Delta Air Lines & United Continental: Cleared for Takeoff?

Once upon a time, investors knew to sell a big rally in airline stocks. Is this time different for Delta Air Lines (DAL), United Continental Holdings (UAL) and their ilk?

AFP/Getty Images

Some analysts think it might be. JPMorgan said that only an unforeseen event can end the rally. Deutsche Bank, meanwhile, noted that airlines could be on their way to becoming an inevitable sector.

Now Stifel’s Joseph DeNardi is jumping on the bullish bandwagon. In a report titled “Cleared for Takeoff,” Denardi imitated coverage of the airline industry, including Delta Air Lines and United Continental Holdings, and with a title like that you know he’s feeling good about where the airline stocks are heading. He writes:

While we suspect some investors may be cautious following the strong performance of airline stocks over the past 12–24 months, we believe there is significant runway remaining. It is important to note that despite the major consolidations that have been announced over the past five years, only one merger – Delta-Northwest – has been fully implemented, while remaining combinations – Southwest (LUV)-AirTran, United-Continental, and U.S. Airways-American Airlines (AAL) – are in various stages of achieving synergies. We expect the primary benefits of consolidation to be: (1) a more favorable pricing environment, (2) reduced risk of irrational pricing, and (3) an improved ability to use ancillary revenues to affect passenger fares and further mitigate fuel cost risk.

DeNardi‘s favorites: Delta Air Lines and United Continental. He explains why:

Delta Air Lines (DAL, Buy, $31.76) is our top pick given: (1) [Delta's] successful completion of a major acquisition (Northwest), (2) a well-balanced cash deployment strategy (dividend, share repurchase, debt reduction), and (3) management's willingness to think outside the box (Trainer acquisition, fleet strategy, hub closures). United Continental Holdings (UAL, Buy, $45.60) has underperformed the group over the past 12 months; but we expect operational difficulties associated with the integration of Continental to subside. We see [United Continental] following a strategy similar to that of Delta with respect to: (1) capacity growth below GDP, (2) prioritizing high-cost debt reduction, (3) stable capex, and (4) developing a plan to return a significant portion of FCF to shareholders.

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DeNardi also rates Alaska Air (ALK), Spirit Airlines (SAVE) and Allegiant Travel (ALGT) as Buys and Southwest, JetBlue Airways (JBLU) and Hawaiian Holdings (HA) as holds.

Shares of Delta Air Lines have risen 2.2% to $33.16 at 12:22 p.m., while United Continental has gained 3.6% to $47.73, American Airlines has risen 1.1% to $37.04 and Southwest Airlines is up 1.3% at $22.45.

Superconductor Technologies Becomes a Superpowered Stock (SCON)

A week and a half ago, not to mention a couple of months ago, I suggested Superconductor Technologies, Inc. (NASDAQ:SCON) was a budding bullish play worthy of your attention. I get the suspicion that while more than a handful of traders read my take, the vast majority of the people who read that commentary weren't as impressed with (SCON) as I was. That's fine. Yet, being a diehard - and perhaps being a glutton for punishment - this is one of those trading ideas I can't let go of, mostly because Superconductor Technologies refuse to give up. Thing is, the stock's given me some new bullish fodder to use since the last look back on January 6th.

First things first. SCON is, as the company name would imply, makes high-power-transmission hardware. The company's never been profitable. In fact, Superconductor Technologies, Inc. has watched its top line deteriorate from a little more than $10 million in 2008 to a mere $3.6 million for 2012. Over the past four reported quarters that figure has slumped to $2.7 million, with Q3's $3.45 million loss being a considerably wider one than the downtrend would have suggested.

So what's investable about that? As veteran traders know all too well, (1) nothing lasts forever, and (2) the market loves a story or a concept more than it loves actual results. And the story here, is drawing a crowd again.

That's my artsy way of saying the undertow is bullish, which makes it much easier to do this....

The reason I went bullish on SCON back on January 6th was because, after weeks of hammering out higher lows, the stock finally jumped above its 200-day moving average line. That's an undeniable sign that the long-term momentum had turned bullish.  It's what's happened in the meantime that's leading me to reiterate that bullish call. And what's that? The fact that Superconductor Technologies peeled back from the highs hit the day of the break above the 200-day line (the perfect excuse and opportunity for the bears to knock it over), and rather than throw on the towel, the bulls came back fighting, using the 200-day moving average line as a springboard to rekindle the rally. This second wind effort pretty much cements the bullish undertow into place.

With all of that being said, I'd be kidding you if I said the weekly chart had nothing to do with my bullish call on Superconductor Technologies, Inc. The reversal that began in August of last year has been a surprisingly well-organized (read "involatile") effort. Such rallies tend to last, as there's not a lot of strong pushing and pulling that motivates people to lock in a quick gain or buy it up in spades after a dip. The even-keeled nature of the uptrend simply allows the stock to walk higher without too much attention. That could last for months, as long as the bulls pace themselves. And, when you take a step back and look at the weekly chart of SCON, you can see just how big of a deal the cross above the 200-day moving average line is.

Bottom line? Like the last big clue, I'm taking the renewed uptrend at face value, and once again calling Superconductor Technologies a buy.

For more trading ideas and insights like these, be sure to sign up for the free SmallCap Network newsletter. You'll get stock picks, market calls, and more, every day. Here's what you've missed recently.

Take Walmart Stock Out of Your Portfolio Basket

Popular Posts: 8 Keys (And 24 Stocks) To Build Wealth TodayIs Gold Safe to Buy? Here are 13 Gold Stocks Saying “No”3 Industrial Stocks Building on Strong Fundamentals Recent Posts: Take Walmart Stock Out of Your Portfolio Basket Get Ready for the Next Dividend Stock Rush Supermarket Stocks: Winners and Losers View All Posts

Welcome to the Stock of the Day. Everyone knows Wal-Mart (WMT) for its “Every Day Low Prices,” but shareholders didn’t bargain for a Q4 earnings report that would also send share prices lower at today’s open. But with warmer temperatures just around the corner and a new dividend hike, could this pullback be a buying opportunity?

Find out now.

Company Overview

Even though it started as a mom-and-pop operation in 1962, Wal-Mart  has since grown into the largest public corporation by revenue. Although it is best known for its Walmart brand name, Wal-Mart  is actually responsible for 55 brands of discount department stores across 27 countries.

Wal-Mart has the largest private workforce in the world; it employs over 2.2 million individuals across more than 10,800 locations worldwide.

