MoneyGram Sinks to Underperform - Analyst Blog

On Jul 11, we downgraded our recommendation on MoneyGram International Inc. (MGI) to Underperform based on its bleak growth prospects amid the current economic headwinds and higher expenses.

Why the Downgrade?

On May 2, MoneyGram reported first-quarter 2013 earnings per share (EPS) of 24 cents. While EPS was in line with the Zacks Consensus Estimate, total revenue of $340.5 million missed the mark of $342 million. However, both EPS and revenues were higher than the year-ago numbers by 4.3% and 7%, respectively.

Higher transaction volumes and free cash flow were partially offset by lower investment income and higher operating and commission expenses, overall, reducing margins.

Following the first quarter results,the Zacks Consensus Estimate for both 2013 and 2014 have remained intact at $1.20 a share and $1.40 per share, respectively, over the last 60 days. Consequently, with the Zacks Consensus Estimate for 2013 and 2014 depicting no clear directional pressure on the stock in the near term, MoneyGram now has a Zacks Rank #3 (Hold).

Cause for Concern

MoneyGram's investment portfolio has been consistently deteriorating given the low interest rate environment across economies. Moreover, increased coverage in different countries exposes the company to foreign currency fluctuations. Further, increased dependence on the money transfer business given the constant descent of the financial products segment is adversely affecting margins and operating cash flow.

At such a juncture, higher operating and commission expenses only add to the woes, thereby restricting EBITDA growth. Posting 5.8% growth in 2012, adjusted EBITDA also lagged management's guidance of 7–9%, which has been further lowered to 3–6% for 2013.

Other Stocks to Consider

While we prefer to avoid MoneyGram until it gains some traction, other stocks that are outperforming in the financial sector include Moody's Corp. (MCO), American Safety Insurance Holdings Inc. (ASI) ! and HCI Group Inc. (HCI). All these stocks carry a Zacks Rank #1 (Strong Buy).

Wall Street stock futures trade lower

Wall Street stock futures on Thursday were tilting lower as investors considered the prospect of stimulus withdrawal from Federal Reserve by as early as January.

Dow Jones industrial average index futures slid 0.3%, Standard & Poor's 500 index futures lost 0.3% and Nasdaq index futures were down 0.5%.

In its latest policy statement, the Fed said it will continue buying $85 billion in bonds every month and keep its benchmark short-term interest rate near zero.

FEDERAL RESERVE: First Take: Two Fed sentences that say much

On Wednesday, the Dow lost 0.4% to 15,618.76. The S&P 500 index fell 0.5% to 1,763.31. The Nasdaq shed 0.5% to 3,930.62.

In Asia, Japan's Nikkei 225 index fell over 1% to 14,327.94 and Hong Kong's Hang Seng was off 0.4% to 23,206.37.

The major regional bourses in Europe traded with losses. The United Kingdom's FTSE 100 index was down 0.4%.

In energy markets, benchmark U.S. crude for December delivery was up 2 cents at $96.79 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.43 to close at $96.77 on Wednesday.

While the Fed's announcement was mostly expected by investors, its comments that there was "underlying strength in the broader economy" spooked markets and raised fears that tapering could be brought forward three to four months, said Evan Lucas, market strategist with IG in Melbourne, Australia.

Facebook's shares (FB) are likely to be in focus among individual stocks Thursday. On Wednesday, the firm's corporate results blew past estimates. Facebook shares were up over 4% in pre-market trades.

EARNINGS: Facebook beats Street; shares go on roller-coaster rid

Contributing: Associated Press

Hong Kong stocks fall as bank earnings weigh

LOS ANGELES (MarketWatch) -- Chinese stocks opened lower Thursday, with banks mostly weaker after a slew of earnings results from the top mainland Chinese lenders. Hong Kong's Hang Seng Index (HK:HSI) fell 0.8% to 23,120.24, with the Hang Seng China Enterprises Index also 0.8% lower, while the Shanghai Composite (CN:SHCOMP) gave up 0.6% in early moves. Mostly disappointing earnings from some of the largest banks helped sink their shares. Industrial & Commercial Bank of China Ltd. (HK:1398) (IDCBF) dropped 1.7%, Bank of China Ltd. (HK:3988) (BACHY) retreated by 0.8%, and Bank of Communications Co. (HK:3328) (BKFCF) dropped 2.6% after all three posted lower profit growth than a year earlier, and with BoCom saying it could raise capital with a preferred-share issue. In other post-earnings reactions, China Minsheng Banking Corp. (HK:1988) (CMAKY) fell 3.2%, but Agricultural Bank of China Ltd. (HK:1288) (ACGBF) traded flat. In Shanghai, ICBC (CN:601398) lost 0.5%, Bank of China (CN:601988) fell 0.4%, BoCom (CN:601328) was down 1.6%, China Minsheng (CN:600016) tumbled 3.5%, and AgBank (CN:601288) retreated 0.8%. Among gainers, Lenovo Group Ltd. (HK:992) (LNVGF) rose 1.5% after the company launched its new Yoga tablet, with actor Ashton Kutcher to be involved in the device's marketing.

Read the full story:
Asia stocks mostly lower after Fed statement

Yellen's Policies Will Boost Overseas Economies

NEW YORK (TheStreet) -- An important piece of news seems to have been overlooked, or even ignored, in the past month, thanks to our nation's debt ceiling debacle and Affordable Care Act bickering.

We all know that Janet Yellen has been nominated to succeed Ben Bernanke as the next Federal Reserve chairperson. Yellen is notoriously dovish, meaning she has supported Bernanke's stance on short-term interest rates and is likely to remain highly accommodative into 2014. This isn't news either, but digging a little deeper, we can see that the continuation of Bernanke's policies may have farther-reaching effects than it appears at first glance.

Why is this so important?

We all saw the stock, bond and housing markets' reaction to the perceived threat of rising rates during the month of June. After all, on May 21 Bernanke reminded us to "drink like gentlemen," because the bar will inevitably run dry at some point. We saw the Dow and S&P 500 take a quick 6% dip and the bond market crater as yields climbed from 1.94% to 2.54% on the 10-year Treasury Note over that five-week stretch. Over that period, any asset class characterized as a "dividend" or "yield" instrument was somewhat indiscriminately bludgeoned: Surveying the damage pictured above: (-7.53%) - Utilities, IDU (-7.63%) - Long-term U.S. Treasury Bonds, TLT (-9.25%) - Master Limited Partnerships, AMJ (-15.96%) - REITs, VNQ The FOMC Spin Cycle Investors feared that sharply rising rates would make the investment options above less attractive in comparison to "risk free" assets like U.S. Treasury bonds. After the initial rout, we saw a remarkable snap-back recovery in all four asset classes displayed above (with the exception of Treasury bonds) as Big Ben pacified the markets with rhetoric and rates eased. Then in July, as speculation centered around Larry Summers as most likely to succeed Bernanke, the 10-year spiked to 3.00% and our dividend-payers fell once more. The key ingredient for these asset classes isn't as simple as "low rates good, rising rates bad." Truly, it's the spread between the yields being kicked off by these investments, taken in comparison with those of the risk-free Treasury.

With Yellen's nomination on Oct. 9, these assets saw sweet relief. In the three weeks since, we have seen a remarkable recovery in the assets that were so hated in the three months prior:

Far-Reaching Effects of QE

Perhaps the more interesting action has been occurring in the left-for-dead Emerging Markets -- economies that benefit directly from lower interest rates here in the United States. We initially pointed to these opportunities back in July and September, when the argument made a lot less sense (but entry points were quite a bit better). +12.47% -- S&P 500 +16.11% -- Emerging Markets, VWO The higher the interest rates the United States pays on its debt, the higher rates these smaller and more economically sensitive nations must pay to attract investment in their own governments' debt. The logic is the same as when companies or borrowers with lower credit ratings have to pay higher interest rates to secure loans. Higher cost of funds creates additional headwinds for their growth; the converse is also true. What if I'm wrong, though? What if Rand Paul filibusters to block Yellen's nomination, or Yellen has a change of heart after accepting her nomination? If rates spike higher again, aren't we going to see the same pain that we endured for the entire month of June? Maybe. The trouble with that argument is you're not just fighting the Fed, whose primary objective is to see solid improvements in the labor market (specifically, an unemployment rate of 6.5%). You are also fighting retirees, endowments, pension funds, foreign governments and mutual funds who may be infinitely more interested in securing 3% on their fixed income portfolios than they are at 2%. Any increased appetite for our government's debt puts downward pressure on the interest rates we must pay to attract investment. Everything is relative. Yellen at the helm bodes well not just for our markets which may be getting a bit extended, but also for our small, foreign counterparts whose recovery is much less mature. As the world's largest economy, the scope of our policies cannot be measured simply by our unemployment rate and GDP growth. In fact, our unemployment and GDP growth depends more on the health of other economies than it ever has before. At the time of publication the author was long AMJ, VNQ & VWO. -- Written by Adam B. Scott This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Adam B. Scott co-founded Argyle Capital Partners with nearly a decade of experience in wealth management at Morgan Stanley and UBS in Beverly Hills, Calif. He uses his extensive market knowledge, unique perspective and macro-level analysis to implement customized solutions for high net worth private clients. Adam is a graduate of Tufts University where he studied Mechanical Engineering and Finance, captained the Men's Varsity Tennis Team and served on the Senior Leadership Corps. Adam is still an avid tennis player and skier, and volunteers his free time to the Fulfillment Fund, the Tufts Alumni Association and coaching local youth sports.

