Shorter the time target, less must be your equity exposure

Below is the edited transcript of his answers. Also watch the accompanying video.

Caller: I can invest Rs 20,000 per month. I want to earn around Rs 20 lakh in a time period of seven to eight years. I have investments in LIC, fixed deposits and NSC, and I have two dependents. How should I allocate the money?

A: Basically you already have a lot fixed deposits. So for Rs 20 lakh, that is, if you want to invest around Rs 20000 for a period of 10 years, I would suggest that you invest in diversified equity or even in top-capital equity. Essentially, you already have lots of debt schemes. I would recommend you do one of these two or three funds - Franklin India Bluechip, HDFC Top 200, Birla Sun Life Frontline Equity. You can pick and choose. This Rs 20000 could grow depending on the returns it could grow in 10 years to anywhere between Rs 40-53 lakh at an assumed return of around 14%.

Caller: I can invest Rs 10,000 per month and am looking at investment through an SIP. My goal is Rs 10 lakh in five years, and I have no dependents. How should I allocate the money?

A: You don�t have any dependents then possibly you don�t really need life insurance. You may need other kinds of insurance in terms of health or possibly disability insurance that you should seek. Separate advice but in terms of getting Rs 10 lakh for five years, when your period of investment is five years, a pure equity investment is not something that we would suggest. I would tend to suggest a balanced fund where about 70-75% is in equity and about 25-30% would be in fairly highly rated debt. This Rs 10000 per month will roughly give you, assuming a return of around 12.9% for five years, about Rs 8.5 lakh. If you want to get Rs 10 lakh, you should do Rs 12000.

Recommended funds are HDFC Prudence, you can do Reliance Regular Saving Fund � the balanced option or Birla Sun Life 95. The Rs 10000 or Rs 12000 that you decide to put in, I would suggest you spread it only over two funds and do not take all the three. You can pick and choose the two or three that you want.

Q: Would it be a safe assumption that if I am able to save Rs 10000 per month now its quiet possible that three or four years from now it will naturally scale up to maybe Rs 12000-13000� sheer inflation and perhaps the natural progress of things. Should one assume that when one has a goal of Rs 10 lakh five years down the line?

A: The point there is when he wants to increase his investment by Rs 2000 at that time, the period is only two or three years. And that time to invest in a balance fund would be a little more risky. As your goal comes nearer, you want more debt and much less equity. In fact, for a two-year horizon, it would be difficult to recommend equity. It will have to be pure debt instrument. If it is next year, he can still consider balanced fund but if it is after that then he should look at debt.

Best Warren Buffett Companies To Invest In Right Now

We'd all like to invest like the legendary Warren Buffett, turning thousands into millions or more. Buffett analyzes companies by calculating return on invested capital, or ROIC, to help determine whether a company has an economic moat -- the ability to earn returns on its money above that money's cost.

In this series, we examine several companies in a single industry to determine their ROIC. Let's take a look at Novartis (NYSE: NVS  ) and three of its industry peers, to see how efficiently they use cash.

Of course, it's not the only metric in value investing, but ROIC may be the most important one. By determining a company's ROIC, you can see how well it's using the cash you entrust to it and whether it's actually creating value for you. Simply put, it divides a company's operating profit by how much investment it took to get that profit. The formula is:

Best Warren Buffett Companies To Invest In Right Now: Penn National Gaming Inc.(PENN)

Penn National Gaming, Inc. and its subsidiaries own and manage gaming and pari-mutuel properties in the United States. It operates approximately 27,000 gaming machines; 500 table games; and 2,000 hotel rooms in 23 facilities in 16 jurisdictions, including Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Mississippi, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, West Virginia, and Ontario. The company was formerly known as PNRC Corp. and changed its name to Penn National Gaming, Inc. in 1994. Penn National Gaming, Inc. was founded in 1982 and is based in Wyomissing, Pennsylvania.

Advisors' Opinion:

• [By Quickel]

  Penn National Gaming(PENN) squeaked past its guidance through improved cost controls, and investors praised its efforts.

  But expectations were low, and its upbeat outlook shouldn't be viewed as a message that regional markets are recovering. "Going forward, we project soft regional gaming revenue results over the next three to six months, as we do not expect to see a significant increase in consumer spending patterns given the uncertain economic environment," J.P. Morgan analyst Joseph Greff wrote in a note.

  Penn National raised its full-year earnings guidance to $1.18 from $1.13 a share, and up its revenue outlook by $26 million to $2.44 billion from $2.41 billion.

  During the second quarter, the company earned $9.2 million, or 9 cents a share, compared with $28.5 million, or 27 cents, in the year-ago period. Excluding items, Penn actually earned 29 cents a share, a penny higher than estimates.

  Revenue rose 3% to $598.3 million, higher than the $597.1 million Wall Street projected. The upside was driven by both better revenues and margins and was generally broad-based across many properties, especially larger venues in Charlestown, Lawrenceburg and Grantville, Pa.

  Penn National rolled out table games in West Virginia and Pennsylvania during the quarter, which should be a growth catalyst moving forward. The company also plans to open a slot facility in Maryland on Sept. 30 and expects its Toldeo, Ohio, location to open in the first-half of 2012. Its Columbus project is slated to open in the second-half of 2012.

  The company repurchased 409,000 shares during the quarter. "[This] sends a message to investors on the value of its equity, but perhaps indicating the lack of near-term acquisition opportunities," J.P. Morgan analyst Joseph Greff wrote in a note.

Best Warren Buffett Companies To Invest In Right Now: Etrion Corp(ETX.TO)

Etrion Corporation, an independent solar power producer, engages in acquiring, developing, building, owning, and operating solar power plants in Italy. It owns 60 megawatts of operational, ground-based solar photovoltaic power plants. The company was formerly known as PetroFalcon Corporation and changed its name to Etrion Corporation in September 2009. Etrion Corporation was incorporated in 1993 and is headquartered in Geneva, Switzerland.

Top 10 Heal Care Companies To Invest In Right Now: Medidata Solutions Inc.(MDSO)

Medidata Solutions, Inc. provides software-as-a-service based clinical development solutions for life science organizations worldwide. Its solutions comprise software and services that allow customers to increase the value of their development programs by designing, planning, and managing key aspects of the clinical trial process, including study and protocol design, trial planning and budgeting, site negotiation, clinical portal, trial management, randomization and trial supply management, clinical data capture and management, safety events capture, medical coding, clinical business analytics, and data flow and interoperability. The company primarily offers Medidata Rave, a comprehensive platform for capturing and managing clinical data. It also provides Medidata CTMS, a clinical trial management solution that streamlines operational workflows; Medidata Designer, a protocol development tool that enhances the efficiency of clinical trial start-up; Medidata Insights, a busi ness analytics platform; and Medidata Balance, a randomization and trial supply management solution, which streamlines the process of developing, building, and implementing subject allocation plans. In addition, the company offers Medidata Grants Manager, an application to benchmark the investigator budgets against industry data; Medidata contract research organization (CRO) Contractor, an analytical tool for CRO outsourcing, budgeting, and negotiation; and iMedidata, a hosted portal application that allows investigative sites and sponsor study teams to start trial activities. Further, it provides hosting, support, and professional services. The company serves pharmaceutical, biotechnology, and medical device companies; academic institutions; and CROs and other entities engaged in clinical trials through a direct sales force; and through relationships with CROs and other strategic partners. The company was founded in 1999 and is headquartered in New York, New York.