Earnings Rundown

Wal-Mart reported mixed results for the fourth quarter. On the one hand, total sales climbed 1.5% year-over-year to $129.71 billion. However, analysts had forecast sales of $130.57 billion, so Wal-Mart posted a minor sales miss. A competitive retail environment and unfavorable currency exchange rates weighed on sales both home and abroad.

Meanwhile, net income fell 21% to $4.43 billion, or $1.36 per share. Adjusted earnings were $1.60 per share, which topped the consensus earnings estimate by a penny.

Future Outlook

The nail in the coffin was that Walmart management issued a weak Q1 earnings guidance of $1.10 to $1.20 EPS, below the $1.23 EPS consensus estimate. For fiscal 2015 the company forecasts earnings between $5.10 to $5.45 per share on 3% to 5% net sales growth. This is also below the Street view of $5.54 EPS on $493.06 billion in revenue.

Management tried to smooth over the weak forecast by hiking up the 2015 annual dividend by 2% to $1.92 per share. The dividend will be paid in four quarterly installments. But as I’ll discuss shortly, not even the stock’s 2.5% dividend could entice me to buy WMT shares, and here’s why.

Current Ratings

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Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Institutional buying pressure for Walmart stock has eroded lately—as shown by its D-rated Quantitative Grade. This is very important because it suggests that WMT has a poor risk-to-return ratio. And on the fundamentals side, there is ample room for improvement.

Currently, Wal-Mart receives C- and D-ratings for seven of the eight metrics I graded it on, including sales growth and earnings growth. The sole exception is its A-rated return on equity. So WMT receives a C for its Fundamental Grade.

Bottom Line: As of this posting I consider Walmart stock a D-rated Sell.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!

Japan's Suntory pays $16 billion for Beam

A selection of Beam's premium brands.

LONDON (CNNMoney) Suntory Holdings, a massive Japanese beverage company, is acquiring American spirits maker Beam for $16 billion, creating one of the largest premium spirits companies in the world.

The all-cash deal values Beam at $83.50 per share, a 25% premium over Friday's closing price.

Shares in Beam shot up in premarket trading Monday after the deal was announced.

Beam is known for its brand-name products, including Jim Beam bourbon, Maker's Mark whiskey and Courvoisier cognac.

The transaction is expected to close in the second quarter of the year, provided it receives all necessary shareholder and regulatory approvals.

Beam's CEO Matt Shattock said he was excited about the deal, noting that the combination of Suntory and Beam would create the third largest global spirits maker.

"The combined company will have unparalleled expertise and portfolio breadth in premium whiskey, which is driving the fastest growth in Western spirits," he said.

Suntory is a well-known name is Japanese households.

American movie fans might be more familiar with actor Bill Murray's endorsement of Suntory products in the 2003 film "Lost in Translation."

In July, Suntory Beverage & Food raised $4 billion through an initial public offering in Japan. The company, a division of Suntory Holdings, distributes Pepsi (PEP, Fortune 500) in Japan, along with Orangina.

10 Best Blue Chip Stocks To Watch Right Now

Private employers added 135,000 jobs in May -- fewer than expected -- and that is probably what's weighing on stocks this morning. The S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) are down 0.21% and 0.18%, respectively, as of 10:05 a.m. EDT.

A cloudy shopping day
In a "race to the cloud," software upstart salesforce.com (NYSE: CRM  ) and Dow component IBM (NYSE: IBM  ) are snapping up two providers of software as a service, or SaaS, in deals with a combined value of $4.5 billion.

In truth, cloud computing -- which enables businesses to use hosted software via the Web without having to install it in-house -- is part of Salesforce's DNA, so the acquisition of ExactTarget, which bills itself as "the global marketing SaaS leader," is no surprise.

For IBM, on the other hand, buying SoftLayer -- a provider of platform and infrastructure for cloud-computing applications -- is part of a conscious bet on the cloud as IBM adapts to the changing marketplace of business IT. The technology blue chip says it aims to derive $7 billion in annual revenue from cloud computing in 2015 (for comparison, IBM's 2012 revenue was $102 billion).

10 Best Blue Chip Stocks To Watch Right Now: McDonald's Corporation(MCD)

McDonald?s Corporation, together with its subsidiaries, operates as a worldwide foodservice retailer. It franchises and operates McDonald?s restaurants that offer various food items, soft drinks, coffee, and other beverages. As of December 31, 2009, the company operated 32,478 restaurants in 117 countries, of which 26,216 were operated by franchisees; and 6,262 were operated by the company. McDonald?s Corporation was founded in 1948 and is based in Oak Brook, Illinois.

Advisors' Opinion:

• [By Demitrios Kalogeropoulos]

  With casual-dining rivals such as McDonald's (NYSE: MCD  ) and Dunkin' Brands (NASDAQ: DNKN  ) pushing deeper into its coffee space, Starbucks (NASDAQ: SBUX  ) is set to push back. The company will be rolling out an expanded food menu soon. Fool contributor Demitrios Kalogeropoulos discusses why this makes sense for Starbucks, and what kind of boost it could give to the company's sales.

• [By Matt Thalman]

  McDonald's (NYSE: MCD  ) lost 2.16% today after an analyst raised concerns about future headwinds the company will have to overcome and lower the earnings-per-share estimates. An analyst at UBS believes that weak sales in Europe combined with the impact of the currency exchange rates will lower McDonald's earnings in the coming months. Previously, UBS had a higher earnings-per-share estimate than most of the other firms that follow the company, but due to these issues, it has lowered EPS estimates down to the consensus level. The firm, though, still has a buy rating on the stock with a $110 price target. �

• [By Ben Levisohn]

  Darden’s shares dropped 0.6% to $54.01 today, even as McDonald’s (MCD) gained 0.3% to $96.54, Yum! Brands (YUM) rose 0.2% to $74.10 and Chipotle Mexican Grill (CMG) advanced 0.4% to $533.11.

• [By Demitrios Kalogeropoulos]

  If you want to take your investing a step further into individual stocks, start by looking at large, successful companies with understandable business models. For example, McDonald's (NYSE: MCD  ) dominates the fast-food industry, serving 69 million people every day. Mickey D's has had a tough few quarters�as rising food costs pinched profits, and consumers have become even more value-minded. But the company still expects to grow sales faster than the industry this year by improving its menu, and by spending $3.2 billion adding locations and renovating existing restaurants.

