Deere Up on Earnings, Down on Worries

Top 5 Cheap Stocks To Own Right Now

This leading farming equipment company beat estimates and then saw its shares fall in the same day, but MoneyShow's Jim Jubak, also of Jubak's Picks, still thinks it could be a smart play if you're willing to hold out.

It's not frequently that investors hear a company beat earnings estimates by 47 cents a share and then see its shares fall, but that's exactly what we saw yesterday with Deere (DE).

Yesterday, before the open, the company reported earnings for the third quarter of fiscal 2013 of $2.64 (adjusted for one-time items). Wall Street had been expecting earnings of $2.17 a share. Operating margins rose to 15.5% for the quarter. That was a big improvement from the 12.6% operating margin in the fiscal second quarter and about 2 percentage points above what Wall Street expected.

And that may indeed have been the root of the stock's problem yesterday. Although the company crushed earnings estimates, it didn't do nearly as well on revenue. Net sales rose just 4.3% in the quarter, year over year to $9.32, just a tad ahead of the Wall Street estimate at $9.28 billion. For the full 2013 fiscal year, Deere kept to its guidance of a 5% increase in revenue, but for the fourth quarter, the company said it expects a 5% drop in revenue to $8.59 billion. That's below Wall Street projections.

Think about the implications of that. Deere reported surprisingly high earnings this quarter on a huge jump in operating margins on very modest revenue growth. The company is now saying that revenue growth will turn negative in the fourth quarter, and investors have to doubt that Deere can pull anything like another 2 percentage point increase in operating margins out of its hat for the next quarter.

Shares climbed initially yesterday, opening at $84.06, up from the $83.91 close on the good news on earnings. And then preceded to decline as investors absorbed the message of slow revenue growth and the company's forecast of negative revenue growth for the fourth quarter. At the close the stock traded at $82.34, down 1.87% for the day.

With a bumper crop due in this year's harvest, thanks to the end of droughts from Brazil to the US Midwest, crop prices have tumbled. Corn, for example, sells currently for just $4.51 a bushel. That's down from prices above $8 a bushel on this date in 2012. With that, Wall Street is worried that farmers will cut back on purchases of machinery, and such farm supplies as fertilizers, not so much because farm incomes are falling, but because a record or near record harvest will result in a decision to plant fewer acres next year.

Deere noted that even at $4 a bushel for corn, US farmers would still make very good money. But that's not really the issue. The company lowered its estimates for US farm cash receipts by 2.6% to $379.7 billion from $389.8 billion. Deere's equipment sales closely track farm cash receipts, so that reduction in estimates isn't good news for Deere's revenues.

Looking around the company didn't see any big improvement elsewhere that might offset the drop in US farm cash receipts. In the European Union, demand for farm machinery is likely to be lower, as the financial crisis continues to restrict the availability of farm credit, and weak national economies make farmers very conservative about spending. In China, government subsidies continue to support equipment purchases—but don't look to rise enough to increase demand, and in India, the tractor market, according to the company, remains soft.

I like Deere for the long run as one of the best stock plays for growing global demand for food. (That's why the stock is a member of my Jubak Picks 50 long-term portfolio.) But even great long-term picks, backed by long term upward trends, experience cycles of rising and falling demand. The stock's chart shows a negative cross in early July. (That's where the 50-day moving average falls below the 200-day moving average and it's often a sign of a further decline ahead.) At the current price, Deere has dropped just below the 50-day moving average at $83.60.

In other words, by waiting for the lower guidance for the fourth quarter to seep out further into the market consciousness, you might get Deere at a lower price. Deere has repeatedly bounced off $80-$82 over the last year. But if you're willing to hold out for a bargain, the price to watch would be the $73-$75 range the stock hit in late August-early September, 2012.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Deere as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio at here.

Top 10 Performing Stocks To Buy For 2014

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) consists of 30 of the finest businesses in America. But within this elite group, you'll find some Dow stocks outperforming the others. Today, we'll take a look at the richest cash-flow margins on the Dow.

Profit Margins for the Dows Strongest Cash Creators | Create infographics.

The first thing you'll notice here is that the widest cash margins don't always go hand in hand with strong earnings performances. Travelers (NYSE: TRV  ) and GE (NYSE: GE  ) both rank in the bottom half if you rank the Dow by net income margins, and the situation isn't much improved by switching to operating profits or EBIT income margins. Both companies operate much like big banks, which goes a long way toward explaining the spread between their cash flows and net margins.

Top 10 Performing Stocks To Buy For 2014: StoneMor Partners L.P.(STON)

StoneMor Partners L.P., together with its subsidiaries, engages in the ownership and operation of cemeteries in the southeast, northeast, and west regions of the United States. It offers funeral and cemetery products and services in the death care industry. The company sells interment rights, caskets, burial vaults, cremation niches, markers, and other cemetery related merchandise; provides opening and closing that is the digging and refilling of burial spaces to install the vault and place the casket into the vault; and various other services, including the installation of other cemetery merchandise and the perpetual care related to interment rights. It also offers various funeral-related services, such as family consultation, the removal of and preparation of remains, and the use of funeral home facilities for visitation. As of December 31, 2011, it operated 274 cemeteries, including 253 own cemeteries in 26 states and Puerto Rico; and owned and operated 69 funeral homes in 18 states and Puerto Rico. StoneMor GP LLC serves as the general partner of the company. StoneMor Partners L.P. was founded in 1999 and is headquartered in Levittown, Pennsylvania.

Top 10 Performing Stocks To Buy For 2014: Meade Instruments Corp.(MEAD)

Meade Instruments Corp. engages in the design, manufacture, import, and distribution of telescopes, telescope accessories, binoculars, spotting scopes, microscopes, and other consumer optical products in North America and internationally. The company?s products include LX200 series of telescopes, which combine LX200 with the precision of advanced coma free optics; LX90GPS that brings GPS capabilities to Schmidt-Cassegrain telescope; LS, computerized telescopes that use Lightswitch technology; and Deep Sky Imager series of charge-coupled device cameras. It offers its products under the brand names of Meade and Coronado. The company primarily serves the beginning, intermediate, and serious amateur astronomers. Meade Instruments sells its products through a domestic network of mail order and Internet dealers, specialty retailers, distributors, and mass merchandisers. The company was founded in 1972 and is headquartered in Irvine, California.

Top 5 Penny Companies To Own For 2014: Liuyang Fireworks Limited (FWK.V)

Liuyang Fireworks Limited engages in the development, manufacture, and distribution of fireworks and related products in the People's Republic of China and internationally. The company is based in Liuyang City, the People's Republic of China.

Top 10 Performing Stocks To Buy For 2014: Kirkland's Inc.(KIRK)

Kirkland?s, Inc. operates as a specialty retailer of home decor and gifts in the United States. Its stores offer various merchandise, including framed art, mirrors, wall decor, candles and related items, lamps, decorative accessories, accent furniture, textiles, garden-related accessories, and artificial floral products. The company?s stores also provide an assortment of holiday merchandise during seasonal periods, as well as items suitable for gift-giving. It operates stores under the Kirkland?s, Kirkland?s Home, Kirkland?s Home Outlet, and Kirkland?s Outlet names. The company operates its stores in enclosed malls and various off-mall venues, including lifestyle centers, power strip centers, outlet centers, and freestanding locations. Kirkland?s, Inc. also sells its products through its Web site kirklands.com. As of March 08, 2012, it operated 299 stores in 30 states. The company was founded in 1966 and is based in Nashville, Tennessee.

Top 10 Performing Stocks To Buy For 2014: Home BancShares Inc.(HOMB)

Home BancShares, Inc. operates as a holding company for the Centennial Bank that provides various commercial and retail banking, and related financial products and services to businesses, real estate developers, investors, individuals, and municipalities. It offers various deposit products, including checking, savings, and money market accounts, as well as certificates of deposit. The company also offers commercial real estate, construction and land development, commercial and industrial, residential real estate, agricultural, and consumer loans. In addition, it provides Internet banking and voice response information, cash management, overdraft protection, direct deposit, safe deposit boxes, the United States savings bonds, and automatic account transfers services. Further, the company provides trust services focusing on personal trusts, corporate trusts, and employee benefit trusts, as well as writes insurance policies for commercial and personal lines of businesses. As of December 31, 2010, it operated 49 branches in Arkansas, 9 branches in the Florida Keys, 6 branches in central Florida, 3 branches in southwest Florida, and 29 branches in the Florida Panhandle. Home BancShares, Inc. is headquartered in Conway, Arkansas.

Top 10 Performing Stocks To Buy For 2014: Liontrust Asset Management(LIO.L)

Liontrust Asset Management plc is a publicly owned investment manager. The firm primarily provides its services to individuals and institutional investors through its subsidiaries. Through its subsidiaries, it manages equity portfolios, unit trusts, individual savings accounts, offshore funds, absolute return funds, pooled pension funds, and segregated institutional accounts for its clients. The firm invests in the public equity markets of United Kingdom and Europe through its subsidiaries. Through its subsidiaries, it primarily invests in growth stocks of companies to create its equity portfolios. Liontrust Asset Management plc was founded in 1994 and is based in London, United Kingdom.