Best Warren Buffett Companies To Invest In Right Now: inTest Corporation(INTT)

inTEST Corporation, together with its subsidiaries, engages in the design, manufacture, and marketing of mechanical, thermal, and electrical products. Its products are primarily used by semiconductor manufacturers in conjunction with automatic test equipment in the testing of integrated circuit (IC) or semiconductors, including microprocessors, digital signal processing chips, mixed signal devices, micro-electro-mechanical systems, application specific ICs, and specialized memory ICs, which are used in the automotive, aerospace, computer, consumer products, and telecommunications industries. The company operates in three segments: Mechanical Products, Thermal Products, and Electrical Products. The Mechanical Products segment offers manipulator products, such as in2(R), M Series, Aero Series, and Cobal Series that can hold various test heads and enable an operator to reposition a test head for alternate use with any one of various probers or handlers on a test floor. This s egment also offers docking hardware products, which protect delicate interface contacts and ensure repeatable and precise alignment between the test head's interface board and the prober's probing assembly test socket. The Thermal Products segment offers ThermoChuck precision vacuum platform assemblies, ThermoStream temperature management tool, and MobileTemp Series to offer thermal test systems, as well as offers Thermal Chambers and Platforms. The Electrical Products segment provides various tester interfaces that provide electrical connections between the tester and the wafer prober or IC handler to carry electrical signals between the tester and the probe card on the prober or the test socket on the handler. The company sells its products directly, independent and commissioned sales representatives, and distributors to semiconductor manufacturers and semiconductor test subcontractors worldwide. inTEST Corporation was founded in 1981 and is headquartered in Mount Laurel, New Jersey.

Best Warren Buffett Companies To Invest In Right Now: Rowan Companies Inc.(RDC)

Rowan Companies, Inc. provides onshore and offshore oil and gas contract drilling services in the United States and internationally. The company offers its contract drilling services through its fleet of 28 self-elevating mobile offshore drilling platforms and 30 deep-well land drilling rigs. The company was founded in 1923 and is headquartered in Houston, Texas.

Advisors' Opinion:

• [By Bobby Raines]

  Rowan provides offshore contract oil and gas drilling. The company is building three new drilling ships and recently announced a three-year contract for the first one. It seems likely that the company will have no problem finding work for the other two ships as well. The stock had a rough Spring, but recovered to levels close to its 52-week high in September before sliding during the Fall, but it has been moving higher since the start of 2013. The company has a five-year EPS growth rate of 36.22% and is trading at 118% of its 52-week low.

Masco Subsidiary to Expand in N.Y. - Analyst Blog

American/Hungerford Building Products, a wholly-owned subsidiary of Masco Corporation (MAS) recently announced its plans to expand into Rochester, N.Y.

American/Hungerford is a part of Masco Contractor Services and offers various forms of insulation installations such as popular batt, gutter installation and gutter protection services and blow applications. The company serves both homebuilders and homeowners. Expansion in the New York area will further broaden the company's client base.

Recently, other Masco Contractor Services units, Williams Insulation and Red Lion Insulation also announced their expansion plans. Williams Insulation plans to expand into Lake Charles, La. while Red Lion Insulation plans to expand into Farmingdale, N.J. Both the companies offer various forms of insulation installations such as fiberglass batt, blown fiberglass, spray foam and cellulose.

Masco manufactures, sells and installs home improvement and building products.It is scheduled to report its second quarter 2013 earnings results on Jul 30, 2013. The Zacks Consensus Estimate for the quarter stands at 19 cents per share. The Zacks Consensus Estimate for 2013 is 69 cents while that for fiscal 2014 is $1.02 per share.

Masco carries a Zacks Rank #3 (Hold).

We are encouraged by Masco's continued focus on product innovation and cost improvements. The company is benefiting from new home construction and repair and remodel activities. However, weak consumer spending on big ticket remodeling and a sluggish European economy remain headwinds.

Other stocks in the construction sector that are performing well and deserve a mention include PulteGroup, Inc. (PHM), D R Horton, Inc. (DHI), and USG Corporation (USG). PulteGroup and DR Horton carry a Zacks Rank #1 (Strong Buy) whereas USG Corporation carries a Zacks Rank #2 (Buy).

Cubist Announces Acquisitions of Trius Therapeutics and ...

After the close Tuesday, Cubist Pharmaceuticals (NASDAQ: OPTR) for a combined total potential value of $1.619 billion if certain milestones are met.

Trius Purchase

Cubist announced that it would buy Trius for $13.50 per share, a premium of 15.29 percent above the closing price of $11.71 of Trius' shares. Also, Trius shareholders will receive a contingent value right (CVR) worth an additional $2 per share in cash that is not publicly trade-able should certain milestones of sales be met. If the CVR vests with full value, the deal would be worth its maximum value of $818 million.

The CVR will entitle each Trius stockholder to receive $1.00 per share if net sales of tedizolid in the U.S., Canada and Europe are greater than or equal to $125 million in 2016 and up to an additional $1.00 per share, paid on a pro rata basis, for 2016 net sales between $125 million and $135 million.

"Trius is a tremendous strategic fit with Cubist that supports our Building Blocks of Growth long-range goals while extending our global leadership in the acute care environment," said Cubist Chief Executive Officer Michael Bonney. "Tedizolid is an exciting late-stage antibiotic candidate that we believe has the potential to be an important new tool in the infectious disease community's battle against resistant infections caused by MRSA."

"We have a high regard for the entire Trius team and the excellent work they have done with the tedizolid program and their promising discovery programs. We believe our extensive clinical, regulatory, and commercial experience in acute care will allow us to complement this team's work and maximize the potential for tedizolid while driving substantial near and long-term benefits for hospitals, patients and shareholders alike."

"As a recognized leader in acute care, we believe Cubist is best-positioned to maximize tedizolid's potential to patients in the U.S. and other world regions," said Jeffrey Stein, Ph.D., President and CEO of Trius. "This tr! ansaction culminates years of intense work by the Trius team to achieve this outcome, and our shareholders are being rewarded for their involvement and support of the company."

Optimer Acquisition

Cubist also announced the acquisition of Optimer after the bell in a deal with a total potential value of $801 million, $10.75 per share in cash up front with an additional CVR worth $5 in cash per share. The CVR payment will be $3.00 if cumulative net sales of Optimer's drug DIFICID exceed $250 million, $4.00 if cumulative net sales exceed $275 million and $5.00 if cumulative net sales exceed $300 million. It is expected that the CVR will be listed on the Nasdaq Stock Market.