Will US Airways Climb Higher?

With shares of US Airways (NYSE:LCC) trading around $16, is LCC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

US Airways operates and owns passenger and freight airline carriers. Consumers and companies across the nation are now looking to travel at an increasing rate. Since air travel is quicker and is becoming less expensive, it is becoming a common transportation method for many. As costs decrease and flights become more efficient, look for business and retail customers to fly more than ever.

Recently, US Airways and American Airlines proposed an $11 billion merger that is coming under scrutiny because of concerns that certain cities will lose hubs or face cutbacks. The deal will also be investigated for its impact on consumers and competition. Companies and consumers worldwide look to travel at increasing rates since air travel is quicker and is becoming less expensive. As costs decrease and flights become more efficient, US Airways stands to see soaring profits as consumers and businesses look to air travel as a viable option.

T = Technicals on the Stock Chart are Mixed

US Airways stock has been flying higher over the last year or so and looks to still have room to go. However, the stock is now digesting gains from a recent run so it will need to form a base before it really gets going. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, US Airways is trading between its rising key averages which signal neutral price action in the near-term.

(Source: Thinkorswim)

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

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
US Airways Options	49.89%	90%	88%

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

	Put IV Skew	Call IV Skew
July Options	Flat	Average
August Options	Flat	Average

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

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

E = Earnings Are Increasing Quarter-Over-Quarter

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

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	-7.14%	63.41%	202.40%	214.30%
Revenue Growth (Y-O-Y)	3.45%	3.90%	2.82%	7.17%
Earnings Reaction	5.02%	1.48%	2.31%	-3.79%

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

P = Weak Relative Performance Versus Peers and Sector

How has US Airways stock done relative to its peers, Southwest Airlines (NYSE:LUV), Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), and sector?

	US Airways	Southwest Airlines	Delta Air Lines	United Continental	Sector
Year-to-Date Return	23.26%	25.68%	61.75%	36.57%	33.82%

In a strong sector, US Airways has been a weak relative performer, year-to-date.

Conclusion

US Airways is a passenger and freight airline during a time when consumers and companies are utilizing air travel more than ever. A recent proposed merger with American Airlines is coming under scrutiny which may stall a run in the stock. The stock is now currently digesting gains from a recent move higher so it may need to trade sideways a bit before it gets going. Over the last four quarters, earnings and revenue figures have been on the rise so investors in the company have been pleased. Relative to its strong peers and sector, US Airways has been a weak year-to-date performer. WAIT AND SEE what US Airways does this remaining quarter.

Betting on 3G's Burger Bet

Once again its possible to witness the huge skill-set owned by managers hired by 3G, the private equity firm backed by the Brazilian trio who controls AB-InBev (BUD): Lemann, Sicupira and Telles. This time, the trio is outperforming the market with their investment in Burger King Worldwide (BKW), which has returned 40% to its owners since its IPO in June 2012. This more than triples McDonald's (MCD) performance during the same period.

Third Quarter Results

After an aggressive reorganization process that re-franchised most of its restaurant locations, Burger King has finished this quarter with just 74 company-owned restaurants, down by 521 restaurants year-over-year. Thanks to its cost-cutting strategies and its successful re-franchising strategy (which lowers Capex in an extraordinary way) the company was able to post stunning results: If you exclude amortization and other special items, Earnings Per Share (EPS) were up by more than 35%, while operating cash-flow grew by 17%.

Even when same-store-sales eroded by 0.3% in North America while McDonald's was able to post a 0.7% gain, same-store-sales growth in EMEA, Latin America and Asia remained strong at 2.4%, 2.1% and 3.7%, respectively. Great things are still coming for Burger King, I do not think the party is over yet.

The Future Ahead

After finishing its re-franchising process, Burger King will keep on remodeling existing restaurants and launching its ambitious growth strategy in Emerging Markets. Above all in highly populated countries such as Brazil, where the company plans to open hundreds of restaurants in the next few years.

On the cost side, the job is pretty much done. After all, the company was able to push down operating costs and expenses by as much as 64% year-over-year. That said, there is one huge task that remains undone: Burger King needs to de-leverage itself. The company has now a net debt to cash flow multiple of 5 times (or almost 3.4 times its estimated 2014 EBITDA), which seems somewhat h! igh even for a company with a lean structure and a great management team. That said, 3G's track-record on getting rid-off debt is impeccable. The job done at AB-InBev after Anheuser-Busch's $52 billion acquisition is a clear example of what this people are intending to do with Burger King.

Bottom Line

Burger King Worldwide, which is largely held by the billionaire investor Bill Ackman (who owns nearly 11% of the company's shares), still trades at a reasonable level considering that I would expect the company to be able to grow its EBITDA a mid-to-high single digit rates and its bottom-line at double digit rates in the foreseeable future. Burger King trades at 20 times 2014 earnings while McDonald's, which has been posting weak top-line trends, sells for 16 times 2014 earnings. I think the premium is more than justified. After all, Burger King's organic growth should be just starting.

Hot Tech Companies To Watch For 2014

Lockheed Martin Corp. (LMT), through its Mission Systems and Training unit, won a firm-fixed-price contract from the Department of Defense (DoD) for six B-2 line replaceable units, data, material lay-in, and overhaul management.

The contract has a total value of $53.6 million with the primary three-year period expected to wind up by Jul 2016. Lockheed Martin also has an additional two-year option period till 2018 to perform the work.

Lockheed has received numerous contracts in the last few months thanks to its diversified operations focusing on ISR, unmanned systems, force protection, cyber security, and missile defense.

Bethesda, Md.-based Lockheed Martin is a global security and aerospace company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

Earlier this month, a Lockheed Martin business wing, Mission Systems and Training, won a $295 million DoD contract for work on the Aegis missile defense. This is a sole-source, cost-plus-incentive-fee/cost-plus-award-fee/cost-plus-technical-schedule incentive fee contract modification, under which Lockheed Martin will provide system engineering and program management services. This is mainly intended for the development of Aegis Ballistic Missile Defense Baseline, which would support the 5.1 variant through the Critical Design Review and Increment-2 through the Preliminary Design Review. The company�� work on the contract will continue through Mar 30, 2015.

Hot Tech Companies To Watch For 2014: Yucheng Technologies Limited(YTEC)

Yucheng Technologies Limited, together with its subsidiaries, provides information technology (IT), software, and solutions and services for state-owned commercial banks in the People?s Bank of China. The company offers systems integration, software solution, IT consulting and training, platform, and maintenance and support services; and undertakes computer network projects, as well as engages in the sale of IT products, computer software, hardware and peripheral equipment, and communication equipment. Its software and solutions include business solutions, which consist of core-banking, foreign exchange, and loan management; channel solutions that comprise customized online banking solutions, E-Banking ASP, and call center solutions to improve communication and transaction with its customers; and management solutions comprising a suite of consulting and implementation services in risk and performance management, such as asset and liability management, funds transfer prici ng, and profitability analysis that help banks to collect and analyze data. The company is headquartered in Beijing, the People?s Republic of China.

Hot Tech Companies To Watch For 2014: Plexus Corp.(PLXS)

Plexus Corp., together with its subsidiaries, provides electronic manufacturing services to original equipment manufacturers and other technology companies. The company offers product development and design services, including program management, feasibility studies, product conceptualization, specification development, circuit design, field programmable gate array design, printed circuit board layout, embedded software design, mechanical design, development of test specifications, and product verification testing. It also provides value-added services, such as engineering change-order management, cost reduction redesign, component obsolescence management, product feature expansion, test enhancement, and component re-sourcing. In addition, the company offers prototyping and new product introduction services comprising assembly of prototype products, materials management, analysis of the manufacturability and testability of a design, test implementation, and pilot productio n. Further, it provides test equipment development; material sourcing and procurement; agile manufacturing; fulfillment and logistic; after-market support; and regulatory requirements services. The company serves the wireline/networking, wireless infrastructure, medical, industrial/commercial, and defense/security/aerospace markets in the United States, Malaysia, China, the United Kingdom, Mexico, and Romania. Plexus Corp. was founded in 1979 and is headquartered in Neenah, Wisconsin.

