Railroad Stocks Roll Into 2014 Bull & Bear’s Protect Your

Bull & Bear’s
January 2014 VOL. 14 NO. 9
Protect Your
Assets in 2014
Litigation is America’s fastest growing
business ­b ecause plaintiffs have
everything to gain and nothing but
a few hours’ time to lose. A leading
attorney specializing in asset protection
suggests taking these steps immediately
to safeguard your assets so you don’t lose
Newsletter Digest
….page 2
Buy/Sell advice from the world’s topperforming market timers. Investment
experts reveal which stocks to buy
now for BIG gains in 2014. Top
analysts, newsletter editors and
portfolio managers give their views
on Oil & Gas Stocks, Small-Mid Caps,
Utilities, Tech Stocks, Gold & Silver,
Market Seasonalities, Domestic and
International Stock Markets.
….page 4
Bounce Candidates
Every year we see certain stocks
get pushed down by artificial selling
pressure. That pressure is removed after
year-end, often causing those stocks
to pop up nicely and suddenly become
investor darlings – at least for a while.
George Putnam, The Turnaround Letter,
identifies 10 year-end bounce stocks.
….page 6
Railroad Stocks
Roll Into 2014
By Chad Fraser
2013 was a strong
year for railroad
stocks: the iShares
Tr a n s p o r t a t i o n
about the closest you
can get to a gauge for
the industry (roughly 30% of the fund’s
portfolio is devoted
to railway operators)
gained 39% during the year.
That’s miles ahead of the Dow
Jones Industrials (up 26%) and the
S&P 500 (up 29%).
Railroad Stocks
in a Downhill Pull
Railroads currently carry the
largest portion of the nation’s
freight – about 43% – ahead of
trucks, at 31%. According to a
recent report from RBC Capital
Markets, the industry has another
year of full railcars ahead.
RBC’s 2014 Railroad Shipper
Survey queried 53 customers of
the six North American Class 1
railroads (or those with operating
revenues of $433.2 million or
more) to gauge their expectations
for the year ahead. The picture
that emerged is one of an industry
enjoying a period of sustained
The investment bank found that
a strong majority of respondents
(71%) expect rail-shipping rates
to rise in 2014, though the largest group (42%) expect moderate
increases of between 1% and 3%.
Notably, just 28% expect rates to
rise 4% or more, down sharply from
65% two years ago, but very few
(3%) expected rates to fall.
Overall, most customers expect
to ship the same amount as last
year or slightly more – 68% expect
a 1% to 5% rise in volumes. That’s
Continued on page 12
Protect Your Assets in 2014
Specialist Offers Tips for Safeguarding Your Wealth
Litigation is America’s fastest
growing business because plaintiffs have everything to gain and
nothing but a few hours’ time to
lose, says Hillel Presser, an asset
protection and estate planning
attorney and author of “Asset Protection Secrets Revised Edition.)
“Even if a case seems utterly ridiculous – like the man who struck
and killed a teenager with his
luxury car and then sued the boy’s
family for damage to his bumper
– defendants are encouraged to
settle. It’s sometimes the only way
to avoid potentially astronomical
legal fees,” he says.
If you haven’t already taken
steps to protect your assets, that’s
one New Year’s resolution you’ll
be glad you made and followed
up on, Presser says. And while it
helps to have the assistance of a
lawyer who specializes in asset
protection, there are many things
you can do yourself.
“You shouldn’t have any nonexempt assets in your name,”
Presser says. “The goal is to ‘own’
nothing but control everything.”
Presser suggests these resolutions for safeguarding your wealth
in the event of a lawsuit:
• Inventory your wealth. Figure out how much assets you
really have (most people have
more than they think). Take
stock of valuable domain names,
all your passwords, log-ins and
user names, ATM pin numbers,
telephone numbers, intellectual
property, potential inheritances,
and other liquid and non-liquid
assets. That way you can then
work on actions to cost effectively
keep them safe.
• Set your goal. Setting your
2014 asset protection goal is your
first step to becoming protected in
the New Year! For instance, you
could plan to execute an estate
plan or set up a trust for your
children in 2014. Decide what
assets you want to protect in the
New Year and a realistic timeline
for implementation. Then – and
most importantly – stick to your
plan. Asset protection works only
if you follow through.
• Protect your home. Find out
how much of your home is protected
by your state’s homestead laws
and then encumber the remaining
equity. Encumbering a home’s
equity can be accomplished by
recording a mortgage against it,
refinancing a current mortgage
or even taking out a line of credit
using your home as collateral!
Another great strategy to protect
your home is to transfer its title
to a protective entity such as a
limited liability company (LLC),
trust, limited partnership, etc.
• Get everything out of your
name. The worst thing you can do
as far as exposure is to title all of
your assets to your personal name.
That doesn’t mean you have to lose
control of them – the goal of asset
protection is to “own nothing,
Case Studies
The following are hypothetical,
but real, situations that can
happen to anyone in their every
day lives!
• Liability for Personal
Injury on Land: A family owns
a house on a few acres of land
with a pond. The family uses
the house as a play area for their
minor child and her friends.
While the father is hosting other
children at the house, another
child slips and falls into the
pond and drowns. The parents
sue the owner. Without Asset
Protection, the parents are in
a low-bargaining power and
certain to lose all of their assets.
• Liability for Teenage
Driving Child: Husband and
wife own assets in their individual
names, even though their state is
a Tenancy by the Entirety State
“TBE.” Their teenage son gets his
license and borrows their car. He
negligently drives the car into a
fence, allowing a vicious dog to
run away and attack a child. The
parent’s of the attacked child sue
but control everything.” In 2014,
work on moving your assets out
of your personal name and into
the name of protective entities
such as limited liability companies
(LLC’s), asset protection trusts,
limited partnerships, etc.
• Buy adequate insurance.
Protect your loved ones. Make
sure you have adequate insurance
coverage in the event a job loss,
natural disaster, or even a tragic
loss of life. Those include – but are
not limited to – your car, home,
and other valuables.
Editor’s Note: Hillel L. Presser ’s law
firm, The Presser Law Firm, P.A., represents
individuals and businesses in establishing
comprehensive asset protection plans. In
his book, Asset Protection Secrets (Revised
Edition), Presser reveals the most effective
strategies to protect yourself against lawsuits,
creditors, divorce, foreclosure and other deadly
threats that can financially destroy you.
The book is available on Amazon or through
the parents of the teenage driver
for negligence. The moral here is
to never allow teenage children
to drive your cars, and if you
must – at least provide them
with their own insurance policy.
Teenagers are at a higher risk
of liability due to their maturity
level and its best to minimize
their control over assets that
are in your name. Further, if you
live in a TBE state – you should
title your assets as such to give
yourself heightened protection.
• Business Owner and Liability Insurance: A business
gets sued and the businesses
insurance coverage increases
to the point where the business
owner can’t afford the insurance
anymore. Instead of having no
insurance and being unprotected
from lawsuits, the business owner decides to use Asset Protection
to safeguard its assets. This is a
great use of Asset Protection, although, it is also great to have an
Umbrella Policy (even if small) to
cover MSC liabilities.
Editor’s Note: For a Complimentary Preliminary Consultation regarding protecting your assets
contact The Presser Law Firm, P.A., 561-953-1050
or visit www.assetprotectionattorneys.com.
Get Financial Help for Caring for Parents
By Sandra Block
Kiplinger’s Money Power
If you’re paying your parents’
bills, don’t overlook these sources
of money and tax breaks – Medicaid. Medicare provides only
limited coverage for skilled nursing or rehabilitation services after
a hospital stay. It doesn’t cover
custodial care, such as help with
bathing, dressing and eating,
which people with Alzheimer’s and
other debilitating illnesses need.
Medicaid covers custodial care
in Medicaid-eligible long-termcare facilities. In some states, it
will also cover home health care.
The catch is that your parents
must be practically impoverished
to qualify. State laws differ, but
in general, your parent can’t have
more than $2,000 in countable
assets, including investments.
A spouse who lives at home can
usually keep up to $115,920, along
with the home, car and assets in
certain kinds of trusts (for more
information about eligibility in
your state, go to www.medicaid.
gov). If your parents want to
preserve some assets by giving
them to you or your siblings, they
usually must do so more than
five years before applying for
If your parents have a longterm-care insurance policy that
qualifies for a state partnership
program, they may be able to
protect more of their assets. For
example, if your mother has a
partnership-eligible policy that
covers a total of $200,000 in care,
she can qualify for Medicaid after
exhausting the policy’s benefits
but still keep $200,000 in assets.
For more information, go to www.
Help for veterans. Did your
parent serve in World War II, the
Korean or Vietnam conflicts, or
the Persian Gulf War? He or she
may be eligible for a little-known
U.S. Department of Veterans
Affairs program known as the
Aid and Attendance benefit. This
benefit can provide up to about
$2,000 a month toward the cost
of home health care, a nursing
home or assisted living. Spouses
of veterans may also qualify.
The program is income-based. In
general, an applicant must have less
than $80,000 in assets, excluding
a home and vehicle. Veterans with
more assets may qualify if they
have large unreimbursed medical
costs, says Debbie Burak, founder
of www.veteranaid.org, a website
that provides information about
the program.
If you believe your parents are
eligible, be persistent. Only three
VA processing centers handle
A&A applications, Burak says,
so it’s important to mail your
application to the right place (you
can find those locations, and lots
of other information, on Burak’s
website). Make sure you provide
all of the required documents
and obtain a return receipt for all
correspondence, Burak says. The
claims process can take several
months, but if you’re approved,
benefits are retroactive to the day
you filed.
Editor’s Note: Sandra Block is a senior
associate editor at Kiplinger’s Personal
Finance magazine, www.Kiplinger.com.
Stocks to Love
By Carolyn Bigda
Kiplnger’s Personal Finance
One of the cardinal rules of
investing is never fall in love with
a stock. But for all you incurable
romantics, we’ve found four companies that may be candidates for
a long-term relationship.
• L Brands (LB; $61). You
may not be familiar with the company, but you’ve probably heard
of two of its sensual subsidiaries: Victoria’s Secret and Bath
& Body Works. Both retailers
garner more than one-fourth of all
sales in their markets, and both
have room to grow. Analysts see
L Brands, which does about $11
billion in sales annually, boosting
earnings by 12 percent in the fiscal year that ends January 2015.
At 17 times estimated earnings
for that year, the shares are a bit
more expensive than the overall
market, but the price is fair given
L Brands’ growth potential.
• Signet Jewelers (SIG; $79).
This Akron company owns the Jared and Kay Jewelers chains. Signet
now has more than 1,400 stores in
the U.S. and should be able to generate annual sales growth of at least
6 percent for the next few years,
says Gregory Herr, co-manager of
FPA Perennial Fund. The firm’s
aggressive advertising – you’ve no
doubt heard that “Every kiss begins
with Kay” – will also help. The stock
trades at nearly 15 times projected
earnings for the year that ends
January 2015.
•Tiffany (TIF; $92). U.S.
sales have lagged, so the 176-yearold company has been expanding
its lower-priced sterling-silver
collection to appeal to a broad
customer base. In addition, the
New York City company continues to expand overseas. Sales in
Asia, excluding Japan, grew by
a whopping 22 percent during
the quarter that ended October
31. The stock jumped 9 percent
on the day the earnings report
was released, and now sells for
21 times projected earnings for
the year that ends January 2015.