Top 10 Performing Stocks To Buy For 2014: Aztech Group Ltd. (560.SI)

Aztech Group Ltd, together with its subsidiaries, engages in the manufacture and sale of electronic products and services primarily in Singapore and China. It operates in three segments: Electronics, Materials Supply and Marine Logistics, and Others. The Electronics segment designs, develops, manufactures, and markets data communication, voice communication, and multimedia and LED lighting products. It provides ODM/OEM products, including ADSL2/2+, residential gateway, GPON, set-top box, HomePlug, wireless LAN, wireless extender, switches, fiber broadband, IP camera, DECT phone, and 3G mobile broadband products, as well as distributes products under its own Aztech brand worldwide. This segment also provides contract manufacturing turnkey services to its customers for electronics PCBA assembly, plastic tooling, plastic injection, and box built products; and manufactures LED lighting products, such as surface mounted lights, downlights, ceiling lights, bulk head lights, T8 t ubes, bulbs, and outdoor lights. The Materials Supply and Marine Logistics segment procures and supplies construction building materials; provides marine transportation services; and engages in the ownership, chartering, operation, and management of sea going vessels. The Others segment is involved in food distribution activities, as well as in the provision of property rental services. In addition, the company engages in the distribution and sale of multicommunication products and computer peripherals; provision of marketing services; development and investment of properties; manufacture and sale of plastic injection parts; and lighting system installation, as well as undertakes non-building construction related works. The company was formerly known as Aztech Systems Ltd and changed its name to Aztech Group Ltd in April 2009. Aztech Group Ltd was founded in 1986 and is headquartered in Singapore.

Top 10 Performing Stocks To Buy For 2014: Aehr Test Systems(AEHR)

Aehr Test Systems designs, engineers, and manufactures test and burn-in equipment for use in the semiconductor industry. The company primarily offers the advanced burn-in and test systems for performing tests during burn-in on logic and memory packaged ICs; the FOX full wafer contact parallel test and burn-in systems for making contact with pads of a wafer simultaneously to enable full wafer parallel test and burn-in; the MAX burn-in systems for burn-in and functionally testing of devices, such as digital signal processors, microprocessors, microcontrollers, and systems-on-a-chip; WaferPak cartridges for use in testing wafers in FOX systems; the DiePak carriers, a reusable, temporary package that enables IC manufacturers to perform final test and burn-in of bare die; and test fixtures, which hold the devices undergoing test or burn-in and electrically connect the devices under test to the system electronics. It also offers customer service and support programs, including s ystem installation, system repair, applications engineering support, spare parts inventories, customer training, and documentation. The company markets and sells its products through a network of distributors and sales representatives to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers, and burn-in and test service companies. It has operations in the United States, Asia, and Europe. The company was founded in 1977 and is headquartered in Fremont, California.

Top 10 Performing Stocks To Buy For 2014: LDK Solar Co. Ltd.(LDK)

LDK Solar Co., Ltd., together with its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. It offers solar-grade and semiconductor-grade polysilicon; and multicrystalline and monocrystalline solar wafers to the manufacturers of solar cells and solar modules. The company also provides wafer processing services to monocrystalline and multicrystalline solar cell and module manufacturers; and sells silicon materials, such as ingots and polysilicon scraps. In addition, it engages in the production and sale of solar cells and modules to developers, distributors, and system integrators; and design and development of solar power projects in Europe, the United States, and China, as well as provides engineering, procurement, and construction services. LDK Solar Co., Ltd. operates in Europe, the Asia Pacific, and North America. The company was founded in 2005 and is based in Xinyu City, t he People?s Republic of China.

Advisors' Opinion:

• [By Paul]

  LDK Solar Co., Inc.(NYSE: LDK) closing price in the stock market Tuesday, Jan. 3, was $4.38. LDK is trading 9.48% above its 50 day moving average and -11.82% below its 200 day moving average. LDK is -70.74% below its 52-week high of $14.97 and 71.76% above its 52-week low of $2.55. LDK‘s PE ratio is 6.53 and its market cap is $573.78M.

  LDK Solar Co., Inc. engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects together with its subsidiaries. LDK offers solar-grade and semiconductor-grade polysilicon; and multicrystalline and monocrystalline solar wafers to the manufacturers of solar cells and solar modules.

Top 10 Performing Stocks To Buy For 2014: Tribal Group(TRB.L)

Tribal Group plc, through its subsidiaries, provides technology, service delivery, and advisory solutions primarily to the educational sector in the United Kingdom, Australasia, and internationally. The company provides education services to the public sector, including software, managed services, school inspection services, consultancy, benchmarking, e-learning, publishing, and training services. Its technology solutions comprise student management products, asset management products, learning management products, program-based systems, platform-based systems, and bespoke solutions. The company?s service delivery solutions include training and development, school improvement, delivery of major education programs for the government, inspection of schools in the south of England, and management of the early years? professional status. Its advisory services comprise performance improvement, program and project management, strategy and innovation, curriculum support, subjec t excellence, school improvement, benchmarking and consultancy for further and higher education, and workforce development services. The company serves schools, colleges, universities, government agencies, and employers to manage their resources and deliver education services. Tribal Group plc was founded in 1999 and is based in London, the United Kingdom.

3M,Reshine Join to Boost NMC Usage - Analyst Blog

3M Company (MMM) recently signed a patent license agreement with Hunan Reshine New Material Company, Ltd. to boost nickel, manganese and cobalt (NMC) usage in lithium ion batteries. Reshine is a Chinese company engaged in manufacturing and sales of cathode materials.

A lithium-ion battery is a rechargeable battery in which lithium ions move from the anode to the cathode during discharge and move back when charging.

NMC cathode compositions address a diverse range of consumer requirements in devices ranging from high-energy, handheld consumer electronic products to high-power electric vehicles. For large format battery applications, the thermal stability of NMC cathode compositions reduces battery system cost and enhances battery safety.

This agreement is a win-win deal for both the companies. The agreement with 3M enhances Reshine's product range in the consumer electronics market and further enables it to meet the rapidly increasing demands of lithium ion battery manufacturers. As for 3M, the agreement reinforces its global clout as it remains focused on inventing new products and maintains its competitive edge. The company continues to invest in diverse product offerings and technological solutions targeting lithium ion batteries to capitalize on emerging business propositions.

Together with its subsidiaries, 3M operates as a diversified technology company with manufacturing operations across 70 countries worldwide. The company aims to deliver innovative security solutions to businesses and governments worldwide, thus maintaining security of people and documents. 3M is committed to actively contributing to sustainable developments through environmental protection, social responsibility, and economic progress.

3M currently has a Zacks Rank #4 (Sell). However, stocks that look promising and are worth a look now in the industry include Honeywell International Inc (HON), Macquarie Infrastructure Company LLC (MIC) and Tyco International Ltd (TYC), each ca! rrying a Zacks Rank #2 (Buy).

Are Housing ETFs in Trouble? - ETF News And Commentary

Homebuilders were no doubt the biggest beneficiary of the Fed's bond-buying policy and one of the strongest performers last year. But more recently, fears over rising rates have kept the space under pressure.

Inside the Slump

Homebuilders suffered a huge sell-off in May, plunging close to double digits in that time frame and severely underperformed the overall market. This decline continued for much of June, especially after the FOMC meeting (read: Are Housing ETFs Back on Track?).

At the FOMC meeting, Bernanke indicated a slow down bond purchase later this year, and discontinuation if unemployment hits 6.5% at some point in 2014. The potential exit of this massive QE program has led to the slump in most of the homebuilders' stocks.

Rising mortgage rates could severely impact the current housing recovery and raise concerns on the demand for new homes and the homebuilders' profit margin.

Will Solid Data Help?

However, an improving labor market, rising consumer confidence and tight inventory are infusing bullishness into the sector. The sector looks promising according to the recent solid housing data (read: Homebuilder ETFs Rise on Even More Strong Data).

First, the NAHB housing market index jumped from 44 in May to 52 in June, representing the highest reading in seven years. Second, existing home sales data hit the highest level since Nov 2009 with a seasonally adjusted annual rate of 5.14 million. The figure is up 2% from the prior month and 12.9% from the year-ago month.

Finally, housing starts increased 6.8% to a seasonally adjusted annual rate of 914,000 while building permits fell 3.1% in the month.

Homebuilder ETF in Focus

Despite the worries about rate increases, investors can view the recent dip in the homebuilding space as a buying opportunity. Below, we briefly highlight two of the top funds in the space which could be great picks for investors who believe that the housing market will storm higher after its recent! dip:

iShares Dow Jones US Home Construction ETF (ITB)

This popular homebuilder ETF follows the Dow Jones US Select Home Builders Index, giving exposure to about 29 companies in the space. The fund is extremely liquid trading in volume of more than 4.6 million shares a day and charges investors 45 basis points a year in fees (read: Top Zacks Ranked Construction ETF- ITB).

The product provides exposure to pure homebuilders making up for about two-thirds of the assets, leaving a bit for retail firms and building material companies. In terms of individual stocks, mid caps dominate the fund with more than half of the assets.