Advisors' Opinion:

• [By Evan Niu, CFA]

  What: Shares of Plexus (NASDAQ: PLXS  ) have jumped today by as much as 13% after the company reported earnings results.

  So what: Revenue in the fiscal third quarter totaled $571.9 million, well ahead of the Street consensus of $565 million. Earnings per share were $0.68, similarly topping expectations of just $0.58 per share. CEO Dean Foate said the strong results were driven by the networking and communications as well as the health care and life sciences sectors.

• [By Seth Jayson]

  Plexus (Nasdaq: PLXS  ) reported earnings on July 17. Here are the numbers you need to know.

  The 10-second takeaway
  For the quarter ended June 29 (Q3), Plexus beat slightly on revenues and beat expectations on earnings per share.

Top 5 Casino Stocks To Own For 2014: France Telecom S.A.(FTE)

France Telecom provides fixed telephony and mobile telecommunications, data transmission, Internet and multimedia, and other value-added services to consumers, businesses, and telecommunications operators. It also offers personal and home communication services, business network services, international carriers and shared services, and integration and outsourcing services for communication applications. The company operates in France, Spain, Poland, the United Kingdom, and internationally. France Telecom was founded in 1990 and is based in Paris, France.

Advisors' Opinion:

• [By Sofia Horta e Costa]

  Barclays Plc (BARC) fell to a one-month low as Sumitomo Mitsui Banking Corp. sold a stake in the lender. Fiat SpA lost 6.5 percent as Chrysler Group LLC went in for a vehicle recall. France Telecom SA (FTE) rose after its Orange Business Services unit won a five-year deal to deploy a private network for Heineken NV. Johnson Matthey Plc (JMAT) jumped to its highest price in at least 23 years after posting full-year profit that beat estimates.

Hot Tech Companies To Watch For 2014: Open Joint Stock Company "Vimpel-Communications"(VIP)

VimpelCom Ltd. operates as an integrated telecommunications services provider, offering voice and data services through a range of wireless, fixed, and broadband technologies. It provides its services under the Beeline, Kyivstar, djuice, Wind, Infostrada Mobilink, Leo, Banglalink, Telecel, Mobinil, koryolink, Allo, and Djezzy brands. The company also offers roaming services that allows its subscribers and the customers of other mobile operators to receive and make international, local, and long distance calls while outside of their home network. In addition, it provides mobile telecommunications, as well as fixed-line, data, and long distance licenses. As of December 31, 2010, the company had 92.7 million mobile subscribers. It offers its services in Russia, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Vietnam, Cambodia, Laos, Algeria, Bangladesh, Pakistan, Burundi, Zimbabwe, Namibia, Central African Republic, Italy, and Canada. VimpelCom Ltd. is headquartered in Amsterdam, the Netherlands.

Advisors' Opinion:

• [By Dividend]

  REITs, asset managers and communication stocks are dominating the screen. That�� where you can find the highest dividend yields but the risk is also much higher.
  
  
  Here are my favorite stocks:
  
  VimpelCom (VIP) has a market capitalization of $22.62 billion. The company employs 58,184 people, generates revenue of $23.061 billion and has a net income of $1.982 billion. VimpelCom�� earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $9.768 billion. The EBITDA margin is 42.36 percent (the operating margin is 18.09% and the net profit margin 8.59%).

• [By Eric Volkman]

  VimpelCom (NASDAQ: VIP  ) is to pass along a pair of payouts for its shareholders. Simultaneously, the company declared both a regular and a special dividend. For the former, the telecom will distribute $0.35, and for the latter, $0.79 per American depositary share. The company expects to pay both by May 15 to shareholders of record as of April 29.

Hot Tech Companies To Watch For 2014: Pegasystems Inc.(PEGA)

Pegasystems Inc. develops, markets, licenses, and supports software to automate business processes primarily in the United States, the United Kingdom, and rest of Europe. The company offers PegaRULES Process Commander, which provides a platform to build, deploy, and change enterprise applications; purpose or industry-specific solution frameworks that enable organizations to implement new customer-facing practices and processes, and provide customized or specialized processing to meet the needs of different customers, departments, geographies, or regulatory requirements; and Pega customer relationship management software to automate customer service inquiries and marketing, and apply analytics to predict and adapt customer service processes. It also offers Pega decision management products, which include Pega Decision Strategy Manager and Next-Best-Action Advisor that support decision-making for offer management, risk, and other marketing and customer management solutions; and Pega Cloud, which enables customers to create and/or run Pega applications using an Internet-based infrastructure. In addition, the company provides implementation, consulting, training, and technical support services to its customers. The company markets its software and services primarily through its direct sales force to financial services organizations, healthcare organizations, insurance companies, communications and media organizations, and government agencies. Pegasystems Inc. was founded in 1983 and is headquartered in Cambridge, Massachusetts.

Hot Tech Companies To Watch For 2014: Top Image Systems Ltd.(TISA)

Top Image Systems Ltd. provides enterprise solutions for managing and validating content entering organizations from various sources. It develops and markets automated data capture solutions for managing and validating content gathered from customers, trading partners, and employees. The company?s solutions deliver digital content to the applications that drive an enterprise by using technologies, such as wireless communications, servers, form processing, and information recognition systems. It offers eFLOW Unified Content Platform that provides the common architectural infrastructure for its solutions. The company also provides Smart, an automated classification solution, which is the eFLOW plug-in for unstructured content providing single point of entry for information entering the organization; and Freedom, the eFLOW plug-in for semi-structured content that enables customers to identify and capture critical data from semi-structured documents, such as invoices, purchase orders, shipping notes, and checks. In addition, it offers Integra, the eFLOW plug-in for structured content, which provides a solution for data capture, validation, and delivery from structured predefined forms; eFLOW Ability, an integrated module interfacing with SAP systems for automated parking, approval, and posting of invoices and other document within SAP systems; and eFLOW Invoice Reader, an invoice capture and approval solution, which could be deployed and integrated in enterprise accounting environment, such as SAP, Oracle, and other financial systems. Top Image Systems Ltd. sells its products through a network of value-added distributors, systems integrators, original equipment manufacturers, and partners in approximately 40 countries worldwide. It has strategic partnership with SQN Banking Systems (SQN) to incorporate SQN's fraud detection solutions with its eFLOW Banking Platform in the Asia Pacific market. The company was founded in 1991 and is headquartered i n Ramat Gan, Israel.

Lockheed Martin Has a New Spymaster

"Skunk Works" -- the secretive Lockheed Martin (NYSE: LMT  ) division responsible for producing such flying wonders as the U-2 spyplane, the SR-71 Blackbird, and the F-35 joint strike fighter -- announced Monday that it is under new management.

Skunk Works hangar in Palmdale, Calif. Source: Wikimedia Commons.

Rob Weiss, formerly head of the company's Lockheed Martin Aeronautics Advanced Strike and Intelligence, Surveillance, and Reconnaissance programs, has been plucked for promotion to executive vice president and general manager of Aeronautics Advanced Development Programs -- a.k.a Skunk Works.

Weiss is described as being a retired U.S. Naval Reserve Captain and former carrier pilot, who flew S-3 Viking subhunters for the Navy before joining Lockheed Martin. He is a graduate of the U.S. Naval Academy and holds a master's degree in Systems Management from the University of Southern California.

At the Open: Dow Industrials Off 130 Points as Shutdown Looms; International Paper Drops 2% on Merrill Lynch Downgrade

When little orphan Annie sang, “Tomorrow, tomorrow, I love you tomorrow, you’re only a day away,” I don’t think this is what she had in mind.

Associated Press

The U.S. government will shut down tomorrow, unless the House and the Senate, which continue to toss budget bills back and forth, reach a compromise. That fact has caused stocks to tumble this morning, prolonging the pain of last week’s drop. The S&P 500 has fallen 0.7% to 1,679.28 at 10:08 a.m., while the Dow Jones Industrials have dropped 0.8%, or 128 points, to 15,130.61.

Newedge USA’s Robbert van Batenburg explains the situation:

Today the fight over the Continuing Resolution to keep the Federal government funded comes down to the wire. If Congress doesn’t strike a deal today, the nonessential functions of the Federal government start shutting down at midnight.

The Senate reconvenes at 2pm today and to vote on the most recent House bill. This bill passed the House Saturday and leaves the government funded for 70 days but calls for 1-yr delay of Obamacare. Defeat of this bill is likely at which point Republicans in the House of Representatives will need to form a new bill to avert a government shutdown.

