invest In Right Now: Dollar Tree Inc.(DLTR)

Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise primarily at the fixed price of $1.00. The company operates its stores under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant, and Dollar Bills. Its stores offer consumable merchandise, including candy and food, and health and beauty care, as well as household consumables, such as paper, plastics, household chemicals, in select stores, and frozen and refrigerated food; variety merchandise, which includes toys, durable housewares, gifts, party goods, greeting cards, softlines, and other items; and seasonal goods, such as Easter, Halloween, and Christmas merchandise. As of April 30, 2011, it operated 4,089 stores in 48 states and the District of Columbia, as well as 88 stores in Canada. The company was founded in 1986 and is based in Chesapeake, Virginia.

Top 5 Value Stocks To Buy For 2014: Schlumberger N.V.(SLB)

Schlumberger Limited, together with its subsidiaries, supplies technology, integrated project management, and information solutions to the oil and gas exploration and production industries worldwide. The company?s Oilfield Services segment provides exploration and production services; wireline technology that offers open-hole and cased-hole services; supplies engineering support, directional-drilling, measurement-while-drilling, and logging-while-drilling services; and testing services. This segment also offers well services; supplies well completion services and equipment; artificial lift; data and consulting services; geo services; and information solutions, such as consulting, software, information management system, and IT infrastructure services that support oil and gas industry. Its WesternGeco segment provides reservoir imaging, monitoring, and development services; and operates data processing centers and multiclient seismic library. This segment also offers variou s services include 3D and time-lapse (4D) seismic surveys to multi-component surveys for delineating prospects and reservoir management. The company?s M-I SWACO segment supplies drilling fluid systems to improve drilling performance; fluid systems and specialty tools to optimize wellbore productivity; production technology solutions to maximize production rates; and environmental solutions that manages waste volumes generated in drilling and production operations. Its Smith Oilfield segment designs, manufactures, and markets drill bits and borehole enlargement tools; and supplies drilling tools and services, tubular, completion services, and other related downhole solutions. The company?s Distribution segment markets pipes, valves, and fittings, as well as mill, safety, and other maintenance products. This segment also provides warehouse management, vendor integration, and inventory management services. Schlumberger Limited was founded in 1927 and is based in Houston, Texas.

Top 10 Stocks To Buy For 2014

Creative ideas come from everywhere, but it's not often you see a search engine giving utilities business advice. A new white paper from Google (NASDAQ: GOOG  ) could improve renewable energy's value add for tech companies, utilities, and renewable-energy stakeholders everywhere. Here's what you need to know.

Ramping up renewables
Google may seem like nothing more than a search page, but its energy use is astounding. To offset its emissions, the company has invested more than $1 billion in renewable-energy projects, installed solar panels at its Mountain View headquarters, and purchased more than 260 MW of wind power to help power its data centers.

Mountain View HQ. Source: google.com.�

Top 10 Stocks To Buy For 2014: QAD Inc.(QADA)

QAD Inc. provides enterprise software applications, and related services and support for manufacturing companies worldwide. The company offers QAD Enterprise Applications, an integrated suite of software applications, which support the business processes. Its QAD Enterprise Applications include suites, such as QAD Financials to manage and control fiscal business processes at various levels; QAD Customer Management suite for manufacturers to acquire new customers and retain customers through service and support; QAD Manufacturing that offers solutions in the areas of planning and scheduling, cost management, material control, shop floor control, and reporting in various mixed-mode manufacturing environments; and QAD Supply Chain that fulfills materials planning and movement requirements. The QAD Enterprise Applications also comprise QAD Service and Support product suite that handles service calls, manages service queues, and organizes mobile field resources, as well as prov ides project management support; QAD Enterprise Asset Management, an integrated plant operation solution to manage assets from inception through operations and replacement; QAD Transportation Management, which addresses the needs of distributors and manufacturers in the areas of global trade management, freight management, and trade compliance; QAD Analytics that helps in analyses, decision-making, and performance management; and QAD QXtend toolset for open interoperability. The company also provides services, including customer support, implementation services, on demand and application management services, migration and upgrade services, and business process management services. It serves various industries, such as automotive, consumer products, food and beverage, high technology, industrial products, and life sciences industries. The company sells its products directly; and through distributors and sales agents. QAD Inc. was founded in 1979 and is headquartered in Santa Barbara, California.

