Swiss bank UBS blames a rogue trader at its London office for a $2.3 billion loss that is Britain's biggest-ever fraud at a bank. Kweku Adoboli, the 32 year old trader, is sentenced to seven years in prison. Britain's financial regulator fines UBS after finding its internal controls were inadequate and allowed Adoboli, a relatively inexperienced trader, to make vast and risky bets.
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Global Eagle Entertainment (NASDAQ: ENT ) rose 12% early Friday, then settled close up around 7% after the in-flight content and connectivity specialist released solid first-quarter results.
So what: Quarterly revenue rose 55%, to $86 million -- compared to analysts' estimates for revenue of $85.4 million -- which translated to a slightly narrower net loss of $26.3 million, or $0.47 per share. Meanwhile, first-quarter adjusted earnings before interest, taxes, depreciation, and amortization swung to a $5.1 million gain from a pro forma $0.5 million loss in the same year-ago period.
Now what: Global Eagle Entertainment declined to provide specific forward guidance, but instead stated: "We expect continued growth through the remainder of 2014. Drivers of increased revenue and EBITDA include growth of our content customer base, continued installations of our connectivity systems, the full year impact of the acquisitions of PMG and IFE Services made in 2013, and the realization of integration synergies over the second half of the year."
I'm personally having a tough time getting excited about Global Eagle's business given its continued significant losses. Still, Global Eagle should have plenty of time and resources as it works toward profitability, with more than $250 million in cash -- or roughly a third of its overall market capitalization -- and less than $8 million in debt on its balance sheet at the end of the quarter. For now, I'm adding Global Eagle to my watch list to keep tabs on its progress during the next few quarters.
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Just how low can it go? That has to be a question many investors must be wondering about the NASDAQ. Let's take a 3-T look at the index and try to answer the question.
On the first chart, iStock sees to potential landing spots, for the near-term anyway. First up, the index is trading on the trend line connecting the past year's pivot-bottom. Only once in the last 52-weeks has the index violated the key line of support, but barely.
If the blue line holds, then the NASDAQ should move into recovery mode soon, like now. If current support fades, it would be an unwelcome development in our view. It could mean that we've seen the top of the energizer bunny rally. It might even be the top for a long-time to come.
[Related -PowerShares QQQ (QQQ): Is the NASDAQ About to Go Cliff Diving? A 3T Review]
The next stop for the NASDAQ likely would be psychological as well as completing a triangle pattern at 4,000. We don't even want to talk about what happens if the NASDAQ goes sub 4,000 by 1-2% - many will be jumping in-line calling for the start of a bear market or recession. You heard it here first.
Chart #2 confirms our view that the NASDAQ should be ready to rebound as the index is trading more than three standard deviations below its normal, 20-day trading range. A mayfly has a longer life span than a stock, index, ETF… that is so far outside its typical trading box.
However, we do have a serious concern as the NASDAQ broke down following a narrowing of the range between highs and lows. Based on our experience, there is more to come in the direction of escape, unfortunately down this time.
[Related -Fed Minutes: Not If, But When On Tapering]
Finally, the third T adds another layer of things should get better soon as the rate-of-change (ROC) has fallen to or flirting with 52-week lows, which have marked short-term bottoms.
According to what we see on chart #3, some short-term downside remains, doubtful too many eager buyers will be around to end the week, but moods may improve during the weekend.
Overall: We wouldn't be surprised to see the NASDAQ bounce back in the short-term, maybe as high as 4,250, but the vertical escape from a narrowing trading channel raises the odds that we haven't seen the bottom yet. Let's hope the lower trend line is the worst of it.
•Amazon Now Offers One-Hour Delivery in New York City •Milwaukee 'Naughtiest' City in U.S., Report Says •Snow Broom Easily Gets Rid of the White Stuff
Starbucks said benefited from lower coffee costs and stronger sales around the world.
Analysts had expected the Seattle-based company would earn 69 cents a share on revenue of $4.3 billion.
Shares rose $1.10, 1.5%, to $74.60 in after-hours trading. During the regular trading session, the stock fell 21 cents, 0.3%, to close at $73.39. In the past 52 weeks, the stock is up about 35%.
The coffee retailer posted revenue for the quarter ended Dec. 29 of $4.24 billion, 12% higher than the $3.79 billion in sales in the same period a year ago but missing Wall Street's estimates.