The Lindsey Group’s Peter Boockvar looked at what happened the last time the government closed:

To look at the past for some current market guidance, the two government shutdowns in 1995-1996 had almost no impact on equity markets. The first shutdown lasted from November 13th to the 19th and the S&P's were up 4 pts. After the temporary fix ended and the government shut down for a 2nd time from Friday December 15th 1995 to January 6th 1996, the market fell 1.5% on Monday December 18th but ended January 6th little changed from its close on December 15th. Of course the circumstances are much different today in many ways but markets should assume that a deal will come sooner rather than later because the negative consequences get too large the longer this all lasts, particularly with the debt ceiling.

Belus Capital Advisors Brian Sozzi notes signs of investor complacency in sector performance. He writes:

Shares of consumer staples (the old standby "defensives", although I have long thought in an economic pullback U.S. households trade down to private label) and dollar stores (exposed to an earnings growth rate acceleration amid a crumbling consumption backdrop) continue to track (aka "correlate") with the major equity indices. This is investors showing me front and center that portfolios continue to be overweight economic recovery (aka cyclicals and industrials; the latter deserves some froth removal considering two weeks of consolidation in European indices) plays rather than the defensive companies that stand to benefit from a less prosperous economic climate. In my view, the market logging losses in six of the last seven sessions is the initial realization on the part of strategists that portfolios are ill-prepared for near-term volatility…

Tomorrow indeed.

Cal-Maine Foods (CALM) has dropped 3% to $47.45 after the company reported a profit of 36 cents, below forecasts of 49 cents.

Omnova Solutions (OMN) has fallen 3.8% to $8.36 after it said it earned 19 cents a share, missing forecasts of 22 cents.

Chipotle Mexican Grill (CMG) has gained 1.6% to $425.84 after it was upgraded to Overweight from Equal Weight by Morgan Stanley, while Panera Bread (PNRA) has fallen 1.7% to $161.25 after the investment bank downgraded it to Equal Weight from Overweight.

International Paper (IP) has fallen 2.1% to $44.47 after it was downgraded to Neutral from Buy at Merrill Lynch.

Harman International: The Best Bet On Autos

Chances are your luxury car has its sound system or infotainment package from the sound system extraordinaire Harman International Industries (HAR) company. We believe that Harman operates in a niche field that has impressive exposure to the rebounding auto industry.

The company is in semi-turnaround mode after a very weak 2009. We believe that its operating metrics are rebounding nicely, but its valuation still lags. The company not only has a stronghold on the audio car part market, but it's also breaking into the mobile phone market and tapping emerging markets. With its expanding operating margin and robust revenue growth we see nearly 80% upside to the stock.

Company overview

The company is the leader in sound systems for luxury automobiles with an 80% market share. Its brands include AKG, Harman/Kardon, Infinity, JBL, Lexicon and Mark Levinson. Outside of the car, Harman's products are found in home entertainment systems, theaters, live entertainment venues and recording studios. The company operates via three segments, infotainment, lifestyle and professional, with infotainment being its key segment, accounting for over 50% of revenues. This is key considering the fact that the bustling and rebounding auto market should spur Harman's revenues higher.

(click to enlarge)

Corporate & Industry Overview

Harman International has manufacturing facilities in North America, Europe, Asia and South America.Harman has a history of innovation with 300 new patents filed in the first 9 months of the 2013 fiscal year. This brings the total patent count to more than 4,600.In the past 3 years, Harman International has spent a combined $959.2 million on research and development.74% of the company's sales came from automobile manufacturers.At the end of June 2012, estimate awarded business for Harman International was $16.1 billion.None of its automobile customers are obl! igated to long-term purchase agreements.The audio market is highly competitive and fragmented.The company's two largest markets are the U.S. and Germany.

Industry Tailwinds

Auto sales have staged a dramatic comeback since the depths of the financial crisis. Sales have been steadily recovering over the past few years and 2013 is shaping up to be a great year. In the following table, we can see how sales have improved over 2012 levels.

Key takeaways include the fact that all the major categories (cars, light-duty trucks, SUVs, crossovers) have seen very robust growth both YTD and for the month of June.

	June 2013	% Change From June 2012	YTD 2013	% Change From YTD 2012
Cars	708,645	+7.5	3,993,403	+4.5
Midsize	333,515	+0.6	1,903,259	(1.0)
Small	276,200	+16.1	1,542,684	+10.8
Luxury	98,414	+10.1	545,899	+8.4
Large	516	(12.1)	1,561	(66.8)
Light-duty trucks	695,789	+11.1	3,835,738	+11.2
Pickup	191,664	+17.8	1,065,360	+15.1
Crossover	300,442	+10.2	1,658,687	+13.1
Minivan	81,355	+7.3	414,960	(2.5)
Midsize SUV	69,107	+13.5	389,303	+12.7
Larg! e SUV !	18,717	(16.4)	121,144	+7.9
Small SUV	21,068	+9.9	107,414	+9.1
Luxury SUV	13,436	+7.9	78,870	+3.0
Total SUV/Crossover	422,770	+9.1	2,355,418	+12.2
Total SUV	122,328	+6.5	696,731	+10.1
Total Cross-over	300,442	+10.2	1,658,687	+13.1

Source: motorintelligence.com

Total vehicle sales were up 9% in June to 1.4 million vehicles. The improving housing market is also lending support to the auto recovery. Vehicle sales for General Motors (GM), Ford (F) and Toyota (TM) blew past expectations. The head of U.S. sales for GM Kurt McNeil said on a conference call after sales numbers were released:

American families are better off than they were at the beginning of the year. They also believe that the economic expansion is going to continue, so they're buying more homes, and more cars and trucks.

In looking at the market, Harman has several privately-held competitors including Bose Corporation and Bosch Group. On the public side, Harman competes with Panasonic (PCRFY.OB), Delphi Automotive (DLPH), and Visteon (VC).

	Harman	Panasonic	Delphi	Visteon
Market Cap	$3.81 billion	$20.41 billion	$17.18 billion	$3.26 billion
Employees	11,366	293,742	118,000	23,000
Revenue	$4.21 billion	$92.80 ! billion	$15.45 billion	$7.00 billion
Gross Margin	0.27	0.26	0.17	0.09
EBITDA	$408.41 million	$6.36 billion	$2.12 billion	$510.00 million
Operating Margin	0.07	0.02	0.10	0.04
Net Income	$186.18 million	($9.58 billion)	$1.01 billion	$204.00 million
P/E	21.11	N/A	17.37	17.65
Price/Sales	0.90	0.22	1.11	0.46

Company Tailwinds

Harman is coming off a solid fiscal Q3 with relatively flat sales, but a big improvement in the bottom line as the company continues to execute its operational and cost management programs. EBITDA improved by 100 basis points to 9.2%. All three divisions posted higher profitability quarter-over-quarter. EPS improved from $0.59 in Q2 to $0.79 for Q3.

The company raised full-year guidance for fiscal 2013 to $3.00 in EPS. Previous expectations were for EPS of $2.70 to $2.90. EPS last year was $2.93. Full-year sales are expected to be between $4.175 billion and $4.25 billion. Last year revenues were $4.21 billion. While all this sounds great, it gets even better when considering the turnaround Harman has managed. 2009 was particularly rough for the company; sales plummeted and income fell negative.

Things get even more impressive if we take a more "zoomed in" look into Harman's financials. The company has managed to grow rev! enues and! EBITDA for twelve consecutive quarters.

Harman is also returning more cash to shareholders. The company just doubled the annual dividend payout to $1.20 per share. The yield is now 2.2% and increases the company's appeal to income investors. Harman also increased its share repurchase authorization by $200 million. The company had $70 million remaining on its previous authorization and the $200 million will be in addition to the previous authorization.

Harman can afford to return more cash to shareholders with its strong financials. More than 50% of the company's debt doesn't mature until after fiscal 2017 and beyond. On the balance sheet, there's $434.24 million in cash and $294.37 million in cash. The dividend payout ratio is now 40%. Operating cash flow last year was $198.33 million.

Growth Strategy

Harman Kardon is always looking to stay one step ahead of its competition. The company is focused on the next generation of audio and infotainment systems. The plan is to combine the latest technology in wireless networking, streaming audio, hands-free connectivity, driver assistance and safety systems. By combining all these features, Harman can continue growing its business with the auto manufacturers.

To do so, Harman has partnered with Apple (AAPL) and its Siri technology in the new Ferrari FF. Apple choosing to partner with Harman illustrates how strong Harman's brand is in the audio space. Voice-control and activation is the next wave in the car infotainment space.