That’s not a bargain price, but it’s
reasonable given the strength of
Tiffany’s iconic blue-box brand.
• Southwest Airlines (LUV,
$19). It’s hard not to fall for the
company with the market’s most
heartwarming stock symbol. Like
other airlines, Southwest shares
have been on a tear; they’ve nearly doubled over the past year. A
rebound in business travel has
helped. But perhaps the best thing
the industry has going for it is the
recent spate of airline mergers,
which helps to reduce competition.
Moreover, Southwest’s CEO recently suggested that the airline may
start charging for checked baggage.
Imposition of baggage fees wouldn’t
be good news for budget-minded fliers, but it would likely endear the
company to investors.
Editor’s Note: Carolyn Bigda is a
contributing editor to Kiplinger’s Personal
Finance magazine, www.Kiplinger.com
Stocks to Watch
2400 N Reynolds Rd., Toledo, OH 43615.
1 year, 15-17 issues, $295.
A look into 2014
Alan Lancz: “This is the time of year when the
media and investors in general want to know what
we expect with the upcoming change in the calendar.
Sometimes the best way to take advantage of what’s
in store is to reflect, and learn, from the past. Last
year at this time investors were writing off Best Buy
(BBY) and Deckers Outdoor (DECK) as two “has
beens” that were heading out of business. Investors
felt that Best Buy’s business model was kaput and
all they would ever be was a showroom for Amazon.
com. Deckers Outdoors had deteriorating margins
due to sheepskin shortages combined with a warm
early winter forcing their stock down over 75%. It
was easy to assimilate that the sheepskin shortage
was temporary and the rest of the winter, or at least
this winter, would be more seasonal (sorry Mr. Gore).
Despite this, investors saw no hope in either of these
companies (or many more we discussed last year
like Nokia, Supervalu, etc.) despite their leadership
position in their respective fields. In typical stock
market fashion, Nokia has more than doubled in price
from one year ago, Best Buy has nearly quadrupled
and is one of the best performers of the 2013, and just
this week a brokerage firm upgraded Deckers to a
“buy” after it already has nearly tripled in value. All
we can say is where were these brokerage firms one
year ago when Deckers had such low expectations
that most of the risk was drained out of the stock.
The research team at LanczGlobal sees several
parallels this year with many of the high flying
stocks that investors currently love. These stocks
carry the greatest risk – remember how much Apple
was loved at the time of our partial profit taking
recommendation as it approached $700. Like last
year, investors should focus on out of favor leaders
(many of which are featured in this issue) that once
again represent the best risk-to-reward in this type of
market environment. We expect more volatility into
2014, and would buy into weakness either this month
or with any new profit taking into the new tax year.
One example of a stock with exceedingly low
expectations that we purchased recently below $13ó
a share is Nuance Communications (NUAN).
Like Best Buy, it is misunderstood by Wall Street as
they convert to a recurring revenue model that will
benefit the company over the longer term. Wall Street
has written off the company. This has created an
exceptional opportunity that, just like with Best Buy,
Nokia and Deckers one year ago, will just take time.
Another industry leader that is totally out of favor
and may take more than a year to “regain its form” is
Weight Watchers International (WTW). Investors
should buy a partial (1/3) size position of their typical
holding and accumulate the balance into further
weakness. Unlike Nuance, which has Carl Icahn as
a catalyst, WTW will take longer (into 2015) before
reporting any type of fundamental progress.
Investors may wish to take a look at software
developer Compuware Corp. (CPWR). Their stock
has declined after not progressing with a takeover
offer, but we still believe CPWR’s assets would ideally
complement several larger tech firms. Management
is spinning off the company’s cloud computing unit
called Covisint while focusing on expanding their
international operations. All of this will only make
CPWR more valuable to a potential suitor, plus
investors receive an annual yield of over 4.6% while
they wait.
Our final new recommendation, Denbury
Resources (DNR: $16.45), is another company
trading more than 15% off their recent highs, and
should be accumulated on weakness as it approaches
its yearly low. Management is spending heavily on
their COÇ injection technology to extract additional
oil from established fields. These expenditures will
begin paying off into the 2015-2016 timeframe. Wall
Street, in their typical myopic focus, has written off
the company. We feel management is making the
proper moves to enhance shareholder value over the
long term. A solid dividend should be initiated into
2014, and we expect worthwhile increases over the
next 3-5 years in their distributions. Investors should
capitalize on recent weakness to accumulate these
shares in the mid teens for their total return potential
into the mid twenties over the next 2-3 years.
Into 2014, investors should also keep high quality
interest sensitive companies on their radar as interest
rates rise over the next several months. This area
will experience heavy selling that will create select
exceptional long-term opportunities. We have added
Cisco Systems to our quality “Blue Chip” portfolio
subsequent to their stock’s recent sell off. In addition,
we have been accumulating chip maker Broadcom,
Inc. (BRCM $26.87) in the low to-mid twenties,
down from the high 30’s. Their second quarter loss
was primarily due to a goodwill write down from a
very strategic acquisition last year. At the current
depressed valuation, Broadcom offers the kind of 3
or 4 to 1 risk-to-reward that we stride for as part of
our continuous risk management strategy.”
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Dr. Pepper Snapple:
Attractive valuation
Genia Turanova added Dr. Pepper Snapple
Group (DPS) to the Growth & Income Portfolio.
“We don’t recommend it based merely on this
company’s smaller capitalization. We like its
fundamentals, such as its valuation, which looks
more attractive than its large-cap competitors’ as
well as the fact that it yields, at 3.2 percent, more
than most of them.
A household name, Dr. Pepper Snapple Group
is a $9.3 billion market cap company with annual
sales of about $6 billion. It is as leading flavored
beverage producer in North America and the
Caribbean, and owns more than 50 brands including
7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian
Punch, Mott’s, Mr. & Mrs. T mixers, Penafiel, Rose’s
Schweppes, Squirt, Sunkist soda, and, of course, the
Dr. Pepper and Snapple brands.
Despite its smaller size, Dr. Pepper Snapple
Group has a strong market position in its markets.
The company owns six of the top 10 non-cola soft
drinks; moreover, 13 of its 14 leading brands sit in
the top No. 1 or No. 2 spots above all others in their
flavor categories. Its business is, on the other hand,
concentrated largely in North America, where it
derives more than 90 percent of its revenues. This
makes the company more vulnerable to the recent
consumer shift towards healthier alternatives than
its larger rivals Coke and Pepsi (whose exposures to
the international market are significantly bigger).
But Dr. Pepper has not stood idly by as its major
markets changed. It has addressed the challenge by
launching low-calorie variants of its major brands
(Core 4, namely its Canada Dry, A&W, Sunkist soda,
7UP and RC brands). Its “Ten” offerings boast just 10
calories per 12 ounces serving and minimal artificial
sweetener aftertaste.
Still, some analysts observe that low-calorie sodas
also face difficulties due to health concerns associated
with artificial sweeteners.
Another important part of any company’s value
includes the power of its distribution networks.
Here too, DPS gets high marks: it serves consumers
throughout North America via a combination of direct
store and warehouse delivery capabilities supported
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by 21 proprietary manufacturing centers, more than
115 distribution centers and approximately 19,000
employees across North America, as well as the
operations of hundreds of third-party bottlers and
Its efforts in this challenging environment seem to
be paying off. In the latest reported quarter, earnings
increased 11 percent compared to the same period a
year ago on pricing gains, productivity improvements
and an accounting benefit, while sales remained soft
and volumes, weak.
For the full year, Dr. Pepper has reduced its
revenue guidance, expecting sales to be flat – all due
to continued carbonated soft drinks consumption
headwinds. The full-year EPS is expected to come in
from $3.04 to $3.12, an increase from $2.92 reported
for 2012. So, the company is meeting challenges – and
while there are plenty of those, its share valuation,
lower than that of the market and significantly
lower than that of peers, reflects those issues. The
market could view any outperformance on the goals
Dr. Pepper has set for itself favorably, not unlike the
positive action of the stock after its third quarter
earnings report, despite a decline in 12-month
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Timely Ten
Undervalued Stocks
Kelley Wright: “The Timely Ten is not just
another “best of, right now” list. It is our reasoned
expectation based on our methodology and
experience for what we believe will perform best
over the next five years. Do we believe that all 10 will go up simultaneously
or immediately? Of course not. Our four decades of
research and experience, however, leads us to believe
that these stocks, purchased at current Undervalued
levels, are well positioned for both growth of capital
and income.
The Timely Ten consists of Undervalued stocks
that generally have a S&P Dividend & Earnings
Quality rating of A- or better, a “G” designation for
exemplary long-term dividend growth, a P/E ratio
of 15 or less, a payout ratio of 50% or less (75% for
Utilities), debt of 50% or less (75% for Utilities), and
technical characteristics on the daily and weekly
charts that suggests the potential for imminent
capital appreciation.
The current 10 selections and their yields are:
CVS Caremark (CVS) yielding 1.3%; Chevron
Corp. (CVX) yielding 3.3%; Walgreen Co. (WAG)
yielding 2.2%; Baxter International (BAX) yielding
3.0%; Coca-Cola Co. (KO) yielding 2.9%; PepsiCo
Inc. (PEP) yielding 2.8%; Occidental Petroleum
(OXY) yielding 2.8%; McDonald’s (MCD) yielding
3.4%; Wal-Mart Stores (WMT) yielding 2.4%;
ConocoPhillips (COP) yielding 4.0%.”
Year-End Bounce Candidates:
Profit as Others Dump Losers
By George Putnam, III
The Turnaround Letter
George Putnam, III: “Most of
the time, we recommend taking
a long-term view and focusing on
underlying business fundamentals
when choosing stocks to buy.
However, around this time of year
it is worth considering a shorterterm strategy based more on
the quirks of the calendar – and
the tax law – than on business
Every year around this time we
see certain stocks get pushed down
by artificial selling pressure. That
pressure is removed after December
31, often causing those stocks to
get a nice bounce right around
year-end. The artificial selling
pressure comes from two sources:
tax loss selling and portfolio window
Late in the calendar year many
investors begin thinking about
their tax bills. This causes them to
sell losing stock positions to realize
capital losses that can be used to
offset other gains that they may
have. This is especially true in years
such as 2013 when a strong stock
market has produced significant
gains for many investors.
In addition to this tax-loss
selling, we also see selling from
professional investors who want to
improve the look of their portfolios
before they are memorialized in
year-end reports to clients. These
managers would rather not have
their losing stocks show up in
those annual reports, and so they
sell the offending positions to get
them out of the portfolio before the
end of the year. This is sometimes
called “portfolio window dressing.”
Both of these selling pressures
disappear on January 1. The New
Year brings a clean slate with
respect to both tax and reporting
issues. When the artificial selling
pressure stops, many of the
previous year’s dogs jump up and
suddenly become investor darlings
– at least for a while. Ultimately,
longer-term fundamentals will
drive the prices of these stocks,
but you can often make good
money from this year-end bounce
This strategy doesn’t always
work, but for the last three years
our list of year-end bounce candidates that we identified in the
December issue has significantly
outperformed the S&P in the first
month or two of the following
year. This past year, our year-end
bounce stocks not only outperformed in January, but they kept
on outperforming throughout
the year. The ten stocks we highlighted last December are up an
average of 64% through the end
of November compared to 27% for
the S&P 500. It is also worth noting that the only two stocks on the
list that are down for the year-todate, Cliffs Natural Resources and
J.C. Penny actually had nice gains
through the end of January. And,
ironically, those same two stocks
are back on our year-end bounce
list this year.