Top 10 Stocks To Buy For 2014: Valgold Resources Ltd. (VAL.V)

ValGold Resources Ltd. engages in the exploration and development of mineral properties in Canada. The company explores for gold, silver, lead, and zinc deposits in Western Ukraine. It holds a 75% interest the MBK Project located in western Ukraine; a 100% interest in the Tower Mountain gold property that comprises 55 claims covering an area of 3,875 acres located in the Shebandowan Gold Belt, northwestern Ontario; and Venezuela Properties that cover a total area of approximately 162,768 acres. ValGold Resources Ltd. was founded in 1987 and is based in Vancouver, Canada.

Top 5 Canadian Stocks To Invest In Right Now: TCF Financial Corporation(TCB)

TCF Financial Corporation operates as the bank holding company for TCF National Bank that provides various retail and commercial banking products and services in the United States and Canada. Its products and services include consumer, small business, and commercial deposits, as well as interest-bearing checking accounts, money market accounts, regular savings accounts, certificates of deposit, and retirement savings plans; and consumer real estate loans, commercial real estate loans, commercial business loans, and multi-purpose campus cards for colleges, as well as consumer loans for personal, family, or household purposes. The company also offers leasing and equipment finance products for various companies, inventory finance products, auto finance products, and treasury services. As of December 31, 2011, it had 434 retail banking branches, including 196 branches in Illinois, 110 in Minnesota, 53 in Michigan, 36 in Colorado, 26 in Wisconsin, 7 in Arizona, 5 in Indiana, an d 1 in South Dakota. The company was founded in 1923 and is based in Wayzata, Minnesota.

Top 10 Stocks To Buy For 2014: Interm.cap(ICP.L)

Intermediate Capital Group PLC is a private equity firm specializing in mezzanine financing and mid-market investments in growth capital, restructuring, acquisitions, public to private transactions with or without private equity backing, management buyouts and management buyins, development capital, public quoted company finance, off-balance-sheet finance, refinancings and recapitalizations, and pre-IPO financing. The firm does not invest in property companies or start-ups. It seeks to invest in companies whose principal place of business is the European Union, Bulgaria, Romania, North America, and the Asia Pacific, including Hong Kong, South Korea, Singapore, Taiwan, Japan, Australia, and New Zealand. The firm provides mezzanine financing in the range between ?15 million ($21.43 million) and ?500 million ($714.18 million) to firms with an enterprise values between ?250 million ($338.48 million) and ?1 billion ($1353.94 million). The firm seeks to acquire minority stak es. It generally structures its financing in the form of subordinated loan with equity warrants, as preference shares, convertible loan, leveraged loans, mezzanine loans, and CDOs. The firm provides loans for a maturity period between seven years and ten years with repayments to be made in one payment at final maturity. Its mezzanine investments are usually structured to provide a cash yield between three percent and four percent over the relevant interbank rate, plus an additional return to reflect the risk involved. The firm seeks to invest in debt. The firm is also a manager of third party mezzanine, CDO, and Institutional Client Funds. Intermediate Capital Group PLC was founded in 1989 and is based in London with additional offices across Europe, North America, and Asia.

Top 10 Stocks To Buy For 2014: Powershares Qqq Trust Series 1 (QQQ)

PowerShares QQQ Trust, Series 1, formerly The NASDAQ-100 Trust, Series 1, is a unit investment trust that issues securities called Nasdaq-100 Index Tracking Stock. The Trust holds all of the component securities of the Nasdaq-100 Index. The Trust's investment objective is to provide investment results that generally correspond to the price and yield performance of the Nasdaq-100 Index.