10 Best Blue Chip Stocks To Watch Right Now: Colgate-Palmolive Company(CL)

Colgate-Palmolive Company, together with its subsidiaries, manufactures and markets consumer products worldwide. It offers oral care products, including toothpaste, toothbrushes, and mouth rinses, as well as dental floss and pharmaceutical products for dentists and other oral health professionals; personal care products, such as liquid hand soap, shower gels, bar soaps, deodorants, antiperspirants, shampoos, and conditioners; and home care products comprising laundry and dishwashing detergents, fabric conditioners, household cleaners, bleaches, dishwashing liquids, and oil soaps. The company offers its oral, personal, and home care products under the Colgate Total, Colgate Max Fresh, Colgate 360 Advisors' Opinion:

• [By Demitrios Kalogeropoulos]

  Colgate-Palmolive (NYSE: CL  )
  Colgate's shares are trading well below the $62 high they hit just last month. The consumer goods company is heavily levered to international sales, with more than 80% of its business coming from outside the U.S. and more than half coming from emerging markets.

• [By James Well]

  Analysts��Consensus Position on Pfizer
  
  Thirteen analysts including those at TheStreet, Thomson Reuters/Verus, Goldman Sachs, J.P. Morgan, Barclays Capital, Morgan Stanley and Argus Research are optimistic about the performance of Pfizer going forward and, hence, reiterated a consensus buy recommendation at an average target price of $31.78 per share. Last Wednesday, analysts at Goldman Sachs removed Pfizer from Goldman�� conviction buy list (CL) where Pfizer has been since Aug. 9, 2011, and placed it on the buy list but raised its price target from $34 to $35 per share. Jami Rubin, an analyst with Goldman Sachs, claimed that Pfizer has gone up by 82.5% since being added to the CL as against 53.9% for the S&P 500 during the period and, therefore, there was the need to replace Pfizer with AbbVie at a price target of $60 because they claimed AbbVie has greater upside at this time.

Best Dividend Companies To Watch In Right Now: International Business Machines Corporation(IBM)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. Its Global Technology Services segment provides IT infrastructure and business process services, including strategic outsourcing, process, integrated technology, and maintenance services, as well as technology-based support services. The company?s Global Business Services segment offers consulting and systems integration, and application management services. Its Software segment offers middleware and operating systems software, such as WebSphere software to integrate and manage business processes; information management software for database and enterprise content management, information integration, data warehousing, business analytics and intelligence, performance management, and predictive analytics; Tivoli software for identity management, data security, storage management, and datacenter automation; Lotus software for collaboration, messaging, and so cial networking; rational software to support software development for IT and embedded systems; business intelligence software, which provides querying and forecasting tools; SPSS predictive analytics software to predict outcomes and act on that insight; and operating systems software. Its Systems and Technology segment provides computing and storage solutions, including servers, disk and tape storage systems and software, point-of-sale retail systems, and microelectronics. The company?s Global Financing segment provides lease and loan financing to end users and internal clients; commercial financing to dealers and remarketers of IT products; and remanufacturing and remarketing services. It serves financial services, public, industrial, distribution, communications, and general business sectors. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. IBM was founded in 1910 and is based in Armonk, New York.

Advisors' Opinion:

• [By Dan Caplinger]

  Finally, IBM (NYSE: IBM  ) picked up 1% in advance of its earnings report on Wednesday. After disappointing investors last quarter, expectations for IBM's earnings growth are fairly positive, although revenue is projected to decline from the year-ago quarter. With last week's downgrade of the stock coming on concerns about IBM's ability to boost sales in emerging markets, anything short of terrible news could send shares higher going forward.

10 Best Blue Chip Stocks To Watch Right Now: Chevron Corporation(CVX)

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. The Upstream segment involves in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids project. The Downstream segment engages in the refining of crude oil into petroleum products; marketing of crude oil and refined products primarily under the Chevron, Texaco, and Caltex brand names; transportation of crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacture and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It a lso produces and markets coal and molybdenum; and holds interests in 13 power assets with a total operating capacity of approximately 3,100 megawatts, as well as involves in cash management and debt financing activities, insurance operations, real estate activities, energy services, and alternative fuels and technology business. Chevron Corporation has a joint venture agreement with China National Petroleum Corporation. The company was formerly known as ChevronTexaco Corp. and changed its name to Chevron Corporation in May 2005. Chevron Corporation was founded in 1879 and is based in San Ramon, California.

Advisors' Opinion:

• [By Daniel Jennings]

  If approved by Mexico's state legislatures, the law will give oil and gas companies such as Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), Apache Corp (NYSE: APA), BHP Billiton (NYSE: BHP) and ConocoPhillips (NYSE: COP) access to the largest unexplored oil fields south of the Arctic Circle.

10 Best Blue Chip Stocks To Watch Right Now: Apple Inc.(AAPL)

Apple Inc., together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells third-party Mac, iPhone, iPad, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and other accessories and peripherals through its online and retail stores; and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative markets. As of September 25, 2010, it had 317 retail stores, including 233 stores in the United States and 84 stores internationally. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.

Advisors' Opinion:

• [By Doug Ehrman]

  The only company to successfully compete with Apple's (NASDAQ: AAPL  ) iPhone and become the product to beat in the smartphone arena has been Samsung. The iPhone may be beautiful, sleek, and functional, but one thing it is definitely not is durable. We've all known someone -- if you've been lucky enough not to have it happen to you -- who's had a shattered screen or a phone damaged by water. Samsung's Galaxy S4 Active �looks to address the durability issue and may have completely altered the way phones are made.

• [By Evan Niu, CFA]

  The tablet market has quickly bifurcated into two distinct market segments. Apple (NASDAQ: AAPL  ) kicked off the tablet festivities in 2010 with the iPad, starting things off with a full-sized 9.7-inch tablet. A year later, Amazon.com (NASDAQ: AMZN  ) made waves with its Kindle Fire that would spark considerable interest in the small-sized segment with its 7-inch display.

• [By WALLSTCHEATSHEET.COM]

  Apple strives to provide innovative products and services that consumers and companies love to own. The company has bought Israel-based PrimeSense Ltd a move that signals gesture-controlled technologies in new devices from the maker of iPhones and iPads. The stock hasn’t made significant progress in the last several years however, it’s currently surging higher. Over the last four quarters, earnings have been decreasing while revenues have been rising. Relative to its peers and sector, Apple has been a weak year-to-date performer. WAIT AND SEE what Apple does in the coming weeks.

• [By Rich Smith]

  This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature a pair of cuts to price targets at Qualcomm (NASDAQ: QCOM  ) and Apple (NASDAQ: AAPL  ) . But the news isn't all bad, so before we address those two, let's start on a positive note.