Michael Bonney, Chief Executive Officer of Cubist, said, "Optimer is a natural fit for Cubist given our co-promotion of DIFICID and focus on the acute care and hospital environments. The transaction meets our strict criteria for acquisitions and is well aligned with our strategic goals – the Building Blocks of Growth. There is a significant and rising need for DIFICID as CDAD infections continue to be a growing clinical and economic burden globally."

"Given Cubist's outstanding hospital-based commercial infrastructure and our first-hand experience co-promoting DIFICID in the U.S., we are uniquely positioned to maximize DIFICID's full potential for the benefits of patients, hospitals and our shareholders. We expect a very smooth transition, and we look forward to its contributions to creating shareholder value for many years to come."

"I am pleased that we were able to successfully conclude our strategic review process with a transaction with Cubist. After a long and extensive process considering a range of alternatives with a number of parties, the Board of Optimer has determined that this transaction provides the best opportunity to optimize value for our stockholders by delivering an immediate upfront cash payment and a meaningful opportunity to participate in the future upside of DIFICID thro! ugh the C! VR," said Dr. Hank McKinnell, Chairman and CEO of Optimer.

"Cubist, a premier acute care and hospital commercialization organization, is well equipped to bring the benefits of DIFICID to patients. Extending our existing co-promote agreement with Cubist allows the continuation of Cubist's commitment to DIFICID and, in doing so, facilitates sustained DIFICID growth toward the achievement of the CVR."

Optimer and Trius were both halted ahead of the news. Cubist shares rose 2.63 percent after-hours to $58.50 per share, a new 52-week high.

Top 5 China Companies To Invest In Right Now

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Nuverra Environmental: A Sinking Ship With Default Risk

This article will explain why investors in Nuverra Environmental Systems (NES) could lose 80+% of their investment over the next 12 months. The NES investor base is primarily retail investors, many of which blindly trusted Dick Heckmann and Jim Cramer, while 40mm shares (largely institutional investors) are short the stock. The key points:

Rollup gone wrong: NES is a destroyer of capital and has yet to put up any decent results. The company has missed its guidance by 35+% in the last three years and yet to generate any positive operating profit. Misrepresenting itself: NES claims to be an environmental service company, when in fact it is just a simple oilfield service company (which trades at a meaningful discount to environmental service companies due to cyclicality and lack of differentiation). NES primarily owns trucks, tanks, and water disposal wells - nothing proprietary. The company is no different than the fluids service divisions of Key Energy, Basic Energy and Superior Energy. Founder jumped ship: Dick Heckmann saw the mess he created, handed off the reigns, removed his name from the company, and is distancing himself from this sinking ship. Extremely overvalued: The company is extremely overvalued relative to its peers (9x EBTIDA vs. 5x EBITDA) and only has $0.08 of tangible book value per share. Book value of $3.34 per share is extremely deceptive because it contains a massive amount of goodwill and intangibles from Dick's buying binge (where he overpaid for assets at the peak of the cycle). Over-levered with liquidity crisis looming: NES has $551mm of debt, and borrowing capacity has already been restricted on its credit facility. The company has slashed spending in order to generate cash, but NES is still set to violate its credit facility covenants by year-end. This is using updated guidance, which has always proven overly optimistic (note item #1). The impending default event will ultimately lead to a restructuring where equity holders are left with nothing.

The Nuver! ra Investment Pitch - The Bull Story

NES is a full cycle environmental solutions company. The company is the leader in oil field waste management and is active in the most popular shale regions (Bakken, Marcellus, Eagle Ford, etc.). NES cleans up the dirty work of the oil industry. It is an investment in increasing oil activity and increasing environmental and regulatory scrutiny. A win/win.

With all the controversy surrounding fracking and its impact on water and the environment, investing in an environmental service company that services the oil industry sounds great. Especially a company put together by a well-respected entrepreneur with lots of water management experience. That seems like the specific reason this company came into existence, to sell the hype. While NES might look great on the surface, and makes for an interesting Mad Money pitch, let's peel back the onion a bit…

Heckmann Corp.'s History - The Reality

Nuverra, formerly known as Heckmann Corporation (HEK), is the brainchild of Dick Heckmann. HEK was started as a $500 million SPAC in 2007. For those unfamiliar, a SPAC is essentially a $500mm blank check for Dick to go buy something and create value. Why did people trust Dick enough to give him $500mm? The market was booming and Dick had experience in rolling things up and creating value. Keep in mind the 90s were a popular time for rollups, until many went bankrupt due to excessive leverage and poor results. We'll get back to Dick's "successful" track record in a bit. Dick struggled to find something to buy, but before the SPAC was going to dissolve, he purchased China Water and Drinks for $625mm. He thought an investment in China and water was an easy sell. Unfortunately, Dick didn't do his homework and, in 2010, announced that he purchased a complete fraud. Whups.

So Dick changed course. He saw the mania with shale development and the fracking controversy and started buying up water-related assets in popular plays, like the Haynesvi! lle. The ! new vision was to roll up small commoditized fluids service companies (that move fresh water to well sites, and remove dirty produced salt water). So that's what he did; he went around chasing the drilling hype and buying out private companies at the peak of the market (and paying a healthy premium - goodwill and intangibles are 95% of the equity).

HEK claimed to be a "water solutions company," when in reality it was a simple oilfield service company. Dick underestimated that the oilfield is a relationship business, and he had no experience in the industry. Things were going so wrong that in 2012 Dick purchased an oil recycling company in Arizona, which had nothing to do with the core business. With the word oil in it, though, HEK could now be a full environmental solutions company. All of the rolled up acquisitions were going so poorly that HEK was on track to violate its credit facility covenants. So what did Dick do? He made one last hail mary acquisition (Power Fuels), handed off the reigns, and has stepped away before his mess blows up. Even Jim Cramer has distanced himself from the company.

Dick Heckmman's Real Reputation

While most investors likely think that Dick Heckmann is a value creating genius that should be trusted with retirement money, they might want to temper their enthusiasm. Dick pioneered the roll-up strategy of creating "growth and value" through acquisitions. His previous company, US Filter, was a big success in the 90s as Dick rolled up water assets, completing over 150 acquisitions and growing sales from $17mm to $5b over the decade.

While the stock did great, and shareholders were rewarded, did Dick add real value? Let's look at the facts. US Filter was sold to an even larger rollup, Vivendi (VIVHY.PK), in 1999 for $7.9b. So what happened to Vivendi? It sold the US Filter water assets to Siemens (SI) in 2004 for just $993mm. Those assets remained a structural mess that never reached any desired margin targets. Dick's financial eng! ineering ! had worked for his shareholders, but it appears he didn't create much real value at all.

Disastrous Results

The numbers speak for themselves. NES has lost ~$7mm of operating profit so far in 1H13. In fact, NES has never generated positive operating profit (see below). And operating profit (EBIT) is before the millions of interest it must pay, which is growing as debt grows. The company has only generated positive EPS on a few rare occasions using some tax accounting magic.

(click to enlarge)

Guidance Consistently Wrong

Most management teams tend to be conservative with their guidance. Not Nuverra. They have missed their guidance by over 35% for three years in a row; this is despite making a number of acquisitions to fill holes. 2011 missed by 46%, 2012 missed by 38%, and updated 2013 guidance is 32% lower than expectations from last quarter.