The Trust was created to provide investors with the opportunity to purchase units of beneficial interest in the Trust representing proportionate undivided interests in the portfolio of securities held by the Trust, which consists of substantially all of the securities, in substantially the same weighting, as the component securities of the Nasdaq-100 Index. Nasdaq Global Funds, Inc. is the sponsor of the Trust and The Bank of New York is the trustee of the Trust.

Top 10 Stocks To Buy For 2014: Tennant Creek Gold Ltd(TNG.AX)

TNG Limited engages in the exploration, evaluation, and development of mineral resource projects in the Northern Territory and Western Australia. The company explores for gold, zinc, lead, silver, vanadium, titanium, iron, nickel, cobalt, and copper. It principally holds 100% interest in the Mount Peake project located in the Arunta geological province; and the Manbarrum project located to the north-east of the township of Kununurra in the northern territory. The company is based in Subiaco, Australia.

Top 10 Stocks To Buy For 2014: Goodwin(GDWN.L)

Goodwin PLC, together with its subsidiaries, provides mechanical and refractory engineering solutions. It operates in two segments, Engineering and Refractory Engineering. The Engineering segment offers castings, machining, general engineering design, valves and pumps, and radar antennas, as well as Internet services and communication facilities to mechanical and refractory engineering companies. This segment provides check valves for the oil, gas, and LNG industries, as well as steam valves for the power generation industries. The Refractory Engineering segment manufactures powders and refractory cements; and offers mineral processing services. This segment supplies refractory powders to the jewellery industries. Goodwin PLC offers its products and services primarily in the United Kingdom, rest of Europe, the United States, and the Pacific Basin. The company was formerly known as R. Goodwin & Sons (Engineers) Ltd. and changed its name to Goodwin PLC in February 1982. Good win PLC was founded in 1883 and is headquartered in Stoke-on-Trent, the United Kingdom.

Top 10 Stocks To Buy For 2014: Witwatersrand Consol Gold (WGR.TO)

Witwatersrand Consolidated Gold Resources Limited engages in the exploration of gold and uranium properties in South Africa. It is involved in acquiring, preserving, evaluating, developing, and trading prospecting rights for exploration and investment purposes. The company holds 14 prospecting rights covering an area of approximately 1,195 square kilometers in the southern Free State, Potchefstroom, and Klerksdorp goldfields of the Witwatersrand basin, South Africa. The company was incorporated in 2002 and is headquartered in Johannesburg, South Africa.

Top 10 Stocks To Buy For 2014: Fidelity Bancorp Inc.(FSBI)

Fidelity Bancorp, Inc. operates as the holding company for Fidelity Bank, PaSB that provides a range of banking services in Pennsylvania. It primarily engages in generating deposits and originating loans. The company?s deposit products include savings accounts, demand deposit accounts, NOW accounts, money market deposit accounts, and certificates of deposit, as well as retirement accounts, including individual retirement account certificates and Keogh plan retirement certificates. Its loan portfolio comprises residential real estate loans, commercial and multi-family real estate loans, construction loans, and commercial business loans and leases, as well as installment loans, such as home equity and consumer loans. The company also involves in mortgage securitization transactions. As of September 30, 2010, Fidelity Bancorp provided its services through its main office in Pittsburgh, Pennsylvania, as well as 13 branch offices in Allegheny and Butler counties. The company w as founded in 1927 and is headquartered in Pittsburgh, Pennsylvania.

Top 10 Stocks To Buy For 2014: ZST Digital Networks Inc.(ZSTN)

ZST Digital Networks, Inc. engages in supplying digital and optical network equipment and providing installation services to cable system operators in China, as well as in providing GPS location and tracking services to local logistics and transportation companies in China. It offers a line of IPTV devices that are used to provide bundled cable television, Internet, and telephone services to residential and commercial customers. The company has assisted in the installation and construction of approximately 400 local cable networks in approximately 90 municipal districts, counties, townships, and enterprises. ZST Digital Networks has also launched a commercial line of vehicle tracking devices utilizing its GPS tracking technologies and support services for transport-related enterprises to track, monitor, and optimize their businesses. The company was founded in 1996 and is based in Zhengzhou City, the People?s Republic of China.