10 Best Blue Chip Stocks To Watch Right Now: Visa Inc.(V)

Visa Inc., a payments technology company, engages in the operation of retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. The company owns and operates VisaNet, a global processing platform that provides transaction processing services. It also offers a range of payments platforms, which enable credit, charge, deferred debit, debit, and prepaid payments, as well as cash access for consumers, businesses, and government entities. The company provides its payment platforms under the Visa, Visa Electron, PLUS, and Interlink brand names. In addition, it offers value-added services, including risk management, issuer processing, loyalty, dispute management, value-added information, and CyberSource-branded services. The company is headquartered in San Francisco, California.

Advisors' Opinion:

• [By Amanda Alix]

  Credit card use is up, and that's great news for industry heavies Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) , both of which have been on a tear over the past few month. To make things even sweeter, delinquencies have dropped, too, and now stand at a level not seen since 1990.

• [By Anora Mahmudova]

  American Express Co. (AXP) �shares gained 3.6% after the credit card company said its fourth-quarter earnings more than doubled. Shares in rival Visa Inc. (V) � rose 4.7%

10 Best Blue Chip Stocks To Watch Right Now: Philip Morris International Inc(PM)

Philip Morris International Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. Its international product brand line comprises Marlboro, Merit, Parliament, Virginia Slims, L&M, Chesterfield, Bond Street, Lark, Muratti, Next, Philip Morris, and Red & White. The company also offers its products under the A Mild, Dji Sam Soe, and A Hijau in Indonesia; Diana in Italy; Optima and Apollo-Soyuz in the Russian Federation; Morven Gold in Pakistan; Boston in Colombia; Belmont, Canadian Classics, and Number 7 in Canada; Best and Classic in Serbia; f6 in Germany; Delicados in Mexico; Assos in Greece; and Petra in the Czech Republic and Slovakia. It operates primarily in the European Union, Eastern Europe, the Middle East, Africa, Asia, Canada, and Latin America. The company is based in New York, New York.

Advisors' Opinion:

• [By Holly LaFon]

  His top four holdings are Philip Morris International (PM), Nestle SA Reg (NSRGY), Berkshire Hathaway (BRK.A), CIE Financiere Rich (CFRHF).

  Philip Morris International (PM)

• [By Laura Brodbeck]

  Thursday

  Earnings Expected From: UnitedHealth Group Incorporated (NYSE: UNH), Verizon Communications (NYSE: VZ), PrivateBancorp, Inc. (NASDAQ: PVTB), PPG Industries, Inc. (NYSE: PPG), Philip Morris International Inc (NYSE: PM), Nokia Corporation (NYSE: NOK), Peabody Energy Corporation (NYSE: BTU), Intuitive Surgical, Inc. (NASDAQ: ISRG), Chipotle Mexican Grill (NYSE: CMG) Economic Releases Expected: Chinese GDP, Chinese industrial production, Chinese retail sales, US industrial production, US housing starts, US building permits

  Friday

• [By Albert Alfonso]

  Altria's anticipated EPS growth rate is important to determine the level of its next dividend increase. Altria aims to increase its dividend in line with EPS growth. Since its 2008 spin-off of Philip Morris International (PM), Altria's dividend increases have averaged a CAGR of 8.7%. Also during this timeframe, Altria has averaged a dividend payout ratio of 80%. Altria has a long history of dividend increases, and has increased its dividend 46 times in the past 44 years.

• [By Dividend Growth Investor]

  Altria Group (MO) was able to spin-off its Kraft Foods division in 2007. Shareholders in Altria received shares in Kraft for each share of Altria stock they held. In 2008, this was followed by the spin-off of Phillip Morris International (PM), which represented the international tobacco business of Altria Group.

Finding Safe Dividend Stocks

Hunting for yield but fearful of getting burned? Here are four key questions that will help you "stress-test" a prospective dividend payer.

1) What is the stock's current yield? To get that figure, divide the current annualized dividend by the stock price. Typically, the higher the yield, the greater the likelihood that a company won't raise its dividend much or, worse, could cut or eliminate it. You can compare a stock's yield with that of the overall market; the average yield of the companies in Standard & Poor's 500-stock index is 2%. But a better approach is to compare it with yields of other stocks in the same industry or sector.

See Also: Great Dividend Stocks for 2014

When should you worry that the current yield is signaling high risk of a dividend cut? "If a stock's yield is three percentage points or more above its peer group, that's a warning sign," said Charles Carlson, editor of the DRIP Investor, a newsletter geared toward dividend investors. "It's the old rule: 'If it seems too good to be true, it probably is,' " he says. So be wary of chasing the highest yields.

2) What is the stock's dividend payout ratio? This ratio is calculated by dividing the annualized dividend rate by a company's annual earnings per share. In general, the lower the payout ratio, the more room a company has to raise its dividend.

What's a normal payout ratio? That depends on the industry. Slow-growing electric utilities, for example, typically pay out the majority of earnings as dividends. Companies in fast-growing industries have lower payout ratios — say, 25% — because they are reinvesting heavily in the business. You can easily see a stock's payout ratio and its history on the free portion of Morningstar's Web site. Punch in the stock's symbol, then click on "key ratios."

Also look at "free cash flow" per share. Free cash flow measures the cash a company generates beyond what it needs to maintain its basic business. So declining or stagnant free cash flow may limit a company's ability to boost dividends.

3) What is the recent history of dividend changes? Plenty of companies pay lip service to being generous with dividends. But actions speak louder than words. Look at the past few years of a company's dividend payments (most firms list this on their investor-relations Web page). Has the pace of increase been rising or slowing?

Carlson advises long-term investors to choose accelerating growth over high current yield, for the inflation protection a rising dividend provides. "I'd take the 2% yielder versus the 3% yielder if you're going to get more growth in the dividend with the 2% yielder," he says.

4) Are new threats emerging that could dim a company's profit and dividend growth? The 2008 financial crash was a "black swan" – a development that few people foresaw. But many threats to companies' fortunes develop more gradually.

A major debate today is over the minimum wage and whether it should be raised significantly. That could help narrow the income-inequality gap in America — but it also could slam companies such as Wal-Mart Stores (WMT), McDonald's (MCD) and other dividend-stock favorites. As a result, profits at many consumer-oriented companies could come under pressure, says Kelley Wright, managing editor of the newsletter Investment Quality Trends, which evaluates dividend stocks, and that could force them to slow the pace of dividend increases and perhaps even cut their payouts down the road.