The fund is highly concentrated in its top 10 holdings with the highest allocation going towards Pulte Group (PHM), Dr Horton (DHI) and Lennar (LEN).

ITB struggled in June, losing about 7.7% in the month. However, ITB has added about 5% to start July and may now be back on track. The ETF currently has a Zacks ETF Rank of #1 or Strong Buy rating with a Medium risk outlook.

SPDR S&P Homebuilders ETF (XHB)

This ETF follows the S&P Homebuilders Select Industry Index, giving investors exposure to about 37 companies in the space. Volume on this ETF is really good, coming in just under six million shares a day while AUM is also solid at over $2.5 billion. The fund charges 35 basis points a year.

The fund uses an equal weight strategy, so no single security makes up over 3.33% of assets, ensuring a good level of diversification. This approach gives the fund a tilt towards small and mid cap securities, as just 10% of the ETF is in large cap stocks.

Meanwhile, investors should also note that the ETF goes beyond just homebuilders, holding companies that are in the retail segment or household appliances' corner of the housing market.

Despite the equal weight strategy, XHB lost over 4% in the month of June. But so far in July, the ETF has seen a solid performance, adding about 5% in the time frame. Currently, the! ETF has ! a Zacks ETF Rank of #3 or Hold rating with a Medium risk outlook (read: The Best ETFs for the Housing Recovery?).



Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>



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Bull of the Day: Lithia Motors (LAD) - Bull of the Day

Lithia Motors (LAD) recently delivered its 14th consecutive positive earnings surprise, driven by a double-digit increase in both new and used vehicle sales.

Management also raised its guidance for the remainder of 2013, prompting analysts to revise their estimates significantly higher. This sent the stock to a Zacks Rank #1 (Strong Buy).

Although shares of Lithia Motors have had a spectacular run, with shares trading at a reasonable 16x forward earnings, this stock appears to have plenty of gas left in the tank.

Lithia Motors is the 9th largest automotive retailer in the United States with 91 stores in 11 states. It sells 27 brands of new vehicles and all brands of used vehicles.

Second Quarter Results

Lithia reported excellent second quarter results on July 24. Adjusted earnings per share jumped 42% to $1.05, beating the Zacks Consensus Estimate by 13 cents. It was the company's 14th consecutive positive earnings surprise.

Revenue soared 23% to $1.009 billion, ahead of the consensus of $986.0 million. Both new and used vehicle same store sales rose 19% as the automotive sector continues to recover from the depths of the Great Recession.

Adjusted selling, general and administrative expenses as a percentage of revenue improved 80 basis points to 10.5% as Lithia leveraged its fixed expenses.

Guides Higher

Following strong second quarter results, management raised its earnings guidance higher for the remainder of 2013. The company now expects to earn between $3.80 and $3.85 on revenues of $3.9-$4.0 billion.

This revision was above consensus at the time and prompted analysts to raise their estimates significantly higher for both 2013 and 2014. This sent the stock to a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for 2013 is now $3.83, corresponding with 30% EPS growth. The 2014 consensus is currently $4.37, representing 14% EPS growth.

You can see the sharp increase in consensus estimates in the company's 'Price & Consensus! ' chart:

Reasonable Valuation

Shares of Lithia have been on a tear, particularly over the last year or so, as you can see here:

Despite this, the valuation picture still looks reasonable with shares trading at 16x 12-month forward earnings.

Hot Safest Companies For 2014

The Bottom Line

With improving industry trends, excellent earnings momentum and reasonable valuation, this Zacks Rank #1 (Strong Buy) stock still has plenty of gas left in the tank.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

Yahoo! Reclaims Traffic Leadership, But Can It Turn It Into Cash?

Top Stocks To Buy For 2014

A curious thing happened in internet-land in July. According to comScore, Yahoo! (Nasdaq:YHOO) surpassed Google (Nasdaq:GOOG) to take the top spot in web traffic for July 2013, the first time in more than two years. Yahoo! edged out Google with 197 million unique visitors against Google's 192 million. As always, though, the devil is in the details. It remains to be seen whether Yahoo! can leverage its position into revenue and profits.

Lies, Damn Lies, And Statistics
The key question is how much this traffic is worth. Consider, for instance, who else showed up in the top six. Microsoft (Nasdaq:MSFT), long criticized for its inability to really do much online in terms of revenue and profits, came in third at almost 180 million visitors, while presumed dead-company-walking AOL (NYSE:AOL) was fifth at 117 million. Facebook (NYSE:FB) and Amazon (Nasdaq:AMZN) came in at numbers four (142 million) and six (110 million), respectively.

Certainly Yahoo!'s improvement suggests that the new corporate strategy laid out by CEO Marissa Mayer of a greater focus on mobile, personalization, and improved search/display is having an impact. To that end, it's also worth noting that these results did not include Tumblr's numbers as part of the total for Yahoo!

SEE: Economic Moats: A Successful Company's Best Defense

Now, Monetize It.
As anyone who has worked online can tell you, there's a lot that goes into a successful online business. Getting visitors and pageviews is one thing, getting actual revenue (let alone profitable revenue) from them is another thing entirely. Look no further than the difference between Facebook and AOL – while the two companies may be roughly in the same neighborhood in terms of monthly unique visitors (142 million versus 117 million), but Facebook generates more than three times as much quarterly revenue.

So now the real question is whether Yahoo! can take that next step and leverage this traffic growth into revenue growth. It certainly doesn't hurt that Yahoo! Finance is a leading destination for investors, and likewise the company could benefit from the beginning of the fantasy football season, as Yahoo! Sports is one of the top destinations/services for fantasy football players. Interestingly, these are two areas (finance and sports) that are very popular on the 'net, and with advertisers, but where Google doesn't have much traction.

The Bottom Line
We'll all know soon enough whether Yahoo!'s efforts to improve traffic leads to a sustained change in internet behaviors, revenue, and profits. It may well be just a case of month-to-month turbulence. Then again, it may be that Mayer's turnaround plan for Yahoo! is having a real impact and that this company has a cogent plan for a second act in the online world.

Disclosure – At the time of writing, the author did not own shares of any company mentioned in this article.

Why Advisors Should Tweet About That Kayaking Trip

A client may visit the financial advisor’s office for a financial check-up just twice a year. The advisor’s got a lot of stuff on the wall attesting to his credibility. “It’s intimidating,” says Pat Allen, a digital marketing consultant for financial services firms.

In that brief allotted time, the advisor’s personality may not emerge as the discussion focuses on topics such as the client’s investment objectives and portfolio allocation.

“If I’m a financial advisor, I’m not going to waste that time on my [recent] kayaking trip,” says Allen, whose firm, Rock the Boat Marketing, is noted for Allen’s penetrating blog, updated weekly, on financial services social media usage.

“But I can use Twitter to demonstrate that I’m a person [with broad interests]. Because otherwise they’re just thinking about performance, about fees—that’s an easy relationship to replace,” she tells ThinkAdvisor in a phone interview.

“It enriches the relationship,” Allen (right) says of Twitter and other social media platforms. “We have more dimension to us than what you see in a 30-minute encounter. Absence does not make the heart grow fonder.”

Advisors appear to have gotten that message. American Century Investments’ latest annual social media survey showed a significant rise in Twitter usage—34% in 2013 compared to 27% the previous year. LinkedIn continues as advisors’ favorite social media outlet (75%), with Facebook (34%) and Twitter (16%) far behind.

These three platforms and the many others (e.g. Google+) all have their uses, but the key, says Allen, is “to show there are people running the account, to show there’s a face and a personality.”

A GDP announcement is, by itself, just a piece of information.

“But everybody’s got a different take on it,” Allen says.

It is that personal spin that Allen rates highest among advisor social endeavors. Every advisor must have a LinkedIn profile nowadays, but “blogging is probably the best thing a financial advisor can do.”

After blogging, Allen most advocates Twitter use as a means of amplifying an advisor’s blog posts. “Twitter has better tools for staying relevant,” she says. “Facebook is complicated because it’s a real mix between personal and professional.” LinkedIn, she adds, is especially valuable as a means of viewing what content is being shared online.

Top Insurance Stocks To Buy For 2014

That said, the digital marketing strategist understands social media can be overwhelming for many advisors.

“You don’t have to do all of it, but you should master at least one platform — that’s a legitimate strategy.”

While advisors short on time might wisely choose to concentrate on a single social media outlet, Allen is not a fan of using broker-dealers’ preapproved content libraries.

“It’s turnkey, but it’s not what’s going to get the most engagement. What gets the most engagement is something that is timely — commenting on something that’s happened today.

“Social media … is a conversation,” she says. “Every incremental update continues the conversation. The tweet is additive; it extends the story that you have told me on your blog. It keeps you front of mind.”

Allen also cautions, and comforts, advisors not to have a lot of expectations of a single tweet. “It’s the body of work…It’s all in a stream and the stream passes by…you have to build a reputation that this is somebody worth following.”

Apart from keeping content fresh and considering the oeuvre of your social media efforts, Allen stresses the value of diversifying your content.

“People work with financial advisors not just because of performance and what they know of the market—it could be their support of the community; it could be all kinds of softer reasons."

That’s where the kayaking trip comes back into this.