Goldman, Nike, Visa to join Dow; Alcoa, HP, BofA Out

Andrew Harrer/Bloomberg via Getty ImagesThe Dow Jones news ticker in Times Square, New York City. NEW YORK -- Investment bank Goldman Sachs Group (GS), credit-card company Visa (V), and footwear Nike (NKE) will join the blue chip Dow Jones industrial average (^DJI) Dow Jones industrial average, the index managers said Tuesday, in the biggest shake-up for the 30-stock average in nearly a decade. The three companies will replace Bank of America (BAC), Hewlett-Packard (HPQ) and Alcoa (AA), all lower-priced stocks that exert a lesser pull on the price-weighted index. The changes will be effective on Sept. 23, S&P Dow Jones Indices said in a statement. The average, first established in 1896, includes 30 stocks, but very little money is indexed to its performance, unlike the broader Standard & Poor's 500 (^GSPC) or other indexes. In addition, because it is weighted by price, companies that are smaller in value with higher prices have more influence on the average. "Wow, those are big changes," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, N.Y. "The Dow is really an antiquated index. It is price-weighted, which makes no sense. But there are still are some people that pay attention to it, and some technicians, so it has an influence on some people." Google (GOOG) and other names were considered for inclusion but passed over because of high stock prices, David Blitzer, managing director and chairman of the S&P Index Committee, told CNBC. The index manager said the changes were prompted by the low stock price of the three companies slated for removal and a desire to diversify the make-up of the index. Alcoa, in particular, has been seen as a candidate for elimination for some time, as the stock's market value of $8.5 billion is easily the lowest in the average. It is the first three-for-three change to the index since April 8, 2004, when American International Group (AIG), Pfizer (PFE) and Verizon (VZ) replaced AT&T (T), Eastman Kodak and International Paper (IP).

Did Weibo Put Sina Back on the Map?

With shares of Sina Corporation (NASDAQ:SINA) trading at around $56.42, is SINA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

Sina was once top dog in the Internet Software & Services industry in China. That was until the competition became fierce. However, Sina now has Weibo, which is pretty much the Chinese version of Twitter.

At the end of 2012, Weibo had 503 million registered users. Since that's a difficult number to comprehend, think of it this way – that's 200 million more people than the entire United States population! Needless to say, there will be many monetization opportunities via Weibo.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Weibo's traffic has steadily increased over the past three months. However, it's not dominating as much as it has in the past. Over the past three months, pageviews-per-user has declined 5.60 percent, time on-site has declined 4 percent, and the bounce rate has increased 2 percent. Never fear, though, Alibaba Group Holding Ltd. recently agreed to buy an 18 percent stake for $586 million. This will help advertising sales.

As far as Sina itself goes, traffic has been relatively stagnant over the past three months. Also over the past three months, pageviews-per-user has declined 3.46 percent, time-on-site has declined 1 percent, and the bounce rate has increased 3 percent. These aren't worrisome numbers; they're just not inspiring.

Sina has consistently improved revenues on an annual basis, and it showed a profit in 2012 after two years of losses. Sales are also expected to increase 18 percent this year. As far as analysts go, they like the stock: 17 Buy, 5 Hold, 3 Sell.

There are three big concerns for Sina. One is increased competition that will not back down. Two is poor valuation (trading at 121 times earnings). Three is that the stock will not be resilient in weak markets.

Now let's take a look at some comparative numbers. The chart below compares fundamentals for Sina, Sohu.com Inc. (NASDAQ:SOHU), and Baidu (NASDAQ:BIDU). Sina has a market cap of $3.77 billion, Sohu has a market cap of $2.05 billion, and Baidu has a market cap of $31.23 billion.