With any stock, Wright says, watch for three warning signs of dividend trouble: marked deceleration in a company's dividend increases; a rise in the payout ratio because the dividend keeps rising while earnings are slowing or falling; or, simply, a stagnating stock price.

4 Specialty Retail Stocks to Sell Now

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The ratings of four specialty retail stocks are down this week, according to the Portfolio Grader database. Each of these rates a “D” (“sell”) or “F” overall (“strong sell”).

This week, Five Below, Inc. () falls to a D (“sell”), worse than last week’s grade of C (“hold”). Five Below operates as a specialty value retailer in the United States, which offers various products priced at $5 and below. In Portfolio Grader’s specific subcategory of Earnings Momentum, FIVE also gets an F. The stock price has dropped 15.5% over the past month, worse than the 1.3% decrease the Nasdaq has seen over the same period of time. As of Feb. 10, 2014, 16.2% of outstanding Five Below, Inc. shares were held short. The stock currently has a trailing PE Ratio of 76.80. .

West Marine, Inc. () is having a tough week. The company’s rating falls from a C to a D. West Marine operates as a boating supply retailer in the United States. The stock gets F’s in Earnings Momentum, Earnings Revisions and Earnings Surprise. The trailing PE Ratio for the stock is 38.90. .

hhgregg, Inc. () gets weaker ratings this week as last week’s C drops to a D. Hhgregg retails video products, brand name appliances, audio products and accessories. The stock receives F’s in Earnings Growth, Earnings Revisions and Earnings Surprise. Margin Growth and Sales Growth also get F’s. Share prices fell 28.5% over the past month. As of Feb. 10, 2014, 21.4% of outstanding hhgregg, Inc. shares were held short. .

This week, Systemax’s () rating worsens to a D from the company’s C rating a week ago. Systemax is a direct marketer of brand-name and private-label products in the technology, industrial and software solutions markets. The stock gets F’s in Earnings Growth, Earnings Revisions and Cash Flow. Margin Growth and Sales Growth also get F’s. .

Louis Navellier’s proprietary Portfolio Grader stock ranking system assesses roughly 5,000 companies every week based on a number of fundamental and quantitative measures. Stocks are given a letter grade based on their results — with A being “strong buy,” and F being “strong sell.” Explore the tool here.

Content, good pricing drove 2013 media deals

Nothing gets between Americans and pro football.

It's a lesson learned the hard way by Time Warner Cable as it blinked in its negotiations over licensing fees with CBS on the eve of the NFL regular season debut in September.

If the costly fight — TWC lost 306,000 customers during the third quarter — proved anything this year, it was that owners of compelling content can often steer their destinies even as emerging technologies upend distribution and sales tactics.

Despite tirades about bountiful junk on the Internet and cable and the decline of the legacy media business, investors' money flowed to the producers of TV shows and websites. Even magazines and newspapers got some good news in 2013.

U.S. media and entertainment companies completed $75.8 billion worth of acquisitions and mergers this year, a 47% increase on 2012, according to Thomson Reuters. The number of deals was up, as well — 766, vs. 596 a year ago.

Of course, the relatively stable economy helped spur dealmakers' appetites, and the cheap borrowing environment — not to mention some bargain-basement prices — made more capital available to conduct deals. But various signs indicate that the bet on media is driven by more than broader economic forces.

Some investors found valuation of the target companies ideal as the recovery of the advertising market from the 2008 financial crisis teeters along. Total U.S. advertising spending rose for the fourth-consecutive year in 2013, up 3.8% to $171.3 billion, according to data from eMarketer. A sharp spike in mobile advertising and a steady recovery of TV ads more than offset the continual — and likely, irrevocable — fall in print advertising.

Other deals were the manifestations of companies seeking consolidation — aligning resources with competitors — to fortify themselves against foes and forces that threaten future profits. "Consolidation is happening in every legacy industry," wrote media analyst Ken Doctor, on his website, Newsonomics.co! m. "2013 was the biggest year of TV station ownership consolidation."

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Even with the talk of appointment TV watching becoming a bit passé, TV producers and broadcasters saw an uptick in ad spending in 2013. But for an industry accustomed to double-digit growth rates, the 2.8% increase in TV ad spending in 2013 — to $66.35 billion — was hardly encouraging. That was a noticeable slowdown from 2012, when TV ad spending grew 6.4%, eMarketer says.

"It's increasing, but at a very slow rate," says Clark Fredricksen, eMarketer's vice president of communications. "Ad-supported TV viewing options are becoming potentially more fragmented and limited."

One area seemingly immune from emerging technology is live sports. Media companies lucky enough to have skin in that game posted encouraging results and pursued expansion efforts this year.

The cable division at Disney, which includes ESPN, posted $1.3 billion in operating income in its most recent quarter, more than half the company total. To compete with the behemoth of Bristol, Conn., Fox launched its own sports channel in 2013, Fox Sports 1.

So it was only fitting that sports would play a significant role in ending the TV industry's fight of the year. With the NFL regular season set to start in three days, on Sept. 2, CBS reached a new broadcasting rights agreement with Time Warner Cable, ending a month-long blackout of the network's shows in several key markets. The two companies had been negotiating for a new retransmission contract, which spells out the amount of money TWC pays CBS for the rights to carry CBS-owned TV stations.

Analysts had predicted that the companies would strike an 11th-hour agreement to avert a blackout spilling into the the NFL regular season and losing lucrative advertising revenue. CBS, citing the popularity of its TV shows, sought higher fees and the right to sell its content to other digital distributors; the network declared victory.

Broadcasters increasingly rely on r! etransmis! sion fees to make up for sluggish ad revenue. That helped spur deals in other ways this year. Major broadcasters — including Gannett (parent of USA TODAY), Tribune Co., Sinclair and Nexstar Broadcasting — bought more stations, partly in hopes of gaining greater leverage against cable and satellite TV companies at the negotiating table.

Retransmission fees collected by TV station owners rose 38.5% to $3.3 billion this year, according to research firm SNL Kagan. That total is expected to more than double to $7.6 billion by 2019.

Pay-TV companies are also eyeing consolidation, as more customers decide to go without premium TV and rely on video streaming. The trend of "cord-cutting" grew unabated this year, with about 17% of consumers cutting or reducing pay-TV services in the third quarter, according to Digitalsmiths, a video search and recommendation company. That's up from 14% and 13.4% in the second and first quarter, respectively.

Comcast, the largest cable company in the U.S., has had talks with Time Warner Cable about the possibility of merging. Charter Communications is also pursuing a possible deal with TWC in pursuit of a larger portfolio of TV and Internet customers that would give it more clout with cable and TV networks.