“If I talk about kayaking for a while, I’m likely to attract kayakers,” Allen says. “You’d never hang up a shingle and say ‘I specialize in investors who kayak.’

And yet that interest attracts followers, Allen says, citing a marathon-running advisor who in this way has managed to attract other marathon runners as clients.

“That’s why people join clubs,” she says.

Finally, Allen points out that a growing use of Twitter among advisors is for networking with other professionals—rather than prospecting, though it can have that benefit as well.

“They want to be part of an ecosystem that includes lawyers [for example] so they can discuss what a tax change could mean. If I’m a retail client and I’m seeing my advisor talk in real time about some kind of tax change, I’m thinking, ‘Wow, this guy’s earning [his keep].’”

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Ametek: A Fast Growing Industrial Conglomerate With 40% To 70% Upside Potential

Ametek (AME) is a global manufacturer of electronic instruments and electromechanical devices. Ametek is a strong leader in most of its niche markets having either a low-cost advantage over competitors or higher-quality products that address critical customer needs.

Despite the company's strong competitive position and its excellent acquisition track record, the market underestimates its growth potential mostly due to non-company specific reasons. I believe and will demonstrate that the company is worth up to $78 per share or 60% above its current $48 per share market price with little risk.

Business Overview

Ametek is essentially a collection of many businesses that were acquired over the years. The company is organized in two segments, the Electronic Instruments Group or "EIG" and the Electromechanical Group or "EMG".

The EIG segment provides products for the process, aerospace, power and industrial markets and its products are used for monitoring, calibration and display in usually critical operational functions like product development and production.

The EMG segment builds various highly engineered products like electrical connectors, electronics packaging for sensitive electronic devices, advanced technical motor and motion control products. Its products are targeted for the aerospace, defense, medical and industrial markets.

(click to enlarge)(Ametek's products - Source: Ametek's website)

Within its two segments Ametek categorizes its products either as differentiated or as cost-driven. Differentiated products are innovative proprietary products that the company sells at a premium price. The cost-driven ones are price sensitive, commoditized products for which the company employs a low-cost strategy using its manufacturing scale.

Competitive Strengths - Moat

Ametek is the leader ! in most of the market its serves and benefits both from lower-costs due to its manufacturing scale and from a locked-in customer base due to switching costs. To demonstrate what I mean and how well positioned the company is, here are some examples of typical (for Ametek) products.

Example 1:

Ametek makes testing and measurement equipment for tire manufacturers who use it for quality testing their products and calibrating their manufacturing process. Given the critical network of their use and their small relative cost, these products are somewhat price-insensitive and mostly quality focused.

This ensures great profit margins for Ametek and revenue stability because no manufacturer is going to risk the quality of its products or disrupting its operations by changing supplier. As long as Ametek continues to make top-notch quality products its customers aren't going to even look to other equipment suppliers.

Example 2:

One of Ametek's business units repairs and overhauls a wide variety of components for the aviation industry. Furthermore it's one of the few repair shops with fuel systems repair capabilities. To be successful Ametek's business unit must be able to conduct its repairs in a quick but most importantly in an absolutely reliable way. No one wants one of its planes crashed because he didn't hire the best repair company around.

And this is where Ametek's strength lies. Due to the life-critical nature of its services it can charge premium prices without losing any customers. No customer would be willing to compromise the quality of its repaired components just to save a little more money. Thus it is highly unlikely of customers ever switching to another repair provider.

Market Concerns

Despite the company's solid competitive position and its extremely good acquisition record, analysts underestimate its growth, projecting only 10% EPS growth over the next 5 years which is a little more that half of what I believe Ametek is going to have. But let's exam! ine each ! one of the market's concerns about the company.

Concern 1:

The first concern the market has is that due to the dollar's weakness the company is going to face higher acquisition costs. The reasoning goes like this. The Fed through its QE operations manipulates the USD to go lower. Since Ametek is a US company this would increase the company's costs for international transactions like acquisitions. Since there is no end for QE in sight the company is in more than just short-term trouble.

This view, while it seems quite reasonable, overlooks one "minor" detail. More than half of Ametek's revenue (and FCF) is generated outside of the United States. This means that while the company will experience some negative impact from a weak dollar, this will be offset by the currency appreciation of its international cash flows.

Concern 2:

The market also worries about Ametek doing business in Asia. Although this is a big market for Ametek to sell its products, analysts are more concerned about copycats replicating and selling its proprietary designs in lower prices. Ametek is currently expanding into Asia and Latin America. It has already built and operates plants in Mexico, Brazil and China. Furthermore, to continue expanding, it has gone into joint ventures in China, Japan and Taiwan.

The infringement risk for Ametek comes specifically from China where copyright and patent laws are either too flexible or not applied for the benefit of local manufacturers. While this is a real threat, I believe that this risk is overblown. The overwhelming majority of Ametek's products have life-critical applications like the products I presented above and their users aren't focused on price but on quality, efficiency and reliability.

Since Ametek is highly focused on innovating new products and improving its existing ones, it will always be several steps ahead of its copycats. Furthermore Ametek's customers are unlikely to change their supplier just for the sake of price. They dep! end on Am! etek's products for their operational efficiency and stability and saving a few dollars isn't worth the disruption risk of changing suppliers.

For example I can't imagine Boeing deciding to dismiss Ametek as its supplier for critical airplane flight sensors (like the temperature sensors it uses in its 787 Dreamliner model) in favor of an untested copycat design just to save a few thousands dollars per plane and risking its reputation for safety and excellence.

Concern 3:

Another issue that worries the market seems to be the amount of goodwill Ametek carries onto its balance sheet. Ametek has $2.2 billion of goodwill on its balance sheet and it is almost equal with its equity of $2.5 billion. Furthermore the company's total intangible assets are $3.5 billion which is 67% of its total assets and 140% of its shareholders equity.

By normal standards this is a huge and dangerous amount of intangibles for an industrial company to have. The danger being a big write-down that could severely damage (or even wipe-out) the company's equity.

However Ametek isn't an ordinary industrial company. Ametek has bought and integrated dozens of companies over its history and has proven to be quite disciplined both about price and strategy. Ametek's strategy is to buy companies that have a differentiated product that can command a premium price. Ametek then focuses on innovating and improving these products constantly.

In this context it is quite obvious that the businesses Ametek has bought are worth more than their assets. As a result, the goodwill Ametek has accumulated all those years (which equals the difference between what Ametek paid and what it got asset-wise) is a good representation of the extra value these companies had due to their differentiated niche products and their pricing power.

We can also conclude this from the fact that over the last decade Ametek has paid $3.2 billion in acquisitions and earned $2.3 billion of cumulative operating income as a result in excess ! of what i! t would have earned if it just maintained its 2002 profitability level.

However keep in mind that this is a gross calculation since not all of the increase in operating profits can be attributed to the acquisitions. Part of it is just plain and simple organic growth (adding new customers) and the introduction of new products and product innovations. But even if just half of it is due to the acquisitions, it is quite clear that Ametek hasn't overpaid for the companies it bought.

And this proves that the goodwill in Ametek's balance sheet is indeed representing value and it may even be worth more than what the company's balance sheet shows it to be.

Concern 4:

The fourth source of the market's worry about Ametek is the broader economic environment and what the future holds for the global economy. I can't predict the future and thus I don't know how the global economy will fare in the following years.

However I know this. Ametek benefits from recessions almost as much as it benefits from a growing economy. The reason for this is simple. When the economic environment is bad Ametek is able to find new businesses to acquire for less money than it would have to give during an economic boom.

This and the critical nature of its products helped Ametek navigate the Great Recession with only one year of falling sales, 2008. In 2008 Ametek's revenue fell by 20% but the next year it bounced back to pre-crisis level and continued to rise.

Growth Strategy

Ametek's growth strategy is based on continuous innovation of new products and acquisitions. Both are crucial because Ametek is already a leader in the niche markets it serves and as a result its potential within those markets is limited.

Fortunately Ametek's track record in both of these tasks is excellent. In 2012 alone the company introduced 12 new products. And as we've already discussed the company has a long and successful history of acquiring and integrating leading niche businesses.

Top Low Price Stocks To Invest In 2014

Valuation

Ametek is expected to generate $2.12 of EPS for 2013 and $2.32 for 2014. At its current price of $46 per share the company is trading at 20 times its 2014 earnings.

Since we addressed the market's concerns I believe that the company will continue to grow at its average 18% rate since it is still small in size and has a lot of room to grow within the industries it serves. As a result the company's fair value should be between 20 and 28 times its forward earnings. This leaves us with a fair value range of $46 and $65 per share.

Nevertheless, I believe that EPS isn't the best metric to use when judging this stock. What matters for Ametek's expansion and future profitability is how much free cash it generates every year. Historically its free cash flow has been on average about 1.2 times the company's earnings per share. So if we use FCF/share in our valuation instead of EPS we get a fair value range of $55 to $78 per share.

Ametek is an excellent company with inherent competitive strengths that provide it with stable business and great growth potential. At its current price of $46 per share the company's stock has the potential for a 40% to 70% rise. Unfortunately I don't see any catalysts for the company's rise in value other than the company's quarterly earnings reports. I believe that it won't be long before the market realizes the company's true worth and that all four of these fears aren't well founded.

