S&P downgrades anticipated, but still stir turmoil

FRANKFURT (MarketWatch) � The decision by ratings firm Standard & Poor�s to downgrade several euro-zone nations came as no surprise, but still leaves major unresolved issues for policy makers as they struggle to contain the region�s long-running debt crisis.

In the end, nine euro-zone countries saw their ratings cut on Friday, with France and Austria both losing their triple-A ratings. Germany, Europe�s biggest economy, saw its triple-A remain intact.

If that weren�t enough, fears of a messy default by Greece were also on the rise after talks between private creditors and the government over proposed voluntary writedowns on Greek government bonds appeared near collapse.

Click to Play Greece edges closer to a default

Greece appears to be close to default on its sovereign debt once again, eclipsing last Friday's news that France and other euro-zone members lost their triple-A credit ratings.

�At the start of this year, [we] took the view that things in the euro zone had to get worse before they got better. With the S&P downgrade of nine euro-zone countries and worries about the progress of Greek debt restructuring talks, things just did get worse,� wrote economists at HSBC.

European equity markets swung between small gains and losses Monday, while the euro mounted a modest rebound after posting 16-month lows Friday as news of the imminent downgrades leaked.

Politicians sought to control the damage, but the moves by S&P don�t mark the last word. Here�s a look at some of the outstanding issues.

EFSF

The European Financial Stability Facility, or EFSF, is the euro zone�s temporary rescue fund. It�s triple-A rating rests on guarantees from euro-zone countries. And with France, the region�s second-largest economy no longer rated triple-A, the EFSF is seen as likely to lose its triple-A as well unless euro-zone governments boost their contributions.

With the European Central Bank unwilling to go whole hog in snapping up troubled European government bonds, the EFSF is still seen as an important-but-undersized safety net for banks and troubled sovereigns.

This comes as efforts to boost the firepower of the fund have failed to gain traction, with Berlin and the ECB resisting calls to provide leverage through the central bank and China and other foreign investors balking at making large-scale investments in the fund.

Euro-zone countries have provided guarantees of 780 billion euros ($986 billion) to the EFSF, which gave it triple-A lending power of �440 billion.

With France and Austria losing their triple-A ratings, the fund�s triple-A funding power drops to �271 billion, said fixed-income strategists at Commerzbank.

While finance ministers from the 17 euro nations issued a statement saying they would explore the options for maintaining the EFSF�s triple-A rating, comments from German officials indicate Europe�s biggest financial power would prefer to settle for a double-A-plus rating.

�I was never of the opinion that the EFSF necessarily has to be triple-A,� Merkel said in a radio interview, according to Bloomberg. �Double-A-plus is also not a bad rating.�

The EFSF is set to be replaced by a permanent rescue fund, the European Stability Mechanism in July.

But in the meantime, investors could be put off owning euro-zone assets �if the financial safety net looks like it is threatened at this critical stage in the debt saga,� said Kathleen Brooks, research director at Forex.com.

Seagate: Constrained Disk Supply Could Mean a Highly Profitable 2010

Seagate Technology (Nasdaq:STX), the leading disk drive vendor, reported a good set of numbers for the Dec 09 quarter, its second fiscal quarter. Dec09 quarter revenues increased 33% YOY to $3.03B and operating profits came in at $578M for the quarter compared to a loss of $(2.4)B in Dec08.(Dec08 quarter included a goodwill impairment of $2.3B).


Source: Gridstone Research

In my earlier articles I talked about how Western Digital (WDC) has outshone Seagate over the recent quarters thanks to its lead in the notebook segment. (Read earlier articles here and here). Though I expect Western Digital to report an equally impressive set of numbers (reporting today- Jan 21st), the fact is that both WDC and STX are in an advantageous market position.

Consider the disk drive market in terms of size and market share: Total addressable market [TAM] size was ~160-165M units in Dec09 quarter and Seagate shipped ~50M units. Since WDC shipped more units than STX in Sep09 quarter, WDC can be expected to ship at least 50M units in Dec09 quarter. This gives the two firms a combined market share of at least 60%. What is more interesting is the following comments by STX management in the earnings call( Read full transcript): Management clearly believes that in Dec09 quarter demand>supply:

We believe the TAM for the December quarter was approximately 160 million units. At these demand levels the industry experienced constraints throughout the supply chain. As we plan for the March quarter we are assuming muted seasonality with a TAM in a range of between 155 and 160 million units...

Management also has limited capacity addition plans i.e. add capacity to maintain marketshare and nothing more...

We have aligned our current capital plans with industry analyst forecasts of a 650-670 million unit TAM for calendar year 2010 as well as customer demand for our high performance, high capacity product.

... and expects the supply constraint to persist throughout the year 2010.

So we still believe throughout calendar year 2010 supply is going to be short of demand throughout the calendar year. We are going to have to work pretty hard to be lined up for September and December.

So with a ~15% growth in market size by units, Seagate expects a constrained supply environment which can only spell good news for both Seagate and WDC in terms of pricing.

Price Stability Is Rare In The Disk Drive Industry

Source: Gridstone Research

So after a pretty steep decline in price realizations in 2008-early 2009, the pricing environment looks quite optimistic. Notice how prices climbed earlier in the second half of 2007 and that was more due to a better mix - notebook disk drive units increasing at a higher rate than desktops. This time the pricing could be more stable (i.e. for a longer period), as both the top vendors seem intent to let the supply-demand imbalance continue in a growing market. Also Seagate expects the unit mix to be richer with enterprise and high capacity / performance units towards the latter half of 2010 as enterprise spending has turned the corner and server / storage capacity expansion in 2010 is expected to be much better than 2009. This could also lead a positive impact on prices due to a richer mix.

To sum up, the competitive and market situation for Seagate looks like this : double-digit market size growth, steady price realizations and market share and continued demand-supply balance in a duopoly. In short, you can't pray for a better market situation to exploit and boost profits than the one prevailing now. The 30.5% gross margin achieved in Dec09 quarter looks less like a one-time bonanza (a full 16 percentage points above Dec08) when viewed in this perspective.

Record Gross Margins

Source: Gridstone Research

Disclosure: No Positions

In Wake of CBO Report on Stimulus and Jobs, Obama Presents New Plan

The high unemployment rate has taken center stage as the economy continues to recover, and last week's announcement that the jobless rate had fallen to 10% from 10.2% hasn't dimmed the spotlight, as evidenced by the "Jobs Summit" held last week at the White House.

On December 9, President Obama met with Congressional leaders from both parties in the White House on December 9 to discuss the best ways to stimulate job creation, following a speech the previous day by the President in which he proposed new job-creation measures and trumpeted the economic successes of his Administration so far, focusing on the $787 billion stimulus plan and the "1.6 million jobs" that the American Recovery and Reinvestment Act of 2009 "has already created and saved, according to the Congressional Budget Office."

Those new measures, which various sources estimate would cost anywhere from $50 billion to $200 billion, include "a series of steps to help small businesses grow and hire new staff," Obama said in his December 8 speech at the Brookings Institution, including "a complete elimination of capital gains taxes on small business investment along with an extension of write-offs to encourage small businesses to expand in the coming year," saying he would work with Congress to pass a "tax incentive to encourage small businesses to add and keep employees." The second step calls for a further infrastructure stimulus proposal "to continue modernizing our transportation and communications networks." Third is the so-called cash for clunkers program, in which Congress would create "a new program to provide incentives for consumers who retrofit their homes to become more energy-efficient." The fourth step was to provide additional "emergency assistance to seniors, unemployment insurance benefits, COBRA, and relief to states and localities to prevent layoffs."

Published reports of the December 9 meeting with Congressional leaders say the exchange was testy, with Obama accusing the Republicans of obstructionism and "rooting against" an economic recovery, and with House Minority Leader John Boehner defending the GOP's record of working in a bipartisan manner to help the economy recover, but also making clear that tax cuts would be the best way to stimulate economic and job growth.

What's the Real Number of Jobs Created?