PRINT PROBLEMS

The relatively stable economic outlook didn't spill over into the print ad market. Print publishers — while heartened that the rate of decline has eased — continue to be confounded by what seems like an irreversible slide. Newspaper ad spending fell 6.1% in 2013 to $17.8 billion, while magazine ads were relatively flat. That's a slight improvement for newspapers from an 8.4% decline in 2012.

Earlier this year, Newsonomics' Doctor predicted that 2013 would prove to be the year of the great digital "crossover" for legacy media companies — a sober embrace of online distribution coupled with a stepped-up effort to find new revenue sources. The transformation was rough for many, as the year proved that digital ads �! � at leas! t, without innovation — have a limited upside.

Overall digital ad spending grew 15.7% to $42.6 billion, but that was largely due to mobile ads that more than doubled this year, eMarketer says.

Ad spending on sites delivered via desktop and laptop computers remained flat at about $33 billion this year. Automated ad sales through online ad exchanges helped drive down ad prices. Even as large corporate customers are more comfortable advertising online, they may be increasingly steering clear of click-to-buy banner ads.

Instead, publishers have prominently turned to "sponsored content" and "native ads" — ads tailored to advertisers' wishes and displayed more seamlessly with other content — to replace the slide in more traditional online ads.

At the same time, more evidence surfaced to show that publishers are looking to lessen their dependence on advertising. More publishers are erecting paywalls, charging readers to access their content online. More than 40% of U.S. newspapers will have one in place by mid-2014, Doctor predicts. The New York Times Co., whose moves in the digital realm are carefully monitored, generated more circulation revenue — thanks largely to its metered digital paywall — than advertising sales for the first time in its history. In its most recent quarter, the number of digital subscribers rose 29% from a year ago to 727,000.

The occasional hints that readers and advertisers will pay for quality content — coupled with attractive pricing — may have driven several big names to buy newspapers this year. Amazon.com founder Jeff Bezos' $250 million acquisition of The Washington Post and a $70 million deal by Boston Red Sox owner John Henry to buy The Boston Globe are among the most prominent examples. And superstar financier Warren Buffett also added to his newspaper portfolio this year.

Can Facebook Keep Meeting Its High Expectations?

With shares of Facebook (NASDAQ:FB) trading around $55, is FB an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Facebook is engaged in building social products in order to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them with the people they care about. Developers can use the Facebook platform to build applications and websites that integrate with Facebook to reach its global network of users, building personalized and social products. Advertisers can engage with more than 900 million monthly active users on Facebook — or subsets of its users — based on information they have chosen to share.

Facebook plans to offer 70 million shares of its Class A stock in a sale that includes more than 41 million shares from Chair and CEO Mark Zuckerberg, who also will buy Class B shares that carry more voting weight. The secondary offering of stock comes as the social media network prepares to join the Standard & Poor’s 500 index. Its shares fell more than 4 percent in premarket trading Thursday. The Menlo Park, Calif., company said Thursday that the Class A shares will be offered mainly to index funds whose portfolios are based on stocks included in the index. The S&P 500 will add Facebook on Friday after markets close. The index is a list of companies that have a market capitalization over $4 billion and is meant to be a snapshot of the U.S. economy.

T = Technicals on the Stock Chart Are Strong

Facebook stock has been exploding to the upside in recent years. The stock is currently trading near all time highs and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Facebook is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

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

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Facebook options	42.47%	66%	63%

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

	Put IV Skew	Call IV Skew
January Options	Flat	Average
February Options	Flat	Average

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

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

E = Earnings Are Increasing Quarter-Over-Quarter

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

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	108.33%	58.33%	0.00%	-89.46%
Revenue Growth (Y-O-Y)	59.75%	53.13%	37.81%	40.14%
Earnings Reaction	5 Best Beverage Stocks To Own Right Now 2.44%	29.61%	5.61%	-0.83%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Facebook stock done relative to its peers, Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), LinkedIn (NASDAQ:LNKD), and sector?

	Facebook	Microsoft	Google	LinkedIn	Sector
Year-to-Date Return	105.30%	35.61%	54.26%	90.86%	61.24%

Facebook has been a relative performance leader, year-to-date.

Conclusion

Facebook looks to provide a valuable social networking experience to its users, developers, and advertisers. The company plans to offer 70 million shares of its Class A stock in a sale that includes more than 41 million shares from Chair and CEO Mark Zuckerberg, who also will buy Class B shares that carry more voting weight. The stock has been exploding to the upside and is now trading near all time high prices. Over the last four quarters, earnings and revenues have been increasing, which has left investors excited about the company. Relative to its peers and sector, Facebook has been a year-to-date performance leader. Look for Facebook to continue to OUTPERFORM.

LPL Welcomes Back $200M Team; Ray James Adds $220M Wells Group

LPL Financial (LPLA) said Monday that NetVEST Financial, a team with about $200 million in client assets that left to affiliate with Ameriprise Financial (AMP) about a year ago, has rejoined the fold. Also, Raymond James said recently that it recruited a $220 million team from Wells Fargo.

Based in Scottsdale, Ariz., NetVEST is led by John Cartolano, who has 25 years in the business. The firm works with mass affluent and high-net-worth clients, with an emphasis on the use of different trust structures to support multigenerational wealth planning goals.

“We are delighted to see John and his team back to LPL,” said Bill Morrissey, executive vice president of business development at LPL Financial, in an interview with ThinkAdvisor.

“They have been growing their practice by leaps and bounds and came to an inflection point in terms of their growth and scale,” Morrissey said. “They wanted the right framework, talked to a few broker-dealers and ultimately decided to return to LPL, because we offer them the best platform to use to grow their business.”

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The LPL executive says that it does its best to stay in touch with financial advisors that have left to affiliate with other broker-dealers. “It’s a small industry. We want to attract valuable advisors, and the best clients value what we do,” he said.

“I am delighted to affiliate with LPL Financial, a firm that has supported me for many years in the past, and which I am privileged to partner with once more,” said NetVEST President & CEO Cartolano, in a statement. “Central to this decision is my recognition of LPL Financial’s commitment to everything that is truly crucial for our sustained success within the financial advisory industry.”

While LPL doesn’t offer advisors the “lowest prices” in the industry, it does give them “the highest value,” according to Morrissey. Given NetVEST’s fast-paced growth and comprehensive wealth-management approach, he adds, the team needed “robust technology to scale its business and draw really efficient and comprehensive client support” and other services.