	SINA	SOHU	BIDU
Trailing   P/E	121.07	25.55	18.47
Forward   P/E	32.06	15.60	14.29
Profit   Margin	6.00%	7.71	44.21%
ROE	2.89%	14.13	44.08%
Operating   Cash Flow	$32.61   Million	N/A	N/A
Dividend   Yield	N/A	N/A	N/A
Short   Position	N/A	8.20%	N/A

 

Let's take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong         

The debt-to-equity ratio for Sina is stronger than the industry average of 0.10. None of these companies have debt concerns, but Sina is at the top of the class in this area.

	Debt-To-Equity	Cash	Long-Term Debt
SINA	0.00	$713.60 Million	$0
SOHU	0.19	$951.67 Million	$270.50 Million
BIDU	0.40	$5.39 Billion	$1.90 Billion

 

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

T = Technicals Are Strong  

The numbers below can be deceiving. The last two years as a whole have been difficult for Sina. The past year also hasn't been impressive. The real strength has been over the past month, but can it continue?

	1 Month	Year-To-Date	1 Year	3 Year
SINA	18.52%	12.29%	-0.90%	70.88%
SOHU	14.43%	13.71%	14.05%	18.80%
BIDU	6.83%	-10.96%	-31.32%	33.68%

 

At $56.42, Sina is trading above all its averages.

50-Day   SMA	49.95
100-Day   SMA	51.30
200-Day   SMA	Top Growth Companies To Watch In Right Now 53.01

 

E = Earnings Have Been Inconsistent                               

Earnings have been inconsistent, but once again, Sina did show a profit in 2012. Revenue has steadily increased for three years.

	2008	2009	2010	2011	2012
Revenue   ($)in   millions	369.59	358.57	402.62	482.83	529.33
Diluted   EPS ($)	1.33	6.95	-0.31	-4.64	0.47

 

When we look at the previous quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings. Both revenue and earnings declined on a sequential basis.

	12/2011	3/2012	6/2012	9/2012	12/2012
Revenue   ($)in   millions	133.37	106.22	131.60	152.38	139.13
Diluted   EPS ($)	0.14	-0.21	0.49	0.14	0.04

 

Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

This simply comes down to the Chinese economy. Is it slowing down? Is it rebounding? The reports seem to change every day.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

Weibo has put Sina back on the map. As long as Sina doesn't make a critical error, Weibo should remain incredibly valuable. However, due to poor valuation and a questionable Chinese economy, Sina is a neutral WAIT AND SEE.

JPMorgan's 'The Realization' And Why Real Assets Belong In Your Portfolio

JP Morgan recently published a report titled "The Realization" detailing the case for a 'tectonic shift' of money into real assets. Although destined for professional and institutional investors the findings are still relevant to retail investors and should give investors some tools for portfolio strategy.

The report's main thesis is that the continuation of the current investment environment characterized by low bond yields, high equity market volatility and the risk of future inflation will force a dramatic change in asset allocation. In this environment JP Morgan believes global real assets (real estate, infrastructure, and natural resources) can provide higher yields than bonds with less inflation risk and superior risk adjusted returns compared to equities. The idea is that bonds yield poorly and carry significant risk if interest rates rise, and although equities have performed well recently there has been increased volatility in the last decade and this is likely to continue as the world's economic growth remains stunted and high debt to GDP ratios remain a source of risk.

JP Morgan believes that in the next decade real assets will move from an alternative to a mainstream asset class moving from 5%-10% in portfolio allocations today to as much as 25% in the next decade; and those investors that do reallocate will have better risk weighted returns than those that don't. I favor having a larger portion of my portfolio allocated to equities than JP Morgan recommends, however the case for real assets remains compelling and investors should consider allocating a portion of their investment portfolio (5-10%) if they haven't already.