In his speech, however, the President used the high-end estimate on the number of jobs actually created by the stimulus plan, as measured by the nonpartisan Congressional Budget Office (CBO), which in a report said that recipients of funds provided by what it refers to as ARRA--the American Recovery and Reinvestment Act--self-reported that 640,000 jobs were created.

However, looking at the "actual amounts spent so far (where identifiable) and estimates of the other effects of ARRA on spending and revenues," CBO said it proceeded to estimate the law's "impact on employment and economic output using evidence about how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy."

Using that approach, CBO concluded that as of the third quarter of 2009, "an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2% to 3.2% higher, than would have been the case in the absence of ARRA."

In its careful way, however, CBO also stressed that the estimate of job creation and GDP contribution is limited because "isolating the effects" of the stimulus "would require knowing what path the economy would have taken in the absence of the law."

Chelsea Therapeutics Shares Drop On Report: What You Need To Know

Today, Chelsea Therapeutics (CHTP) shares took a big hit on safety data that showed 3 deaths in the company phase clinical trial of Northera.

Biotech reporter Adam Feuerstein provided some insight on Chelsea Therapeutics stating that 55% of analysists polled still expect the FDA to approve Northera. The official FDA panel will convene Feb. 23 to review the Northera data.

Chief Executive Simon Pedder issued the following statement in a Chelsea press release;

In light of recent communications with FDA, including receipt of a briefing document for our upcoming advisory committee meeting, we wanted to take this opportunity to update our shareholders on several lines of inquiry that have emerged as significant components of the benefit-risk analysis of Northera," commented Dr. Pedder. "A number of these questions relate to previously discussed issues identified for our development program, namely the short duration of our clinical studies, the limited size of our study population given the orphan indication and the challenges in quantifying symptomatic and clinical benefit. FDA has, however, placed increased emphasis on safety data from our long-term extension program and the post-marketing surveillance program in Japan. We look forward to the opportunity to address these questions in depth during the advisory committee meeting and to continuing to work with FDA to address any additional questions they may have regarding Northera and our clinical program

Because Northera has orphan drug designation, it has been given a fast-track priority by the FDA. Because of this, shorter term data is looked at with more emphasis. These deaths appear to have occurred during the shorter term data phase.

The statement from Simon Pedder indicates that the FDA is looking at the long term data. This report shows a very short term result as again, may not be related to Northera at all when looking at in comparison, the longer term data.

As I indicated in my prior article on Chelsea, I feel the stock is a strong speculative buy. Please note the word "speculative," as it indicated and still indicates high risk. I maintain my price target of $10 because I feel the drug will be approved, and investigators noted only three deaths as being possibly related to Northera.

I urge investors to think calmly over this matter and make a well informed decision based on all the data. These kind of pps drop events are very typical of speculative bio-pharma.

The current pps of Chelsea as of 2/13/12, 3:25 Eastern, is $3.11

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

21 Top Commodity ETFs for 2011

With 2011 just starting, many of you are taking a look back at your current investments and looking for ways to improve your portfolio in order to optimize your return in 2011. Commodities have been gaining importance among asset classes in the past few years and ETFs have been a great way to gain exposure easily.

Why are commodities gaining importance?

With the emergence of countries like China and Brazil, it is becoming very difficult for these countries to keep up the growth without importing and buying huge quantities of energy sources, metals, food, etc. Oil and Gold are certainly the better known commodities and get most of the attention but if you have been tracking commodities in the past year, you know that they have not been the best performing commodities.

The other big reason of course is that investing in commodities used to be very complex and expensive but with the explosion of ETFs, buying exposure in almost any commodity is fairly easy and adds more diversification to your portfolio. Also, since very few expect demand for these commodities to diminish anytime soon, it does look like an asset class that should be added to most portfolios.

Before getting started, let’s take a look at the top commodity ETFs in 2010:

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
AGQ	ProShares Ultra Silver	555067200	158.59	174.746	0.95	175.63	0
SLV	iShares Silver Trust	10822550000	30.18	79.938	0.5	80.036	0
SIVR	ETFS Silver Trust	513191000	30.73	79.609	0.3	80.036	0
DBS	PowerShares DB Silver Fund	207140200	54.51	78.897	0.75	79.254	0
USV	E-TRACS UBS Bloomberg CMCI Silver ETN	7047984	44.0499	77.335	0.4	79.896	0
GDXJ	Market Vectors Junior Gold Miners ETF	2114170000	39.89	64.343	0.59	65.63	7.34
JO	iPath Dow Jones-UBS Coffee Subindex Total Return ETN	34210890	64.032	63.404	0.75	63.488	0
DGP	PowerShares DB Gold Double Long ETN	536625000	42.93	58.434	0.75	59.581	0
UYM	ProShares Ultra Basic Materials	368478800	50.65	57.091	0.95	53.008	0.09
JJT	iPath Dow Jones-UBS Tin Subindex Total Return ETN	33478320	63.3699	56.989	0.75	58.94	0
UGL	ProShares Ultra Gold	265201000	70.72	54.454	0.95	55.428	0
ERX	Direxion Daily Energy Bull 3X Shares	242568500	58.45	48.57	0.95	44.28	0.35
JJP	iPath Dow Jones-UBS Precious Metals Subindex Total Return ETN	28467870	81.64	40.327	0.75	39.768	0
PXE	PowerShares Dynamic Energy Exploration & Production Portfolio	76131000	23.07	40.049	0.63	38.298	0.52
DBP	PowerShares DB Precious Metals Fund	404198100	51.82	36.076	0.75	36.511	0
JJA	iPath Dow Jones-UBS Agriculture Subindex Total Return ETN	142131900	63.07	35.895	0.75	36.02	0
XME	SPDR S&P Metals & Mining ETF	1220861000	68.78	34.601	0.35	33.055	0.54
PSAU	PowerShares Global Gold and Precious Metals Portfolio	67513500	50.01	34.082	0.75	35.179	1.86
DIG	ProShares Ultra Oil & Gas	357318000	45.81	33.307	0.95	30.993	0.51
FUE	ELEMENTS Linked to the MLCX Biofuels Index Total Return	2829600	11.79	33.294	0.75	33.137	0

As you can see, the race wasn’t really close as silver dominated.

Futures or Physical based?

We discussed the subject very recently and while there is no easy answer that applies to all commodities, I think it’s important to consider this when selecting a commodity ETF.

Largest ETFs?

One of the easy ways to look for good ETFs is to take a look at the largest ETFs. While following the crowd is not always the best way to do things, it can give you a good idea of ETFs.. here are the commodity ETFs that have over $1 billion in assets:

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
GLD	SPDR Gold Shares	$58,498,220,000.00	$138.72	27.70	0.4	28.149	0
SLV	iShares Silver Trust	$10,822,550,000.00	$30.18	79.94	0.5	80.036	0
GDX	Market Vectors - Gold Miners ETF	$7,613,213,000.00	$61.47	32.63	0.53	33.612	0.65
IAU	iShares Gold Trust	$5,378,605,000.00	$13.90	27.78	0.25	28.2	0
DBC	PowerShares DB Commodity Index Tracking Fund	$5,102,261,000.00	$27.55	9.83	0.85	9.518	0
DJP	iPath Dow Jones-UBS Commodity Index Total Return ETN/United States	$2,853,541,000.00	$49.12	14.22	0.75	14.06	0
UNG	United States Natural Gas Fund LP	$2,759,685,000.00	$5.99	(41.57)	0.6	-43.092	0
DBA	PowerShares DB Agriculture Fund	$2,710,931,000.00	$32.35	20.46	0.85	20.965	0
MOO	Market Vectors - Agribusiness ETF	$2,604,721,000.00	$53.54	22.60	0.56	21.905	0.61
OIH	Oil Services Holders Trust	$2,221,372,000.00	$140.53	20.20	0	19.223	1.65
GDXJ	Market Vectors Junior Gold Miners ETF	$2,114,170,000.00	$39.89	64.34	0.59	65.63	7.34
USO	United States Oil Fund LP	$1,821,300,000.00	$39.00	(2.95)	0.45	-2.606	0
GSG	iShares S&P GSCI Commodity Indexed Trust	$1,797,070,000.00	$34.10	5.19	0.75	5.617	0
VDE	Vanguard Energy ETF	$1,539,251,000.00	$99.67	21.20	0.25	20.175	1.25
IXC	iShares S&P Global Energy Sector Index Fund	$1,318,275,000.00	$39.06	11.20	0.48	10.609	1.84
XME	SPDR S&P Metals & Mining ETF	$1,220,861,000.00	$68.78	34.60	0.35	33.055	0.54
SGOL	ETFS Gold Trust	$1,166,468,000.00	$141.39	27.70	0.39	28.113	0
IYM	iShares Dow Jones US Basic Materials Sector Index Fund	$1,115,424,000.00	$77.46	30.83	0.47	29.421	1.12