Same-store sales growth was up 5% globally and also in the Americas, the company said. In the China and Asia Pacific region, sales were up 8% year over year for the quarter. Operating margins expanded to 19.2% from 16.6% in the same quarter a year ago.
"Starbucks is likely to continue to outpace run-of-the mill retail," says Glen Petraglia, senior vice president and portfolio manager at Standard Life Investments U.S. office in Boston. "The transformation from a one-trick pony a decade ago to a multi-pronged consumer company is impressive."
Troy Alstead, the company's chief financial officer, said in a phone interview with the Associated Press that the slower growth for the last three months of the year was the result of the growing number of people who are choosing to shop online from the convenience of their homes, instead of heading out to stores.
"The impact to us is that there are fewer people out and about in the weeks leading up to Christmas," Alstead told the AP.
But he downplayed the impact that trend would have on sales growth going forward, saying that the advantage of Starbucks is that its offerings can't be replicated online and that its lo! yalty card business is growing.
The company has about 20,000 locations around the world.
Contributing: USA TODAY's Beth Belton and The Associated Press
The video this transcript is based on appeared on December 26.
NEW YORK (TheStreet) -- Macquarie Securities' Cable Analyst Amy Yong says AMC Networks is her favorite stock in the sector because it is embracing the Netflix platform for its shows like 'Breaking Bad' and 'Walking Dead' and that is helping to drive traffic to more traditional platforms.
VIDEO TRANSCRIPT:
Ruben Ramirez:
AMC Networks (AMCX) is one of your top picks. Why do you like the stock and how do you think it'll do come next year?
Amy Yong:
I love the stock. I think how consumers - how people are actually consuming media is changing so differently on the last 23 years because of iTunes and Netflix and Amazon. And this is one company that's been marketing their shows very aggressively on Netflix and embracing Netflix as a way to drive viewership on the linear side. So when you think about a show like Breaking Bad, they show Breaking Bad on seasons one through four on Netflix and that exponentially increases every single time they put any other show on Netflix, and that helps drive viewership on to the traditional side.
But they also have these nameplate hits that are really resonating with consumers. So it's Walking Dead, Mad Men, Breaking Bad - they've really developed a portfolio of shows that used only be one or two and now they really have a great family of shows that they have pricing power to rely on now.
Written by Ruben Ramirez in New York.
The video this transcript is based on appeared on December 26.
NEW YORK (TheStreet) -- Macquarie Securities' Cable Analyst Amy Yong says AMC Networks is her favorite stock in the sector because it is embracing the Netflix platform for its shows like 'Breaking Bad' and 'Walking Dead' and that is helping to drive traffic to more traditional platforms.
VIDEO TRANSCRIPT:
Ruben Ramirez:
AMC Networks (AMCX) is one of your top picks. Why do you like the stock and how do you think it'll do come next year?
Amy Yong:
I love the stock. I think how consumers - how people are actually consuming media is changing so differently on the last 23 years because of iTunes and Netflix and Amazon. And this is one company that's been marketing their shows very aggressively on Netflix and embracing Netflix as a way to drive viewership on the linear side. So when you think about a show like Breaking Bad, they show Breaking Bad on seasons one through four on Netflix and that exponentially increases every single time they put any other show on Netflix, and that helps drive viewership on to the traditional side.
But they also have these nameplate hits that are really resonating with consumers. So it's Walking Dead, Mad Men, Breaking Bad - they've really developed a portfolio of shows that used only be one or two and now they really have a great family of shows that they have pricing power to rely on now.
Written by Ruben Ramirez in New York.
The hedge fund industry sure seems and looks different now when compared to a decade or two ago. We recently wrote about how the 2% and 20% pricing strategy long imposed on hedge fund investors may soon have a day of reckoning as far as being the standard pricing. Hedge fund investors have become increasingly dissatisfied with high fees for substandard performance.
It appears that hedge funds also are using other methods to lower costs as they feel the pressure from investors on fees. Everything from outsourcing back office, compliance and legal, to cutting costs from trading by lowering commissions paid to Wall Street. One way they are attempting to lower costs and track the broader markets is by using the same exchange traded funds (ETFs) that retail investors are using.
The world’s largest hedge fund, Bridgewater Associates, is based in Westport, Conn., and was founded by Ray Dalio in 1975. According to financial blog ZeroHedge, around $61 billion of the assets under management at Bridgewater are allocated to its Pure Alpha actively traded fund. Pure Alpha has generated averaged annualized net returns of 14% over its 22-year track record. Not stunning by hedge fund standards, but very solid.