Harman is also expanding its distribution channels in the home entertainment and multimedia markets. Harman has partnered with Sprint (S) and is selling Harman multimedia products in more than 1,000 Sprint stores. Harman is also entering into a distribution relationship with both Verizon (VZ) and AT&T (T) to distribute in their stores as well.

In the past 6 months, Harman has sold more than 1 mil! lion wire! less portable audio products. The company's recently launched JBL Flip was listed by The NPD Group as the top-selling portable audio product in its category in the U.S.

Harman is also aggressively expanding into emerging markets. The company is particularly active in Brazil, Russia, India and China where it has dedicated country managers for each country. Harman is also expanding its research and development, production capabilities, and distribution channels for these markets.

A big focus for Harman is in China where it already has two factories and is considering building a third. Harman is looking to expand its presence in China and reduce its reliance on Europe where the auto market continues to contract. Harman so far has invested $200 million in its businesses in China and seen sales grow from $20 million four years ago to $400 million last year. CEO Dinesh Paliwal told Bloomberg at the Fortune Global Forum in Chengdu, China:

I'm extremely bullish on China. Next five years for China, we'll more than double, triple our business here.

In China, the company just entered the fast-growing Karaoke Television market. It's currently a $500 million market and growing rapidly. Harman already has orders for several million dollars, up from zero just recently.

Valuation

What we really love about the stock is that it might not be too late to get into the stock. Meaning the company's valuation and price is lagging the company's performance and industry tailwinds. The company's income is returning to pre-2009 levels, and return on capital and return on invested capital is trending higher.

We believe that the future remains bright for the company. It's expected to see revenues increase across the board, while also being able to expand margins. This should help the company reach EPS of over $5.

(click to enlarge)

Being one of the key drivers for this impressive EPS growth will be strong revenue growth and margin expansion of its infotainment segment. By fiscal 2016, the company expects 83% of its backlog revenue to be scalable systems (EBIT margin 9% to 11%), versus 7% of backlog in fiscal 2012. Custom solutions made up 93% of backlog in 2012 and the average EBIT margin is between 6% and 8%.

Based on our EPS estimates, Harman is trading at 14x 2014 EPS and only 11x 2015 EPS. However, with operating metrics returning to previous levels, shouldn't the company be afforded an appropriate valuation multiple that's indicative of its future performance? At its current 20x P/E, the company is trading below pre-2009 levels...

...and at its 11x forward (2015 EPS) P/E, the company is ridiculously below historical standards and major car-part manufacturers Delphi and Visteon, which trade between 17x and 18x. Assuming that Harman should trade closer to 20x, the upside for 2015 is nearly 80%.

Investment Thesis

The greatest asset and the reason for owning Harman International is its brand, its reputation and its quality products. The biggest risks to owning Harman is the cyclicality of the auto business and that its customers are now bound to long-term contracts. A loss of business from BMW, Audi, Mercedes, or another big auto company would be a serious blow to Harman. However, we do think it's unlikely as Harman has the best audio and infotainment products in the market.

The company has a number of tailwinds that should help the market recognize its undervaluing and afford it a more appropriate valuation multiple. This includes the start of production of next generati! on infota! inment solution for Mercedes S-Class, integrating Apple's SIRI into Harman's headunit in Ferrari's FF infotainment system, and full integration of its iOnRoad acquisition for enhancing vehicle safety

Source: Harman International: The Best Bet On Autos

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...)

U.S. stock rally lifts S&P 500 to record

NEW YORK (MarketWatch) — U.S. stocks finished another week of gains with the S&P 500 index at a record high after earnings from large technology companies Microsoft Corp. and Amazon.com Inc. wowed investors with revenue growth.

"It's a fine stock market if you just look at earnings, interest rates and price-earnings ratios," said Hugh Johnson, chairman of Hugh Johnson Advisors LLC.

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Amid news of Twitter's IPO, two tech stalwarts are seeing stock surges. Dan Gallagher discusses why Wall Street is shining a spotlight on tech.

Relatively low interest-rate levels that allow for higher-priced-earnings ratios is among the drivers taking equities higher, Johnson added.

The U.S. economy will be a focus when investors take a look at October numbers slated for release in the first week of November, said Johnson, who adds the market will also face potential headwinds from "uncertainty over what is Washington going to decide" in facing budget issues in the months ahead.

/quotes/zigman/20493/quotes/nls/msft MSFT 35.73, +2.01, +5.96% Microsoft Corp.

Pacing gains on the Dow Jones Industrial Average (DJIA) , Microsoft (MSFT) climbed 6%, a day after the software maker released results that illustrated a solid start to a large revamping of its business.

The Dow added 61.07 points, or 0.4%, to 15,570.28, its highest close since Sept. 19 and leaving it 1.1% ahead of last Friday's finish. Surpassing its record close set on Tuesday, the S&P 500 index (SPX) gained 7.70 points, or 0.4%, to 1,759.77, a 0.9% weekly rise. Both the Dow and S&P 500 rose for a third consecutive week.

The Nasdaq Composite (COMP) gained 14.40 points, or 0.4%, to 3,943.36, up 0.7% for the week, its second weekly gain.

Amazon.com's (AMZN) shares jumped 9.4% after the online retailer's strong third-quarter results signaled healthy momentum heading into the holiday shopping season.

United Parcel Service Inc. (UPS) advanced 1.2% after the shipping company reported third-quarter earnings that topped estimates.

For every three stocks falling more than four gained on the New York Stock Exchange, where 687 million shares traded. Composite volume cleared 3.1 billion.

• Markets Stream: Follow continuous coverage of the markets /conga/story/misc/markets_stream.html 267565

Equities slightly reduced their gains after CNBC and Bloomberg News reported Sen. Rand Paul was threatening to delay a Senate confirmation vote on President Barack's nomination of Janet Yellen to head the Federal Reserve. Bloomberg cited an aide in Paul's office as saying the senator was thinking of placing a hold on Yellen's nomination. The move would necessitate 60 votes would be needed in the Senate to move the nomination forward and could mean to several days of debate.

The move reportedly would come in a bid by Paul to obtain a Senate vote on a bill he proposed that would mandate regular public audits of the Fed's books.

"If he has a legitimate reason to dislike Janet Yellen and believes she's not qualified, then fine, tell us that. But if the purpose is to do a bargain, don't try to confuse the two," said Johnson, who added that the possible move would not have a material impact on the stock market unless it looks as though her confirmation wis in serious trouble .

The U.S. dollar (DXY) held steady against the currencies of major trading partners.

Shutterstock.com Crude oil prices rises, but stay below $100 a barrel.

Turning higher, gold prices (GCZ3) were up $2.20, or 0.2%, at $1,352.50 an ounce on the New York Mercantile Exchange, and the cost of crude oil (CLZ3) climbed 74 cents, or 0.8%, to $97.85 a barrel, with prices down for a third week in a row.

The yield on the 10-year Treasury note (10_YEAR) , used in figuring mortgage rates and other consumer loans, fell 2 basis points to 2.506%.

Durable goods climbed in September as demand for jetliners countered a decline in business equipment.

The Thomson Reuters/University of Michigan consumer sentiment gauge for October fell to 73.2, down from the initial read of 75.2 and down from 77.5 in September.

"It's the weakest number of the year and was led by declines both in the current conditions component and the outlook. Apparently those being surveyed weren't encouraged by the government reopening and/or don't own stocks," Peter Boockvar, chief market analyst at the Lindsey Group wrote in emailed comments.

Another report, this one delayed by the government shutdown, had U.S. wholesale inventories rising 0.5% in August and wholesale sales up 0.6%.

Can Joe's Jeans Get Its Earnings Back in the Black?

Joe's Jeans (NASDAQ: JOEZ  ) will release its quarterly report next Monday, and the tiny company is hoping to return to its profit-making ways after posting a loss in its fiscal first quarter. But, with a major transaction having taken place in the industry, Joe's will have to work hard in order to maintain its competitive position in high-end retail.

Joe's has had great success in attracting buyers for its premium jeans, with shoppers willingly paying up for its products. But, as other retailers clue in and seek to capitalize on the space, can Joe's fend off much larger competition? Let's take an early look at what's been happening with Joe's Jeans over the past quarter, and what we're likely to see in its quarterly report.

Stats on Joe's Jeans

Analyst EPS Estimate	$0.03
Change From Year-Ago EPS	50%
Revenue Estimate	$32.47 million
Change From Year-Ago Revenue	13.4%
Earnings Beats in Past 4 Quarters	3

Source: Yahoo! Finance.

Will Joe's Jeans earnings turn around this quarter?
Analysts have been pessimistic about Joe's earnings prospects over the past few months. Although they've held steady on their May-quarter estimates, they've cut their full-year fiscal 2013 calls by two-thirds. The stock has also fallen back substantially, with shares down 14% since early April.