Oil & Natural Gas

Both oil and natural gas have been very volatile in recent years, making it very difficult for investors. I would personally stay away from oil at the moment but here are some options if you are interested:

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
OIH	Oil Services Holders Trust	$2,221,372,000.00	$140.53	20.20	0	19.223	1.65
XES	SPDR S&P Oil & Gas Equipment & Services ETF	$455,204,000.00	$36.71	30.11	0.35	29.16	0.86
USO	United States Oil Fund LP	$1,821,300,000.00	$39.00	(2.95)	0.45	-2.606	0
DBO	PowerShares DB Oil Fund	$598,265,100.00	$28.22	0.18	0.75	0.254	0
DIG	ProShares Ultra Oil & Gas	$357,318,000.00	$45.81	33.31	0.95	30.993	0.51
DDG	ProShares Short Oil & Gas	$12,114,040.00	$40.38	(21.08)	0.95	-20.836	0
PXJ	PowerShares Dynamic Oil & Gas Services Portfolio	$199,744,500.00	$21.83	28.89	0.63	28.012	0.36
BNO	United States Brent Oil Fund LP	$12,490,000.00	$62.45	N/A	N/A	N/A	0
DNO	United States Short Oil Fund LP	$8,084,000.00	$40.42	(5.99)	0.96	-6.226	0
IEZ	iShares Dow Jones US Oil Equipment & Services Index Fund	$495,880,000.00	$56.35	31.56	0.47	30.651	0.5
IEO	iShares Dow Jones US Oil & Gas Exploration & Production Index Fund	$427,795,000.00	$63.85	18.55	0.48	17.328	0.28
DTO	PowerShares DB Crude Oil Double Short ETN	$120,035,200.00	$53.35	(15.96)	0.75	-16.339	0
DUG	ProShares UltraShort Oil & Gas	$85,871,190.00	$37.42	(41.13)	0.95	-39.997	0
OLO	PowerShares DB Crude Oil Long ETN	$18,200,000.00	$14.00	0.16	0.75	0.274	0
SZO	PowerShares DB Crude Oil Short ETN	$7,975,800.00	$44.31	(5.52)	0.75	-5.913	0
UHN	United States Heating Oil Fund LP	$11,944,000.00	$29.86	5.65	0.69	5.65	0
USL	United States 12 Month Oil Fund LP	$176,710,000.00	$43.10	4.35	0.6	4.247	0
OIL	iPath Goldman Sachs Crude Oil Total Return Index ETN	$643,443,800.00	$25.61	(3.17)	0.75	-2.868	0
UCO	ProShares Ultra DJ-UBS Crude Oil	$274,265,400.00	$12.50	(5.52)	0.95	-5.146	0
SCO	ProShares UltraShort DJ-UBS Crude Oil	$138,312,100.00	$10.17	(22.27)	0.95	-22.611	0

And some natural gas ones:

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
UGA	United States Gasoline Fund LP	$67,369,600.00	$42.11	12.47	0.6	12.682	0
XES	SPDR S&P Oil & Gas Equipment & Services ETF	$455,204,000.00	$36.71	30.11	0.35	29.16	0.86
DIG	ProShares Ultra Oil & Gas	$357,318,000.00	$45.81	33.31	0.95	30.993	0.51
DDG	ProShares Short Oil & Gas	$12,114,040.00	$40.38	(21.08)	0.95	-20.836	0
UNG	United States Natural Gas Fund LP	$2,759,685,000.00	$5.99	(41.57)	0.6	-43.092	0
FCGL	Direxion Daily Natural Gas Related Bull 2X Shares	$5,765,058.00	$57.65	N/A	0.95	N/A	0.09
FCGS	Direxion Daily Natural Gas Related Bear 2X Shares	$2,482,015.00	$24.82	N/A	0.95	N/A	0
PXJ	PowerShares Dynamic Oil & Gas Services Portfolio	$199,744,500.00	$21.83	28.89	0.63	28.012	0.36
IEO	iShares Dow Jones US Oil & Gas Exploration & Production Index Fund	$427,795,000.00	$63.85	18.55	0.48	17.328	0.28
DUG	ProShares UltraShort Oil & Gas	$85,871,190.00	$37.42	(41.13)	0.95	-39.997	0
GAZ	iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN	$121,572,700.00	$8.05	(43.98)	0.75	-45.13	0
MLPG	UBS E-TRACS Alerian Natural Gas MLP Index ETN	$11,540,000.00	$28.85	N/A	0.85	N/A	1.24
FCG	First Trust ISE-Revere Natural Gas Index Fund	$398,520,100.00	$19.68	11.92	0.6	10.225	0.25
UNL	United States 12 Month Natural Gas Fund LP	$38,467,000.00	$34.97	(36.61)	0.75	-37.265	0

Gold?

There is a lot of speculation about gold and where it is headed in 2011 and beyond. Some expect the price to double while others still have a lot of doubt. Here are some ETFs:

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
GLD	SPDR Gold Shares	$58,498,220,000.00	$138.72	27.70	0.4	28.149	0
SGOL	ETFS Gold Trust	$1,166,468,000.00	$141.39	27.70	0.39	28.113	0
OIL	iPath Goldman Sachs Crude Oil Total Return Index ETN	$643,443,800.00	$25.61	(3.17)	0.75	-2.868	0
IAU	iShares Gold Trust	$5,378,605,000.00	$13.90	27.78	0.25	28.2	0
GLDX	Global X Gold Explorers ETF	$24,700,000.00	$19.00	N/A	0.65	N/A	0
DGP	PowerShares DB Gold Double Long ETN	$536,625,000.00	$42.93	58.43	0.75	59.581	0
DGL	PowerShares DB Gold Fund	$331,058,000.00	$50.16	26.39	0.75	26.81	0
DZZ	PowerShares DB Gold Double Short ETN	$97,755,000.00	$7.98	(41.58)	0.75	-42.038	0
DGZ	PowerShares DB Gold Short ETN	$28,804,000.00	$15.16	(23.15)	0.75	-23.453	0
UGL	ProShares Ultra Gold	$265,201,000.00	$70.72	54.45	0.95	55.428	0
GDX	Market Vectors - Gold Miners ETF	$7,613,213,000.00	$61.47	32.63	0.53	33.612	0.65
PSAU	PowerShares Global Gold and Precious Metals Portfolio	$67,513,500.00	$50.01	34.08	0.75	35.179	1.86
SPGH	UBS E-TRACS S&P 500 Gold Hedged ETN	$15,024,000.00	$37.56	N/A	N/A	N/A	0
GLL	ProShares UltraShort Gold	$76,169,240.00	$27.80	(45.01)	0.95	-45.217	0
GDXJ	Market Vectors Junior Gold Miners ETF	$2,114,170,000.00	$39.89	64.34	0.59	65.63	7.34
UBG	E-TRACS UBS Bloomberg CMCI Gold ETN	$6,120,000.00	$38.25	27.59	0.3	26.359	0

My Picks?