Why Real Assets

Incorporating real assets into a portfolio can have a variety of advantages depending on the type of real asset, including: improved diversification, lower volatility, higher returns and inflation protection. Many investments categorized as real assets generate yields that are competitive with fixed income alternatives and! also exhibit long-term stability. In the case of infrastructure investments yields tend to be stable as they are derived from underlying long-term contractual agreements on high quality assets. An example would be the income from a toll road in the case of an infrastructure investment.

Another advantage exists if the investment represents an equity stake in the real asset there is often the ability for asset appreciation which helps mitigate the inflation risk present in debt only investment products.

Furthermore, as evidenced by the chart above, real assets not only have a low correlation with equities and bonds, but they also have a low correlation with each other. This makes them ideal for diversification and reducing portfolio volatility.

Something to remain cognizant of when evaluating real assets is that they aren't a homogeneous group, real estate differs dramatically from solar which differs dramatically from timberland making generalizations problematic. Each individual investment must be analyzed carefully to fully understand the investment and the risks involved.

How to invest in Real Assets

Unfortunately many real assets, especially in the realm of infrastructure, are not available to the retail investor, however there are still ways to diversify. My area of expertise does not allow me to recommend specific REITs, MLPs and infrastructure funds, however I can expand on solar's potential as a real asset.

	Mosaic Notes Fixed	Alerian MLP Infras Index	Vanguard REIT Index	Bilfinger & Berger Global Infras Fund	Mid-American Solar Bonds
Investm! ent Type	Debt	Equity	Equity	Equity	Debt
Tenor	10-12 years	N/A	N/A	N/A	22 years
Yield	4.50%-5.75%	5.4%	3.60%	4.62%	5.75%
Liquid?	No	Yes	Yes	Yes	No
Diversified 10+	No	Yes	Yes	Yes	No
Real Asset?	Yes	Yes	Yes	Yes	Yes
Interest Rate Risk	High	Medium	Medium	Low	High

Solar

Solar project equity and debt can be compared with other investments in infrastructure and infrastructure debt. Similar to infrastructure projects, solar projects are real assets that are set up using special purpose vehicles with legal arrangements dictating output, payments allowing for predictable, long term returns.

Buffett has made the foray into solar and MidAmerican Energy Holdings has purchased a 550-MW plant will have the capacity to generate enough renewable energy to power about 16! 0,000 ave! rage California homes. The Topaz project will be built, operated and maintained by First Solar (FSLR). To finance construction MidAmerican (BRK.B) issued $850 million in bonds yielding 5.75% percent. These bonds are one of the first large issuances of debt interest in solar infrastructure and is probably on the forefront of a trend in solar financing.

Investment in Buffet's projects are not currently possible for the retail investor however solar notes offered by Mosaic offer a similar product on a smaller scale. Not exactly a direct investment in real assets, solar notes represent claims on future cash flows from solar projects in exchange for a debt investment in the solar project. Solar notes that are pay fixed rates unfortunately carry significant risk if interest rates rise. However on the positive side the cash flows are based on the performance of a real asset and the risk profile is different from that of bonds and returns are competitive.

Conclusion

The current economic environment of low interest rates and volatile equities allows real assets to perform well on a risk adjusted basis. Investments in real asset equity have the ability to appreciate as rates rise, and current yields on real assets can be competitive with bonds. Real assets are also exposed to a different set of risks which make them ideal for portfolio diversification. A 10% portfolio allocation to a diversified basket of real assets can be good for reducing portfolio volatility and boosting risk adjusted returns.

Source: JPMorgan's 'The Realization' And Why Real Assets Belong In Your Portfolio

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Business relationship disclosure: I currently work with Mosaic.

Additional disclosure: I own Mosaic notes and WRE, Washington Real Estate Investment Trust. Regarding Mosaic Note yield, past performance is not a guarantee of future performance. Any opinions expressed herein by persons not affiliated with Mosaic reflect the judgment of the author and not necessarily that of Mosaic. Nothing herein shall constitute or be construed as an offering of securities, or as investment advice or recommendations by Mosaic. Mosaic's investments are limited to investors who meet applicable suitability standards based on income, net assets and state of residence.