Most of the decline in Joe's share price came immediately after its April earnings report, in which the company reported a surprising loss. Even though the company saw sales increase 13%, and operating income rise 30%, the company took a substantial one-time charge related to contingent consideration buyout expenses. That charge relates to money that the company pays to founder Joe Dahan in lieu of the portion of the profits Joe's Jeans earns above certain tiered amounts through 2017. By fixing the amount owed, investors will earn more of the reward -- and bear more of the risk -- of the company's earnings experience than it would have under the previous agreement. Nevertheless, investors weren't pleased with the results, and sent shares down about 20% within a week after the announcement.

But Joe's Jeans isn't letting poor past performance stop it. The retailer is turning to plans to increase its domestic store count and expand internationally, with a targeted approach that chooses certain high-potential cities for growth. That has some analysts looking favorably on the stock, with one analyst upgrading Joe's Jeans early last month with expectations that moving away from its wholesale business, and toward reaping more full-price retail sales, should help boost profitability.

The big change for Joe's Jeans, though, will come from the private-equity buyout of rival True Religion (NASDAQ: TRLG  ) . With private equity firm TowerBrook finding True Religion's loyal customer following and established brand to be valuable assets, Joe's needs to plan for heightened competition as TowerBrook seeks to make the most of its investment. Moreover, with True Religion's situation in flux, The Buckle (NYSE: BKE  ) , which has also tried to capitalize on the high-end jeans business, has a new chance to try to capture some of True Religion's customers during the transition. Yet, Buckle's weak performance during its most recent quarter shows that the door might still be open for smaller competitors like Joe's Jeans to make its own play for True Religion customers.

In its earnings report, watch for Joe's Jeans to comment on how lower-cost jeans offerings at Macy's are faring. Originally announced early last year, the move is a dangerous one for Joe's, as it has the potential to water down its premium reputation. At the same time, by opening a new audience for the company, it could also attract sales for its full-priced lines. If that's happening, then it'll be clear that Joe's Jeans has the potential to produce substantial growth in the future.

Trends like premium jeans offerings are just part of the huge paradigm shift that the retail space is going through right now. Owning the right stocks can help you make a lot of money, so be sure to read about three companies that are ready to rule the retail industry in The Motley Fool's latest special report. Uncovering these top picks is free today; just click here to read more.

Click here to add Joe's Jeans to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Seinfeld star's adviser Bambi Holzer sued by Finra over Provident deals

Bambi Holzer

Bambi Holzer is infamous in the securities industry as a Beverly Hills, Calif.-based broker who aggressively courted Hollywood stars as clients, along with the less glamorous rich, before and after the tech bubble burst in 2000.

She wrote books, made television appearances and counted as her most famous client former “Seinfeld” star Julia Louis-Dreyfus, who wound up suing Ms. Holzer and one of her numerous former securities firms in 2007 over a dispute concerning $4.4 million invested in annuities.

Now it appears that Ms. Holzer, who was sued last week by the Financial Industry Regulatory Authority Inc., is facing the wrath of securities regulators for far less glamorous reasons: she allegedly lied to one of her former firms, Wedbush Securities Inc., about several clients' net worth when in 2008 she sold preferred shares of one of the series of deals issued by Provident Royalties LLC. She also allegedly failed to report a pending regulatory action on her employment history, according to Finra.

112-PAGE FINRA REPORT

Litigation is not new to the 55-year-old Ms. Holzer, who has worked for 10 securities firms in the past 30 years.

Indeed, her BrokerCheck report is a staggering 112 pages in length, which makes it a little longer than — but just as compelling as — Franz Kafka's 1915 novella “The Metamorphosis.” That tale is about a young traveling salesman who wakes one morning to discover he has been turned into a dung beetle. A broker with a clean record typically has a BrokerCheck report of six to eight pages. Reading one of these files is akin to staring at instructions for making oatmeal on the back of a box of Quakers Oats.

Ms. Holzer has 53 settled customer complaints, six more that were dismissed or denied, and four others still pending, according to BrokerCheck. The suit with Ms. Louis-Dreyfus eventually was settled; Ms. Holzer and her firm at the time, UBS PaineWebber Inc., paid out at least $11.4 million to settle dozens of investor claims that she misrepresented variable annuities by asserting they offered guaranteed returns, according to a 2009 Forbes article titled “Beware of Your Broker.”

After resigning from her last firm, Newport Coast Securities Inc., in August, Ms. Holzer was suspended by Finra in September. She could not be reached Thursday afternoon for comment.

'LOST HER SAVINGS'

Rex Beaber, her attorney in the Finra matters, says that Ms. Holzer lost her entire retirement savings, between $250,000 and $500,000, when she invested in Provident preferred shares along with nontraded real estate investment trusts and private real estate partnerships sponsored by Behringer Harvard Holdings. One of the largest fund raisers for nontraded REITS in the past decade, Behringer Harvard has seen several of its offerings slash dividends and collapse in value.

Ms. Holzer also invested her mother's portfolio in Provident and Behringer Harvard, Mr. Beaber said. “This isn't an evil person who says, 'To make the commission I'm goin! g to put money into'” private placements, he said. “She thought the history of these products would be their future.”

InvestmentNews readers over the past few years know, of course, about the damage to broker-dealers, advisers and clients caused by Provident. The purported oil-and-gas leasing company turned out to be a $485 million Ponzi scheme that contributed to the demise of dozens of small to midsize broker-dealers after the Securities and Exchange Commission shut Provident down in July 2009.

To date, Ms. Holzer is one of the most prominent brokers to be associated with selling Provident, which promised annual returns of 18% at a time when the housing market was falling apart and interest rates were collapsing. But it's not the Provident fraud that Finra is focused on in its latest complaint against Ms. Holzer; rather, the industry's self-regulator is focusing on the mundane details of how Ms. Holzer allegedly fudged documents involving six clients to whom she sold one of a series of private-placement offerings, Provident Shale Royalties 8, in 2008.

“In the course of obtaining supervisory approval of the Provident 8 transactions in March 2008, Holzer submitted to her firm net worth information for six of these customers, which Holzer knew or should have known to be false,” according to the Finra complaint, which is dated Oct. 18. Ms. Holzer's behavior allegedly violated the Finra rule pertaining to standards of commercial honor and principles of trade. The Finra alleges that she made unsuitable recommendations to seven clients who bought Provident 8 — a “speculative and illiquid investment,” according to the Finra complaint.

Wedbush Securities is not named in the Finra complaint.

'NO KNOWLEDGE'

Mr. Beaber, her lawyer, said that Ms. Holzer had no knowledge of her clients' net worth beyond what they told her. He also said that Wedbush Securities knew about the pending regulatory action because it was a public matter.

The clients exagg! erated th! eir net worth because they wanted to meet a $5 million net worth minimum that Wedbush required for such investments, Mr. Beaber said. Ms. Holzer's clients were desperate for the juicy returns, he said.

“In a number of instances, the clients wanted to qualify for the investment, and because they owned real estate, they just played up the value of real estate to meet the criteria,” he said. He added that one client's application for Provident was clearly inaccurate but likely the fault of an employee Ms. Holzer failed to oversee properly.

The plethora of Finra arbitrations is due to the fact she works with wealthy clients, Mr. Beaber said. Many saw positive returns through investing in private placements sold by Ms. Holzer but want redress due to the failures of Provident and Behringer Harvard.

The industry should keep a watch on what Ms. Holzer turns to next if she ever returns to the industry to sell securities or perhaps looks to sell insurance. Based on her voluminous track record of litigation, she might choose a product that could turn into a disaster, or perhaps a dung beetle, for investors.

Can DragonWave Meet These Numbers?

DragonWave (Nasdaq: DRWI  ) is expected to report Q1 earnings on July 10. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict DragonWave's revenues will grow 129.5% and EPS will remain in the red.

The average estimate for revenue is $29.3 million. On the bottom line, the average EPS estimate is -$0.34.

Revenue details
Last quarter, DragonWave logged revenue of $28.3 million. GAAP reported sales were much higher than the prior-year quarter's $9.2 million.

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

EPS details
Last quarter, EPS came in at -$0.71. GAAP EPS were -$0.71 for Q4 versus -$0.38 per share for the prior-year quarter.

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

Recent performance
For the preceding quarter, gross margin was 5.3%, 720 basis points worse than the prior-year quarter. Operating margin was -62.9%, much better than the prior-year quarter. Net margin was -96.1%, much better than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $152.7 million. The average EPS estimate is -$0.83.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 242 members out of 257 rating the stock outperform, and 15 members rating it underperform. Among 36 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 34 give DragonWave a green thumbs-up, and two give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on DragonWave is underperform, with an average price target of $2.19.