Personally, I prefer sticking to commodities that have the most “real” use and would go long Silver despite its incredible run in 2010. Also, going long Agriculture and broad commodity ETFs. Here are some of those I will consider:

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
SIVR	ETFS Silver Trust	$513,191,000.00	$30.73	79.61	0.3	80.036	0
SLV	iShares Silver Trust	$10,822,550,000.00	$30.18	79.94	0.5	80.036	0
SIL	Global X Silver Miners ETF	$367,611,500.00	$27.13	N/A	0.65	N/A	0.89
DBS	PowerShares DB Silver Fund	$207,140,200.00	$54.51	78.90	0.75	79.254	0
AGQ	ProShares Ultra Silver	$555,067,200.00	$158.59	174.75	0.95	175.63	0
ZSL	ProShares UltraShort Silver	$94,565,750.00	$9.82	(78.94)	0.95	-78.891	0

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
FUD	E-TRACS UBS Bloomberg CMCI Food ETN	$10,519,880.00	$29.23	29.28	0.65	29.923	0
DBA	PowerShares DB Agriculture Fund	$2,710,931,000.00	$32.35	20.46	0.85	20.965	0
DAG	PowerShares DB Agriculture Double Long ETN	$75,274,500.00	$14.07	25.58	0.75	25.116	0
AGF	PowerShares DB Agriculture Long ETN	$4,548,320.00	$20.96	16.32	0.75	15.661	0
AGA	PowerShares DB Agriculture Double Short ETN	$2,718,604.00	$18.00	(43.94)	0.75	-44.779	0
ADZ	PowerShares DB Agriculture Short ETN	$2,393,100.00	$23.93	(21.32)	0.75	-21.166	0
PAGG	PowerShares Global Agriculture Portfolio	$68,864,490.00	$32.03	20.58	0.75	20.267	0.95
CRBA	Jefferies TR/J CRB Agriculture Equity Index Fund	$5,321,500.00	$53.22	27.08	0.65	26.91	1.34
JJA	iPath Dow Jones-UBS Agriculture Subindex Total Return ETN	$142,131,900.00	$63.07	35.90	0.75	36.02	0
UAG	E-TRACS UBS Bloomberg CMCI Agriculture ETN	$8,907,200.00	$30.40	32.10	0.65	34.556	0
RJA	ELEMENTS Linked to the Rogers International Commodity Index - Agri Tot Return	$520,456,000.00	$10.72	33.25	0.75	33.42	0

Ticker	Name	Market Cap	Price	Return YTD	Fees	1Y Return	Dividend Yield
DBC	PowerShares DB Commodity Index Tracking Fund	$5,102,261,000.00	$27.55	9.83	0.85	9.518	0
GSG	iShares S&P GSCI Commodity Indexed Trust	$1,797,070,000.00	$34.10	5.19	0.75	5.617	0
DJP	iPath Dow Jones-UBS Commodity Index Total Return ETN/United States	$2,853,541,000.00	$49.12	14.22	0.75	14.06	0
GCC	GreenHaven Continous Commodity Index Fund	$535,437,500.00	$32.95	23.24	0.85	22.957	0

Disclosure: No positions in these commodity ETFs

13 underperformers targeted by shorts

Contrarian investing is a strategy that a number of managers agree should produce superior returns. By buying stocks that trade at low valuations, and avoiding stocks that have been bid up by the market, investors generally have less room to lose money, but can stand to gain substantially if the market's judgment of low-valued companies changes.

Unfortunately, contrarian investing is psychologically difficult. Investors often must look at a stock chart that shows a 60% decline, or even higher, and ignore any pattern-recognition skills that tell them that the price is going to decrease further. Much of the discussion of the stock may come from short-sellers, who have earned high returns from the stock's decline and have seen their investment thesis justified.

Using Fidelity's market data, we conducted a screen for these bold contrarian picks. Each stock has at least a $2 billion market cap, a short interest of at least 5%, and a stock performance on a trailing 52-week basis that is in the 20th percentile of the market or lower.

Green Mountain Coffee RoastersGMCR

Market Cap: $2.7B; Short %: 19%; 52-week return: -81%

NetflixNFLX

Market Cap: $4.5B; Short %: 22%; 52-week return: -71%

Research In MotionRIMM

Market Cap: $3.6B; Short %: 18%; 52-week return: -74%

United States SteelX

Market Cap: $2.6B; Short %: 24%; 52-week return: -59%

SinaSINA

Market Cap: $3.0B; Short %: 10%; 52-week return: -60%

Ultra PetroleumUPL

Market Cap: $3.4B; Short %: 13%; 52-week return: -53%

Property Purchase Restrictions in Latin America

It is not uncommon for Americans (or other foreigners) to buy property in Latin America, but those who are considering making such a purpose and have not done so before must take note of the various restrictions that apply in most countries. Many countries restrict the purchase of beach property and/or agricultural lands. Some countries forbid foreigners from owning land within a certain distance of national borders. Several countries require foreigners to pay additional fees, set up trusts and acquire a tax ID number for transactions, while a few countries have no restrictions at all. The point is to hire a local attorney to help with these and other issues before buying. For more on this continue reading the following article from Pathfinder.

A reader contacted us recently who was traveling in Argentina and Chile. He was enjoying his trip and wanted to spend more time in South America. He liked the look of some of the beach homes he’d seen in Chile and the historic city apartments in downtown Buenos Aires. He was now seriously considering buying a vacation home. But before he kicked off his property search, he had a question. Can foreigners buy property in Latin America?

The short answer is yes (with the obvious exception of Cuba). But there are restrictions in most countries. And those restrictions are something you need to pay close attention to when you’re buying a property overseas.

One restriction is that foreigners usually can’t buy or own land within a certain distance of national borders. In Panama, for example, foreigners can’t own land within 10 kilometers of the borders with Costa Rica or Colombia. The distance from the border varies from one country to another.

You’ll often see property advertised for sale to foreigners within border areas. The seller may even tell you that you can get round the restriction by holding the property in a corporation rather than in your personal name. That’s certainly possible – but it’s still illegal.

Then there’s buying beach land. Beaches are public across most of Latin America. Ownership of beach land within a certain distance of the high water mark is restricted or controlled, both for foreigners and locals. Mexico’s laws look the most restrictive at first. Here, foreign buyers purchasing a property within 50 kilometers of the coast need to set up a 50-year bank trust known as a fideicomiso to hold the property. But the fideicomisos provide a perfectly legal way to own beach property in Mexico. You can renew the trust, sell the property, use the property, and pass it to your heirs.

Another restriction relates to buying raw land or larger land parcels. We’ve seen the headlines about Brazil and Argentina restricting the purchase of large tracts of agricultural land. But it doesn’t just apply to buying thousands of acres of farm land. In some countries, you’ll need permission to purchase a plot that’s more than half an acre in size. 

Some countries (such as Chile and Brazil) require you to get a local tax ID before you can own a property. That sounds complicated. But the process to get the tax ID is actually straightforward. It’s simply another step in the buying process.

Caribbean islands look gorgeous - but you need to pay close attention if you’re thinking of buying a home. In many Caribbean islands foreigners need to get official permission to purchase property of any kind. That usually carries a cost, and sometimes it’s quite steep (up to 22% of the purchase price, for example). Foreigners may also have to buy property of a minimum value. That means purchase prices on the higher end of the scale, and limited availability.

In some Caribbean islands, foreigners can’t buy undeveloped land. You also face restrictions after you buy. Buy a lot or home site, and you may need to build a house of a certain size, standard or build cost within a certain timeframe. Sometimes you can’t build more than one house, or convert a larger property into smaller units. You may find that you can’t rent your home out after purchasing it, either.

Yet in other Caribbean islands, like the Dominican Republic, foreigners face no restrictions when buying property.

This all serves to emphasize the #1 rule when buying abroad: Hire a good local attorney before you buy, and before any money changes hands. I can’t stress this enough. Before you get carried away and sign a sale contract or commit your life savings to that dreamy beach condo, get your attorney to check it out. And that means starting with the basics – can you buy that property as a foreigner?

If you can’t, or you face restrictions you can’t live with, move on. Keep looking. Don’t fall into the trap of getting emotionally attached to a home and trying to figure out a grey area where you think you’ll comply with local laws. Latin America’s a big place. You will find a place that’s right for you, where you won’t have to compromise.