Given the good performance
of our year-end bounce stocks for
the last three years, this year
we are following the same stockpicking formula. The bounce
candidates below represent the
worst performers in the S&P 500
over the first 11 months of 2013,
with slight adjustments to assure
a well diversified list.
Abercrombie & Fitch’s (ANF:
$35.99) once enviable position
in youth apparel allowed the
company to achieve superior
profitability for a long time. But
the teen fashion market is difficult
to navigate, and Abercrombie has
lost its way over the last couple of
years. Only time will tell whether
management will prove nimble
enough to respond effectively
going forward, but the stock is
nevertheless a good candidate for
a year-end bounce.
CenturyLink (CTL: $30.37)
reported some potential problems early in 2013 that spooked
investors, causing the stock to
drop 22.6% in a day. The stock
rebounded into late spring but
has drifted lower ever since. The
company provides telecommunications services in 37 states; it is
pursuing a broadband strategy
that will allow it to leverage off a
slowly declining landline customer
base. A new multi-year low for the
stock has raised the dividend to
the 7% range, providing a paid-towait rebound opportunity.
Cliffs Natural Resources
(CLF: $25.09) mines iron ore
pellets used to make steel, and so
the company’s prospects are closely
tied to broad macroeconomic
activity. The surging Chinese
economy of a couple years ago
helped boost iron ore prices and
push Cliffs’ stock price above $100
in mid-2011. It has been largely
downhill for the stock ever since,
but renewed growth, particularly
in China, could spark a rebound.
Edwards Life Sciences (EW:
$65.13) makes products used in
treating late-stage heart disease. A
management warning in the firstquarter report led to a 22% one-day
selloff. The stock took another dive
when third-quarter results were
reported, despite the fact that
Edwards beat both revenue and
earnings estimates. The financials
are solid – quite sufficient for a
strong commitment to R&D.
Continued on page 22
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P.O. Box 667, Healdsburg, CA 95448.
Monthly, 1 year, $289. NotWallStreet.com.
Top Picks of the month
Nate Pile’s recent Top Picks for the month are
Apple, Illumina and MannKind.
“Apple (AAPL). Anecdotal evidence suggests the
company is having a great holiday season so far,
and with the momentum now shifting back to the
bullish side of the line, you are encouraged to take
advantage of any pullbacks below the buy limits that
may present themselves. AAPL remains a strong buy
under $500 and a buy under $550.
Illumina (ILMN). The company continues to
deliver on all fronts, and the strength of the stock
recently suggests the trend still has plenty of
momentum going for it. ILMN remains a strong buy
under $85 and a buy under $100.
Mannkind (MNKD). Unlike most of the other
“Top Picks”, MannKind’s stock is not here based on
its relative strength; rather, it is here to drive home
the point that if the company ends up signing a decent
partnership agreement sometime soon… And the
next move turns out to be higher rather than lower…
you’ll be kicking yourself in 2014 for not adding a bit
more to your portfolio while it was still in single digits
during tax-loss selling season this year. MNKD is a
strong buy under $6 and a buy under $8.”
PO BOX 5156, Williamsburg, VA 23188.
Monthly, 1 year, $59.
A tailwind is building for XRS Corp.
Thomas Rice and Cindy Bowser: “XRS Corporation (Nasdaq: XRSC) provides hardware and
software solutions to the commercial trucking industry, through on-board computer systems and mobile
applications. XRS’s solutions address the regulatory
requirements within the trucking industry. XRS
cites a market opportunity of 3.1 million trucks that
would most benefit from its solutions, only 115,000
of which are currently subscribed to an XRS solution. In August 2012, the company changed its name
from Xat00a Corporation to reflect a change in its
business model.
Initially, the trucking industry used large hardware
systems to transmit information to dispatchers and
fleet owners. These systems were invasive, requiring
holes to be drilled, dashboards to be pulled apart and
bulky equipment to be installed. These installations
cost thousands of dollars.
XRS Corp offers two of these older systems:
XataNet and MobileMax. However, the company now
focuses on Software as a Solution (SaaS) products,
rather than hardware sales. In 2009, XRS acquired
Turnpike, providing the company with its first
generation mobile solution.
Recently, the company announced XRS, its next
generation mobile fleet optimization and compliance
solution. This solution involves a small box that
connects to a truck’s engine bus, and then transmits
the truck’s data to the driver’s mobile device via a
wireless, Bluetooth connection. The data is observable
by the driver, dispatchers and fleet owners.
The focus of the new XRS solution is to integrate
information, cloud, mobile and social aspects,
allowing customers to access anything (information)
at anytime (cloud), anywhere (mobile). Customers
can also share that information with anyone (social).
Both mobile solutions are monthly subscription
options with no up-front costs charged to the
customer. XRS has over 1,400 customers including big
names, like Sysco with 10,000 trucks. In 2013, XRS
added 322 new mobile customers as mobile software
sales grew 20% year-over-year.
Revenues have been in decline as the result of
the company changing its revenue model. While
subscription revenues provide a recurring source of
revenue, there are no up-front charges. As a result,
revenues will decline until the company acquires
enough monthly customers to offset the declining
hardware sales. This transition is already underway
as software sales accounted for 75% of revenues
in 2012 and 81% in 2013, while hardware sales
accounted for 22% of revenues in 2012 and 17% in
Another upside to the change in revenue model is
the higher profitability of the subscription revenues.
In 2013, gross margins for the software segment were
73%, and just 18% for the hardware segment. As a
result of this, the company achieved an $866,000 net
income in 2013, compared to a $10 million loss in 2012
and many years of losses before.
The company operates with a solid balance sheet.
Its current assets-to-liabilities ratio is 2.3 to 1, with
$11.7 million in working capital. XRS also has a book
value $3.62, which represents a 45% premium over
its share price.
One negative is the company’s 28.8 million diluted
shares, leaving about 18 million shares that could
increase the number of basic shares in the future.
John J. Coughlan joined XRS Corp in October
2006 as the company’s chairman, president and CEO.
Mr. Coughlan has many years of experience in the
software industry, bringing his expertise to XRS as
it transitions to a software company. Previously, he
served as president and CEO of Lawson Software,
Minnesota’s largest software company. He owns
540,520 common shares.
Michael W. Weber is the company’s CFO, and
has been since October 2012. He is not listed on the
company’s insider holdings roster.
James F. DeSocio is executive vice president of field
operations for XRS. Prior to joining XRS, in January
2013, he was the executive VP of sales and business
development at Antenna Software Inc., a cloud-based
mobility software company. Mr. DeSocio is not listed
on the company’s insider holdings roster.
The Bottom Line
At the 4 th Annual Craig-Callum Alpha Select
Conference President and CEO John Coughlan noted
that both a carrot and a stick will drive truckers to its
solution. The carrot is the cost savings. Drivers and
fleet managers will be able to see where they are most
efficient on the road, adjusting to save time and fuel.
Savings also stem from the lack of large installation
fees related to the older hardware solutions.
The stick is the Moving Ahead for Progress in the
21st Century Act (MAP-21), which passed in July
2012. Part of the bill requires the Federal Motor
Carry Safety Administration (FMCSA) to write a
rule requiring all drivers meeting certain driving
parameters to use electronic logging devices. The
FMSCA was required to pass the rule in October 2013.
There is a tailwind building for XRS, who stands
to benefit with a simple, inexpensive, effective
technology. In the meantime, XRS is financially
stable, turning to profits with a solid ratio and book
Office: 965 Prairie Center Dr., Eden Prairie,
MN 55344, Tel: 952-707-5600, Fax: 952-894-2463,
5 Water Rd., Rocky Point, NY 11778.
Monthly, 1 year, $95. www.konlin.com.
Authentidate Holdings: Well-positioned
for future growth and profitability
Konrad Kuhn: “Authentidate Holdings Corp.
(Nasdaq: ADAT; $1.17) and its subsidiaries provide
secure web-based software applications and telehealth products and services that enable healthcare
organizations to increase revenues, improve productivity, reduce costs, coordinate care for patients
and enhance related administrative and clinical
workflows and compliance with regulatory requirements. ADAT’s web-based services are delivered
as Software as a Service (SaaS) to customers,
interfacing seamlessly with billing and document
management systems. These solutions incorporate
multiple features and security technologies such
as rules-based electronic forms, intelligent routing,
transaction management, electronic signatures,
identity credentialing, content authentication, automated audit trails and remote patient monitoring
capabilities. Both web and fax-based communications are integrated into automated, secure and
trusted workflow solutions.
ADAT’s telehealth solutions provide in-home
patient vital signs monitoring systems and services
to improve care for patients with chronic illness
and reduce the cost of care by delivering results
to their healthcare providers via the Internet. The
telehealth solutions combined ADAT’s Electronic
House Call™ (EHC) patient vital signs monitoring
appliances, their Interactive Voice Response (IVR)
patient vital signs monitoring solution or their tablet
based products with a web-based management/
monitoring software module based on ADAT’s
Inscrybe® Healthcare platform. Both solutions enable
unattended measurements of patients’ vital signs
and related health information and are designed to
aid wellness and preventative care, delivering better
care to specific patient segments that require regular
monitoring of medical conditions.
Healthcare providers can easily view each specific
patient’s vital statistics and make adjustments to
the patient’s care plans securely via the Internet.
This service provides a combination of care plan
schedule reminders and comprehensive disease
management education as well as intelligent routing
to alert on-duty caregivers whenever a patient’s vital
signs are outside of the practitioner’s pre-set ranges.
Healthcare providers and health insurers are also
expected to benefit by having additional tools to
improve patient care, and reduce overall in-person
and emergency room visits.
During FY’13, ADAT completed the required
test-in phase with the Dept. of Veterans Affairs (VA)
for its EHC and IVR telehealth solutions; the VA
approved the use of these solutions by VA facilities
throughout the country. In fact, revenues for FY’13
jumped approx. 51% to $4.8 mil. due to growth from
both telehealth products and services and hosted
software service, with a loss of (.45) per share.
Strength in telehealth sales and the VA rollout saw
Q1’14 revenues surge 96% to a record $1.8 mil., with
a continued steady narrowing of operating and net
losses, or (.09) per share vs. (.11) for the prior year.
The strong quarter demonstrates that ADAT is well
on its way to realizing its financial objectives for the
year and the trends relative to revenue growth and
improved operating efficiency are sustainable. As of
Sept.’30, ’13, cash, cash equivalents and marketable
securities were $2.5 mil. with working capital of $3.2
mil. Of the 35,423,008 shares outstanding, 20% are
held by insiders and 5% by institutions. Meanwhile,
ADAT, an old favorite, was recommended in Sept. to
reenter at .90 and jumped 55% before pulling back
to its 50-Day MA with support in the 1.02 area. We
would Add/Buy on all weakness at 1.15 and under for
a 1st target of 3.00 especially since the VA’s telehealth
program has the potential to generate significant
revenue while the commercial market continues
to adopt telehealth as a cost-effective approach to
manage patient care.