Raymond James’ Newest Team

Raymond James (RJF) said Thursday that it had added a team of three ex-Wells Fargo (WFC) financial advisors: Doug Noble, Greg Bowden and Rod Dahl of Georgetown, Texas, which is near Austin. The advisors, who all have the CFP designation, manage a combined $220 million in client assets and have yearly sales and commissions of $1.3 million.

The team, Goodwater Wealth Management Group, is now part of Raymond James’ Advisor Select channel for advisors who want more independence but also the stability of remaining employees of a broker-dealer.

“Doug, Greg and Rod are a wonderful addition to the Advisor Select platform,” said Chris Davitt, vice president and director of Advisor Select, in a statement. “Their desire to establish their own freestanding office and boutique practice while at the same time remaining W-2 employees of Raymond James made them a perfect fit for Advisor Select.

“We were looking for a firm with the same culture and values that we believed in and had experienced in our early days at A.G. Edwards,” said Noble, in a press release. (Noble, a West Point graduate, began his career in 2005 at A.G. Edwards.)

“We chose the Advisor Select business model,” added Noble, “because we wanted to control our own destiny in terms of how we run and grow our practice and the investments we make in our business. But we didn’t want to take on all the back-office headaches that come with total independence. The Raymond James independent employee model offered through Advisor Select was the perfect answer to our needs.” 

Bowden became an advisor with A.G. Edwards in 2006, while Dahl started his financial planning career with A.G. Edwards in 2000.

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Check out Morgan, Merrill, UBS Tweak Pay Packages for 2014 on ThinkAdvisor.

Wall Street frets as Volcker Rule nears vote

Five years after the financial crisis, regulators will vote Tuesday on the "Volcker Rule,'' one of the most contested elements of the sweeping, post-crisis Wall Street reform act known as Dodd-Frank.

The rule is expected to bar most trading by banks for their own accounts and profit — so-called "proprietary trading'' — in a bid to protect the financial system and federal deposit insurance from future 2008-like meltdowns. Banks would still be able to do such trading for clients.

The Federal Reserve, Commodity Futures Trading Commission, the Securities and Exchange Commission and other agencies are scheduled to consider the new rule. It is named for former Fed chairman Paul Volcker, a longtime advocate of forcing banks to curtail trading in order to limit the volatility of financial markets.

The Volcker rule has been fought by business interests, who now believe they are likely to lose on many key details. Among them: a bar on buying and selling investments for the bank's own account even when they are used to hedge positions the institutions are allowed to hold, said Anthony Cimino, vice president for government affairs at the Financial Services Roundtable.

The rule is also expected to give banks the burden of proving that any securities they do own are in their portfolios for the few remaining permitted purposes, rather than making regulators prove that the banks intend to break the rules, he said.

Regulators' tough stance heralds a new era and new approach for financial markets, CLSA banking analyst Mike Mayo said.

"The big picture is that this ushers in an era of Big Brother banking,'' with regulators closely monitoring details of top banks' risk-taking, Mayo said. "Big Brother was asleep on the couch before the financial crisis.''

The Volcker Rule that federal regulators will vote on Tuesday, Dec. 10 is named for Paul Volcker. He is the former chairman of the US. Federal Reserve and former chairman of President Obama's Economic Recovery Advisory Board.(Photo: Chris McGrath Getty Images)

The new policy reflects Congress' decision that the banking system needed to be "de-risked, de-leveraged and to deliver more consistent financial results,'' he said. As part of the same overall effort, bank regulators are boosting capital requirements for banks internationally.

Banks have already curtailed most of their proprietary trading, Mayo said, understanding that new rules are coming. That may limit the financial impact from the rules, though so much remains unknown that the effect is still uncertain, he said.

"I've done this 60-80 hours a week for 25 years, and even I have trouble getting my head around where proprietary trading begins and ends,'' said Mayo.

The biggest arguments recently have been about how much trading should be allowed to hedge positions, especially since banks typically have more deposits on hand than they have loans outstanding, with the rest of their assets usually invested in the markets. They also typically own securities as part of legal activities such as executing client trades and making markets, he said.

Liberal-leaning groups like Better Markets have lobbied for the toughest version of the rule possible, arguing in a Nov. 21 letter to the agencies that allowing too much trading to let banks hedge risks will allow proprietary trading via loopholes. They pointed to JPMorgan Chase's $6 billion-plus loss in the "London Whale" derivatives trade as evidence that trading that banks say is simply a hedge can pose risks to the system. New rules would hurt access to credit far less than another crisis, they said.

``Wall Street and its lawyers are in the loophole creation and exploitation business,'' Better Markets' Dennis Kelleher said. ``For 100 years! , banks h! ave made the same complaints about every regulation. They said it during the Depression, and we grew the biggest middle class in the history of the world.''

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Conservative-learning groups like the U;.S. Chamber of Commerce have argued that the rule will force banks to cut back on raising capital for Main Street businesses, reducing investment and job growth. In a 2012 study commissioned by the Chamber. Washington University's finance professor Anjan Thakor argued that higher capital requirements can manage systemic risk without major limits on businesses banks can be in.

Top banks will spend millions of dollars complying with the rules, Cimino said.

``We expect to see outlays for both information technology and staff,'' he said. ``But it's going to be difficult [to say how much] until we see the final rule.''

The High Rewards of Sharing Risk

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When investors evaluate a pharmaceutical or biotech company, the first thing they usually check is its drug pipeline. The more compounds a company has in development, the more attractive it is because each compound represents a new revenue opportunity and there’s less risk if one fails to reach market.

But drug development can be an arduous process, taking as long as a decade and costing as much as $5 billion. That prompts many pharmaceutical companies, even giants like Pfizer (NYSE: PFE) and Bristol-Myers Squibb (NYSE: BMY), to out-license drug development to share both the cost and the risk that a new drug might fail. It also allows them to take advantage of the expertise that other companies might have in a particular field.

In 2011, Pfizer out-licensed the development of neratinib to Puma Biotechnology (NYSE: PBYI), giving the company exclusive global rights to the drug.

In early stage testing, neratinib had shown potential as a treatment for several concerns, including the particularly aggressive HER2 breast cancer variant and gastric cancer. Despite that early promise, cancer drug trials have become incredibly expensive as the Food and Drug Administration (FDA) has begun demanding deeper patient pools to verify safety and efficacy data. At the same time, the market is demanding greater differentiation between new cancer drugs and older ones to fetch higher prices.

While Pfizer obviously believed that it had more promising candidates, it didn’t want the compound to sit idly on the shelf given how much it had already invested.