News Corp. Tanks as Sweet Kandi Flies

Here’s what’s hot in the market today: News Corp. continued to see fall out from its hacking scandal. Warner Music Group saw a jump in trading ahead of Spotify’s U.S. debut. Arch Chemicals surged following its acquisition by Lonza Group. R.R. Donnelly saw continued interest following a month of above average trading. Kandi Technologies got a bump after landing a China deal.

News Corp. (NASDAQ: NWS) fell more than 6% near $16 on almost 5 million shares. Rupert Murdoch’s embattled company continues to experience fallout from the arrest of key editorial staff following accusations of phone hacking and other illegal activity in the U.K. The company’s planned $14 billion acquisition of TV company BskyB is now under threat.

Warner Music Group (NYSE: WMG) stayed relatively steady at above $8, but more than 3 million shares were exchanged midday, compared with the average of more than 1 million. Streaming music business Spotify announced it will open in the U.S. sometime this week. Business Journal reported that Spotfiy is in final talks with WMG to bring its library to the service.

Arch Chemicals (NYSE:ARJ) was up more than 11% to trade near $46.80 on 25-times normal volume. Lonza Group AG announced that it would acquire Arch for more than $1 billion, purchasing all outstanding shares in the company for more than $47 per share.

R.R. Donnelley & Sons (NASDAQ: RRD) fell about 2% to $19.75 on close to 8 million shares. Interest in the printing company has jumped recently following multiple reports singling out RRD for yielding strong dividends.

Kandi Technologies (NASDAQ:KNDI) rose more than 23% to trade near $2.25 on about 10 times normal volume. The all-terrain vehicle manufacturer announced a strategic partnership with China�s Hangzhou Electric Vehicle Service. Kandi will provide Hangzhou with electric vehicles through 2012.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at�@ajohnagnello and�become a fan of�InvestorPlace on Facebook.

Asia Stocks to Watch: Australian currency, policy may limit stock gains

Reuters The Australian Stock Exchange in Sydney.

SYDNEY (MarketWatch) � The Australian share market�s gains since the start of the year have lagged those of its Asian peers, and that underperformance is likely to continue as long as monetary policy remains tight.

So far, the S&P/ASX 200 index AU:XJO �is up 5% year-to-date, trailing the Hang Seng Index�s HK:HSI �13.3% jump and a 6.1% gain for Japan�s Nikkei Stock Average JP:100000018 �.

Broad gains across global equity markets so far in 2012 have been made in the wake of improving investor sentiment, with Europe�s debt troubles addressed to some extent by policy action, and with a pick-up in economic data, notably in the U.S.

Click to Play U.S. to host China's leader-in-waiting

The U.S. is looking to strengthen its ties with China by hosting Chinese Vice President Xi Jinping, the man widely expected to succeed Hu Jintao as leader.

Recognizing the brighter general-market mood, Goldman Sachs� Australian equity strategist Chris Pidcock recently made a modest upgrade to his targets for the Australian share market.

�We have reviewed the key assumptions driving our market targets for 2012, in particular prospective multiples, which had assumed little change to investor sentiment for the first half of 2012,� wrote Pidcock.

He�s expecting the market to advance to 4,340 by June, an upgrade to an earlier target of 4,100, with the Australian index trading at 4,256.60 midday Monday.

Pidcock also raised his year-end target for the benchmark to 4,600, up from 4,500.

Deutsche Bank strategist Tim Baker is targeting 4,700 by the end of 2012, again due to an improvement in broad sentiment toward riskier assets.

�Going back six months, there was more uncertainty in Europe, China has rising inflation, and the U.S. was in a soft patch. We�ve already moved on a lot from that,� he said.

Baker pointed out that price-to-earnings (PE) ratios for Australian companies are at very low levels, with the ratio � calculated by dividing the price of a stock by its annual earnings per share � currently at 12.56 times for Sydney-traded shares, according to IBES data

However, Deutsche Bank�s Baker said that, while there may be some support from a general improvement in sentiment toward shares, he�s not expecting the earnings side of the PE ratio to suddenly recover for Australian companies.

�Getting to 4,700, we�ve got the PE re-rate doing more of the work than earnings growth,� he said.

Profit hurdles

Earnings aren�t likely to pick up for Australian companies without some fundamental changes to the Australian investing environment, where relatively high interest rates and a strong currency have kept financial conditions on the tight side, analysts say.

The high Australian dollar AUDUSD �is a key impediment to the equity markets, said Baker, who sees an intense structural change currently underway in the economy.

Retailers, exporters and companies operating offshore have been notable sufferers in the market, and these firms weren�t given any relief this week, when the Reserve Bank of Australia kept its key cash rate on hold at 4.25%.

The decision surprised markets which had widely been factoring in an interest-rate cut, and pushed the Australian dollar to a level not seen since early August. See report on Australian interest-rate decision.

�The market was quite disappointed� when the Reserve Bank didn�t cut,� said Mark Rider, head of investment strategy for Australia at UBS Global Asset Management.

Australian companies are at a relative disadvantage in terms of monetary policy compared to offshore rivals, he said.

�Hong Kong imports U.S. close-to-zero interest rates, Japan basically has zero interest rates. They have got more accommodative [monetary] conditions than we do,� Rider said.

He believes the Australian equity market is now severely undervalued � �in some respects on par with the undervaluation we�re seeing in Europe. � Our valuation signals are showing that it is cheap.�

The average PE ratio for the Australian market is historically somewhere around 14 to 15 times, said Rider.

But that hasn�t tempted Rider to put more cash to work in the Australian equity market. UBS� multi-asset portfolio is invested in the Australian market but is underweight compared to other benchmarks.

�I think at the moment, [the market] is undervalued, but that�s for a reason � tightish monetary conditions and disappointing economic growth for a period of time. To see that turn around, I think we need to see a let up in that,� he said.

Market, Banks Turn Down: Devil in the Details of Jobs Numbers?

What appeared to be the start of a sustained jobs-report-fueled rally has already fizzled, with the major indexes beginning to sink almost immediately after the opening bell. The Dow had jerked up more than 100 points in pre-market trading after the government said the economy had added more jobs than economists had expected, but the overall employment trend is still spotty, and the index began to shed its gains. It is now up about 60 points, but the S&P 500 is trading slightly lower.

Some of the details in the report show that the economy is still struggling add jobs. The 103,000 jobs added in September were boosted by the return of 45,000 Verizon workers who had been on strike. And employment in manufacturing fell by 13,000 jobs and has been “essentially flat” for the last two months, the Labor Department noted.

“As solid as this report is, it is not an all clear signal. Structural rigidities remain, the participation rate is up but still close to multi-decade lows, and private job growth still needs to move closer to 150,000 for the Fed to breath easier,” wrote Eric Green of TD Securities. The Wall Street Journal has a lot more reactions from economists here.

Bank stock are sliding after a big rally yesterday afternoon. Bank of America (BAC) and Goldman Sachs (GS) were each off by about 2%.

Synopsys Guidance Indicates Unlikely Growth in IC Design Starts

Synopsys (SNPS), among the largest EDA (Electronic Design Automation) software vendors, reported results in line with estimates for the first quarter of 2010 (QE Jan10).

Synopsys Jan 10 Quarter Results Snapshot

(Click to view enlarged image)

Source: Gridstone Research

Though revenues declined by ~3% YOY and sequentially by ~2.5% to $330 M, net profit increased due to a one-time tax benefit of ~$61M. As you can see, operating profits declined by ~18% YOY though the tax benefit resulted in an increase at the net income level.

Revenue Vs. Guidance

(Click to view enlarged image)

Source: Gridstone Research

The revenue guidance for Apr10 quarter shows that SNPS expects flat revenues YOY and QOQ. Since SNPS gets more than 90% of its revenues from time-based licenses and the average duration of these licenses is ~3 years, any new contracts take time to find their way to revenues. This ensures no lumpiness in revenue recognition but also becomes a lagging indicator of top-line recovery. The Apr10 quarter guidance seems to indicate that no big deals were concluded in the first few weeks of the second quarter.