Source: Ametek: A Fast Growing Industrial Conglomerate With 40% To 70% Upside Potential

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

Informed investor guides woman towards fin empowerment

Best Value Companies To Watch For 2014

A series where the best financial minds clear doubts about investment, solve queries and educate woman engaged in different profession to understand finance better. In this session we will see how a set of women manage their money.

Sharmila Joshi, head of Equities, Fairwealth Securities and Harshvardhan Roongta, certified financial planner of Roongta Securities are two financial experts who will solve financial queries and guide them to achieve their financial goals.

Below is the edited transcript of the interview on CNBC-TV18.

Q: How do I transit from being a saver to an investor?

Roogta: First, from the income, the residue amount left is savings. And when you park you're saving in productive area which generates returns, then that is investments. Important point is, one should know what his financials goals are, why, when and for what purpose one needs money? Once goals are identified it becomes easy to invest.

Joshi: Generally, women are very non-risk oriented; they don't want to lose money. So they feel that jewellery is a safe investment bet. But over a period of time things are moved in a different direction. The way inflation spiraling, we know that things on the ground are costing more.

Our parents used to invest in bank deposits because at that point the interest rates were capable of taking care of inflation and investments, but now the scenario has changed. We need to shift at more aggressive and progressive financial tools to make investments grow.

Q: Is it ideal to buy gold or silver in physical form or via SIP in long run?

Joshi: Buying gold or silver via SIP or ETF is a better option then buying physical gold. Because you can trade in ETF like any other share in demat account. So if price goes up you can sell it and vise-versa but when you make ornaments chances to liquidate dims and it is done only at bad times.
 
Q: Which his a better investment option gold, silver or shares?

Roongta: They are two distinctively different asset classes. Now within gold, you can own them in different ways. You can have them either in the form of gold coin, gold bar or electronic form which is called exchange traded funds (ETFs) in your demat account. The price risk remains the same in both cases.

Thirdly, in the form of e-gold in which you can own gold in electronic form, go and encash it. How you take cash out of your bank account, you can simply go and encash it in the form of physical gold in your hand.

Q: When I buy shares of any company do I become a partner to their subsequent ventures?

Joshi: Yes, when you buy shares, you automatically become a shareholder of the company. Every company has a paid up equity capital and when you buy a share; you get that amount of ownership. It could be a small portion but you are the owner of the company. Some one who manages own enterprise is open to risk in the same manner the company in which you invest is exposed to risk. Ideally, you should select a company which has good prospects going ahead.

Q: We invest in an SIP for number of years like 2-3 years and then later we stop investing in those companies. What happens to that money, which we have already invested in SIP? Is it lost? Can we recover it?

Roongta: Systematic investment plan is a way of investing every week, month, quarter or whatever duration that one find best, the invested amount remains intact. It does not get forfeited like in the case of investment made in insurance products where if you don't pay for three years your amount gets forfeited. If your investments are into equities then they are subject to market performance of the fund.

Q: Can I sell those?

Roongta: Yes, you can sell them again and recover what the market prices are on date of redemption.

Q: How about investment in commodities like copper, as nowadays copper is going up, gold goes down?

Roongta: At the basic level of investments where you are not from the industry then it is better to avoid it. Please do not go by hearsay and somebody who is dealing in copper as a product he may know invariably what is happening with the copper prices, demand, and supply. What is the international trend with copper prices? So, he maybe in a better position to take a call.

Q I know I have to invest, but I am too lazy. I don't want to follow the share market, the chart, what is infra and all those things I don't understand, I don't even want to open my Demat account. Can some one help me with this?

Joshi: In this case it is best to open an SIP. Suppose today the Nifty is at 5100 level and you put your more, then again when you put your money next time the market is bad at 5000 level. Here what happens over a long period of time your risk averages out. It is best to start with a small amount, choose a good fund, check some literature and spot the fund to invest.

CNBC regularly talks to fund managers and they do personal finance queries, which will give you a very good idea that which are the good funds at that point in time. Do an SIP in those funds and just taste the water for 6-7 months and then you will soon know that how your investments are done and then maybe you will feel more adventurous and take the next step and do some actual investment in equity or in any other instrument. One has to go through KYC norms and demat account.

Q: Once they select a fund house would you advice it for someone who is just starting out, perhaps just go with an index fund and then experiment with sector funds, mid cap and smaller cap funds?

Joshi: Index fund is a good idea because then you don't really need to even study anything further. In a SIP fund that tracks the Nifty then, when the Nifty goes up your fund will do well and vice-versa but in an SIP you will be averaging. If you get a good feeling over a period time, you can choose the times you want to invest.

Q: Is there certain paraphernalia or research paraphernalia for beginners like me to go through before I decide that this is how I should start with small steps. Do you have certain basic things that we should read about?

Roongta: The best way is to realise that you need to invest. The moment you realise you need to invest you will search for answers. At this juncture there is information explosion if you want to search for something you will have 10 answers.

Q: Information explosion for a beginner like me is difficult as I don't know what to choose and what to omit?

Joshi: Even before you start at company I think two-three things that are very easy. Start by reading newspapers and then correlating them with things that are happening around you. Suppose you read that petrol prices are going up, so what are the implications for the oil marketing companies like BPCL and HPCL.

So, you start going beyond what is in the headline and I think that is the start to investment.  The NSE and moneycontrol website is brilliant. They provide loads of information. Any company that you want, any amount of information is available. I think that everyday there is a stock that you can go out and buy. There are 10 stocks that you can go out and buy everyday literally, but you must be able to spot the right stock at the right price that's what the game is for us.

Q: What make an ideal portfolio?

Roongta: We have picked this case of Bibhut P from Bangalore. He requires Rs 50 lakh after 17 years for his kid's education and he needs Rs 5 crore after 29 years for his own retirement. He has also started making certain investments for this purpose.

He has investments in shares, mutual funds, property, other assets but he has loan as well. He invests Rs 21,000 into equity mutual funds, which has been mapped for his retirement. Now, this money he is putting aside every month, so that he accumulates Rs 5 crore at the end of 29 years which will take care of his retirement after he stops working. He invests about Rs 3,000 every month already for his kid's education.

The good point in this portfolio is that he got assest clearly mapped for his goals. A good habit that an investor should develop is that he should specifically dedicate assets for a particular goal and that is seen in his portfolio.

Secondly, he has a long-term view of 29 years and 17 years from now to plan for something for which he has already started. So he has power of compounding to his side.

Let's see what power of compounding? For 29 years, if he continues to make this investment of Rs 21,000 into equity mutual funds, equities have a reasonably good track record of giving about 14% long-term returns. So if I take a 14% compounded rate, his corpus at the end of 29 years by investing Rs 21,000 every month is going to be Rs 9.8 crore. That is a power of compounding. He clearly needs only Rs 5 crore so he is well in place to fund for his retirement.

He has a child's education to provide for, for which he has 17 years and he is investing Rs 3,000. So if I take the same compounding factor, it is Rs 25 lakh. Here is where he is falling slightly short because he has plans to fund for Rs 50 lakh but he is accumulating only Rs 25 lakh. The solution is that he simply needs to - his investing probably weigh too much for his retirement because he is overshooting that now.

He should dedicate another Rs 3,000 out of your retirement corpus. So that becomes Rs 50 lakh at the end of 17 years. So his corpus at retirement will reduce just by some amount. It will be Rs 8.4 crore, which is still above his targeted corpus and on the other hand, he will be able to accumulate the money which he requires for his kid's education.
Had he started doing this just five years later, the retirement corpus would have reduced to about Rs 4 crore and 80 lakh. It would have become almost half.

So the good part is that he has started early. Same applies to all of us, if there is anything that you need to save for, you need to start early, it is magical to see power of compounding works in your favour. So that is probably what you can take when you leave from here.

Honeywell Rewarding Wall Street's Enthusiasm

Wall Street has turned very positive on industrial conglomerate Honeywell (NYSE:HON), to the tune to of a market-beating 12% rise over the past quarter and a 44% rise over the past year. Certainly there are reasons to like Honeywell – the company's commercial aerospace is well-positioned for global growth, as is the building controls business. What's more, years of investments in the performance materials business should start paying off soon. Even so, there's a limit to what any business is worth, and it seems like Wall Street's enthusiasm has sent the shares above that limit.

A Relatively Familiar Theme So Far
It's still early in the reporting cycle for the big industrial companies, but I'm starting to think that "okay on revenue, better on margins" may end up being the theme. Although like General Electric (NYSE:GE) Honeywell did not beat on its revenue number, the solid margin performance drove a bottom line EPS beat.

Revenue rose 3% as reported this quarter. The Automation and Control business generated 3% organic growth, with all of the components showing year-on-year growth. Performance Materials was strong at 9% growth, and Transportation was pretty solid at 5% growth. Aerospace was more mixed, with 1% organic growth coming from solid commercial growth (up 8% for original equipment and 3% for aftermarket) offset by continued weakness in defense (down 8%).