Management is encouraged by the growing number
of VA locations using their products and services,
as well as the sole source award from the VA for a
telehealth pilot program for HIV patients. ADAT has
started to enroll patients for its VA telehealth pilot
program for HIV and announced new customers for
their telehealth and referred management solutions.
The acceleration in ADAT’s growth rate reflects the
results of their efforts to deploy their state-of-theart telehealth platform with the VA, as well as other
customers. ADAT continues to pursue a number of
opportunities for their products and services with
large healthcare organizations and hospital systems,
and believes its experience serving the VA (the
largest integrated healthcare system and telehealth
consumer in the nation) with their innovative
products and services and responsive customer
service leaves them well-positioned for future growth
and profitability, enhancing shareholder investment.
Ultimate target 3.00-3.50.”
11321 Trenton Ct., Bristow, VA 20136.
1 year, 4 issues, $50.
Myriad Genetics: Attractive valuation
Ingrid Hendershot: “Myriad Genetics (MYGN:
$28.86) is a leading molecular diagnostic company
dedicated to making a difference in patients’ lives
through the discovery and commercialization of
transformative tests to assess a person’s risk of
developing disease, guide treatment decisions and
assess risk of disease progression and recurrence.
Myriad’s molecular diagnostic tests are based on an
understanding of the role genes play in human disease.
Double-Digit Growth
Founded in 1991, Myriad Genetics is a pioneer in the
field of molecular diagnostics. The company employs
a number of proprietary technologies, including
DNA, RNA and protein analysis, that help them to
understand the genetic basis of human disease and
the role that genes and their related proteins may play
in the onset and progression of disease. Myriad then
uses that information to develop molecular diagnostic
tests that are designed to assess an individual’s
risk for developing disease later in life (predictive
medicine); identify a patient’s likelihood of responding
to drug therapy and guide a patient’s dosing to ensure
optimal treatment (personalized medicine); or assess
a patient’s risk of disease progression and disease
recurrence (prognostic medicine).
Myriad launched their first molecular diagnostic
test, BRACAnalysis, a test for hereditary breast and
ovarian cancer in 1996. This test gained increased
publicity earlier this year when Angelina Jolie
went public with her preventive double mastectomy
following the results of her BRACAnalysis test.
Myriad reported double-digit growth in fiscal 2013
as revenue increased 24% to $613 million and EPS
jumped 36% to $1.77. BRACAnalysis test sales
accounted for 75% of Myriad’s revenues in fiscal
2013. Double-digit growth accelerated in the first
quarter of fiscal 2014 due in part to the Jolie publicity.
Revenue rose 52% to $202 million and EPS increased
89% to $.68. Myriad is effectively competing in its
core markets, while diversifying its business by
expanding internationally with distribution in over
80 countries. At the same time, Myriad is launching
innovative products with the deepest product pipeline
in the industry. Myriad has launched three new
breakthrough molecular diagnostic tests so far in
fiscal 2014. In September, the company launched
Myriad myRisk Hereditary Cancer, a new multi-gene
diagnostic test for eight major hereditary cancers. In
October, the company launched Myriad myPlan Lung
Cancer, a new prognostic test for patients diagnosed
with earlystage lung cancer. In November, the
company launched Myriad myPath Melanoma, a new
diagnostic test to effectively differentiate malignant
melanoma from benign pigmented skin lesions.
Healthy Cash Flow
Myriad’s profitable operations generate healthy
free cash flows, which increased 74% to $85 million
in the first quarter of fiscal 2014. During the first
quarter, the company repurchased 3.8 million shares
of its stock for $102 million at an average price of
approximately $26.92 per share. Since 2010, the
company has repurchased $700 million of its stock
representing approximately 30% of total shares
outstanding. The Board recently authorized a new
$300 million stock repurchase program.
Myriad has expressed interest in exercising its
exclusive option in fiscal 2014 to acquire Crescendo
Bioscience, a molecular diagnostics firm dedicated
to developing quantitative blood tests and disease
information services for rheumatoid arthritis and
other autoimmune diseases. If the option is exercised,
Myriad expects to finance the purchase from the
$516 million in cash on its debt-free balance sheet
as of 9/30/13. While the acquisition could consume a
material amount of the cash, Myriad believes that it
should still have sufficient cash for its current share
repurchase program.
Attractive Valuation
Myriad’s shares currently appear attractively
valued, trading at 14 times earnings and with a
9% free cash flow yield. The stock price pulled back
sharply following a Supreme Court ruling in June
against one of Myriad’s 234 patents, which has
opened the door to intensified competition. However,
management appears confident of future growth
as the global market opportunity expands for their
products. Myriad expects fiscal 2014 revenues in
the range of $700-$715 million, representing 14%17% growth, and EPS in the range of $1.92-$1.97,
representing 9%-12% growth. Long-term investors
with risk-tolerance in their DNA should consider
Myriad Genetics, a HI-quality firm generating
double-digit growth and healthy cash flows while
trading at an attractive valuation. Buy.”
P.O. Box 133, Redding, CT 06875
1 year, every 6 weeks, $120.
Ubiquiti Networks:
2014 Stock of the Year
Thomas Bishop: “This disruptive wireless
networking company is a gem. I thought of all kinds
of ways to start off this recommendation, but let me
go with this one- On October 28th Ubiquiti Networks
Inc. (UBNT: $40) announced a realignment of its
Board of Directors and added to its considerably
talented Board – Steven Altman… no less than the
Vice Chairman of Qualcomm. He promptly disclosed
that he already owned 32,500 shares. In short order
(as soon as the window was opened after earnings
were released) he plunked down $403,000 for another
10,000 shares at $40.30. And when the shares dipped
to $36.85 recently he opportunistically pounced again
hefting another $737,000 onto the counter to acquire
an additional 20,000 shares, bringing his total to
62,050, worth $2.5 million. Now if you think you’re
smarter than the Vice Chairman of Qualcomm, hey
put this report on the circular file (and let me know
what you’re buying). For the rest of you, read on.
Ubiquiti is an R&D driven company that leverages
innovative proprietary technologies to deliver
networking solutions to start-up and established
enterprises, network operators and service providers
in underserved markets. It offers an attractive
alternative to the more complex, high-cost competition.
Ubiquiti offers a broad (and expanding) portfolio
of networking products and solutions. Its Wireless
Service Provider product platforms (73% of Q1 sales)
provide carrier-class network infrastructure for fixed
wireless broadband, wireless backhaul systems and
routing. Here the Company’s biggest product is its
airMAX platform which delivers carrier class wireless
networking performance for video, voice and data
applications and is able to support an indoor and
outdoor wireless network that can scale to hundreds
of clients per base station over long distances (unlike
most systems using 802.11 standard protocols which
are primarily designed for indoor networks). Other
product offerings include its disruptively priced
EdgeRouter Lite, the world’s first sub $100 router
capable of 1 million packets per second processing
performance and airFiber which combines an
integrated split antenna and a global positioning
system to provide microwave backhaul, a compelling
alternative to wire backhaul.
Its enterprise products platforms provide wireless
LAN infrastructure, video surveillance products and
machine-to-machine communications components.
Key products here include its UniFi Enterprise Wi-Fi
System; its AirCam video surveillance camera and
airVision management controller systems (which
Ubiquiti believes will become an important product
for the company); and its mFi line-up of machine-tomachine communications products which allow users
to remotely monitor and control (via WiFi) machines
and systems such as building temperature and power
To me more important than the nitty gritty of what
they make is the Company’s strategy. Let me first note
that Ubiquiti is almost totally R&D focused- 65% of
its employees are engineers that are hands on and
actually make things, and the Company pays them
25% to 50% more than the competition to get the very
best, “the top 1 or 2%” because that is the value they
put on engineering. And it has R&D offices around
the globe, in 9 countries. A whopping 52% of operating
expenses go to R&D. So Ubiquiti’s strategy is to
identify a market where it believes it can engineer a
better product with better technology and sell it at a
disruptively lower price… and then go in and wipe out
the competition. Let me first talk about the “better
product” aspect. Have you ever noticed if you use MS
Office, or a camera, or perhaps even a smartphone
that its capabilities far exceed what you (and most
uses) utilize? Yeah, Ubiquiti noticed this also. So
they design a product focused on the features 85% of
users actually use and then give them 105% on that,
including proprietary technology improvements. And
as to the better price aspect- instead of coming in 1520% below the market they might set a price as low
as 80% below. So let’s see… the gear has everything
and more that you’ll actually use and cost as little as
20% of what the (bloated) competition charges (with
their 10 levels of management, overdesigned products
and mega sales forces). Uhhh… let me think… that’s
a no-brainer. In fact, the Company’s products are so
disruptively designed and priced that… they don’t
have a sale force. Instead they have been able to sail
along on word of mouth/post in their user community
which spreads like wild fire around the world. The
Ubiquiti Networks Forum has well over 100,000
members, with hundreds often on line at any time.
Indeed in the last couple years they’ve shipped over
10 million devices equating to over a billion dollars
of sales, which are rapidly expanding. The Company
does use about 100 distributors located all over the
world. Only 29% of sales are in the U.S. As a result
of the above Ubiquiti is the top company on Nasdaq
on a revenue per employee basis.
So how’s this working for them? Well sales in
fiscal Q1 ending September advanced 111% to $129.7
million, also representing the fourth straight quarter
of double digit sequential revenue growth over the
immediately preceding quarter. There aren’t too
many companies out there whose 1st quarter can beat
their 4th quarter… by 29%. And the Company posted
net income of $40.5 million, triple last year’s $13.2
million. This translated into GAAP diluted EPS of
$.45, and adjusted diluted EPS of $.46, again triple
last year without a long list of adjustments (I always
prefer to see it that way). In terms of cash flow, while
many companies don’t have any free cash flow, in Q1
alone Ubiquiti hauled $52 million of it to the bank.
As a result the Company has a cash stash of $280
million… and growing. And it’s not juicing results by
handing out extended payment terms. DSO’s were
only 25 days! Looking ahead the Company offered
guidance of $130 – $136 million in revenues, and
adjusted EPS of $0.42 - $0.46. On that I should note
Ubiquiti has beaten estimates by between 9% and
22% in each of the past 4 quarters (at least). For
FY6/14 the consensus is $1.83 vs. $0.91 last year.
UBNT’s IBD rating of 97 is the highest in the Telecom
Infrastructure group of 35, and it is ranked 1 by Zacks
and 10.5 by the BI Ranking System. Accordingly
UBNT is rated a Strong Buy near the same price
at which the Vice Chairman of Qualcomm recently
forked over $1,000,000 in the open market. This is a
great company with a great story and will likely be
my 2014 Stock of the Year. www.ubnt.com.”
Editor’s Note: BI Research has been published continuously
since 1981. Their niche is rapidly growing small to mid-cap stocks,
whose PE’s are reasonable relative to their growth rates. BI
Research has frequently been ranked among the top stock picking
investment newsletters for its performance. For more information
visit www.biresearch.com.
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Railroad Stocks
Roll Into 2014
Continued from page 1
about the same as last year, but
crucially, RBC found that 26%
expected shipments to rise 5% or
more, up from 15% in 2013.