When we compare the quarterly revenues of Synopsys with its rivals, Cadence (CDNS) and Magma (LAVA), Synopsys seems to have done better than its rivals during the downturn.

Synopsys Vs. Competitors( LAVA-Magma, CDNS - Cadence)

(Click to view enlarged image)

Source: Gridstone Research

Prior to the downturn, Cadence grew faster than Synopsys but suffered more during the downturn. However all the EDA vendors have been growth challenged in the recent quarter too, and their guidance shows no indication of a good recovery in their order books.

YOY Revenue Growth By Quarter - Magma (LAVA), Cadence (CDNS) and Synopsys (SNPS)

(Click to view enlarged image)

Source: Gridstone Research

In fact, the main worry about EDA vendors is whether the phenomenal growth in IC design starts (design of new semiconductor chips) in the 2006-07 period will be matched in 2010/11. Since EDA vendors sell licenses on a seat basis, any increase in revenue will only follow a significant increase in IC Design headcount at leading chip vendors like Intel (INTC), Broadcom (BRCM) etc. This seems unlikely in 2010 at least, as most semiconductor vendors are still very cautious on spending inorder to protect their margins. The other option is for vendors to have a broader portfolio of products / services so that the TAM (total addressable market) is larger for them and they benefit from that.

Previous Semiconductor Cycle Upturn - Cadence Outdid Synopsys

(Click to view enlarged image)

Source: Gridstone Research

Looking at the semiconductor cycle from 2004-07, we see that Cadence outshone Synopsys thanks to its broader portfolio of products / services. But this did not protect it from the severe drop in revenues in 2009. Synopsys seems to be inclined to replicate the Cadence model during this semiconductor upturn cycle. In the recent earnings call (read full transcript here), Synopsys CEO Aart de Geus expounds on the same:

"...As we introduced to you in our last earnings call, we see 2010 and ‘11 as the time to benefit from the economic recovery, while actively broadening our opportunity space. We are pursuing three fundamental strategies. One, accelerate our execution momentum and expand our core EDA leadership. Two, broaden our EDA TAM by aggressively fielding adjacent products and capabilities. Three, expand our TAM outside of core EDA by aggressively driving the emerging systems space..."

Synopsys has already made some acquisitions in this regard and had made its intentions clear of continuing in the same vein during the rest of 2010. Though these acquisitions will have no material impact on current fiscal numbers, the intention is that a broader product portfolio will bring in more revenue per customer when spending picks up. A broader revenue stream will also ensure that expense synergies (across different product categories) can lead to an improvement in margins. Quoting again from the recent earnings call:

"..And with every deal, we look at the expense state to identify the synergies. We look at the key skills that are required to deliver what we build as our business case. And obviously, that’s the way we’ve done it. And we’ve done, I’d say, as I said, five acquisitions in the last six quarters, with one more pending. And so we’ve gotten very good at the integration process and the flow through there, and still are targeting on the same level of operating margins we have while we expand into additional segments to expand our TAM..."

In areas like non-core IP licensing, Synopsys expects to generate another stream of recurring revenues and diversify its model to move away from a per seat revenue basis. The per seat license model led to a stagnant phase during a dowturn as R&D resources were either reduced or kept constant at a company level. This severly impacted new seat revenues for EDA vendors, their primary source of growth. Synopsys also mentions that rather than just focusing on increasing the number of seats in each customer, their intention is to also increase the number of product licenses per seat / engineer.

Summary

Synopsys is banking on increasing its share of the EDA and allied services pie in each customer as adding new customers will be a difficult task in the first half of 2010. If EDA tools spending picks up in the second half of 2010, Synopsys would be well positioned to benefit from it to emerge as the premier EDA vendor. However competitors like Cadence are in the same situation and so its not going to be an easy ride for Synopsys. EDA seems to be a mature market rather than a growth market and that itself limits Synopsys's ability to ride the expected unpick in semiconductor spending.

Disclosure: No Positions

Top Stocks For 2011-12-4-2

DrStockPick.com Stock� Report!

Friday July 17, 2009

Encorium Group, Inc. (Nasdaq: ENCO), a full service multinational clinical research organization (CRO) that provides design, development, and management capabilities for clinical trials and patient registries to many of the world’s leading pharmaceutical companies, today announced that is has completed the previously announced sale of the Company’s U.S. business to Pierrel Research USA, Inc., a wholly-owned subsidiary of Pierrel SpA, an international contract research organization listed on Milano’s Stock Exchange. The purchase price was $2.7 million, comprised of $80,000 in cash as well as the assumption of $2.6 million in liabilities.

NeuroMetrix, Inc. (Nasdaq: NURO) announced today it plans to issue its 2009 second quarter financial results before the opening of the market on Wednesday, August 5, 2009. The Company’s management team will host a conference call and webcast at 10:00 A.M. Eastern time, on the same day, to discuss the Company’s financial results for the second quarter and six months ended June 30, 2009 and to discuss business and financial developments and trends affecting the Company.

Eddie Bauer Holdings, Inc. (Pink Sheets: EBHIQ) announced today the final results of its bankruptcy sale process. Golden Gate Capital was selected as having the highest and best offer with an all cash bid of $286 million. The Golden Gate offer will be presented for court approval on July 22nd. The transaction is expected to close in early August.

Regions Financial Corporation (NYSE:RF) will host an Investor’s Day Conference on Wednesday, July 29, in New York City beginning at approximately 8:00 a.m. EDT. Regions Chairman, President and CEO Dowd Ritter, along with senior executives from the company, will review and discuss Regions’ financial and business strategies.

Acme United Corporation (NYSE AMEX:ACU) today announced that net sales for the second quarter ended June 30, 2009 were $19.2 million, compared to $22.7 million in the comparable period of 2008, a decrease of 16% (13% in local currency). Net income was $1,341,000, or $.40 per diluted share, for the quarter ended June 30, 2009, compared to $1,730,000 or $.47 per diluted share for the comparable period last year, a decrease of 22% in net income and 15% in diluted earnings per share.

Marchex, Inc. (NASDAQ:MCHX), a leading local search and performance advertising company, today announced that the company’s Board of Directors has declared a regular quarterly dividend in the amount of $0.02 per share on its common stock. Marchex will pay these dividends on August 17, 2009 to the holders of record as of the close of business on August 7, 2009. As of July 16, 2009, 10,869,216 shares of Class A common stock and 25,305,928 shares of Class B common stock are outstanding.

TEPPCO Partners, L.P. (NYSE:TPP) today declared a second quarter cash distribution rate of $0.725 per unit, or $2.90 per unit on an annualized basis. The distribution is payable August 7, 2009 to unitholders of record on July 31, 2009, and covers the period April 1, 2009 through June 30, 2009.

Netflix Could Be A Prime Takeover Target Now

Netflix (NFLX) was trading at record highs earlier this year at over $300 per share, but now the stock trades for just over $100 per share. This huge change in valuation opens the doors to a potential buyout deal or strategic investment in the company. In the past, both Google (GOOG), Amazon.com (AMZN) and others have been rumoured to have interest in buying Netflix by some analysts and investors, so with the stock trading for about one-third of the peak valuation hit just earlier this year, Netflix is much more of a prime buyout target now. Netflix has about 52.5 million shares outstanding which gives it a market capitalization of about $6 billion. Back when Netflix was trading for over $300 per share earlier this year, that market capitalization was closer to $16 billion, so a deal now could save many billions for the buyer.

In a recent ZDNET.com article it details why Netflix might have been trying to split off the streaming business in order to sell that to Amazon.com. It goes on to explain that Amazon.com is most likely trying to avoid having to collect sales taxes. The article states "The tax issue is that an acquisition of Netflix’s DVD business would give Amazon more sales taxes to collect. Pachter explained: One of the impediments to Amazon’s purchase of Netflix outright is the state sales tax rules. Under the rules in most states, any company with a physical presence in that particular state (a “nexus”) is required to collect sales taxes for all retail transactions in that state. Amazon has carefully avoided nexus with virtually every state that collects sales tax, providing it with a significant pricing advantage over its brick-and-mortar competitors. Should Amazon have purchased Netflix’s business outright (including the DVD-by-mail business), the company would have found itself subject to sales taxes in virtually every state that imposes sales tax, due to Netflix’s extensive network of distribution centers." Read more here.