DOL’s Borzi: Lawmakers Can’t Hold Back Fiduciary Plan

Efforts by members of Congress to slow the Department of Labor’s reproposal of its fiduciary rule will have little to no effect, Phyllis Borzi, assistant secretary of DOL’s Employee Benefit Security Administration, said Tuesday.

A bill introduced by Rep. Ann Wagner, R-Mo., that will be marked up by the House Financial Services Committee on Wednesday, requires that the DOL wait to publish its fiduciary rule for 60 days after the Securities and Exchange Commission releases its fiduciary rule proposal.

When asked after her remarks at the Insured Retirement Institute's regulatory conference in Washington if DOL was going to wait for the SEC to publish its rule, Borzi (right) exclaimed: “Of course not.”

DOL, Borzi told reporters, “began working on its rule” to amend the definition of fiduciary under the Employee Retirement Income Security Act “before Dodd-Frank.” DOL, she said, is “coordinating very closely with the SEC to make sure we don’t have outright conflicts," adding that it was ludicrous for lawmakers to think that "one statute is more important than another."

Twenty-nine members of the Congressional Black Caucus, two from the Hispanic Caucus and one from the Asian Pacific Caucus told Seth Harris, DOL’s acting secretary, in a June 14 letter that DOL’s reproposal should be executed “carefully, prudently and in conjunction with the SEC to avoid uncertainty and disruption” in the retirement marketplace. The caucus members said they were jointly concerned that the reproposed fiduciary definition could “restrict our constituents’ access to professional financial advisors.”

Borzi told reporters that while the DOL “shares” members of Congress’ concerns, and is being “cautious” in its redraft, the feedback lawmakers have given is not slowing the release of the redraft in a couple of months.

At that time, the reproposal will be sent to the Office of Management and Budget, and then DOL will go into what she called “radio silence” about the reproposal.

The reproposal, Borzi said—which will come in a three-part package that includes the proposed regulation, the economic analysis and the prohibited transaction exemptions—is really one rule: “that you have to put the best interest of your client ahead of your own.”

---

Check out Bill Would Force DOL to Let SEC Fire First on Fiduciary on AdvisorOne.

Common Financial Mistakes: Mehrab Irani

We all are social animals and we remain the same social animals while thinking about money and investments. Let me discuss today the common investment mistakes which we human beings make as social animals and to understand that we have to branch out to ��Behavior Economics�� which combines the twin disciplines of psychology and economics to explain why and how rational people make totally irrational decisions when they spend, invest, save and borrow money.

Sunk Cost fallacy - Throwing Good money after bad

Imagine that somebody has given you a play ticket ��free�� in which your favourite star in acting. Now, hours before the play is going to commence you come to know that your favorite star may not be able to act that day and there is big weather problem and going to the theatre and coming back might be risky. Now, imagine that you had actually ��paid�� and purchased that ticket. The likely answer is that in the first instance you might not go for the play while in the second instance you might go for the play even though your favourite star is not acting in it and risk traveling in the dangerous weather. This is called ��sunk cost�� fallacy �V in the first instance since you have not paid for the ticket you don��t mind skipping the event but in the second instance since you paid hard cash for the ticket you don��t want to ��waste�� the money which is actually already wasted or sunk. The same way in investments many a times because we buy a certain stock of a bad company at a certain price and then it halves then in the name of ��averaging�� we invest more in it throwing good money after bad. The lesson we learned from this behavior is that we should not sell winning investments more readily than loosing ones and not take money out of the stock market just because markets have fallen.

Loss Aversion

One of the main tenants of behavior economics is that people are loss averse. The pain people feel from loosing Rs.100 is more than the pleasure they get from gaining Rs.100. This explains why people behave inconsistently while taking risks. For example, the same person can act conservatively when protecting gains (by selling successful investments to guarantee the profits) but recklessly when seeking to avoid losses (by holding on to loosing investments in the hope that they��ll become profitable). Loss aversion causes investors to sell all their investments during periods of unusual market turmoil. If you had sold most of your equities during the bottom in the year 2008 or contemplating of selling your ��good quality�� banking or infrastructure stocks currently, then probably you are suffering from ��loss aversion��.