I challenge readers to find another company that has missed guidance so consistently and by such a large margin.

All Hail NES, the King of Adjustments

The only thing worse than missing guidance is the adjustments NES consistently makes to its financials to distort reality. "Adjusted" EBITDA is materially higher than real EBITDA and also includes a number of recurring expenses (stock-based comp, charges for relocating assets, etc.). The table below, from the bottom of the 4Q12 press release, speaks for itself.

(click to enlarge)

So are you starting to wonder why NES trades at a large premium to well-respected ! oilfield ! service companies that have put up consistent results? Keep reading…

Halliburton JV is a Façade

Most investors are excited and encouraged by the recent joint venture with Halliburton. Unfortunately, they don't realize that Halliburton's technology is disastrous to the water trucking industry (NES's primary source of EBITDA) and that it completely cannibalizes NES's business in the Bakken. Instead of transporting fresh water to new wells, removing salt water from producing wells, and disposing of it, NES will just be moving produced water to a new well for Halliburton. This cuts NES revenue generating opportunity by 75%! (p12)

And wasn't this rollup meant to be a growth company? Power Fuels generated $155mm of trailing twelve month EBITDA when it was purchased in 2012 as a growth company. The pro-forma business had $222mm of TTM EBITDA! Why is 2013 guidance just $140-145mm? That's because all of the rolled-up businesses are declining.

Power Fuels and Core Businesses in Decline

The Bakken has remained one of the most active basins in the country, yet Power Fuels results have collapsed. Why? Increased competition from new trucking companies entering the basin. Rental rates for tanks and other rental products have collapsed (excessive margins ultimately lead to oversupply). And E&P companies are investing in their own gathering and disposal systems for water. This completely disintermediates Power Fuels, and it has already shown up in the numbers (and likely gets worse).

In addition to Power Fuels, Nuverra's core fluids service business will continue to decline (barring a major pickup in activity) as a result of heavy competition and disintermediation from E&P companies (drilling its own disposal wells and sourcing its own water). Investors need to be aware that NES's core fluids service business is the lowest margin and most commoditized division for most oilfield services companies (who also have an integrated solution for water). Other oilfi! eld servi! ces (pressure pumping, coiled tubing, snubbing, drilling) are also commodity services, but much less so than trucking water and disposing it into disposal wells. The fluids service divisions of other oilfield service companies have been challenged this year due to oversupply from private and public players and disintermediation from E&P companies. Competition is expected to remain intense, and Nuverra will continue losing market share.

Default Around the Corner

What usually happens to over-levered rollups that don't deliver results? They blow up. NES has $400mm of senior notes and $130mm drawn on its $325mm credit facility. The credit facility has three covenants: minimum interest coverage ratio (2.75x), maximum total leverage ratio (4.00x), and maximum senior leverage ratio (2.50x). These can be found on page 39 of latest 10-Q. NES should have $195mm available on its credit facility, but borrowing capacity is already restricted to just $73mm because of its financial covenants (also p39). In fact, the only reason NES isn't already in default is because trailing results were so strong. That's the way it works with declining businesses, and why Dick bought Power Fuels - it bought him a year to escape!

Min interest coverage ratio (2.75x): With $13.3mm of quarterly interest expense, NES has to generate $146mm of TTM EBITDA ($13.3mm x 4 x 2.75) to avoid default. Max Total Leverage Ratio (4.00x): With $541mm of net debt, NES has to generate $135mm of TTM EBTIDA to avoid default. Based on the midpoint of 2013 guidance ($145mm of EBITDA), NES will trip a covenant and be in default by year-end. Keep in mind NES has always missed guidance, and guidance implies a 20% improvement in the second half of the year. 3Q13 will likely be stronger than 2Q13, but the downward trend will continue in 4Q13. If you annualize 1H r! esults ($! 65m x 2 = $130mm), the company would already be in default of both covenants.

Investors should be even more concerned given the robust activity - what would happen to NES if drilling activity actually slowed down? New management is aware of the impending liquidity problems and is trying to ward off future lawsuits. The new Q is full of cautionary language (p39-40) when old Qs barely mentioned the covenants.

Sky High Valuation at Risk - Fair Value 80% Lower

Despite all of these factors (disappointing and declining results, negative ROIC, management turmoil, liquidity and default risk), NES trades at a significant premium to its oilfield peer group (see below).

(click to enlarge)

What is NES really worth? Right now, I estimate fair value of ~$0.60/share. Using a half point turn discounted multiple (4.8x EBITDA), NES would be worth: $145mm in 2013 EBITDA x 4.8 - $541mm net debt / 253mm shares = $0.60/share. Does NES warrant a slight discount when it has a default risk? You decide. Could be arguably much lower. As I highlighted earlier, the $3.34 book value is deceptive because of the massive amounts of goodwill and intangibles. Tangible book is just $0.08/share.

Moreover, are the assets even worth its $0.08 book value? NES has never generated positive operating profit from them. Could they sell these assets? Most other similar companies are stuffed with trucks, tanks, and disposal wells. They don't want NES's used equipment because it would just add to their maintenance costs (to park more underutilized equipment). That's why I believe NES bondholders will also be at serious risk of not being made whole in the future, and their notes may ultimately be worth 50c on the dollar (or less).

Wrapping up

So that's the story on Nuverra. NES is a very risky investment with a high probability of bankruptcy.

If you disagree with the any of my an! alysis, w! hich is supported by facts, comment below. My intent was to inform, which was why you are reading this to begin with. The new CEO, Mark Johnsrud, is a great addition and a great manager. He has slashed capex, optimized working capital, and is aggressively cutting costs. NES was able to generate $13.5mm of FCF in 1H13 to pay down debt. Mark has slashed capex to a third of maintenance capex ($8mm of capex in 2Q13 vs. $22mm of depreciation) - likely at the expense of the long-term performance of the company and future growth - in order to try and save a liquidity event. He is a step in the right direction, but he is too late. Even he can't fix the levered mess that Heckmann created.

Source: Nuverra Environmental: A Sinking Ship With Default Risk

Disclosure: I am short NES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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SEC’s White Pushing to Finish Fiduciary Proposal ‘Quickly’

Securities and Exchange Commission Chairwoman Mary Jo White told lawmakers Tuesday that the agency was “focused” on completing a fiduciary duty rule proposal and that “it’s important for me to get to wherever we are going on that [rulemaking] as quickly as we can.”

Since the July 5 close of the comment period on the costs and benefits of a fiduciary rulemaking, White (left) told members of the Senate Banking Committee that she has met with senior officials at the Department of Labor regarding collaboration on both agencies’ fiduciary rules and has directed staff “to engage more” with DOL “to make sure they understand [the SEC’s] perspective” on its fiduciary rulemaking, particularly the impact of the DOL’s fiduciary rule proposal on broker-dealers.

However, White stressed at the hearing, titled, “Mitigating Systemic Risk in Financial Markets through Wall Street Reforms,” that while the agencies are collaborating, they will proceed independently.