Even though this analyst thinks that the tax issue could be a possible deal-killer for a company like Amazon.com, there is always a way to create a deal that could address the tax issues and Amazon.com has successfully faced this challenge many times. Furthermore, chances are that Amazon.com will one day have to collect the sales taxes anyhow and a number of states are working to force sales tax collection on the company now. The international expansion potential of Netflix is huge and it doesn't make sense to not consider a deal over sales taxes. Even if Amazon.com is not a suitor for Netflix, other companies like Google (GOOG) could be. Google has plenty of cash and has been making acquisitions. It does not appear that sales taxes would be an issue for Google and Netflix would bolster their Youtube.com business. For both Amazon.com and Google, a buyout deal for Netflix would be a great way to capture the growth expected in online streaming, especially since Netflix appears to be having success in Canada and emerging market regions like Latin America. Because Amazon.com shares are richly valued at about 100 times earnings, it absolutely makes sense for them to be buying assets like Netflix that are trading at a much lower valuation, especially if they can get around the sales tax concerns. For Google, the deal makes sense due to the growth potential and their expansion into streaming and mobile devices. Here is a closer look at these companies:

Netflix is a leading provider of movie rentals through online streaming and by mail. Netflix stock has been under siege for the past several weeks due to a flurry of news which has many led investors to sell shares. Recently there was an announcement that licensing negotiations ended with Starz, then Netflix raised prices on subscribers which prompted anger, then Netflix decided to split the streaming business apart and since decided to reverse course on that decision. All these events have shaken investor confidence in management and the stock price has taken a beating. The stock looks cheap now, and whether or not a buyout deal comes, the stock is likely to rebound after hitting new 52 week lows.

Here are some key points for NFLX:

• Current share price: $113.67
• The 52 week range is $103.13 to $304.79
• Earnings estimates for 2011: $4.49 per share
• Earnings estimates for 2012: $6.48 per share
• Annual dividend: none

Amazon.com is a leading online retailer that has grown into much more than books. Amazon is involved in video streaming, cloud computing, online deals similar to Groupon (GRPN), and more. This stock trades for about 100 times 2011 earnings. With Netflix now trading at a much lower price to earnings ratio, a deal could be paid for with Amazon.com's richly valued stock.

Here are some key points for AMZN:

• Current share price: $237.43
• The 52 week range is $151.40 to $244
• Earnings estimates for 2011: $1.96 per share
• Earnings estimates for 2012: $3.21 per share
• Annual dividend: none

Google, Inc. offers a wide variety of online products and services ranging from advertising online to email, maps, and more. Google has been one of the leading innovators in the Internet sector and that should continue. Google has the cash to make more acquisitions and Netflix could be a great way to tap the potential growth of online and mobile streaming. Google recently announced a deal to buy a restaurant ratings company called Zagat, and more deals could be coming.

Here are some key points for GOOG:

• Current share price: $549.56
• The 52 week range is $473.02 to $642.96
• Earnings estimates for 2011: $35.48
• Earnings estimates for 2012: $41.94
• Annual dividend: none

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

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

3 Scenarios For The Netflix Sequel - Investors Get Ready For A 3-D Ride

Netflix (NFLX), an online movie rental subscription service, has provided its investors plenty of drama in 2011.

After its share price increased 73% from $175.70 on December 31, 2010, to an intraday all-time high of $304.79 on July 13, 2011, NFLX shares plunged 79.5% from their all time high to an intraday low of $62.37 on November 30, 2011. NFLX shares then regained some lost ground by increasing 114% from their November 30, 2011, intraday low to an intraday high of $133.43 on February 7, 2012.

With NFLX shares currently at $117.40, as of the close of February 21, 2012, what's next?

When share prices exhibit substantial volatility as has been the case with NFLX, entry-point matters, regardless whether from the long side or from the short side. Investors and traders often express their views on share price movement in a 2-dimensional (2-direction) space: up or down. What is often neglected, and can possibly provide greater return, is the third dimension (direction): volatility with no directional bias.

Having no directional bias at the initiation of a trade does not necessarily imply that share prices will not move substantially in one direction or the other; it simply means an investor/trader can possibly benefit regardless of the direction. In addition, when entry-point is very tricky for a directional trade on a highly volatile stock, it is less tricky for a direction neutral trade. Furthermore, such direction neutral trade can be converted to a directional trade when an investor/trader has greater comfort upon the share price reaching certain pricing level.

In an article we published August 18, 2011, "Will the Netflix drama Have a Happy Ending," we suggested that with NFLX at that time trading at $232.24, investors may be best served by purchasing January 2012 strangles (puts with 180 strike and calls with 285 strike both expiring in the third week of January 2012) for the combined cost of about $30 for the strangle.

Following August 18, 2011, as NFLX tumbled to its intraday low of $62.37 on November 30, 2011, a purchaser of such strangle, depending on his exit point, could have booked a profit of as much as 400%, when the 180 put was in-the-money by as much as $117 (vs. the strangle purchase price of $30), with additional small residual time-value still left in the options.

At this stage, going forward, there are 3 scenarios for NFLX:

NFLX can possibly continue to regain its lost subscribers, and possibly accelerate the addition of more subscribers through its cheaper streaming service, in addition to international growth such as the U.K. and other...

NFLX subscriber growth can decelerate once again, and is unable to regain its momentum that it enjoyed prior to Q3 2011, as NFLX can also succumb to some competition, cost and pricing pressures

NFLX can continue to maintain subscriber growth to possibly justify current share price levels, without providing much fuel in either direction

Trend-following entry-point is very tricky for a directional trade, especially when a stock is highly volatile and is trading at what seems to be unreasonable price levels either to the upside or downside. Similarly, volatility-following entry-point is very tricky for a non-directional trade, especially when volatility is pricey, and the stock is trading in the middle of a range, as opposed to the limits of one end or the other.

We believe that there is still too much uncertainty with regard to determining whether the above scenario 1 or scenario 2 will prevail. Although scenario 3 is a possibility, we believe that current pricing levels for some options would still justify a volatility trade. However, at this stage, and in case scenario 3 materializes, it may be best to establish a longer-term straddle position (at-the-money calls and puts), rather than a strangle position.

NFLX June 2012 straddles with a strike of 120 are trading at a price of about $33 ($18 for the puts and $15 for the calls). Although such price is expensive, investors may be rewarded by purchasing such straddle, and possibly looking at specific stock price levels to either delta-hedge the position to capture volatility moves, or to possibly convert the position into a directional position through the creation of synthetic option positions. This may be a good alternative to enjoy the 3-D ride.

Disclosure: I may initiate long option positions on the mentioned stock during the next 72 hours

Europe, IBM Drag Down Dow — Wednesday’s IP Market Recap

Stocks on Wednesday made a hasty retreat from Tuesday�s rally thanks to worries from Europe — and for the Dow, additional pain from IBM (NYSE:IBM).

The Dow closed down 83 points to 13,032, a 0.65% decline. The Nasdaq fell 11 points (0.37%) points to close at 3,031, while the S&P 500 gave up 7 points (0.41%) to finish at 1,385.

Worries over Europe — in particular Spain — cropped up once again, as the Spanish government shared concerns that there may be more problems lurking in the portfolios of Spanish banks, enhancing worries the government might require a bailout. European markets reacted by selling Spanish stocks, causing the overall market to fall ahead of the U.S. markets.

Markets were not encouraged by decent revenue and earnings reports from Intel (NASDAQ:INTC, more here) and IBM (more here) after the close Tuesday. IBM finished the day down 3.5%, its 12% weighting in the Dow Jones Industrial Average dragging the index down. Meanwhile, Intel dropped almost 2%.