“A distinct element of our conversations with respondents this year
is that economic concerns did not
permeate discussions on volume
expectations for 2014. Accordingly,
we believe shippers have greater
conviction in their near-term volume forecasts compared to prior
years,” wrote RBC’s analysts. Oil Trains Keep
Getting Longer …
One area primed for continued
growth is shipments of crude oil by
rail, as producers grapple with a
shortage of pipelines in Canada’s
oil sands and U.S. shale regions.
According to a recent estimate
from the Railway Association of
Canada, about 140,000 carloads of
oil sands crude and bitumen were
shipped by train in 2013, up from
just 500 in 2009.
In the U.S., shipments will likely
total around 400,000 carloads in
2013. Railways are also benefiting
by hauling in supplies, such as
sand for hydraulic fracturing, as
shale production rises.
By the end of 2014, about 2
million barrels of crude per day
will be riding the rails around
North America, according to
pipeline operator TransCanada
Corp. (NYSE: TRP). That will
continue to help railways offset
declining shipments of coal, a
long-time mainstay.
Shipping oil by rail costs about
$5 to $10 more per barrel compared
to pipelines that are already built,
but the oil trains are helped by
the spread between crude prices.
If that spread narrows too much,
rail becomes less viable compared
to pipelines.
Right now, for example, the differential between international
Brent crude and West Texas Intermediate (WTI) stands at around
$12, while Western Canada Select
is sitting at a roughly $21 discount
to WTI.
However, the safety of shipping
oil by rail has been called into
question in the wake of the July 6
tragedy at Lac-Mégantic, Quebec,
in which an oil train operated by
the Montreal, Maine and Atlantic
Railway rolled away after it was
left unattended for the night. It
then sped downhill, derailed and
exploded in Lac-Mégantic, killing
47 people.
Governments on both sides of
the border are now re-examining
safety regulations. In Canada,
new rules have already been
introduced with regard to parked
trains and the labeling of volatile
cargo. Additional changes would
further increase the cost of
shipping crude.
… But Intermodal
Is an Underappreciated
Growth Area
According to the 2013 U.S.
Freight Transportation Forecast,
prepared by the American Trucking
Association, intermodal shipping
– or moving freight in containers
that can be loaded onto ships,
trucks and trains – will continue
to be the fastest-growing freight
mode, increasing by an average of
5.1% a year until 2018. Intermodal
is about 300% more fuel efficient
than shipping by truck, according
to a January 2013 report from
As we wrote in a December
18 Investing Daily article, one
way to play intermodal’s growth
is through trucking stocks: J.B.
H u n t Tr a n s p o r t S e r v i c e s
(NasdaqGS: JBHT) was one of the
first to enter the intermodal game
and has developed considerable
expertise. In 2012, intermodal
freight supplied 61% of J.B. Hunt’s
Railroad stocks are the other
angle: Norfolk Southern (NYSE:
NSC), for example, has been
focusing on boosting its intermodal traffic. In 2012, it generated
$2.24 billion, or about 20% of its
revenue, by shipping the versatile
containers, up 5% from 2011.
It’s a similar story at Canadian
National Railway (NYSE: CNI),
the largest operator north of the
border, where intermodal revenue
totaled C$1.99 billion in 2012, up
11% from 2011 and accounting for
22% of the total.
Union Pacific: All Aboard!
One railway with exposure to
both rising intermodal and crude
shipments is Union Pacific
(NYSE: UNP), a stock we cover in
our Personal Finance newsletter.
The company is America’s
largest freight railroad, with a
track network spanning 32,000
route miles across 23 states.
Its revenue is well diversified
across six different categories of
freight: intermodal (20.1% of 2012
revenue), coal (19.9%), industrial
(17.7%), agricultural (16.7%),
chemicals, including oil (16.4%)
and automotive (9.2%).
Revenue from each of the above
sectors can fluctuate greatly due
to their cyclical nature. To help
mitigate some of this risk, Union
Pacific tries to lock in long-term
freight contracts.
Focus on Costs
Keeps Earnings Rising
A key metric of a railroad’s
health is its operating ratio,
which measures operating costs
against revenue. In the third
quarter, Union Pacific once again
showed that it’s among the most
efficient railroads in the U.S.,
posting a best-ever quarterly
operating ratio of 64.8%, down
1.8 points from a year ago and
0.9 from the record it set in the
second quarter.
In the third quarter, Union
Pacific’s earnings rose 10% from
a year earlier, to $1.15 billion, or
$2.48 a share. Revenue gained
4%, to $5.57 billion. That fell just
short of the consensus forecast
of $5.58 billion, but earnings
beat the Street’s expectation
by a penny. Union Pacific saw
higher revenues across all its
segments except intermodal,
which was flat.
The stock gained 32% in 2013.
It also pays a $3.16 dividend (1.9%
yield). It trades at 15.4 times its
forecast 2014 earnings, which puts
it roughly in the middle of the
railway pack: Canadian National,
for example, boasts a forward
p/e ratio of 16.1, while Norfolk
Southern stands at 14.4.
Editor’s Note: Chad Fraser is a
contributor to InvestingDaily.com, an
online service of KCI Investing. To sign
up for free reports and E-mail alerts visit
March 2 – 5, 2014
International Convention, Trade Show & Investors Exchange
Metro Toronto Convention Centre
Toronto, Canada
Prospectors & Developers Association of Canada
Client: PDAC 2014
Desc.: FP 4C
Trim: 7.5" x 10"
Pub: Monetary Digest
711 W. 13 Mile Rd., Madison Heights, MI 48071.
Monthly, 1 year, $399. E-subscription, $299.
Demographic trends favor
The Fresh Market
Douglas Gerlach: “The Fresh Market (Nasdaq:
TFM; $39.63) is a small, growing chain of premium
grocery stores. Like its better-known competitor
Whole Foods, The Fresh Market focuses on
premium products that carry higher prices and
better margins. We’ve never been comfortable with
the company’s rich valuation in the past, but a soft
Fiscal Q3 recently took a big bite out of the share
price, and we think now is a good time to introduce
the stock to readers.
Grocery stores are a crowded industry. The saving
grace is that everybody has to eat, so business tends
to be pretty steady. The trick is to find a niche. The
Fresh Market’s particular niche combines smaller
stores – 21,000 square feet on average, compared with
40,000 to 60,000 for conventional supermarkets –
with an emphasis on perishable foods, which comprise
about two-thirds of overall sales. Growth comes
mainly by opening new stores, which the company
added at a rate of 9%, 12%, 14%, and 17% (planned)
from Fiscal 2010-13. The company currently operates
146 stores in 26 states and expects to finish the year
with about 151 total stores. Management thinks
it can eventually expand to 500 stores in the U.S.
New stores come online at a run rate of about 85%
of the company average. After a few years of growth,
stores reach maturity and grow at a lower rate
approximating growth in overall consumer spending.
All told, The Fresh Market has increased sales by
13.6% on average over the past four years, with Fiscal
2013 running just slightly below that trend.
While The Fresh Market’s store base is
currently concentrated in the Southeast, especially
in the Atlantic coastal states, the company’s recent
expansion strategy has sent out some tendrils into
Texas and California, without back-filling into
existing markets. As a result, the company’s footprint
now looks awfully far-flung for such a small chain.
Perhaps the best word to describe the new, nationwide
strategy would be “colonial.”
Whether management feels it has to race to
establish footholds in an increasingly competitive
industry before it’s consigned to a merely regional
presence, or whether management is simply “testing
the waters” outside its comfort zone, subpar execution
is a big risk to investors. After Q3 and Q4 guidance
missed expectations, management told a story of a
soft consumer economy combined with below-plan
sales at new stores in Sacramento and Houston. Oops.
We still like the stock, but investors need to
pay attention to the productivity at new stores. If
execution in new markets doesn’t bounce back, then
maybe the opportunities just aren’t out there. That
is, maybe The Fresh Market can’t really be the
500 store chain management wants it to be. Maybe
it’s only a 250 store chain when it reaches a point
of market saturation, in which case the current P/E
doesn’t leave much room for upside. We don’t think
this will actually turn out to be the case, but we get
paid to worry, and we can’t see the future.
On the contrary, a retail model that works in one
place usually – although not always – translates to
other areas reasonably well. Meanwhile, demographic
trends favor The Fresh Market because older
consumers tend to make more grocery trips per
week and to spend more money on better food. Even
if business takes a little while to reaccelerate, this
company can win the long game just by opening more
stores for an increasingly receptive American shopper.
Many of the companies we follow buy back shares
on a regular basis, but aggressive expansion doesn’t
leave much cash leftover for such purposes right
now. Management has done a good job of keeping the
share count flat as the company has grown, so at least
investors aren’t running on a treadmill.
We model 12% sales growth with 15% EPS growth,
the difference coming from operating leverage. If
last quarter’s disappointment turns out to be just a
blip, the company could see a return of its premium
valuations of the recent past. While the P/E has
generally been above 30 historically, we have imposed
a cap of 32 on the future high P/E. That times EPS of
$2.89 could generate a high price of 93. Our low price
of 26 is the product of trailing twelve-month earnings
and a low P/E that we’ve capped at 18.”
P.O. Box 248, Williamsport, PA 17703.
Monthly, year, $199. www.completeinvestor.com.
Raytheon: Low-risk defense standout
CACI Int’l: Speculative defense play
Raytheon (RTN) remains Stephen Leeb’s favorite
low-risk defense play.
“The company stands out from other major defense
contractors for several reasons. Its revenues are
almost evenly split among four segments: space
systems, missile systems, information systems,
and integrated defense systems. Thus as the most
diversified of the major contractors, Raytheon is well
protected if a particular program is singled out for
More important, virtually all the company’s
divisions require high-level information and
electronic capabilities, giving Raytheon a leg up in
today’s world of electronic warfare. The company’s
stakes in cyber security and warfare, secure and wide
bandwidth communication systems, and surveillance
are fare more extensive than those of its competitors.
Through its space division the company provides a
wide variety of unmanned imaging and targeting
systems for both offensive and defensive purposes.
These programs not only are the last likely to suffer
cuts, they could gain additional funding in coming
Raytheon also gets high marks for having the
largest proportion for foreign customers, who
accounted for more than 25 percent of its business
by the end of 2012. Foreign business is likely to grow
even if, contrary to our expectations, U.S. defense
spending suffers overall cuts. With virtually all
Middle Eastern countries nearly certain to increase
military spending sharply in the years ahead,
international growth in sales will likely outstrip
domestic growth.
Currently Wall Street expects Raytheon’s earnings
to grow in the mid to high single digits. We think the
low double digits is more likely, which suggests a
rising P/E. But whatever its growth rate, this critical
franchise, whose projected 2014 free cash flow yield
is above 8 percent, is a fundamental powerhouse. In
the past decade the company has repurchased nearly
40 percent of its shares, and over the past five years
it has been aggressively raising its dividend. With a
current yield of 2.6 percent, a superb balance sheet,
and a business that is immune to most macroeconomic
considerations – other than to defense budgets, which
in an economically stressed world are more likely to
rise than fall – this is a compelling total return hedge
that now receives our highest allocation.