SEE: 5 Earnings Season Investing Tips

As I said, margins were pretty good. Gross margin improved a point, and operating income rose 8%. Overall corporate operating margin improved by 60bp, with aerospace and ACS each seeing roughly one-point margin improvements. Margin declined more than three points in PMT, due to lower licensing sales, lower Advanced Materials volumes, and costs tied to the Thomas Russell deal.

Wins Will Drive More Revenue Growth
Honeywell continues to rack up contract awards that should help fuel the top-line growth that the Street already expects. On the commercial aviation side, it's not just about production growth at Boeing (NYSE:BA), as Honeywell has won some significant contracts from foreign aerospace companies including Embraer (NYSE:ERJ) and China's COMAC.

It's not just aerospace where Honeywell is doing well. The company's UOP segment recently won a gas processing equipment order from Petrobras (NYSE:PBR) for four offshore floating production projects. As many analysts had penciled in Cameron (NYSE:CAM) for this business, and Cameron has been talking up its technological capabilities in this business, this is an interesting win for Honeywell even if the dollar amounts ($100 million over two years) aren't all that significant to Honeywell.

Will Honeywell Go For Invensys?
Honeywell has been a willing acquirer for a number of years, but a new target is on the radar right now. Schneider has approached Britain's Invensys with a buyout offer, and the company is now in play. Invensys may not be a household name, but the company is a significant player in the industrial/process automation sector, and is particularly well known for its industrial software.

Several companies have been named as potential counter-bidders, including Emerson (NYSE:EMR) and GE, but Honeywell may be interested as well. A bid for Invensys would be digestible for Honeywell, but it would still be a large acquisition and it would definitely alter the company's end-market exposures. While I think Honeywell would love to get the industrial software business, I think the challenges of integrating a large deal and improving Invensys's below-average will probably keep the company on the sideline.

The Bottom Line
I like everything about Honeywell except the price, though I'm perfectly willing to acknowledge that the stock could easily continue to head higher if the company stays ahead of estimates and the market stays bullish on the global industrial recovery theme.

For now I continue to model 4% long-term revenue growth and 10% free cash flow growth for Honeywell. With those growth rates, I believe fair value is in the $70s, and so I'm not inclined to add these shares to my own portfolio today.

Disclosure – As of this writing, the author owns shares of Cameron.

Gold: A sip on every slip

Hot Bank Stocks To Buy For 2014

Argument against investing in Gold is not invalid. It produces nothing, pays no dividends, it's inherently subject to theft and incurs negative carrying costs, but that is the price you pay for tranquility.

In a world of undercapitalized banks, over leveraged sovereigns and political ineptitude wherever you look, it is prudent to allocate a portion of one's  capital to an asset that is not someone else's liability An ounce of Gold is an ounce of Gold has to go up in relation to paper money . To what price depends on the pace of inflation and we all know that inflation will continue.

While the short term trend for international Gold prices stays bearish a weaker rupee will prevent domestic prices from crashing.

The main way to tap into investing in Gold stays the traditional method of buying physical bullion / coins from your jeweler. Not as convenient as investing in an ETF or a Gold Fund but definitely safer. For the more sophisticated investor there is always the futures and option market.

We've always maintained that monthly SIPS are the best way to protect any investment, irrespective trends, charts, emotions and sentiment. That view holds true for Gold as well. Sip every slip should be your investing mantra.

Perhaps the best tribute to a SIP lies in the fact that even your grandmother could make money from her investment in Gold.

And she never understood markets.

Authored by Rajiv Goel, C.E.O. of BCS

Best Canadian Companies To Buy Right Now

Sears Holdings (SHLD) today reported its 19th consecutive quarter of declining sales. But chairman Eddie Lampert�� transparent investor letter and a conference call instilled confidence that pushed the stock up nearly 23 percent, making a year-to-date gain of more than 93 percent. The sudden increase has cut losses, but still not generated a gain for Lampert, who recently added even more shares, or another major shareholder, Bruce Berkowitz.

Eddie Lampert owned more than 45 percent of Sears at the end of the fourth quarter. In January, he transferred roughly $159 million in Sears stock to his personal wealth from his hedge fund, ESL Investments. He also bought roughly $12 million in stock on the open market that month. After those purchases, he and his hedge fund together own about 59 percent of Sears.

Lampert purchased the shares after the stock had a steep decline from as high as $78 per share in November 2011 to roughly $30 in January 2012. The dip was primarily due to a profit warning the company released which said operating results were being significantly affected by a weak economy.

If Lampert purchased 12,000 shares at $30 in January, a total value of $360,000, he made approximately $720,000 at today�� stock price on that small investment alone. The recent increase has created little other profit, however. In the last five years, his average purchase price for shares was $96.7, meaning the stock would have to go much higher yet for him to gain.

Bruce Berkowitz of the Fairholme Fund, who owns 15.07 percent of Sears, is in a similar situation, but is closer to a profit. He has 16,208,492 shares, which he bought at an average price of $64.50 per share. The stock, which today trades at about $62 per share, has only to go slightly higher for him to receive a positive return on the investment. It has already significantly helped his fund, which lost 32.42 percent in 2011, compared to a gain of 2.11 percent for the S&P 500.

Whether they will ever see a gain re! mains in question. Eddie Lampert�� letter outlined plans to turn the company around, which may have recast it from a sinking ship to a promising turnaround story in the perception of many. Lampert also emphasized that Sears��problem was making money, not liquidity, and it had multiple options for meeting its financial obligations while it took measures to revive business. Presently Sears��$3.2 billion of liquidity consists of nearly $2.5 billion in domestic and Canadian revolving credit facilities and just $754 million cash.

To free up more cash, it plans to reduce expenses by close to $200 million, reduce peak inventory, separate Sears Hometown and Outlet businesses and hardware stores by transferring them to shareholders, which would raise $400 million to $500 million, and selling real estate for 11 stores to General Growth Properties (GGP) for $270 million. At the end of December, it said it would close as many as 120 stores.

Sales at Sears have declined every year since Lampert created it through the $11 billion merger of Sears and Kmart, then in bankruptcy, in 2005. In Sears Domestic�� comparable store fourth quarter sales declined 4.1 percent, and 3 percent for fiscal 2011. Kmart�� comparable store sales declined 2.7 percent in the fourth quarter and 1.4 percent for fiscal 2011. Sears Canada�� comparable store sales fell 7.5 percent in the fourth quarter and 7.7 percent for the fiscal year. Its adjusted earnings per diluted share from continuing operations for the fourth quarter were $0.54 in 2011 and $3.67 in 2010, and adjusted loss per diluted share from continuing operations for the full year were $4.52 in 2011 and $1.97 in 2010.

On its conference call, CEO Lou D��mbrosio said Sears��biggest problem in the quarter was margin rates. ��he largest margin decline was in apparel and related categories��several factors contributed to the decline in these categories. We saw significant increase in commodity costs, particularly cotton, high inventory levels led! to incre! ased mark downs and clearance, and unseasonably warm weather impacted several categories, such as Land�� End typically strong outerwear business.��

He added, ��here are actions we could have taken to mitigate the margin decline. Our five could have been executed better, in terms of quantity and assortment. Our promotional cadence should have been more surgical, and cost actions could have been taken earlier.��

With all of the challenges, much of the confidence about Sears lies in the abilities of Lampert himself. He has achieved an average return of 29 percent a year since 1988 on a string of successful endeavors and is often called ��he next Warren Buffett,��making it difficult to doubt his leadership. He is one of Bruce Berkowitz�� primary reasons for remaining planted in the stock. ��nvestors fled with this New Year�� greeting before Chairman Lampert purchased over $150 million of common for his personal account,��he said in his fourth-quarter letter. ��or many reasons, including management, we continue to believe the assets of this iconic brand to be a multiple of values implied by its current stock market price and continue to see the beginning of a new Berkshire Hathaway.��br>
Lampert concluded his fourth-quarter letter with his five-pillar business strategy, which has not changed since he began at the company.

Best Canadian Companies To Buy Right Now: Enbridge Inc(ENB)

Enbridge Inc. engages in the transportation and distribution of crude oil and natural gas primarily in Canada and the United States. Its Liquids Pipelines segment operates common carrier and contract crude oil, natural gas liquids (NGLs), and refined products pipelines and terminals. The company?s Gas Distribution segment distributes natural gas to residential, commercial, and industrial customers primarily in central and eastern Ontario, northern New York State, Quebec, and New Brunswick. Enbridge?s Gas Pipelines, Processing and Energy Services segment invests in natural gas pipelines, processing and green energy projects, and commodity marketing businesses, as well as performs commodity storage, transport, and supply management services. Its Sponsored Investments segment transports crude oil and other liquid hydrocarbons through common carrier and feeder pipelines, as well as transports, gathers, processes, and markets natural gas and NGLs; operates a crude oil and liqui ds pipeline and gathering system; and owns a 50% interest in the Canadian portion of Alliance Pipeline and partial interests in various green energy investments. The company was formerly known as IPL Energy Inc. and changed its name to Enbridge Inc. in October 1998. Enbridge Inc. was founded in 1949 and is headquartered in Calgary, Canada.