Taking a severe beating Wednesday was energy giant YPF (NYSE:YPF). After news that it was being seized by the Argentine government, YPF suffered a 10%-plus loss Monday before trading was suspended, then sunk another 32% Wednesday as trading resumed. YPF now is down more than 60% year-to-date.

Investors looking for signs of life in the market tomorrow got mixed results after the bell, as American Express (NYSE:AXP), eBay (NASDAQ:EBAY) and Qualcom (NASDAQ:QCOM) all reported improved revenues and earnings, but got mixed reviews on the news.

Ebay enjoyed one of the biggest post-market parties. Ebay’s first-quarter profit was $725 million (55 cents per share) compared with $619 million (47 cents per share) in the year-ago period. Revenue was up 29% to $3.3 billion. Investors were cheered by eBay’s news, as shares rose 5% to $36 per share in early after-hours trading.

QCOM reported that its second-quarter net increased to $2.23 billion ($1.28 per share) from $999 million (59 cents per share) in the same quarter last year. Non-GAAP earnings of $1.01 per share topped Thomson Reuters estimates of 96 cents per share. Despite the good news, shares were down more than 3% in after-hours trading.

Quarterly net income at AXP rose to $1.26 billion ($1.07 a share) from $1.18 billion (97 cents) a year earlier, beating Bloomberg analyst EPS estimates of $1.01. After hours shares were trading down 54 cents on the news.

Three Up:

• Catalyst Health Solutions (NASDAQ:CHSI): Up 34% ($21.69) to $85.23.
• United Rentals (NYSE:URI): Up 11.83% ($4.84) to $45.75.
• Western Digital (NYSE:WDC): Up 5.19% ($2.05) to $41.56.

Three Down:

• Genworth Financial (NYSE:GNW): Down 23.77% ($1.83) to $5.87.
• First Solar (NASDAQ:FSLR): Down 7.00% ($1.61) to $21.35.
• Cree (NASDAQ:CREE): Down 6.05% ($1.93) to $29.97.

Marc Bastow is Assistant Editor at InvestorPlace. As of this writing, he was long INTC.

1 Dividend to Buy, 1 Dividend to Sell

The following video is part of our "Motley Fool Conversations" series, in which, Austin Smith, consumer-goods editor and analyst, and Andrew Tonner, technology editor and analyst, discuss topics around the investing world.

In today's edition, Austin and Andrew again assess two dividends, one they like and one they dislike. Andrew likes telecom stalwart AT&T. He thinks its strong cash-flow position will enable the company to continue to dominate telecom for years into the future. Austin dislikes Avon because of recent turmoil on its executive team and emerging threats from stronger competitors overseas.

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Gen-Probe Misses Where It Counts

Gen-Probe (Nasdaq: GPRO  ) reported earnings on Feb. 13. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Gen-Probe met expectations on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue improved, and GAAP earnings per share dropped significantly.

Margins contracted across the board.

Revenue details
Gen-Probe booked revenue of $139.1 million. The 19 analysts polled by S&P Capital IQ wanted to see net sales of $140.8 million on the same basis. GAAP reported sales were 16% higher than the prior-year quarter's $136.7 million.

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

EPS details
Non-GAAP EPS came in at $0.51. The 16 earnings estimates compiled by S&P Capital IQ predicted $0.54 per share on the same basis. GAAP EPS of $0.42 for Q3 were 25% lower than the prior-year quarter's $0.56 per share.

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

Margin details
For the quarter, gross margin was 67.3%, 340 basis points worse than the prior-year quarter. Operating margin was 26.7%, 60 basis points worse than the prior-year quarter. Net margin was 12.6%, 730 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $158.6 million. On the bottom line, the average EPS estimate is $0.68.

Next year's average estimate for revenue is $577.1 million. The average EPS estimate is $2.32.

Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 205 members rating the stock outperform and 10 members rating it underperform. Among 73 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 70 give Gen-Probe a green thumbs-up, and three give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Gen-Probe is outperform, with an average price target of $66.43.

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• Add Gen-Probe to My Watchlist.

Boston Beer Bubbles Higher

The words “Sam Adams” echoed out from bars across the land in the last quarter, helping boost volumes at Boston Beer (SAM) and sending shares rocketing 13% higher on Thursday afternoon. Boston Beer stock has been on a tremendous run in the past two years, more than doubling over that period. And despite some rocky spots this year, when investors wondered if the company’s growth could subside, the momentum appears to have returned.

SAM posted $1.19 in EPS, 9 cents ahead of analysts’ expectations. The company also raised its full year EPS outlook to a range of $3.60 to $3.90, up from $3.20 to $3.60. Depletions, or the amount of beer sold by wholesalers an distributors, jumped 11% in the quarter.

“We believe that our depletions growth is attributable to strong sales execution and support from our wholesalers and retailers as well as our great quality beers and strong brands.,” said Chairman and founder Jim Koch. “Depletions growth in the quarter improved from our first half results of 7% primarily due to the strength of our seasonal program.”

Breaking Down a Biotech Press Release

Aeterna Zentaris (Nasdaq: AEZS  ) issued a press release today with the following headline:

Aeterna Zentaris: FDA Grants IND to Investigator at Baylor College of Medicine for Phase 2A Trial with AEZS-130 in Cancer Cachexia

That sure is a mouthful. Let's see if we can break it down.

First, the abbreviations:

• FDA = Food and Drug Administration
• IND = Investigational New Drug

Aeterna Zentaris is in the title only because it's making the announcement; it's really Jose Garcia, an assistant professor at Baylor, who's received the IND.

So we're left with the longer, but more accurate, summary:

Aeterna Zentaris announces that the Food and Drug Administration Granted an Investigational New Drug to Jose Garcia, an Assistant Professor at Baylor College of Medicine, for a Phase 2A Trial with AEZS-130 in Cancer Cachexia

A few definitions:

• A phase 2 trial is the second of three stages of trials typically required before a drug is approved. The "A" in phase 2A means it's earlier stage; the "A" and "B" are sometimes separate, but they're often tied together, so if the patients in the 2A seem to be responding, the trial will enroll more patients into the B part.
• AEZS-130 is a drug being developed by Aeterna Zentaris that has already passed a phase 3 trial examining it as a diagnostic for testing growth-hormone stimulation.
• Cachexia is a situation in when patients experience substantial weight loss because of their disease or as a side effect of treatment -- in this case, patients with cancer who are likely taking chemotherapy.

So is it a big deal that Jose Garcia got an IND from the FDA to run a trial on AEZS-130? Not really. The FDA isn't particularly rigorous about issuing INDs; the agency usually signs off on such trials unless there's an obvious reason to think patients will be harmed or it's a new treatment regimen. Geron (Nasdaq: GERN  ) , for instance, had to work hard to get an IND for its stem-cell trial. For a vast majority of trials, the IND is just paperwork so the FDA knows the trial is being run.

The fact that Jose Garcia is running the trial isn't that big of a deal, either. Investigators run trials independent of companies all the time, often with the company donating drug for the trial and helping in some other fashion. Just today, Exelixis (Nasdaq: EXEL  ) announced a partnership with the National Cancer Institute to find investigators to sponsor trials testing its cancer-drug candidate cabozantinib.

I imagine there's a larger market for AEZS-130 as a cancer treatment than there is using it as a diagnostic, so running the trial seems like a good idea. The independently run trial will probably cost Aeterna Zentaris less money than if the company had run the trial, but it's also likely to give up some control.

Ultimately it'll be the results of the trial, not the FDA's allowing the trial to be run, that will drive Aeterna Zentaris' value. And the results of its phase 3 trial testing its colorectal cancer drug, perifosine, which it's developing with Keryx Biopharmaceuticals (Nasdaq: KERX  ) , will come sooner than the AEZS-130 results, so the near-term value rests on the perifosine results.

Keep track of Aeterna Zentaris as it tries to get perifosine and AEZS-130 approved by adding it to the Fool's free My Watchlist service.