Our new purchase for the Growth Portfolio is the
far smaller and more speculative defense contractor
CACI International Inc. (CACI), a provider
of critical information services to the Defense
Department that span the gamut from cyber security
to intelligence gathering to health care. These
services are in large part critical to U.S. security
while amounting, in terms of cost, to little more than
a rounding error in the overall defense budget. CACI
has been serving the Defense Department for more
than 50 years, suggesting an intertwining with many
critical legacy programs. Thus much of its business
has an ironclad barrier to entry.
There is not much transparency in many of its
highly classified projects, which is one reason we rate
the company as speculative. Another is its relatively
small size, which could make it vulnerable to a rogue
The fundamentals are compelling. Free cash
flow yield is a stunning 12 percent. Earnings have
dipped only twice, and then slightly, in the past
15 years, suggesting CACI is immune not only to
macroeconomic vicissitudes but also to changing
defense budgets. The company does not pay a
dividend, allowing its enormous amount of excess
cash to go toward strategic acquisitions and share
repurchases. This is a speculative stock whose
potential upside far exceeds the risks.”
KAPITALL WIRE, a division of Kapitall, Inc.
241 Centre St., New York, NY 10013.
8 winter weather stocks that
heat up when it gets cold
James Dennin: “Make no doubt about it. It’s winter.
Public school students throughout the East and
Midwest are enjoying an early weekend courtesy of
Jack Frost – and mayors are breaking out the snow
shovels for that winter photo-op. And while today’s
storm may not have been as catastrophic as some
people predicted, it is time to brace ourselves for at
least three more months of cold, wind, and snow.
With that in mind we decided to build a list of
winter weather stocks that profit when the snow gets
bad. Now, for a lot of reasons this wasn’t particularly
easy to do. For one, the world’s largest maker of snow
plows, Meyer, is a privately held company. No matter,
we trudged on.
Thinking outside of the box, it wasn’t too hard
to come up with some stocks who might see a spike
during a particularly rough winter. For instance,
if you think the slopes are going to be particularly
inviting this year, there’s a publicly traded skiresort, Vail (MTN). If you’re looking for something
a little less seasonal, you could check out Compass
Minerals (CMP) – the raw materials supplier which
provides much of the country’s rock salt. If you’re looking for something a little less
seasonal, there’s always Johnson & Johnson (JNJ).
When people get sick they need more pain killers
and moisturizer – but the largest pharmaceutical
company in America also has some leverage in the
other seasons as well. And generators are useful
year-round, although manufacturers like Generac
(GNRC) could see a spike when the weather gets
particularly bad. And, finally, for the winter-or-bust crowd, there
are a number of publicly traded companies that sell
winter-specific recreational goods. These range from
the practical and reliable: like winter coats from
Columbia Sportswear (COLM), to the more high
end, like Arctic Cat Inc. (ACAT), which makes
Do you see any investing opportunities in these
cold weather stocks? Use the list below to begin your
own analysis.
1. Generac Holdings Inc. (GNRC; $56.75).
Designs, manufactures, and markets a range of
generators and other engine powered products for
the residential, light commercial, industrial, and
construction markets in the United States Canada,
and Mexico. Market cap at $3.89B.
2. Briggs & Stratton Corp. (BGG; $21.78).
Designs, manufactures, markets, and services air
cooled gasoline engines for outdoor power equipment
worldwide. Sales of portable generators and snow
throwers are higher during the first and second fiscal
quarters and could spike during weather related
power outage events. Market cap at $1.03B.
3. Compass Minerals International Inc. (CMP;
$79.28). Produces finished salt products at four
locations in Canada. Its rock salt mine in Ontario
serves the highway deicing markets in Canada and
the Great Lakes region of the U.S. The company’s
U.K. highway deicing customer base is served by
the Winsford rock salt mine in Northwest England.
Products also include sulfate of potash specialty
fertilizer, and magnesium chloride, primarily in
North America and the United Kingdom. Market
cap at $2.65B.
4. Columbia Sportswear Company (COLM;
$78.48). Engages in the design, development,
sourcing, marketing, and distribution of outdoor
Continued on page 16
Continued from page 15
apparel, footwear, accessories, and equipment in
the United States, Latin America, the Asia Pacific,
Europe, the Middle East, Africa, and Canada. Market
cap at $2.71B.
5. Vail Resorts Inc. (MTN; $74.77). Engages in
the operation of resorts principally in the United
States. The company operates through three business
segments: Mountain, Lodging, and Real Estate. The
Mountain segment operates eight ski resort properties
and two urban ski areas. Market cap at $2.70B. 6. Douglas Dynamics, Inc. (PLOW; $16.67):
Designs, manufactures, and sells snow and ice control
equipment for light trucks in North America. The
company offers snowplows, sand and salt spreaders, and
related parts and accessories. Market cap at $369.68M.
7. Johnson & Johnson (JNJ; $91.85): Engages in
the research and development, manufacture, and sale
of various products in the health care field worldwide.
Market cap at $259.45B.
8. Arctic Cat Inc. (ACAT; $57.77): Designs,
engineers, manufactures, and markets a full line of
snowmobiles consisting of 57 models and all-terrain
vehicles (ATVs) in 31 models under the Arctic Cat
brand name in the United States and internationally.
Market cap at $776.91M.”
Editor’s Note: Kapitall Wire offers free cutting edge investing
ideas, lively commentary and timely analysis of companies
enhanced by interactive tools. Kapitall Wire is a division of Kapitall
Inc. For more information visit www.kapitall.com.
Resource Stocks
THE MAJOR TRENDS, published for clients
of Sadoff Investment Management LLC, 250
West Coventry Ct., Ste. 109, Milwaukee, 53217.
Commodities still soft
Ronald Sadoff: “Most surprising commodity prices
have been locked in a 3 year downtrend. This decline
has softened inflation pressures – below 2%. Similarly
the advance/decline line for this commodity index is
declining. This means that most commodities (not
just a few) are declining.
Normally flat or falling commodities correlate with
a slow or contracting economy. Similarly declining
commodity prices correlate with flat or declining interest
rates. The direction for commodity prices tells a big story.
This continual commodity price decline will
confirm a less than exuberant economy, a very bullish
monetary policy, a low inflation rate and steady or
level interest rates.
An upside breakout for commodity prices will signal
the economy will gain momentum, corporate earnings
will increase at a faster pace, inflation pressures will
somewhat escalate and interest rates will rise as the
Fed takes its foot off the monetary gas pedal.”
DELIBERATIONS on World Markets, P.O. Box
182, Adelaide St. Station, Toronto, ON M5C
2J1. 1 year, 18 issues, $225. Introductory Trial,
4 issues, $49.
ABX is the poster child that has so
damaged the industry credibility
Ian McAvity: “It’s possible gold has put in a double
bottom with the $1200 level resisting a break recently
with such extreme sentiment readings. For some
time I’ve labeled the behavior as “bottoming” but that
condition still needs something beyond one higher
low… it needs to show some ‘oomph’ on the bounces too.
The Miners Shares ratio to the Metal price has
been devastated. It is at historically low levels but
will need to show some basing.
Watch for those miners resisting lower lows this
year and relative to their 2008 lows as emerging
prospective relative strength leaders.
The industry has a lot of repair work to do, and
likely will need $1500+ gold prices to bring investors
back. Deferring or canceling projects, eliminating
exploration and likely high grading may show lower
cost/oz near term but may potentially be a negative
for longer-term evaluation.
ABX is a major weight in all gold stock indices and
seems bent on self destruction when talking about
resuming hedging and diversifying to other metals
again after blowing countless billions doing and
undoing the same thing in the past 20 years.
It boggles the mind that a company could
financially transact itself into being the largest gold
miner on the planet and destroy so much market cap
while gold ran from $250 to $1900 before the fall back
to $1200.. still 5x the level of 2001, when their share
price was previously at current price levels, with 377
mil shs out vs. 1.0 bil shs and a mkt cap of $16 bil
today down from a peak above $50 bil in 2011.
Before the acquisitions of LAC Minerals,
Homestake, Place Dome et al, 20 years ago they
had a market cap of $8 bil with 285 mil shs O/S,
trading at $28 in 1993 when the gold price averaged
$360. Talk of changes in management strikes me as
strange when 3 of the last 4 CEO’s came out of the
financial side and the current CEO used to be the
price defender and chief obfuscator about hedging
program losses. The founder/Chairman, Peter Munk,
stepped down to be replaced by the $12 mil former
Goldman exec with the pay package that sparked a
recent shareholder rebellion.
When I accuse the investment bankers of
harvesting the gold mining industry over the last 20
years, ABX is the poster child that has so damaged
the industry credibility.”
P.O. Box 248, Williamsport, PA 17703.
Monthly, year, $199. www.completeinvestor.com.
Spectra Energy Corp:
Strong growth, nice yield
Genia Turanova added a new energy-related
position in the Income/Value Portfolio – Spectra
Energy Corp. (SE; $34.18).
Spectra Energy’s 3.6 percent yield combined with
strong growth prospects from continued gains in
U.S. natural gas production make the company an
attractive buy. It already is more than halfway to
its stated goal of achieving $25 billion in growth
prospects by the end of the decade. Among other
successful purchases, its $1.5 billion acquisition
of Express-Platte, announced nearly a year ago, is
now fully integrated into Spectra. Express-Platte is
a 1,717-mile pipeline system that starts in Alberta,
Canada and ends in Illinois, delivering crude oil to
U.S. refining markets.
Spectra Energy focuses on the gathering,
processing, storage, and distribution of natural gas. It
also holds interests in two MLPs via its approximately
65 percent interest in Spectra Energy Partners and a
50 percent stake in DCP Midstream LLC, the largest
producer of natural gas liquids (NGL) in the U.S. and
one of the country’s largest natural gas gatherers and
processors. What makes Spectra especially attractive
is that it owns critically important pipelines and
related infrastructure connecting supply sources to
premium markets.
The company reported strong results for the
most recent (third) quarter. Earnings rose to $0.42 per
share from last year’s $0.27, and Spectra expects to
meet its full-year target of $1.50 per share. Recently
it updated its projected dividend growth to 9 percent
through 2015.”
P.O. Box 790260, St. Louis, MO 63179.
Monthly, 1 year, $250. Introductory Trial Offer, 3
Months, $65. Includes Weekly Updates.
Winners and losers in 2013
Mary Anne and Pamela Aden writing in their Jan.
2nd Update: “The stock market has been amazing,
closing out a winning year with nearly a 30% gain.
For the Dow Industrials and S&P500, it was their
best gain in 16-18 years and it looks like there’s
more to come. The market is extremely bullish,
it’s not overbought, and another Dow Theory bull
market confirmation was triggered on New Year’s
eve when most of the stock market indexes again
hit new record highs. The market is poised to rise
further but it could stall in the weeks ahead, which
would be normal following its strong upmove. For
new positions, we’d buy Nasdaq (QQQ), Russell
2000 (IWM), the Dow Industrials (DIA) and the Dow
Transportations (IYT).
Interest rates also hit another over two year
high on New Year’s eve. The 10 year yield pushed
above 3% and rates could still head higher. This isn’t
good news for the bond market, which experienced
its worst yearly loss in 19 years. And while we don’t
expect to see interest rates rise sharply, it’s best to
continue avoiding bonds for the time being.
The U.S. dollar is being boosted by the higher
interest rates. It remains weak and bearish as long as
the U.S. dollar index stays below 81.70. The euro was
the strongest currency this year and we recommend
buying and holding it, along with the British pound.