The DOL’s Employee Benefits Security Administration’s Semiannual Regulatory Agenda, released July 3, states that a reproposal to amend the definition of fiduciary under the Employee Retirement Income Security Act will come in October.

While White said that the SEC is focused on the fiduciary rulemaking--which is not a mandatory rulemaking under Dodd-Frank--she noted the “full plate” of Dodd-Frank and the JOBS Act mandated rules that the agency must wade through and act on.

To ensure completion of both Dodd-Frank and JOBS Act rulemakings, White said that she has created “parallel" teams at the agency to focus on rulemakings under each law. White said that the sheer volume of Dodd-Frank rulemakings as well as the fact that some are more complex than others and need to be worked on jointly with other agencies has delayed action on some. However, she said the agency “is making progress” on various "front burner" issues like derivatives, the Volcker rule, crowdfunding and money market funds.

Action on fiduciary rulemaking, however, could be stymied by the arrival of the two new SEC Commissioners–Kara Stein and Michael Piwowar–who were confirmed by the Senate Banking Committee on July 18. Industry officials say full Senate confirmation of Stein and Piwowar could come this week, before Congress breaks for its August recess.

White noted that the two new SEC Commissioners could hinder completion of the agency’s rules on money market funds, which she said could likely be released in a “month or two.”

The SEC on June 5 proposed two alternative reforms to money-market funds. First, to require that all institutional prime money-market funds operate with a floating net asset value (NAV). Second, to employ a “fees-and-gates” approach in which a nongovernment money fund imposes a 2% liquidity fee if the fund’s weekly liquid assets fall below 15% of its total assets.

White said at the time that the two reforms could be adopted separately or combined into a single reform package. “The two alternative approaches in today’s proposal target the common goal of reducing the incentive to redeem in times of stress, albeit in different ways,” she said.

As to the SEC's equity crowdfunding rules, White said that the agency is working to ensure that the Financial Industry Regulatory Authority's rules governing crowdfunding portals are released simultaneously with the SEC's equity crowdfunding rules.

Heartland Upped to Strong Buy - Analyst Blog

On Jul 9, Zacks Investment Research upgraded Heartland Payments Systems Inc. (HPY) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Heartland Payments witnessed some improvement in its earnings estimates following the first quarter results and the announcement of a new share repurchase program. The company's diversified product profile and enhanced merchant relationships have also been impressive. Additionally, this payment processor delivered positive earnings surprises in all of the last 4 quarters with an average beat of 12.3%.

On Apr 30, Heartland Payments reported first quarter earnings per share of 45 cents that comfortably outpaced the Zacks Consensus Estimate of 40 cents and year-ago quarter figure of 35 cents.

Results were primarily supported by 16.8% growth in net revenue, driven by a 3.8% increase in transaction processing volume and 2.2% hike in same store sales. These were partially offset by a 6.7% increase in total expenses. Consequently, operating margin edged up to 18.2% from 18.1% in the year-ago quarter.

Nevertheless, the steady performance supported the reaffirmation of Heartland Payment's guidance for 2013. The company is persistently working towards enhancing its margins by improving its top line, while also focusing on building a sturdy capital base.

Additionally, consistent dividend payouts along with the recent sanction of the share buyback program instill shareholder confidence and reflect earnings accretion on account of low share count.

Based on Heartland Payment's fundamental strength, the Zacks Consensus Estimate for 2013 rose 1.5% to $1.97 per share in the last 60 days, secured at the higher-end of the management's guidance and up 19.2% over the prior-year quarter. The estimate for 2014 stands at $2.21 a share, up 0.5% in the last 60 days. Meanwhile, no downward revision in estimates was witnessed for both the years.

The company's long-term growth, pegged at 14.6% and above the peer group average of 1! 2.0%, should encourage positive estimate revisions in the future as well.

Other Stocks to Consider

Apart from Heartland Payments, other stocks that are outperforming in the financial sector include Official Payments Holdings Inc. (OPAY), Moody's Corp. (MCO) and AmTrust Financial Services Inc. (AFSI). All these stocks carry a Zacks Rank #1 (Strong Buy).

Citigroup Vends Liabilities of $2.2B - Analyst Blog

Citigroup Inc. (C) recently transferred the obligation of paying pensions to about 20,000 employees of EMI Group to Pension Insurance Corporation. This is anticipated dispose liabilities of approximately £1.5 billion ($2.2 billion). The financial terms of the deal were not disclosed.

The deal is the largest since 2011, when Legal & General took pension liabilities of £1.1 billion from the T&N Retirement Benefits Scheme.

In Nov 2011, Citigroup divided EMI Group into 2 parts and divested them. Along with the sale of its recorded music division to UMG, EMI Group's publishing division – EMI Music Publishing – was sold to a group of investors led by Sony Corporation of America (SCA), a U.S. subsidiary of Sony Corporation (SNE) for $2.2 billion.

The sale of EMI Group's recorded music and publishing assets is an achievement for Citigroup. In 2007, Guy Hands and his private equity team at Terra Firma offered $6.7 billion for EMI Group but failed to meet the loan payments provided by Citigroup to finance the deal. Consequently, Citigroup took over EMI Group in February and since then, has been conducting auctions to sell the British music company.

In Jul 2012, the Federal Trade Commisssion (FTC) approved the deal between Sony and EMI Music Publishing. The agreement gave Sony the right to purchase EMI Music Publishing from Citigroup.

However, the deal gained sanction from the European Union (EU) in Apr 2012 on the condition that EMI Group would have to vend the worldwide publishing rights of artists such as Robbie Williams and Lenny Kravitz. Consequently, in Oct 2012, Citigroup completed the sale of EMI Group.

Conclusion

We believe that this vending of liabilities will benefit Citigroup and go a long way in reducing its expenses amid a challenging macroeconomic environment.

Citigroup currently carries a Zacks Rank #3 (Hold). Some major better performing banks include JPMorgan Chase & Co. (JPM) and Northern Trust Corporatio! n (NTRS). Both these stocks carry a Zacks Rank #2 (Buy).

Slowing Down to Take Inventory

Best Tech Stocks To Buy For 2014

Each investor must determine how much time they are willing to allot to investment research. Unless you are a full-time investor or broker, you are typically limited in the amount of time available, so the amount of information on each investment vehicle becomes overwhelming to the researcher. Often, the vast amount of information leads to dread or anxiety which leads to less-than-quality research. While it is incumbent upon the investor to research the financial statements thoroughly, there is no list of what's more important than the other.

Below offers just one idea in your research of financial statements that might be considered along your path for better decision making. The point of the exercise is to make it simple but instructive, leading to a conclusion you are comfortable with. If interest is shown, there are many such ideas that can be illustrated regularly.

Peter Lynch, former portfolio manager of the very successful Fidelity Magellan Fund, wrote a book entitled, "One up on Wall Street," where he discusses his ideas for watching inventory. While not important for service or financial type companies, Lynch encourages watching that the inventories for a company are not piling up. The point is that you are trying to verify that the sales or revenue are increasing at a greater rate than the rate of growth of inventory.