Advisors' Opinion:

• [By Louis Navellier]

  Enbridge Inc. (NYSE:ENB) is an energy transportation and distribution company separated into six segments: Liquids Pipelines, Gas Distribution, Gas Pipelines, Processing and Energy Services, Sponsored Investments and Corporate. Enbridge stock has gained 13% in 2011.

Best Canadian Companies To Buy Right Now: Cameco Corporation(CCJ)

Cameco Corporation operates as a uranium producer, supplier of conversion services, and fuel manufacturer. The company?s Uranium segment is involved in the exploration for, mining, milling, purchase, and sale of uranium concentrate. Its operating uranium properties include the McArthur River and Key Lake, and Rabbit Lake located in Saskatchewan, Canada; the Crow Butte located in Nebraska and the Smith Ranch-Highland located in Wyoming; and the Inkai uranium deposit located in Kazakhstan. Cameco Corporation?s Fuel Services segment engages in the refining, conversion, and fabrication of uranium concentrate; and the purchase and sale of conversion services. Its products include uranium trioxide, uranium hexafluoride, and uranium dioxide. This segment also manufactures fuel bundles, reactor components, and monitoring equipment to Candu reactors; and provides nuclear fuel and consulting services to Candu operators. The company?s Electricity segment engages in the generation and sale of nuclear electricity, through its 31.6% interest in Bruce Power L.P. This segment operates four nuclear reactors at the Bruce B generating station in southern Ontario, Canada. The company was founded in 1987 and is headquartered in Saskatoon, Canada.

Advisors' Opinion:

• [By Mark]

  Canada’s Cameco Corp. (CCJ) is a leading nuclear energy company. As the world’s largest low-cost uranium producer, Cameco satisfies almost 20% of the world’s demand. The company was founded in Saskatoon, Canada, in 1987 and has its roots in gold mining — which still contributes a bit to CCJ’s bottom line.

  Though precious metals are the rage on Wall Street right now, the Cameco’s uranium business is what has the most potential in the current market. As global warming becomes increasingly important to governments around the world, emission-free nuclear power is once again returning to favor.

  President Obama himself made a pitch for nuclear power in a Nevada press stop last week, saying the industry is clean, safe and could create thousands of new jobs. When the U.S. gets behind nuclear power in earnest, it’s sure to mean big things for uranium supplier CCJ.

Top Low Price Stocks To Own Right Now: Prestige Brand Holdings Inc.(PBH)

Prestige Brands Holdings, Inc., together with its subsidiaries, engages in marketing, selling, and distributing over-the-counter healthcare and household cleaning products primarily in North America. The company?s Over-The-Counter Healthcare segment offers a portfolio of OTC products under nine core OTC brands, including Chloraseptic sore throat remedies, Clear Eyes eye drops, Compound W wart removers, Dramamine motion sickness products, Efferdent and Effergrip denture products, Little Remedies pediatric healthcare products, Luden's cough drops, PediaCare pediatric healthcare products, and The Doctor?s brand of oral care products. This segment also provides other significant brands that include Dermoplast first-aid products, Murine eye and ear care products, NasalCrom allergy relief product, New-Skin liquid bandage, and Wartner wart removers. Its Household Cleaning segment markets household cleaning products, such as abrasive and non-abrasive tub and tile cleaner, scrubb ing pads and sponges, dilutables, anti-bacterial hard surface spray for counter tops, and glass cleaners under the Comet, Chore Boy, and Spic and Span brands. Prestige Brands Holdings distributes its products through various retail channels, including drug, food, dollar, and club stores, as well as supermarkets and mass merchandisers. The company was founded in 1996 and is headquartered in Irvington, New York.

Best Canadian Companies To Buy Right Now: Royal Caribbean Cruises Ltd.(RCL)

Royal Caribbean Cruises Ltd. operates in the cruise vacation industry worldwide. It owns five cruise brands, which comprise Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisi�es de France. The Royal Caribbean International brand provides various itineraries and cruise lengths with options for onboard dining, entertainment, and other onboard activities primarily for the contemporary segment. It offers surf simulators, water parks, ice skating rinks, rock climbing walls, and shore excursions at each port of call, as well as boulevards with shopping, dining, and entertainment venues. The Celebrity Cruises brand operates onboard upscale ships that offer luxurious accommodations, fine dining, personalized services, spa facilities, venue featuring live grass, and glass blowing studio for the premium segment, as well as resells computers and other media devices. The Pullmantur brand provides an array of onboard activities and serv ices to guests, including exercise facilities, swimming pools, beauty salons, gaming facilities, shopping, dining, complimentary beverages, and entertainment venues serving the contemporary segment of the Spanish, Portuguese, and Latin American cruise markets. The Azamara Club Cruises brand offers various onboard services, amenities, gaming facilities, fine dining, spa and wellness, butler service for suites, and interactive entertainment venues for the up-market segment of the North American, United Kingdom, German, and Australian markets. The CDF Croisieres de France brand offers seasonal itineraries to the Mediterranean; and various onboard services, amenities, entertainment venues, exercise and spa facilities, fine dining, and gaming facilities for the contemporary segment of the French cruise market. As of December 31, 2011, the company operated 39 ships with a total capacity of approximately 92,650 berths. Royal Caribbean Cruises Ltd. was founded in 1968 and is headqua rtered in Miami, Florida.

Advisors' Opinion:

• [By Hawkinvest]

  Royal Caribbean Cruises (RCL) is one of Carnival's competitors in the cruise industry. Royal does not have the same issues as Carnival in terms of the Costa Concordia incident, but it could be impacted by discounting in cruise fares, as well as higher fuel costs. Royal Caribbean shares were recently downgraded to a strong sell by Zacks Investment Research, and a recent analyst report states:

  We are a bit doubtful about the cruising sector in the near term after Carnival's ship Costa Concordia ran aground in mid-January on Italy's west coast. The disaster hit the industry in the wake of the wave season between January and March. The recent tragedy resulted in subdued bookings. Royal Caribbean's overall booking volumes in North America came down. In Europe, where the incident took place, the cut in bookings has been steeper. Business in APMEA was also down slightly. The company expects a 20% decline in new bookings during the peak of wave season.

  This stock was trading below $26 in early January, but it has rallied with the markets. With oil prices trending higher, and the stock at the high end of the recent trading range, the shares look vulnerable to a pullback.

  Here are some key points for RCL:

  Current share price: $29.89

  The 52 week range is $18.70 to $45.45

  Earnings estimates for 2011: $2.32 per share

  Earnings estimates for 2012: $2.94 per share

  Annual dividend: 40 cents per share which yields about 1.3%

Best Canadian Companies To Buy Right Now: Yamana Gold Inc.(AUY)

Yamana Gold Inc. engages in gold and other precious metals mining, and related activities, including exploration, extraction, processing, and reclamation. It also explores for copper, molybdenum, zinc, and silver metals. The company's portfolio includes 7 operating gold mines namely Chapada; El Pen Advisors' Opinion:

• [By Barker]

  I believe I have touted Yamana Gold's clear prowess as a deep-value favorite from every possible angle. With arguably the lowest downside risk of any stock in the sector, I join fellow value hounds in waiting patiently for the market to recognize the full value of these shares.

Best Canadian Companies To Buy Right Now: Tim Hortons Inc.(THI)

Tim Hortons Inc. develops, franchises, and operates quick service restaurants primarily in Canada and the United States. Its restaurants serve coffee and other hot and cold beverages, baked goods, sandwiches, soups, and other food products. As of April 03, 2011, the company and its restaurant owners operated 3,169 restaurants in Canada and 613 restaurants in the United States under the Tim Hortons name; and had 274 primarily self-serve licensed locations in the Republic of Ireland and the United Kingdom Tim Hortons Inc. was founded in 1964 and is based in Oakville, Canada.

JCP: Ackman Calls for Chair Engibous to Resign; Subset of Board Has Gone Rogue

Bill Ackman‘s struggle to revive J.C. Penney (JCP) takes a new turn this morning, as the Pershing Square hedge fund manager, Penney’s largest shareholder, issued an open letter to the board of directors of the retailer, calling for chairman Tom Engibous to step down, saying the functioning of the board had broken down amidst an urgent need to find a new chief executive officer.

“I have lost confidence in our Chairman’s ability to oversee this board,” writes Ackman. “I would therefore recommend that Tom be replaced as our Chairman.”

Ackman proposes former CEO Allen Questrom, who yesterday told CNBC he would be willing to come back to the company to try and help out, providing he and the board felt comfortable with one another.

In his long, letter, Ackman says he has never before released a letter to the press while serving on a board, but that he was pushed to take the “extraordinary step” given his concern “a small subset of the board is negotiating and speaking on behalf of the full board.”

5 Best Undervalued Stocks To Invest In Right Now

This morning’s statement follows yesterday afternoon’s announcement by Engibous and the board that it was disappointed with Ackman’s having told the media yesterday that the board wasn’t moving fast enough to find a new CEO.

CNBC’s Scott Wapner reported a short while ago that “According to a source close to J.C. Penney, Ackman’s facts laid out in his letter are inaccurate.” The source said Ackman’s characterization of chair Engibous having gone rogue, or of a small group of board members having split off, are wrong. “The board discussed the matter” of picking a new CEO “as a full board.”

Penney shares are down 79 cents, or almost 6%, at $12.87.