Internet software and services are being consumed in radically different ways, on increasingly mobile devices. Does DragonWave fit in anymore? Check out the company that Motley Fool analysts expect to lead the pack in "The Next Trillion-dollar Revolution." Click here for instant access to this free report.

Add DragonWave to My Watchlist.

Review: HealthCare.gov a winner despite glitches

Any e-commerce veteran can tell you: If a start-up's business proposition is sound and it delivers what it promises, it survives early days when websites crash and chaos reigns. Then it thrives. We've seen it over and over, from America Online's mid-1990s outages to any of several crashes in Netflix shares when the company made pricing mistakes or Blockbuster made a run at its markets.

This brings us to Tuesday's launch of HealthCare.gov, the largest government-run insurance marketplace and centerpiece of the Affordable Care Act. The headlines are dominated by technical glitches likely to be gone by Thanksgiving. (More on that later). Two main questions will matter once they're fixed.

Full coverage: Affordable Care Act

Tech problems: Traffic surges, glitches mark exchanges' opening

Interactive: What does health care act mean for you?

The most important is whether HealthCare.gov meets its fundamental task — creating a marketplace with an array of choices and competitive prices. The other is whether it explains insurance so people understand it — how to buy it, why they should, how the law's subsidies work, and helps them start grasping which policy works for them.

On those counts, HealthCare.gov is an out-of-the-box success.

To look at HealthCare.gov, especially knowing some Internet history and health insurance, is to understand it will sell tons of insurance.

To start with, 2.8 million people crashing a site on Day One is considered a high-class problem. "It shows they've hit the target,'' says venture capitalist David Jones, ex-chairman of health insurer Humana. "It's obvious.''

Let's say up front that HealthCare.gov's problems have kept me from doing all the comparison shopping I'd planned, getting detailed lists of plans available to everyone from 27-year old single Floridians to a New Jersey family headed by a 52-year-old (like me).

Nonetheless, we know HealthCare.gov already offers about as much choice as auto-insurance exchanges ! like eSurance.com. eSurance was fine: In five minutes, I got quotes from three companies and the site was ready to process my credit card. HealthCare.gov offers the average consumer 53 plans, according to the government, with the "vast majority" having more than one carrier to choose from.

What most people don't know is how cheap the insurance is. According to a calculator provided by the Kaiser Family Foundation — a link to which is on HealthCare.gov — the site's benchmark policy for a single 40-year old nonsmoker will cost $3,240 a year before subsidies based on income.

This is $2,700 less than the average for employer-provided health care coverage for individuals this year, as reported by Kaiser on Aug. 20.

In a case like mine — 52-year old Dad, Mom and 12-year old — a benchmark "silver" plan paying 70% of my family's health expenses is quoted at $13,040 by Kaiser. According to Kaiser's August survey, average employer-based family coverage costs $16,351, with workers picking up $4,565. If my family made the national median income of $51,017, tax subsidies would cover $8,770 of our ACA plan. We'd pay $4,270.

Finally, I asked for a basic rundown of the ACA's toughest test case — a 27-year old single person making $20,000 a year. More than a quarter of young adults are uninsured and $20,000 in annual income is too much to qualify for Medicaid, but not enough to buy private insurance easily. I assumed this client smokes and lives in Jacksonville, Fla.

That silver policy costs $3,051, and the customer's share is $1,021, after the subsidies, Kaiser estimates. The average single worker contributes $999 for employer-provided coverage. A bronze plan with higher deductibles costs the worker $627, or $52 a month after subsidies.Not even cigarette money.

How is that possible? HealthCare.gov's logic is that selling every company's policies in the same place together forces insurers to offer their best prices. That undoubtedly helps. Some group plans may cover more ! too, thou! gh group plans have plenty of gaps as employers pass more health-care costs to workers. Kaiser says the average group-plan deductible for single workers is $1,135.

The other important question is how well HealthCare.gov walks people through the purchase, coaxing uninsured consumers who know little about insurance to buy it. Healthcare.gov excels at much of this already.

You immediately notice how many pages include questions on the right hand side, linked to information intuitively related to what you're reading. And you notice the simplicity of the writing.

Take one critical question — the explanation of what the ACA's "gold," silver," and "bronze" policies are. The site gives a basic breakdown, suggesting plans best for young or old clients, with high medical expenses or very few. It takes 433 words — less than half the length of this story — written at a 12th-grade level.

Site-performance issues matter, but don't ruffle e-commerce veterans much. I talked to a half-dozen, including two Bush administration officials who launched the marketplace for Medicare prescription-drug plans.

They said the problems may take a few weeks to two months to fix — and won't matter in the long run. Medicare Part D had smaller launch problems, now forgotten. "Every Internet company on the planet has had trouble scaling,'' says Ed Park, chief operating officer of Athenahealth, a Web-based processor of health-insurance reimbursements, whose brother Todd is the Obama administration's chief technology officer. "It happens to Twitter, to Amazon, Apple and Facebook.''

People thought Amazon and Priceline would collapse during the dot-com bust too, and Netflix's obituaries have had more episodes than House of Cards. They won because they have delivered fundamental value. For Healthcare.gov, the fundamentals are well-priced insurance, clearly explained. And they're in place.

Companies Wage War on a Brand Scale

Maybe you've read about the copyright dispute between Black Eyed Peas member Will.i.am and producer Pharrell Williams over the "I am" trademark. Maybe you didn't know that people really make trademarks for themselves but, now that you think about it, "I am" is a neat trademark for a guy with William as his name. Regardless, the dispute is a small slice of the brand competition that has been raging recently in the marketplace.

Recent cases
Just last month, Fifth & Pacific (NYSE: FNP  ) defended itself against infringement accusations regarding its Kate Spade Saturday brand. Another apparel maker, Saturdays Surf NYC, alleged that the Kate Spade spinoff would confuse customers and dilute its brand. The judge overseeing the case decided that the two brands were distinct enough for both to use the word "Saturday."

The ruling is a big deal for Fifth & Pacific, as the company has spent considerable sums of cash to brand and launch the new Saturday line. An adverse ruling would have forced the company to pull back from the branding, at a huge cost.

Kate Spade isn't the only retailer fighting to fit into a crowded marketplace. Earlier this year, Guess? (NYSE: GES  ) finally prevailed in an Italian court in a case brought by handbag designer Gucci. Gucci was fighting Guess?' use of a G logo, which Guess? used on a line of shoes. The fight had been raging for years, and Guess? had actually lost a similar case in New York court in 2012, being fined $4.7 million -- Gucci was seeking $300 million.

The value of good branding
The reason for all the kerfuffle is the sheer value associated with a good brand. The Guess? brand, for instance, was valued at $1.3 billion by a recent Interbrand survey. That's about half of the company's total market cap tied up in its branding. While Guess? has to defend that one brand, some companies are caught fighting for a whole range of brands, due to their value.

Spilling from last year into 2013, Macy's (NYSE: M  ) and J.C. Penney (NYSE: JCP  ) have been duking it out over whether or not J.C. Penney can sell Martha Stewart products in its stores. Macy's has an exclusivity agreement with Stewart, but it excludes certain lines and selling conditions. J.C. Penney has argued that the lines it sells are not covered, and that the Martha Stewart shops within stores count as stand-alone locations. A ruling on the valuable contracts is expected in August.

Where to draw the line
The problems these companies are facing can quickly turn into a litigation nightmare. Guess? and Gucci were locked in court for four years before their rulings came through. The long, drawn-out process not only ties up cash and resources, but it puts doubt in investors' minds -- Fifth & Pacific's stock jumped 4% the day that it announced its success.

While the cases are often messy, and can bring about confusing rulings, investors need to brace themselves for more of the same. As the market gets increasingly competitive, companies are going to butt heads more often over intellectual property. In the long run, we're just going to have to get used to constant bickering, even if the only people it makes rich are the lawyers.

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What Does Obama's Climate Change Policy Mean for Utilities?

In the eyes of President Obama, there's little doubt about it: Climate change is happening and we have a moral obligation to stop it. With electricity output as the primary greenhouse gas polluter, will the president's new policy pave the way for environmental electricity – or will it put us all in the dark? Here's what you need to know.

The facts
Electricity production accounted for 33% of all greenhouse gas emissions in 2011. That's higher than both transportation's 28% and industry's 20% piece of the pollution pie. 

Source: whitehouse.gov 

When considering utilities (and power plants, specifically), the numbers look even more negative. Power plants account for 40% of all domestic greenhouse gas pollution, despite significant emissions reductions.

In a response letter to the president, the Edison Electric Institute noted that utilities have "been a leader in reducing criteria pollutants and greenhouse gas (GHG) emissions over the last two decades." Power sector carbon dioxide emissions are 15% below 2005 levels, and sulfur dioxide and nitrogen oxide levels are just 25% of their 1990 levels.