Let's take a few examples:

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You will note that Lowe's ratio of inventory to revenue (inventory/revenue) is consistent. The variations are minor. Second, note that the rate of growth of revenue distances the rate of growth of the Inventory. All of this is a good sign. Note that the ratio between 2011 and the trailing twelve months are increasing, but is still an insignificant number.

Now, let's look at Lowe's (LOW) ! greatest competitor, Home Depot (HD):

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Home Depot's ratio of inventory to revenue is very consistent, all around 15. What is noticeable, however, is that the inventory is growing at a rate higher than the revenue growth. Lynch determines that if the rate of inventory growth is twice the rate of growth of revenue — sell. Moving on, note that the numbers completely change between 2011 and the trailing 12 months. Once again, the numbers are in line and the revenue is now outpacing the inventory.

You can expect variations as we've shown, but let's consider one more company, Kirkland (KIRK):

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Between 2010 and 2011, revenue grew at 2.22%, but inventory grew at 12.96%. This is a very big variation and worthy of catching our attention. So keep digging. Note that the ratio (inventory/revenue) rises from 9.69% to 10.71%. That is not suspicious, however; looking at the next 12 months, we see the ratio climb to 14.24%. We should now be concerned because we've confirmed that inventory is growing much faster than the revenue. Part of the worry is always that obsolete type items may not be sell-able in the future and the company may be stuck with merchandise they cannot get rid of. Fortunately for Kirkland, the type of product they carry can typically be sold, with the exception of their seasonal lines.

Taking it one step further, we go from the 2011 figures to the trailing 12 months. Note how the rates vary. This is a major red flag.

Many investors will walk away at this point when they see these types of numbers, but also understand that as value investors, the company may be in the midst of dealing with these very tribulations and this may be one of the reasons for the price of the stock being currently depressed.

Once again, ultimately, you must decide, ! but looki! ng at this ratio only takes a few minutes and can save you a lot of anguish.

Disclaimer: I have no positions
in KIRK, HD or LOW

Can Yum! Brands Break Out?

With shares of Yum! Brands (NYSE:YUM) trading around $68, is YUM 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

Yum! Brands is a quick service restaurant company based on number of system units, with approximately 37,000 units in more than 120 countries and territories. The company — through its three main restaurants of KFC, Pizza Hut, and Taco Bell — develops, operates, franchises, and licenses a worldwide system of restaurants. These popular food chains prepare, package, and sell a menu of priced food items. Convenience and tasteful foods continue to rise in popularity worldwide, which allows Yum! Brands to be able to provide the food items demanded by consumers worldwide. Through its segments, Yum! Brands will continue to supply its world audience with quick and tasty items for many years.

T = Technicals on the Stock Chart are Mixed

Yum! Brands stock has been consolidating after a few years of explosive moves higher. The stock is still in the middle of its consolidation range, but a solid break higher will surely see a powerful move. 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, Yum! Brands is trading around its rising key averages which signal neutral price action in the near-term.

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(Source: Thinkorswim)

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

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Yum! Brands Options	27.7%	93%	90%

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

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

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

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

E = Earnings Are Mixed 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 Yum! Brands’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Yum! Brands look like and more importantly, how did the markets like these numbers?

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	-25%	-3.09%	25%	6.15%
Revenue Growth (Y-O-Y)	-7.58%	1.02%	Top Small Cap Companies For 2014 9.01%	12.50%
Earnings Reaction	7.01%	-2.9%	7.49%	0.47%

Yum! Brands has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have generally been pleased with Yum! Brands’s recent earnings announcements.

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P = Poor Relative Performance Versus Peers and Sector

How has Yum! Brands stock done relative to its peers, McDonald’s (NYSE:MCD), Jack In The Box (NASDAQ:JACK), Wendy’s (NASDAQ:WEN), and sector?

	Yum! Brands	McDonald’s	Jack In The Box	Wendy’s	Sector
Year-to-Date Return	3.57%	10.93%	28.57%	24.36%	11.56%

Yum! Brands has been a poor relative performer, year-to-date.

Conclusion

Yum! Brands is a quick service restaurant company that is most notably known for its KFC, Pizza Hut, and Taco Bell food chains. The stock has been consolidating over the last year after experiencing several powerful moves higher over the last few years. Over the last four quarters, Yum! Brands has seen mixed earnings and revenue figures that have generally kept investors pleased. Relative to its peers and sector, Yum! Brands has been a poor year-to-date performer. WAIT AND SEE what Yum! Brands does in coming quarters.

Treasure Hunting for Billionaire Bargains

Best Stocks To Own For 2014

Who doesn't like to find a a deal or a steal at bargain basement prices? These are just a few of the stocks that have decreased by 20% or more since billionaires made these buys in the first quarter of 2013, along with current financial news reported by the company for second quarter.

Check out the GuruFocus Guru Bargains feature to discover many more possible treasures.

Cenovus Energy Inc. (CVE) - Yield 3.20

Cenovus Energy Inc. (CVE) is down 13% over 12 months. The company has a market cap of $21.64 billion; its trades with a P/E ratio of 30.30 and P/S ratio of 1.30.

The company reported its second quarter 2013 financials with net earnings for the second quarter at $179 million compared with $397 million in the same quarter a year ago. The company's total crude oil production volume is 171,127 barrels per day, compared to 155,566 a year ago in the same quarter.

Guru Lou Simpson increased his CVE position in the first quarter by 18.67%. He bought 435,100 shares at an average price of $32.61, for a loss of 12.2%. The current share price has dropped to $28.64.

Historical pricing:

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Canon Inc. (CAJ) - Yield 2.40

Canon Inc. (CAJ) is down 6% over 12 months. The company has a market cap of $37.22 billion; it trades with a P/E ratio of 17.50 and P/S ratio of 1.00.

Canon Inc. reported a year on year increase of 3.2% in net sales for the six months ended June 30, 2013. The company's gross profit ratio for the second quarter increased 0.5 points year on year to 49.4%, due to ongoing cost-cutting efforts along with the depreciation of the yen. Canon had an increase in second quarter operating profit by 6.2% or $993 million (USD) compared with the same quarter a year ago. Net income attributable to Canon Inc. increased by 28.6% to $672 million (USD) for the second quarter! , according to a company press release.

Guru John Hussman increased his CAJ position in the first quarter by 83.33%%. He bought 2,200 shares at an average price of $35.33, for a loss of 8.62%. The current share price has dropped to $32.29.

Historical pricing:

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Associated Estates Realty Corp. (AEC) - Yield 4.90

Associated Estates Realty Corp. is up 1% over 12 months. The company has a market cap of $764.39 million; it trades with a P/E ratio of 16.60 and P/S ratio of 4.10.

Associated Estates Realty Corporation is a real estate investment trust (REIT), headquartered in Richmond Heights, Ohio. The company's portfolio consists of 52 properties containing 13,495 units located in 10 states.