These two currencies will remain strong by staying
above 1.3550 and 1.61.
Gold and the metals sector were the big
disappointments in 2013. After suffering its worst
decline in decades, today. Gold has held above its
important $1180 support level and the metals look
set to rise in the weeks ahead. Plus, the XAU gold
share index is at a six week high and it often leads.
Nevertheless, watch the market, keep your positions,
but do not buy new ones yet.
Based on gold patterns since 1967, gold is likely
to bottom in 2015 and it’s likely to reach a mega bull
market top in 2019. We believe the next bull market
leg up will be gang busters.
Gold shares have been getting hit right and left,
and until gold stabilizes, we’ll most likely see more
of the same.”
133 Richmond St. W., Toronto, ON M5H 3M8.
1 year, 24 issues, $137.
Big-cap oil play still
a favorite with analystas
Phil Fine: “Despite cost overruns at a new refinery,
analysts Tyler Reardon and Jeff Martin, Peters & Co.
in Calgary, rate Canadian Natural Resources Inc.
(TSX: CNQ; 34.58 a Buy.
And they view Canadian Natural’s cash flow as one
of the best among the big oil and gas plays.
They also site the company’s strong overall growth
profile, as well as its good valuation relative to its peers.
So enamored of Canadian Natural are Messrs. Martin
and Reardon that they’re continuing to peg it at “sector
outperform, with a 12-month price target of $40 a share.
But they’re worried, they write, about the company’s
ability to control the costs of large-scale projects in
Western Canada.
Their concern follows the recent announcement of
a hike in construction costs for a bitumen refinery 45
kilometres northeast of Edmonton for which Canadian
Natural will supply feedstock.
Because of additional engineering work, the
50,000-barrel-a-day refinery, originally priced at $5.7
billion, will now cost 49.1 per cent, or $2.8 billion more.
In addition, the completion date, originally set for
mid-2016, has now been pushed back to September 2017.
As a result of the cost increase, Canadian Natural’s
share of the project will rise by $600 million.
Messrs. Martin and Reardon admit the increase will
result in only a minimal change in their valuation for
the company.
But it will do nothing, they suggest, to mollify
investors. They also say the overrun shows why they still
use more conservative cost assumptions when making
long-term forecasts for mega projects in the oilpatch.
The refinery itself is billed as the world’s first such
facility that combines gasification technology, storage
and integrated carbon capture.
The refinery will also be the first to sell its carbon
dioxide for the purposes of enhanced oil recovery.
In the meantime, Canadian Natural says the expansion
to its Horizons tar sands project remains on budget.
Our analysts were largely on-side with Messrs.
Martin and Reardon in their take on Canadian Natural
Of the 13 other folks we surveyed, two rated the
company a “hold,” but 11 rated it a “buy,” lofting it into
first place in our list of top-10 buys.
And Canadian Natural, as Messrs. Martin and
Reardon seem to say, makes investment sense.
Although its yield, at 2.3 per cent, is small, the
company continues to raise its dividend, having boosted
it 60 percent as recently as November. Such increases
suggest Canadian Natural is confident in its cash flow.
Headquartered in Calgary, Canadian Natural
Resources is one of the world’s biggest independent
producers of crude oil and natural gas.
Not only is it the second-biggest producer of gas
in Canada, it’s also the biggest producer of heavy oil.
Indeed, its Horizons project in the Alberta tar sands
boasts a reserve of six billion barrels.
In addition to North America, Canadian Natural
Resources has operations in the North Sea, as well as
off the coast of Africa.
For the third quarter of 2013, the company’s net
income zoomed to $1.2 billion, or $1.07 a share, from $476
million, or $0.44 a share, for the similar period in 2012.
Revenue was also higher, rising 32.5 percent to $5.3
billion while net earnings from operations climbed 186
per cent to $1.1 billion, or $0.93 a share.
Operating cash flow, not surprisingly, was strong as
well, rising 78.6 per cent to $2.5 billion, or $2.26 a share.
For the nine months ended Sept. 30, Canadian Natural’s
net income rose to $1.9 billion, or $1.70 a share, from $1.5
billion or $1.40 a share, for the similar period in 2012.
Revenue, too came in strongly, growing 12.4 per cent
to $13.6 billion, while net earnings from operations rose
26.7 percent to $1.9 billion, or $1.72 a share.
Operating cash flow, meanwhile, increased to $5.7
billion, or $5.23 a share, from $4.5 billion, or $4.07 a
share for the similar period in 2012.”
S. A. ADVISORY, 4700 S Holladay Blvd, Salt
Lake City Utah 84117. 1 year, 8-12 issues, $250.
Phone Service, 1 year, $2500, (801) 272-4761.
Stock Pick 2014: Marquee Energy
William Velmer: “Marquee Energy (CVE: MQL).
A small and rapidly growing light oil and gas E&P
drilling in southern Alberta, Canada. The company
recently purchased additional acreage and production
within their core “Michichi” holdings. The current
exit estimates for 2013 are 4500 BOE/D and early
estimates for 2014 exit rate is a round 5100 BOE/D.
After the recent asset purchase and “Flow Thru” there
are 84 million shares fully diluted and outstanding.
Management has issued cash flow estimates of .46/
share or 1.6x CF/Share for 2014 (very cheap valuation).
At present P1+P2 (NPV 10%) equals around $254
million and exit debt for 2013 or around $64 million.
At present MQL trades @ only 1/3 NAV (very cheap
metric). MQL for it’s size has a huge stable of drill
sites with very seasoned management. The core
acreage has over drill 160 sites!
We believe that management will engage the
investment community during early 2014 in order to
expand market awareness in all of North America,, which
in our opinion, will dramatically enhance the share price!
Another cheap metric based on Marquee’s exit rate
of 4500 BOE/D id the “price/flowing barrel of only $28K/
barrel. This value when compared to its peers indicate
another example of just how cheap Marquee Energy
shares are trading and just how undervalued it is!
We believe that Marquee Energy (www.marqueeenergy.com) could easily double or triple from current
levels just based upon greater awareness because of
the company’s very cheap metrics. The company could
be a candidate for a “Big Fish” looking for cheap assets
and production. If you are looking for a super cheap
junior oil with huge upside potential and limited
downside risk you came to the right place.”
Editor’s Note: This service is for the serious investor. Sign
up for free email alerts at www.saadvisory.com. Subscription
information, (949) 922-9986.
DTS8 Coffee Co. Ltd. Licensed to Roast and Sell “Don Manuel”
Brand Premium Colombian Coffee in China Market
DTS8 Coffee Company Ltd is a growing
purveyor of superior quality, fresh artisan
roasted, gourmet coffee that it markets and
sells in China. China is considered to be one
of the world’s fastest growing coffee markets.
DTS8 is well positioned to participate in
the growth of the Chinese coffee market.
Significant growth opportunities exist for
DTS8 in the distribution channels in China,
Southeast Asian and U.S. markets. The combination of DTS8’s own brands –
“DTS8 Premium”, “Single Origin Premium”, “Don Manuel”, and “Private Label”
brands of roasted coffees in Shanghai and others parts of China provides a
differentiated coffee positioning based on superior quality. DTS8 expects a
significant portion of future revenue will be derived from increasing distribution
channels and expansions of existing customers. The company continues to
pursue new retailers, specialty gourmet food stores, online, hotel, office and
restaurant accounts.
Contact: Sean Tan, President, CEO
Building B, #439, Jinyuan Ba Lu,
Jiangqiao Town, Jiading District,
Shanghai, 201812, China
Phone: 011-86-15021337898
E-Mail: [email protected]
USA Sales Office:
1685 H Street, Suite 405
Blaine, WA, 98230-5110
[email protected]
Investors: 775-360-3031
[email protected]
Batero Gold Proving Potential, Advancing Exploration
Batero Gold Corp. is focused on the
advancement of its La Cumbre oxide
deposit and pursuing opportunities to acquire
prospective high-grade, production focused
mineral properties in Colombia's emerging
and prolific Mid Cauca gold and copper belt.
The La Cumbre deposit is located within its
100% owned Batero-Quinchia Gold Project.
A recently completed Preliminary Economic
Assessment, predicated on a base case gold price of US$1,400/oz and projected
a mine life of seven years at 3.5 million tonnes per annum production steady state
(10,000 tonnes per day), estimated Life-of-Mine gold production of 390,000 ounces
of gold and 817,000 ounces of silver recovered with annual average production of
56,000 ounces of gold and 117,000 ounces of silver. Approximately 86% of open pit
production tonnage is classified as Measured or Indicated Mineral Resources. The
initial capital cost was set at $97.3 million, which includes $16.2 million in contingency
costs. After-tax payback is expected within 30 months, a net after-tax cash flow of
$76.9 million, and an after-tax IRR of 21%. The after-tax NPV is projected at a 5%
discount rate of $47.3 million.
U.S. Silver & Gold: Low Risk, Low Capital Needs, High Growth
U.S. Silver and Gold Inc. is the second
largest primary silver producer in the United
States. With a current expected annual rate
of silver production of 2.1-2.2 million ounces,
the company expects to grow to 5 million
ounces by end of 2015. The company owns
and operates two key assets: the Galena
Mine Complex, which is located in the
historic Silver Valley of North Idaho; and the
Drumlummon mine, currently on care and maintenance, is situated 25 miles
from Helena, Montana, has an historic production of 1 million gold-equivalent
ounces. In the near term, increased production is expected from development
of assets within the Galena Complex. Over the long term, accretive growth is
expected through a targeted acquisition strategy. Excess hoisting and milling
capacity allows US Silver & Gold to easily increase future production as reserves
are discovered and developed. Third quarter production totaled 529,860 silver
equivalent ounces1 including 464,850 silver ounces at a lower cash cost.
Contact: Michael Mills
Corporate Development
#1305 1090 West Georgia St.
Vancouver, BC Canada V6E 3V7
Phone: 604-568-6378
Fax: 604-568-6834
[email protected]
Investor Relations–Canada:
Nicole Richard
Tel: 416-848-9503
Corporate Office:
2870-145 King Street West
Toronto, ON M5H 1J8
Tel: 416-848-9503
Galena Mine Complex:
P.O. Box 440, 1041 Lake Gulch Road
Wallace, ID 83873
Tel: 208-752-1116
[email protected]
Market Nuggets, a daily column providing up to the
minute coverage on the precious metals sector at
Silver price forecasts from major
Banks range from $19-$23
Debbie Carlson: “Banks on average are forecasting
slightly higher average silver prices for 2014, with the
market expected to get some strength from industrial
demand, particularly if the U.S. economic outlook
Investment demand is also expected to return
to support silver. Yet analysts are keeping their
upside forecasts muted for silver gains as the metal
is traditionally influenced by gold’s direction. With
gold seen struggling next year, silver may also have
a cap on prices.
Bank of America Merrill Lynch: Silver is seen
averaging $23.13 in 2014, with a first-quarter average
of $20 an ounce giving way to $25 by the third and
fourth quarters. Subdued investor buying weighed
on silver prices in the latter half of 2013, but the firm
does not see much further downside under $20, and
it sees “scope for a limited rally.” There’s little reason
for investor to come back to the market, which could
keep a lid on prices. “At the same time, we believe that
a complete collapse in quotations is unlikely, partially
because non-commercial market participants may
retain some silver in their portfolios, for instance on
the view that EMs (emerging markets) should continue
to increase their silver purchases structurally in the
medium term, despite the current headwinds. We
also note that macroeconomics concerns, including
liquidity-driven inflationary pressures, make silver
an attractive tail-risk hedge,” they said.