But that's not enough. President Obama is issuing a "Presidential Memorandum directing the Environmental Protection Agency to work expeditiously to complete carbon pollution standards for both new and existing power plants."

The POTUS' plan remains light on details, but there are three main conclusions to be drawn from his newest initiative.

1. Existing power plants aren't protected
The biggest news for the utilities sector came from the inclusion of one word: existing. The Edison Electric Institute made special mention of this in its response statement, noting that new policies and regulations should be "achievable" and "consistent with ongoing investments to transition." EEI might've been describing any number of transitioning traditional fuel utilities. TECO Energy (NYSE: TE  ) currently relies on coal for 61% of its regulated generation capacity, and also owns and operates coal mines capable of processing nine million tons annually. Just last month, TECO announced that it is spending $950 million to acquire a New Mexico regulated natural gas utility – but its moves may not be fast enough if Obama gets anxious.

2. Renewables are ramping up
Wind and solar generation more than doubled during the president's first term, and it doesn't look to be letting up anytime soon. NextEra Energy (NYSE: NEE  ) recently celebrated its 10,000 net MW of wind power, but it could be in the market for much more with new goals to accelerate clean energy permitting. In addition to a recent production tax credit extension, the president has set a goal to issue another 10,000 MW in renewables permits on public land by the end of the year.

3. "Clean" energy is in the clear
As the nation's largest producer of nuclear energy, Exelon (NYSE: EXC  ) can rest easy. The White House included "support for the safe and secure use of nuclear power" in its latest plan. Not only does the utility rely on nuclear power for 55% of its own capacity, but Exelon's massive 19,000 MW nuclear fleet produces 20% of the nation's total nuclear energy.

In the eyes of Obama, all coal is not created equal, either. "Clean coal" got a shout out from the POTUS, putting innovative coal companies like AEP (NYSE: AEP  ) and Duke Energy (NYSE: DUK  ) in the clean energy clear. AEP was recently awarded the Edison Electric Institute's 2013 Edison Award for its $1.7 billion 600 MW "clean coal" facility, capable of squeezing 39% efficiency out of low-sulfur coal with its "advanced ultra-supercritical steam cycle technology." Likewise, Duke just rolled out the red carpet on a 618 MW "clean coal" facility touted as "one the world's cleanest coal-fired power generating facilities." The new plant replaced an older coal-fired facility, and is capable of producing 10 times the power with 70% fewer emissions.

Foolish bottom line
As his latest inauguration speech promised, President Obama is getting serious about climate change. But for now, his moves seem mostly in line with exactly what progressive utilities are already doing. For companies that haven't kept up with the times, doing the bare minimum will continue to keep environmental costs high from year to year. For more progressive utilities taking the leap, Obama's latest should serve as nothing more than a pat on the back.

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Netflix Shares Surge on Strong Subscriber Growth

Netflix(NFLX) shares are moving to the top of the queue.

Shares of the company are up about 10% in late trading, to $391, after reporting third-quarter earnings that beat Street views, and importantly reporting that it added more subscribers than expected.

Netflix earned $31.8 million, or 52 cents a share, on revenue of $1.11 billion. Street consensus was for earnings of 48 cents a share on sales of $1.1 billion. A year ago, the company earned 13 cents a share on revenue of $905 million.

Even more importantly than the earnings, the company reported subscriber growth numbers ahead of Street views; the critical component for Netflix is to continue adding subscribers, as a payoff for the all the money the company’s spending on marketing, technology, and programming. In the third-quarter, the company added 1.29 million U.S. subscribers, boosting its total to 31.09. Street consensus was that the company would add about 1.1 million subscribers.

International growth was strong as well, with 1.44 million new subscribers overseas; the Street expected roughly 950,000. There are now 9.19 million subscribers overseas.

For the fourth-quarter, the company expects total U.S. streaming subscribers will reach 32.7-33.5 million, with international members at 10.1-10.9 million.

The company will be hosting its conference call, via its own streaming service and its YouTube channel, at 5 p.m. Eastern time.

 

3 of the World's Rarest Diseases (and the Uncommon Profits They Bring)

Imagine finding out that you have a disease that only a handful of people around the world have. Kirstie and Catherine Fields don't have to imagine it. The teenage Welsh twins have what is probably the world's rarest disease -- Fields Condition. It's named after them, because they're the only two people known to have the progressive muscle disorder.

The National Institutes for Health estimates that there are around 6,800 known rare diseases. Years ago, individuals suffering from these diseases didn't have much hope that drugs would be developed to help them. Not all patients with rare diseases are so hopeless now, though.

The U.S. and the European Union established orphan drug approval programs to provide incentives for pharmaceutical companies to develop drugs for rare diseases. In the U.S., drugs that treat diseases that affect fewer than 200,000 people (or about one in 1,500) can receive orphan status. In Europe, the threshold for orphan status is for diseases that affect fewer than one in 2,000 people.

The orphan drug programs have worked incredibly well. In the decade leading up to 1983, when the U.S. Orphan Drug Act was enacted, less than 10 drugs for treating rare diseases were approved. Since 1983, more than 200 orphan drugs have made it to market. Here are three of those rare diseases that now have treatments -- from drugs that can generate profits nearly as uncommon as the diseases themselves.

1. Short bowel syndrome
Short bowel syndrome, or SBS, results from surgical removal of most of the small intestine (frequently because of a digestive illness such as Crohn's disease) or a congenital short bowel. Patients with SBS often don't absorb vitamins and minerals adequately and can experience abdominal pain, malnutrition, and fluid depletion, among other symptoms. An estimated 10,000 to 20,000 people in the U.S. suffer from SBS, according to the Crohn's and Colitis Foundation of America. 

Although there is no cure for SBS, three drugs have been approved in the U.S. for treating the disease. The most recently approved treatment is Gattex. NPS Pharmaceuticals (NASDAQ: NPSP  ) received Food and Drug Administration approval for the drug in late 2012. Gattex works by spurring growth in mucous membranes involved in absorption and secretion.

The price tag for Gattex is a staggering $295,000 per year. NPS says its research shows there are around 3,000 to 5,000 adult SBS patients who are candidates for its drug. Assuming the actual number is near the midpoint of the range, that reflects a market potential of more than $1.1 billion annually. Not bad for a drug that cost around $250 million to develop.

2. Paroxysmal nocturnal hemoglobinuria
Paroxysmal nocturnal hemoglobinuria, or PNH, is a blood disease that frequently leads to life-threatening blood clots. Symptoms of PNH include red urine and anemia. Patients can require blood transfusions. Only one to two people in a million suffer from the disease.

The FDA has approved only one drug for treating PNH -- Soliris from Alexion Pharmaceuticals (NASDAQ: ALXN  ) . Soliris is also used in the treatment of another rare blood disease, atypical hemolytic uremic syndrome, or aHUS, which affects around one in 500,000 Americans each year.

Soliris costs $440,000 per year, making it the world's most expensive drug. Alexion made more than $1.1 billion from sales of the drug last year, which was 45% higher than the year before. The pharmaceutical company's profit amounts to nearly 24% of those sales dollars -- and those profits continue to grow.

3. Homozygous familial hypercholesterolemia
Homozygous familial hypercholesterolemia, or HoFH, is a rare genetic disorder that results in very high bad cholesterol levels, which can lead to serious heart diseases. HoFH can sometimes require removal of cholesterol in a manner similar to dialysis and occasionally even liver transplants. The disease occurs in around one in a million people.

Aegerion Pharmaceuticals (NASDAQ: AEGR  ) received FDA approval in late 2012 for Juxtapid in the treatment of HoFH. Soon afterward, the FDA approved another drug targeting HoFH, Kynamro, which was developed by Isis Pharmaceuticals (NASDAQ: ISIS  ) and marketed by Sanofi's (NYSE: SNY  ) Genzyme unit.

Juxtapid costs up to $295,000 per year, while Kynamro's price tag is $176,000 per year. Analysts project that Aegerion could ultimately see annual sales ranging from $300 million to $450 million for Juxtapid. That lines up with the $400 million peak sales estimated for Kynamro by Natixis Securities. These sales figures sound pretty good, but remember they're only projections at this point for peak sales down the road.

HoFH is a rare disease in another sense in that it has two drugs on the market. This can be great news for patients. Because it also splits the potential profits among multiple players, though, it isn't as great for Aegerion, Isis, and Sanofi.

A long way to go
Much progress has been made in treating the world's rarest diseases, thanks largely to governments that have established orphan drug programs. However, there remains a long way to go. Well over 6,000 rare diseases remain for which there are no available treatments. For the rarest of the rare diseases, there still isn't enough hope.

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