Associated Estates Realty Corporation reported its financial results for the second quarter ended June 30, 2013 with a net income of $1.6 million, or $0.03 per common share (diluted), for the quarter ended June 30, 2013, compared to net income of $23.6 million, or $0.54 per common share (diluted), for the quarter ended June 30, 2012. Funds from operations for the second quarter were $0.31 per common share (diluted), compared to $0.32 per common share (diluted) for the same quarter a year ago. Net income in the second quarter of 2012 was driven primarily by $22.9 million of gains associated with the sale of five properties, according to a company press release. The company also reported 96.6% occupancy and acquired a 388-unit property in Florida.

Guru David Dreman bought a new holding for 343,333 shares in the first quarter. He bought shares at an average price of $17.10, for a loss of 12%. The current share price has dropped to $15.12.

Historical pricing:

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HollyFrontier Corp. (HFC) - Yield 2.10

HollyFrontier Corp. is up 17% over 12 months. The company has a mark! et cap of! $9.23 billion; it trades with a P/E ratio of 5.10 and P/S ratio of 0.50.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day refinery located in El Dorado, Kansas, a 125,000 barrels per stream day refinery in Tulsa, Okla., a 100,000 barrels per stream day refinery located in Artesia, New Mexico, a 52,000 barrels per stream day refinery located in Cheyenne, Wy. and a 31,000 barrels per stream day refinery in Woods Cross, Utah.

Yesterday the company reported its second quarter net income of $257.0 million or $1.27 per diluted share for the quarter ended June 30, 2013, compared to $493.5 million or $2.39 per diluted share for the quarter ended June 30, 2012.

Guru John Keeley increased his position in the first quarter by 39.737%. He bought 2,050 shares at an average price of $51.51, for a loss of 11.8%. The current share price has dropped to $45.45.

Historical pricing:

[ Enlarge Image ]

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USD/CHF stable above 0.9200

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FXstreet.com (New York) - The USD/CHF foreign exchange rate has garnered a measure of stability following an earlier plunge below 0.9200 (0.9189 intraday low) Thursday.

In the United States, Initial Jobless Claims (August 3) were reported at 333K, beating expectations of 336K. Moreover, Continuing Jobless Claims (July 27) yielded a figure of 3.018M, relative to a projection of 2.950M.

USD/CHF strategic bias

According to the Technical Analyst Team at ICN.com, "The USD/CHF is carrying many attempts to break below 0.9200 -88.6% correction- which is preventing us from favoring the downside move for now, especially as momentum indicators are trading in oversold areas. We will remain neutral for now observing the mentioned 0.9200 as a four-hour closing confirmation will trigger a sharp downside move."

The USD/CHF is still trading negatively, down -0.06% in these moments, though it has recovered back to 0.9211. Technically speaking, the USD/CHF remains fortified by supports at 0.9199, ahead of 0.9187, and 0.9156, notes the Mataf.net analyst team.

Is This Netflix's iPhone 5 Moment?

Yesterday's debut of Arrested Development will surely be a big winner for Netflix (NASDAQ: NFLX  ) . The leading video service has a couple of advantages here that it lacked in its three earlier forays into first-run exclusive content.

For starters, Arrested Development already has a built-in audience. That's a slam-dunk for Netflix. Even with the star power of Kevin Spacey and David Fincher for February's House of Cards, there was always a question of whether folks would tune in. People didn't know those characters. Lots of people know the Bluth family.

Another major advantage Netflix has -- and this is something that only Netflix has -- is that it knows the cult fave's growing popularity better than anyone else. It's been streaming the first three seasons for a long time. It knows viewership trends. It knows whether the folks who watch stick around more than those who don't. It knows what other shows they watch, making other connections to arrive at folks who will probably be fans in the future.

Everything is falling into place before we even get to the first wave of reviews of the actual quality of the fourth season. All is good at Netflix after its shares more than quadrupled since bottoming out last summer.

But what if Arrested Development is its iPhone 5 moment?

Most investors know that Apple (NASDAQ: AAPL  ) stock peaked at $705.07 late last year. It has shed a brutal 37% of its value since then, even as consumer tech stocks have been generally rallying. What most investors don't know is that Apple's stock hit that high on the morning of Sept. 21, 2012 -- the day the iPhone 5 hit retailers.

Is Netflix another "sell on the news" investment? Will the big gains that have been building ahead of a highly anticipated event -- the iPhone 5 for Apple last September, and Arrested Development for Netflix now -- get wiped out after the catalyst has run its course?

Probably not.

The downside of upside
It certainly wouldn't be a surprise to see Netflix take a breather here. The stock has had a huge run since last summer, and we're now two months away from the next likely upside catalyst, when the company turns in what should be another strong quarterly report in late July.

However, there's little reason to expect an Apple-esque collapse here. Margins and analyst estimates have been heading lower at Apple in recent months, and the exact opposite is happening with Netflix.

Two months ago, analysts thought Apple would earn as much this fiscal year as it did in fiscal 2012. Now those same pros don't even see Apple earning as much in fiscal 2014 as the consumer-tech giant earned last year. Netflix estimates are going in the other direction.

Apple's iPhone 5 peak came when an onslaught of competition was on the way. New Android, Windows, and even BlackBerry devices have blurred the marketplace. Netflix, on the other hand, has no real competitor. There's no other service approaching a billion hours of streamed content, and Netflix's lead will continue to grow as it keeps parlaying the revenue being generated by more than 33 million global subscribers into more licensing deals.

That doesn't mean Netflix investors can rest easy. The stock could take a hit from these heights based on valuation concerns. Apple was never expensive by valuation metrics. It was the graying fundamentals that tripped it up. Netflix isn't exactly cheap these days, even if you back out the operating losses overseas.

However, until we can see the ceiling for Netflix's model -- and we don't appear to be there just yet -- it would be premature to expect a post-Arrested Development collapse. A correction? Sure. A full-blown Bluth calamity? No way.

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Cisco Catches Up to the Market -- That's Just for Starters

The rhythm of daily stock market gains is almost becoming monotonous. Today, U.S. stocks recorded their ninth "up" day in 10 sessions (each of which produced a record (nominal) high in the process), as the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) rose 0.5% and 0.4%, respectively.

Today's gains didn't impress option traders, however, as the VIX Index (VOLATILITYINDICES: ^VIX  ) , Wall Street's fear gauge, rose slightly, to close at 12.81. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Cisco gets some love -- finally
After the market closed on Wednesday, the world's largest networking equipment manufacturer and Dow component Cisco Systems (NASDAQ: CSCO  ) reported results for its fiscal third quarter ended April 27. Investors liked what they heard and sent the stock up more than 7% in the after-hours session, which was enough to push the shares' year-to-date performance past that of the S&P 500:

CSCO data by YCharts.

Let's start with a caveat: The after-hours session attracts few participants and is illiquid -- therefore, prices may not reflect the broad market's reception of the new information the following day. However, a glance at Cisco's fundamentals and its valuation suggest these after-hours gains are easily sustainable; in fact, I think this report could be the catalyst for a further rerating of the shares.