CIBC: Silver prices could trade to $19 by the end
of 2014, as growth from catalytic and electronics
demand supports the metal.
Citi: Citi said it looks for silver to average $20.30
an ounce in 2014. The bank cited “largely inelastic
mine supply growth” and mixed fabrication demand.
Likewise, silver would also be hurt by expected
tapering of U.S. quantitative easing, the bank added.
Commerzbank: Silver prices should average $21.50
in 2014, as the bank sees stronger industrial demand
supporting prices, as the global economic recovery
should spur use. Investment demand is also forecast
to be strong, too, supported by low prices in both U.S.
dollars and relative to gold. The bank is upbeat on gold
prices and thinks the yellow metal will pull along silver.
Standard Chartered: Standard Chartered looks
for silver to average $23 in 2016, with prices mostly
range-bound. Higher real interest rates will hurt
silver due to the rising opportunity cost.
UBS: The Swiss bank lowered their 2014 silverprice forecast by 18% to $20.50 an ounce, following
a reduction in their gold price outlook. In addition to
lowering their 2014 silver forecast, UBS downgraded
their 2015 price outlook to $21, a 13% reduction, but
left 2016 at $25 and 2017 at $24.20.
Editor’s Note: If you want to keep up with metals news and
features, then follow Debbie Carlson on Twitter @dcarlsonkitco
or www.kitco.com.
Market Outlook
P.O. Box 22, Belvedere, CA 94920
1 year, 14 issues, $295. www.dinesletter.com.
TDL’s Seasonalities: Januarys
James Dines: “In the 64 January since 1950 the
Dow-Jones Industrial Average (DJI) has risen 41
times and declined 23 times, bullish seven out of
eleven times (64%).
Action in the first trading week of January, and the
month as a whole, both appear to have some predictive value for the overall market.
S&P 500: There is correlation between the rise of
the S&P 500 in the first 5 trading days of the year
and its rise for the whole year. In the last 40 Januarys when the S&P 500 rose in its first five days, the
S&P 500 index rose for the year 34 times, for an 85%
consistency. In the six times it did not work, meaning when the S&P 500 closed lower for the year, it is
interesting to note that 4 of those years were extraordinarily bearish: 1966 and 1973 were Vietnam War
years, 1990 was the year of “Desert Storm,” and 2002
was the aftermath of 9/11. However, unexpectedly,
when the first five days of the S&P 500 resulted in a
decline, as they did 23 times since 1950, the year-end
results were split almost 50:50, hence no correlation.
So a rising first week is the action to watch for: the
dates are 2 Jan to 8 Jan in 2014. Those are the odds.
Dow-Jones Industrial Average: Our Research
Department found that in the 27 times in the last 36
Januarys that the first 5 days were up, it led to Dow
up years 75% of the time, less impressive than the S&P
500’s 85%, but nonetheless meaningful. Similar to the
S&P 500, when the Dow’s first five days ended lower (a
total of 14 times since 1961), there was no correlation to
its year-end result, thus not useful as a guide. Conclusion: only rising first weeks show a bullish correlation.
Popularily known as the “January Barometer,”
the entire month of January has gained prominence
as one of the market’s foremost bellwethers. Briefly,
whichever direction markets go, the entire month of
January often points to the direction of the entire
year. For example the S&P 500 shows an almostperfect match between its January performance and
its end-of-year performance in every odd-numbered
year, 31 straight from 1939 to 1999! (This correlation
was broken in 2001, 2005 and 2009, still a 92% accuracy rate.) On even-numbered years only, with 11
errors out of 32 years it was 66% predictive.
Turning to the DJI, there was a match between
its January and end-of-year performance in 27 of
31 odd-numbered years (87% of the time). In evennumbered years, 24 out of 32 (75%) moved together,
also an accurate Indicator. Adding another dimension
to our comparisons, records show that of the Dow’s
22 declining Januarys, 14 likewise ended in declines
(64% of the time). For the S&P 500’s record, of 24
down Januarys, 13 were followed by down years (54%
of the time), less meaningful.
In conclusion, an up January would be bullish for
the market, especially if the first 5 trading days were
up also. As to January’s predictive ability, the S&P
500 has proven especially dependable in odd years
but for even years the DJI has the better odds. If both
the DJI and the S&P 500 decline this January, the
DJI would be more likely to end lower for all of 2014.
As for the Dines Gold Stock Average (DIGSA), 46
Januarys since 1968 included 27 rises, 18 declines,
and one neutral, for a 60% bullish record, confirming
the validity of Dinesism #9 (DIRGS), the Dines Rule of
Gold Seasonality. Interestingly, the Dines Silver Stock
Average’s (DISSA) down Januarys show a remarkable
accuracy ratio in terms of having predicted DISSA’s
direction for the rest of the year. Specifically, of the 13
Januarys in which DISSA was a downer, no fewer than
10 of them (77%) resulted in down years for DISSA.
On the other hand, the rising Januarys for DISSA
resulted in up years 61% of the time, with 19 up years
out of the 31 up Januarys – not as helpful statistically.
In conclusion, January is usually a bullish month
for gold and silver shares, but if DISSA declines in
January that would be a serious negative factor for
silver-mining shares for all of 2014. As always, note
that there are no stock-market guarantees, only the
percentages used in our “educated guesses.”
26106 Tallwood Dr., N Olmsted, OH 44070.
Monthly, 1 year, $279. www.harloffcapital.com.
Gold prices to increase 20% in 2014
Dr. Gary Harloff: “We are bullish on the S&P 500
and Nasdaq indexes. We are short bonds at this time.
We have a new buy on gold. Now that the ecomony
is growing and workers get wage increases, inflation will rise and so will go. We expect gold prices to
increase by 20% in 2014.
In our portfolios we like Internet, semiconductors,
wireless, Japan and technology.”
The Peter Dag PORTFOLIO STRATEGY & MANAGEMENT, 65 Lakefront Dr., Akron, OH 44319.
1 year, 24 issues, $389. www.peterdag.com.
Commodities not yet
confirming improving economy
George Dagnino: “Our long-term outlook (next 12
months), based on our indicators, is bullish.
Our short-term indicators are bullish. Longerterm indicators, however, are saying the market is
We closely follow commodities because they are
sensitive to demand. They are excellent indicators
to confirm the direction of the economy.
While it is true the economy is gaining traction,
commodities are not yet confirming this development.
Lumber, meanwhile, is at a resistance level. Its recent
action suggests the housing market is not as robust
as realtors would like.”
MONEYLETTER.com, 479 Washington St., P.O.
Box 6020, Holliston, MA 01746. Monthly, 1 year,
Two areas to watch
Oil and China
Brian Kelly and Walter Frank: “While the consumer, the Fed, and political wrangling are the
most commonly mentioned factors in the fortunes of
domestic equities, there are two underlying developments which will also have a hand in future returns.
Oil Prices
The average U.S. household consumes about 1,200
gallons of gasoline per year. If gas prices hold at 20-30
cents below recent years, that translates to a $300
or more savings per year for the average American
family. That money acts just like a tax cut, and most
of it will go right back into the economy.
How likely are sustainable low prices? There
are two things currently at work which we believe will hold prices in check for the foreseeable
future. First, U.S. oil production has increased by
approximately 40 percent over the last four years,
which means an additional 2.5 million barrels per
day. With the acceleration of “fracking” in areas
like North Dakota (where production has gone
from 10,000 barrels per day in 2003 to almost one
million now), American could essentially be selfsufficient by 2017.
In addition to increased domestic production,
political turmoil in the Middle East has subsided for
now. If Iran gets back to its full exporting capabilities – which have been severely hampered by Western
sanctions – that would add another million or so barrels per day. This will take a while to develop, but it
is a distinct possibility for the first half of 2014.
Under President Xi Jinping, China is on the verge
of an economic shift. Coming out of the Third Plenum,
a twice-a-decade economic policy meeting, China will
be focusing more on generating activity from its own
1.3 billion consumers and less on producing exports
for rich overseas customers. To that end, the government seems committed to changing Chinese families
from fearful savers to active consumers.
A switch in economic focus in China would address
several economic imbalances there. China now has
excess manufacturing capacity; it subsidizes banks
and penalizes savers; and their currency is tightly
controlled to support exports. By encouraging domestic consumption and opening its economy even
more to market forces, these imbalances should be
reduced significantly.
This movement toward a consumer society in
China appears to be an extraordinary opportunity
for U.S. companies. An awakened Chinese consumer
could be the biggest source of growth the world will
see in the 21st century. But it will take a change in
American thinking after years of looking at China as
simply a source of cheap goods.”
Editors Note: Brian Kelly contributed to this article. Brian
has been the publisher of Moneyletter for 15 years, and associated with the newsletter since 1984. Walter Frank is the Chief
Investment Officer.
Year-End Bounce
Continued from page 6
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FirstEnergy’s (FE: $32.53) electricity distribution
operations span six states from Ohio to New York.
The company has had a tough 2013, including poor
operating results due to low natural-gas prices, and
a nuclear plant shutdown. A sharp drop in November
took the shares to a new ten-year low. This sets the
stage for a further selloff in December and a possible
January rebound.
Intuitive Surgical (ISRG: $372.81) pioneered the
market for robotic surgery systems. After nearly a
decade of strong performance, the stock has stumbled
in 2013. Concerns about possible marketing irregularities and an FDA safety examination have pushed
the stock down 36% from its high in February. Should
the safety concerns prove unfounded, the stock could
have long-term rebound potential well beyond a yearend bounce.
J.C. Penney’s (JCP: $10.11) attempted turnaround
has been played out in financial headlines for much
of the year. Now new management is out and old
management is back in. It remains to be seen if old
management can really right the ship, but a few
positive headlines would boost the stock’s already
attractive short-term rebound potential.
Newmont Mining (NEM: $23.38) is one of
the world’s largest gold miners. The price of gold
has been lackluster this year, but the company
has had other problems as well. A new CEO was
brought in to bolster the balance sheet and stabilize
operations. The fact the Newmont’s stock has
underperformed many of its peers over the last
half of the year makes it especially vulnerable to
year-end selling.
Peabody Energy (BTU: $18.44) has suffered along
with most of the coal mining sector as low natural
gas prices and environmental concerns have driven
investors out of the stocks. Nonetheless, coal remains
a dominant domestic fuel source, and Peabody is well
positioned to capitalize on any rebound in coal prices.
In the meantime, the stock looks like a good candidate
for a year-end bounce.
Teradata (TDC: $45.35) is a world leader in analytic data platforms and services. A steady rise in the
stock price since the lows of early 2009 began to falter
in late 2012 when investors grew concerned about the
weakening macro environment in Asia and increasing open-source competition. The stock-price decline
has continued for much of 2013, possibly setting the
stage for a good year-end bounce.”
Editor’s Note: George Putnam, III is editor of The Turnaround
Letter, 1212 Hancock St., Ste. LL-15, Quincy, MA 02169, 1 year, 12
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