Mental Accounting

This term ��mental accounting�� refers to describe people who treat money differently depending from where it has been received. For example, a person may treat salary (earned money) as sacred and be over cautious with it while the same person might treat gifts, unexpected bonus, written off tax refunds, huge inheritance as ��free money�� and be careless with it. The sacredness may lead the person to let the money just remain idle in savings account and thus getting beaten down by inflation and the carelessness may lead the person to just spend the money or invest in risky ventures and eventually loosing the funds. The lesson is that money is money from whatever source it is received �V deposit any windfall gains first in your savings account and mentally count is as part of your wealth and then there is less likelihood of you squandering away that money.

Bigness Bias

Most of us try to think big as far as money is concerned but easily forget the small things which when compounded over a period of time result into much bigger losses. This is because of our ignorance to the basic principles of mathematics. For example, the tendency to dismiss or discount small numbers as insignificant can lead us to pay more that we have to pay for brokerage, commissions, mutual fund expenses, income taxes which has a surprisingly deleterious effect on our investment decisions over time.

Decision Paralysis

Whether it is investments, insurance, spending or any other money matter, many a times we are not able to make a decision and just maintain status quo. However, we don��t realize that not making a decision is also a decision in itself that we have voted in confidence for the way we are doing things. The lesson we learned from this behavior is that by not taking the right decisions many a times we continue to promote the wrong decisions, the opportunity cost of which may prove to be very costly over the long term.

Money Illusion

Most of us have illusion with money �V the more the money the more we think we have earned and vice versa. But, this may not always be the case. I explain this with a simple example. Suppose, an employee got a 10% salary increment when the inflation is 12% while in another case the same employee got 5% increment when the inflation is 3% - which one would he prefer. There are chances that he will prefer the first case of 10% increment although in the case the employee is getting negative real increment since inflation is more than the increment while in the second case he is getting positive real increment since inflation is less than the increment. This is called money illusion and one of the main reasons why people prefer investment in fixed deposit at negative real interest rates after tax than long term tax free gains through stocks.

Cash Fallacy

Suppose, we go to buy an expensive gift item for say Rs.1 lac. If we have to actually remove cash from our bank account and then pay for it we will feel the ��pain�� of loosing cash and therefore we would think twice before buying it. In the same instance, if we just pay through our credit card then we may be very comfortable and have the illusionary thought of not seeing the pain of loosing cash. This is called ��cash fallacy�� and is the main cause of lot of unwanted and avoidable expenses in the modern plastic word. Remember, if you buy things you don��t need, soon you will have to sell things which you need.

Over or under confidence

These are the other two enemies of investors. If you are over confident on your abilities then you would only look at your successes and boost about it while trying to ��explain away�� your losses. On the other hand if you are under confident then you would not be able to take control of your finances, make investment and spending decisions based solely on the opinions of friends, colleagues or worst than that the so called ��investment advisors�� (including myself). Both these psychological characters are not good for your money and hence beware of it. The lesson form this is that ��either you act on your own judgment or entirely on the judgment of another�� and that another should be a family member with equal stake in the outcome of the decision and not just a friend or worse than that a financial advisor (including myself). Certain simple steps to take in order to avoid big financial mistakes over time are:

Take proper insurance and let it be pure insurance (term policy).

Make proper retirement plans. �� Pay off credit card bills with so called emergency�� funds lying idle in your savings account. �� Make proper asset allocation and diversify your investments.

Put maximum of your equity allocation in index funds �V it will save you a lot in fund management expenses and avoid the randomness bias of Fund Managers.

Review your assets and take stock of your entire portfolio including real estate, art, retirement plans etc.

Set up a direct payroll deduction�� to some kind of recurring savings / SIP.

Keep reviewing your plan.