What did investors like about the report? Excluding unusual items (which include stock-based compensation -- a routine practice at technology companies), Cisco earned $0.51 per share in the quarter, two cents over the consensus estimate. Meanwhile, revenues of $12.22 billion were also above analysts' expectations of $12.18 billion.

Considering that Cisco peers Juniper Networks and IBM put up weak numbers recently, Cisco is providing investors with evidence that their shift from "being a communications company, a networking company, to more of an IT company" (in the words of CEO John Chambers) was a smart strategic choice.

With shares sporting a 3.2% dividend yield and trading at less than 10.5 times the estimate of next 12 months' earnings per share (based on the $21.21 regular session closing price), it's hardly absurd to think the after-hours price gains will hold and that the shares will go on to outperform the market by a healthy margin.

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Merck Lowers 2013 Guidance

Pharmaceutical giant Merck  (NYSE: MRK  )  doesn't have the goods for what ails you this quarter. First-quarter earnings came up short of top-line consensus estimates by Capital IQ analysts, even as it beat on the bottom line. Even so, it had to lower guidance for the full year as competition from generic drugs continue to sap its strength.

Merck reported revenues for the three months ending on March 31 of $10.67 billion, down 9% from the same period last year, when it recorded revenues of $11.73 billion, and falling short of analysts' expectations of $11.10 billion. The pharma recorded GAAP profits $0.52 per share, 7% below the $0.56 it posted in the year-ago quarter but well ahead of the $0.46 in GAAP earnings Wall Street expected.

Merck now expects full-year 2013 non-GAAP earnings per share to be in a range of $3.45 and $3.55, or $0.15 per share lower than what it guided toward at the end of 2012. Generic competition for its asthma and allergy drug Singulair caused sales of the drug to plunge 75% in the quarter.

While saying he still remains confident of the pharma's future opportunities, Merck Chairman and CEO Kenneth C. Frazier said: "Our first quarter performance reflects the challenges of major patent expiries coupled with the impact of currency and other headwinds. During the quarter, we took focused actions to reach our EPS target while at the same time advancing Merck's pipeline in our laboratories and through strategic deals and partnerships."

Merck operates and has customers in more than 140 countries around the globe. It had revenues of $47.3 billion in 2012.

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How Under Armour Hopes to Boost Its Earnings

On Friday, Under Armour (NYSE: UA  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Under Armour has high aspirations of challenging the biggest players in the athletic products industry. Having started from the lucrative apparel niche, Under Armour has even bigger game in its sights as it expands into the highly competitive footwear segment. Let's take an early look at what's been happening with Under Armour over the past quarter and what we're likely to see in its quarterly report.

Stats on Under Armour

Analyst EPS Estimate	$0.03
Change From Year-Ago EPS	(79%)
Revenue Estimate	$467.6 million
Change From Year-Ago Revenue	22%
Earnings Beats in Past 4 Quarters	4

Source: Yahoo! Finance.

Will Under Armour give investors a perfect fit this quarter?
Analysts have slashed their estimates on Under Armour for the just-ended quarter, cutting their earnings-per-share consensus from $0.19 three months ago to just $0.03 currently. Yet for the full 2013 year, they only see a decline of a nickel per share, suggesting that the company could earn back some of its shortfall in coming quarters. The stock has showed no signs of despair, however, rising nearly 20% since early January.

Under Armour has come a long way from its roots in helping to popularize athletic performance apparel. The industry has become huge, and despite the emergence of many new players, Under Armour has not only held its own but also gone after Nike (NYSE: NKE  ) and its dominance of the athletic footwear market. With its Spine shoe brand, Under Armour will expand beyond shoes for niche sports to tackle the much larger running-shoe market.

Under Armour certainly hasn't shied away from the fight against rivals. In February, Under Armour sued Nike for trademark infringement, claiming Nike was illegally using variants of its "I Will" catch-phrase in advertising. Meanwhile, the company has taken on lululemon athletica (NASDAQ: LULU  ) outside the courtroom by looking to expand its women's offerings and dedicate more floor space in its own stores to appeal to women.

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Another innovative area Under Armour has targeted recently is smart-watch technology. With its Armour39 biometric strap, the company hopes to let athletes monitor their performance in real time while providing more detailed information than the competing Nike FuelBand.

In Under Armour's earnings report, watch for confirmation that customers are enthusiastic about the company's latest innovations. With the stock trading at a high multiple, Under Armour needs to be sure to keep its growth rate high in order to avoid a big share-price plunge.

Under Armour may hope to duplicate Lululemon's success with female athletes, but the market is still Lululemon's to win or lose. Can Lululemon fight off larger retailers and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.

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How Will Chesapeake Handle the Post-McClendon Era?

On Wednesday, Chesapeake Energy (NYSE: CHK  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Chesapeake has been a major natural gas and oil producer for years, but it has faced several controversial episodes with its founder and former CEO Aubrey McClendon along the way. Now that McClendon has stepped down, investors are wondering which direction the company will move. Let's take an early look at what's been happening with Chesapeake Energy over the past quarter and what we're likely to see in its quarterly report.

Stats on Chesapeake Energy

Analyst EPS Estimate	$0.25
Change From Year-Ago EPS	39%
Revenue Estimate	$2.80 billion
Change From Year-Ago Revenue	15.6%
Earnings Beats in Past 4 Quarters	1

Source: Yahoo! Finance

Can Chesapeake Energy keep growing under new leadership?
Analysts have gotten a lot more optimistic over the past few months about Chesapeake's earnings prospects. They've raised their estimates for the just-ended quarter by $0.03 per share as part of a larger $0.08 upgrade on their 2013 EPS consensus. The stock's response has been muted, however, with gains of less than 5% since late January.

As much attention as Chesapeake's executive office has gotten recently, investors have been just as worried about the company's financial situation. Low natural-gas prices have made it a lot more challenging for Chesapeake to maintain its substantial debt, and the company has had to sell off assets as a result. The company has also had to cut back on its capital expenditures, seeking to keep its spending this year under $6 billion.

Chesapeake is still seeking to raise more cash through further asset sales this year. In February, Chesapeake sold a 50% interest in some of its Mississippi Lime acreage to China's Sinopec (NYSE: SHI  ) . Then, earlier this month, Chesapeake said it's looking to sell further acreage in the Utica Shale play in the U.S. Midwest. Motley Fool contributor Tyler Crowe believes that Chevron (NYSE: CVX  ) might be a natural buyer for Chesapeake's Utica property, given its recent commitment to focusing on unconventional domestic energy plays for further growth.

The problem that Chesapeake faces is that other companies are following the same strategy to try to get through the tough times for natural gas. In particular, SandRidge Energy (NYSE: SD  ) has followed Chesapeake's road map toward greater production of oil and natural gas liquids, and with so little interest in dry-gas assets, no company selling them off will get full value from a buyer. If the recent recovery in natural-gas prices can take root, then and only then will interest in those assets start to build up again.

The key to Chesapeake's quarterly report will be for the company's new leadership team to present a viable strategy for the company going forward. With the potential for a leadership vacuum to reduce investors' confidence in the energy company, Chesapeake needs to quash those concerns and move forward aggressively with its plans.

Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.

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