Top Financial Stocks To Own For 2014

On this day in economic and business history ...

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was first published on May 26, 1896. Charles Dow, working in partnership with Edward Jones and Charles Bergstresser, was a pioneering financial journalist who began creating stock indexes (primarily composed of railroad companies) in 1884 to flesh out his daily news bulletins. These quick briefs would be hand-delivered to traders on the New York exchange floor throughout the day and would later be aggregated into a close-of-business news recap called the "Customer's Afternoon Letter" -- the progenitor of The Wall Street Journal, which was originally only four pages long and cost its stock-loving readers a mere two cents.

Charles Dow's early forays into stock indexing coincided with a massive boom in railroad investments, an echo of the explosion of railroad companies that followed the construction and completion of the Transcontinental Railroad. However, a massive financial panic struck in 1893, crushing many railroads and causing a multiyear recession. Three years later, Dow created his first "Industrial Average," which contained only one railroad company -- and this company was actually a diversified materials enterprise as well. The Dow Jones Industrials became a symbol of American business durability while also showing the ability to adapt when necessary.

Top Financial Stocks To Own For 2014: Aqua America Inc.(WTR)

Aqua America, Inc., through its subsidiaries, operates regulated utilities that provide water or wastewater services in the United States. The company serves residential, commercial, fire protection, industrial, and other water and wastewater customers in Pennsylvania, Texas, North Carolina, Ohio, Illinois, New Jersey, New York, Florida, Indiana, Virginia, Maine, Missouri, and Georgia. It also provides water and wastewater services through operating and maintenance contracts with municipal authorities and other parties, as well as sludge hauling, septage and grease services, and backflow prevention services. The company was formerly known as Philadelphia Suburban Corporation and changed its name to Aqua America, Inc. in 2004. Aqua America, Inc. was founded in 1968 and is based in Bryn Mawr, Pennsylvania.

Advisors' Opinion:

• [By Chuck]

  Private water utilities own only about 16% of the nation's water supply infrastructure. That leaves 84% of the nation's waterworks in the hands of America's cities and towns. The long-term trend in the water utility business will be toward their privatization, and Aqua America will continue to grow through smart acquisitions of mismanaged utilities, both public and private. You can see Aqua America's strong upward trend since the middle of June. After its breakout over its November 2008 highs, the next point of resistance is near $25 a share.

Top Financial Stocks To Own For 2014: Intl Enexco Limited (IEC.V)

International Enexco Limited, an exploration stage company, engages in the exploration and development of mineral, and oil and gas properties in North America. It primarily explores for copper, silver, gold, molybdenum, lead, zinc, tungsten, and uranium ores. The company�s principal properties include a 100% owned Contact copper/silver resource property located in Elko County, Nevada, the United States; and the Mann Lake uranium property situated in the Athabasca Basin, Saskatchewan, Canada. International Enexco Limited is headquartered in Vancouver, Canada.

Top 5 Growth Companies To Watch For 2014: City National Corporation (CYN)

City National Corporation operates as the bank holding company for City National Bank that provides various banking, investing, and trust services to small to mid-sized businesses, entrepreneurs, professionals, and affluent individuals. Its deposit products include demand and interest checking deposits, savings deposits, and money market accounts. The company�s loan portfolio comprises commercial loans, including lease financing; residential mortgage loans; commercial real estate mortgages; real estate construction loans; equity lines of credit; and installment loans. It also offers cash management, international banking, equipment financing, and other products and services. In addition, the company provides investment management, advisory, and brokerage services, including portfolio management, securities trading, and asset management; personal and business trust and investment services comprising employee benefit trust services, and 401(k) and defined benefit plans; and estate and financial planning, and custodial services. Further, it offers various asset classes and investment styles, including fixed-income instruments, mutual funds, domestic and international equities, and alternative investments, such as hedge funds. City National Corporation provides its services through 79 offices, including 16 full-service regional centers in Southern California; the San Francisco Bay area; Nevada; New York City; Nashville, Tennessee; and Atlanta, Georgia. The company was founded in 1953 and is headquartered in Los Angeles, California.

Best Energy Stocks To Own For 2014

Even before President Obama's speech on climate change emphasized the need to limit carbon emissions, coal companies were having a rough go of it. Declining revenues, balllooning debt, and competition from natural gas have made it very difficult for some companies to survive. With debt-to-capital ratios approaching that of the now-bankrupt Patriot Coal, it looks as though�Walter Energy (NYSE: WLT  ) could be heading into some very dire financial times.�

At the same time, there are a few glimmers of hope for the coal industry. Cloud Peak Energy's (NYSE: CLD  ) balance sheet shows some characteristics that could help it survive another rough patch for coal. It may not be a great balance sheet overall, but it's certainly better than many others in the space. Tune into the following video to get Fool.com contributors Tyler Crowe and Aimee Duffy's take on a couple other coal companies that either look like they are headed for a big fall or have stronger balance sheets to weather the storm.

Best Energy Stocks To Own For 2014: Caspian Energy Inc Com Npv (CEK.TO)

Caspian Energy Inc., through its subsidiary, Caspian Energy Ltd., engages in the exploration, development, and production of oil and gas properties in the Republic of Kazakhstan. The company, through its 40% interest in Aral Petroleum Capital LLP, holds the right to explore and develop oil and gas properties, known as the North Block, a 1,549 square kilometre area located in the vicinity of the Kazakh pre-Caspian basin. Caspian Energy Inc. was incorporated in 1982 and is headquartered in Calgary, Canada

Best Energy Stocks To Own For 2014: Onex Corporation Sv (OCX.TO)

Onex Corporation is a private equity firm specializing in acquisitions and platform acquisitions. The firm makes investments in large-cap, mid-cap, and small-cap market and distressed companies. It also invests in recapitalization, growth capital, corporate carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations, operational restructurings of undervalued businesses, and builds up. The firm seeks to invest in electronics manufacturing services, aerospace, healthcare, retail, industrials products, customer care services, metal services, building products, gaming, cabinetry products, commercial vehicles, commercial and investment banking, financial services, commercial and multi-unit residential real estate. It invests in the North American region. The firm seeks to invest between $200 million and $1 billion in companies that have minimum revenues of $300 million. It does not consider size if the company is in an industry in which the firm already has presence. The firm seeks to make direct as well as co-investments through managed private equity, real estate and credit funds. It seeks to acquire a control position in its portfolio companies. Onex Corporation was founded in 1984 and is based in Toronto, Canada with additional offices in New York, New York and London, United Kingdom.

Top High Tech Companies To Invest In Right Now: Call Genie Inc(GNE.TO)

VoodooVox Inc. provides local mobile searching and advertising solutions to publishers, advertisers, and operators in North America and internationally. The company offers analytics tools for publishers to understand who their audience is; ad networks that supplies targeted advertisements in text, video, and voice formats; SMS, audio, and mobile-Web-enabled services; self-service toolkits; action tracking services with pay-per-call and pay-per-click options; and white-label local business search services. It also provides tools for creating advertisements, defining campaign targets and goals, monitoring results, and optimizing campaigns; direct VoIP call connection; interactive voice; and prepaid calling card offer wall, an interactive content channel. In addition, the company offers a suite of call center products, including directory workstation and search engine, directory data manager, open integration framework; and voice response products, which support various busin ess models. Further, it provides the VoodooVox Ad Exchange software for managing multi-media advertisements; and referred call services for telecommunications companies and directory assistance service providers on a licensed product basis. The company was formerly known as Call Genie Inc. and changed its name to VoodooVox Inc. in January 2012. VoodooVox Inc. was founded in 2000 and is headquartered in Toronto, Canada.

Edison International Acquires SoCore

Electric-power generator and distributor Edison International (NYSE: EIX  ) said today it had completed its previously announced acquisition of privately held distributed solar developer SoCore Energy.

SoCore focuses on solar energy for multi-site retailers, real estate investment trusts, and large commercial and industrial clients. SoCore Energy designs, installs, and operates 80 commercial-scale solar installations in 11 states. It was responsible for Walgreen's largest solar-energy rollout and counts as key clients Ikea, Kimco Realty, and mall operator Simon Property Group.

Where Edison is impressed with SoCore's client list and the pipeline of projects it brings to the table, SoCore President and CEO Pete Kadens said, "Aligning with a well-branded and progressive energy partner will enhance our attractiveness to customers and broaden our suite of offerings."

Top Performing Stocks To Own Right Now

Financial details of the acquisition were not revealed, but previously analysts noted that approval is required of any acquisition valued at more than $10 million. As of late last year, SoCore generated sales above $30 million annually and was growing 500% per year.

SoCore Energy will become a wholly owned indirect subsidiary of Edison International, with its management team, employees, and operations continuing to be based in Chicago.

Why the Street Should Love Exlservice Holdings's Earnings

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Exlservice Holdings (Nasdaq: EXLS  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Exlservice Holdings generated $51.9 million cash while it booked net income of $42.7 million. That means it turned 11.4% of its revenue into FCF. That sounds pretty impressive.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Exlservice Holdings look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 16.6% of operating cash flow coming from questionable sources, Exlservice Holdings investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 11.8% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 23.7% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

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