In 2012, Puma raised more than $129 million in an initial public offering to fund itself through late-stage development of neratinib.

The company reported in December that top-line data from phase II trials ! already underway showed that that neratinib in combination with three other drugs was on track to achieve a high success rate in its later stage trials in patients with newly diagnosed stage 2 or higher HER2-positive cancers. The data also showed a high likelihood that the combination would yield better results than current treatment standards, a better performance than expected.

Late last year, Puma launched a multi-arm study of the drug in patients suffering from several types of cancer: urinary tract, colorectal, endometrial, ovarian, gastric/esophageal, and all other solid tumors.

The study follows seven patients in each of the cancer groups and they all have what is known as an activating HER2 mutation. If a provable response rate is shown, additional patients will be added to the study.
In the second quarter of last year, the company also launched a phase III study of neratinib in patients with HER2-positive metastatic breast cancer who didn’t respond to two or more prior treatments.

If the data from late-stage trials is as positive as that which is already in hand, neratinib has the potential to be a blockbuster. That’s because Roche’s (OYC: RHHBY) Herceptin, a current treatment of choice in HER2-positive breast cancers, faces a headwind with about 70 percent of patients showing an initial resistance to the drug. A significant number of patients also developed a secondary resistance after treatment, limiting the option for additional treatment if there is a recurrence.

While neratinib is showing great potential, it’s important to keep in mind that Puma Biotechnology is still a development stage company and is burning through its cash. At the end of 2012, the company had $137 million of cash on its balance sheet and by the third quarter of last year that total had fallen to $96 million.

The cash concern isn’t as significant in this case, though, thanks to the company’s founder, Alan Auerbach. He sold his previous drug develo! pment com! pany, Cougar Biotechnology, which developed the prostate cancer drug Zytiga to Johnson & Johnson (NYSE: JNJ) for $1 billion in 2009. Given his prior success, Auerback was able to launch Puma with the backing of several health care venture capital firms which will likely provide fall-back financing if the company ends up in a cash crunch.

If for some reason neratinib doesn’t continue to turn in solid data or the FDA requires additional trials, there is the risk that the company could run out of money within about two years. And it’s not unusual for new oncology drugs to show initial promise in mid-stage trials and then fizzle out down the road. And while the company has said that it aims to in-license additional oncology drugs, so far neratinib is its only drug in development.

Right now, assuming that neratinib continues to deliver positive trial results, the most likely endpoint is that Puma Biotechnology will be acquired. In fact, I wouldn’t be at all surprised if Pfizer were to step up and fold neratinib back into its lineup of oncology drugs. Otherwise, Puma would likely partner with another major pharmaceutical company to ultimately bring neratinib to market.

While there is always risk associated with development stage companies, Puma Biotechnology is a speculative buy up to 125 thanks to its promising new drug and experienced management.

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Fitch Outlook Spurs Israel Stocks to Record High

Israel's benchmark stock index rose for a third day as Fitch Ratings raised the country's credit outlook and after shares in the U.S. and Europe advanced.

The TA-25 Index (TA-25) climbed as much as 1.4 percent to a record 1,377.03 before trading at 1,376.23 at 2:38 p.m. in Tel Aviv. Teva Pharmaceutical Industries Ltd. advanced the most in a week tracking gains in its U.S.-traded shares and Osem Investments Ltd. rose for a third day. Egypt's benchmark EGX 30 Index ended a six-day losing streak after the constitution-writing committee voted in favor of more than half of the charter's articles.

Fitch, which affirmed Israel's A rating, raised the country's outlook to positive from stable on Nov. 29, citing the shrinking deficit as the country cuts debt and boosts tax income. The shekel strengthened against the dollar every day last week, bringing the gain for the year to 6 percent. U.S. stocks rose for an eighth week as data on employment and consumer sentiment boosted confidence in economic growth and European stocks posted their biggest weekly gain since October.

The TA-25 gains follow "positive sentiment in the global markets and the rating outlook increase from Fitch," Daniel Rapoport, head of equity and derivatives at Bank Leumi, said by phone.

Global markets, reduced geopolitical risk and low interest rates have helped push Israel's index to new highs. The measure has advanced 16 percent this year compared with a 3.5 percent decline for the MSCI Emerging Markets Index. The MSCI World Index has climbed 22 percent in the same period.

Exports

Israel's government last week canceled plans to increase income taxes next year due to excess tax receipts and lower-than-forecast spending. The budget deficit will be 3.5 percent this year compared with a planned 4.65 percent, Finance Minister Yair Lapidsaid. The central bank has cut the benchmark interest rate to 1 percent from 3.25 percent in 2011.

"The new government has turned around the fiscal position and is committed to a credible medium-term program for further deficit reduction," analysts including Paul Gamble wrote in the Fitch note. Also, "near-term risks of a military conflict with Iran have eased following the P5+1 deal" on the Persian Gulf nation's nuclear program, it said.

Exports account for about a third of Israel's gross domestic product, with Europe and the U.S. among the country's biggest trading partners. The yield on the nation's 4.25 percent benchmark notes maturing in March 2023 declined three basis points, or 0.03 of a percentage point, to 3.52 percent.

Egypt's Gain

Teva advanced 1.2 percent to 144.3 shekels, or the equivalent of $40.96, after the shares of the world's largest generic drug maker closed at $40.76 in the U.S. on Nov. 29. Osem Investments increased for a third day, rising 3.5 percent to a record. The company said last week Nestle SA, the world's largest foodmaker, paid a premium to raise its stake.

Egypt's benchmark EGX 30 rose 1.4 percent to 6,267.88 as Telecom Egypt advanced 2.6 percent. The measure lost 4.2 percent last week.

"We're up after a decent correction last week," Ashraf Akhnoukh, Cairo-based manager for Middle East and North Africa at Commercial International Brokerage Co., said by phone. "Voting on the first half of the constitution went very smoothly yesterday, so there's some positive sentiment surrounding that."

The vote is due to be completed today, the state-run Middle East News Agency reported. It would pave the way for a public referendum and parliamentary elections.

Oman's benchmark index closed 0.5 percent higher and Qatar's advanced 0.2 percent, while Saudi Arabia's Tadawul All Share Index slid 0.3 percent and Bahrain's gauge lost 0.2 percent. Markets in the United Arab Emirates are closed today and tomorrow for a holiday.

Bank Muscat SAOG gained 2.7 percent, the most since Aug. 19, as Oman's biggest lender said its insurers agreed to indemnify a $38.8 million loss related to a fraud using prepaid cards.