Its 13F filings have consistently shown a heavy reliance on ETFs to obtain the broad market exposure that the fund looks for, while using large single stock positions to generate returns higher than their benchmarks, or generating alpha. Bridgewater and other large hedge funds are using staggering positions in ETFs to fill out their portfolio spectrum with these highly liquid, easily traded securities. It also buys a large basket of stocks for one commission, versus the hundreds the fund would pay to own all of the stocks within the ETFs.
In filings it was reported that Bridgewater owned just under $3 billion in the iShares MSCI Emerging Markets Index ETF (NYSEMKT: EEM), $3.3 billion in the SPDR S&P 500 Trust (NYSEMKT: SPY) and about $3.6 billion in the Vanguard MSCI Emerging Markets ETF (NYSEMKT: VWO). The Vanguard fund, for example, has an expense cost of an extremely low 0.18%, which like all funds is deducted from the net asset value. Clearly Bridgewater is content in using passive index ETF strategies to gain global equity coverage and save money on managing the position.
The question for investors considering hedge funds is why they would want to spend large fees on a hedge fund that is basically a closet indexer using the same tools that retail investors are. The answer is twofold. Hedge funds using the strategy have such tremendous firepower from the sheer amount of assets under management that they control, that combined with leverage they can substantially increase performance numbers. In addition, large positions in ETFs that pay dividends, like the ones Bridgewater owns, help contribute to the overall total return of the fund. Again, increased if the fund employs leverage.
This also may boost some of the more shrill arguments from pundits on Wall Street that ETFs may be the cause of the next big market crash. If retail investors and hedge funds all began to sell at once, there could be a difficult price to pay. However, that argument can be made of almost any asset class, so it is not just specific to ETFs.
Like we wrote about recently, hedge funds are having their feet held to the fire on costs. They are using every practical way to lower the costs they pay, so if the performance, or lack thereof, promotes discussion of lower fees from clients, they are still able to claw back some of the huge expense costs associated with running a large fund. Still, to many of our readers, the thought that hedge funds resort to the use of the same investment products that retail investors employ may take a little of the sheen of the hedge fund glow.
On July 1, SEC filings presented a gift to business tweeters everywhere: a prospectus for the first-ever Bitcoin ETF, to be launched by none other than Cameron and Tyler Winklevoss of Facebook fame.
In midmonth, Federal Reserve Chairman Ben Bernanke testified before a congressional committee that the Fed planned to be flexible on tapering off its bond purchases. And by the end of the month, the Twitteratti were speculating on Bernanke’s replacement.
Meanwhile, PIMCO's Bill Gross talked Twinkies, and a few of ThinkAdvisor’s top influencers got into an exchange about how a Google Images copyright case went terribly wrong.
Here are the 10 best finance tweets of the month:
Gross: #Twinkies are back on Monday & bonds are too - with a longer shelf life than last April. Stock 5-10 yr. maturities in your pantry.
"Just as too much junk food can lead to obesity, too much information can lead to stupidity." http://t.co/RwsozyCAmn
How using Google Images can cost you $8,000 http://t.co/sLNHG5zawm via @PRDaily @michaelkitces
"if you don’t know what is going to happen, don’t structure your portfolio as though you do!"—James Montier http://t.co/8RdKrM2lhD
If you do exit the euro, make sure to get your hand stamped for re-entry. Learned this at EPCOT.
"Winklevii and Bitcoin! Of course!" -Satan http://t.co/kQD4ZreRVF
Three stupid words that sound even stupider when strung together: Winklevoss Bitcoin Trust. http://t.co/qI0ZzGOYyY
#Bernanke claiming that the U.S. economy needs highly accommodative monetary policy is like a bartender saying a drunk needs more alcohol.
#Bernanke as #DirtyHarry: "Investors are asking if I'll taper. Ask yourself, do you feel lucky? Well, do ya punk?" http://t.co/zpjq6qeYdh
— Jim Rickards (@JamesGRickards) July 17, 2013
#Bernanke as #DirtyHarry: "Investors are asking if I'll taper. Ask yourself, do you feel lucky? Well, do ya punk?" http://t.co/zpjq6qeYdh
Why is the lack of policy differences between Summers and Yellen part of the case for Summers? This is how we get back to sexism.
---
See a finance-related tweet you can't resist sharing? Send it to ThinkBizTweets@sbmedia.com. Include your Twitter handle and we'll give you a hat tip if we include the tweet in our next edition.
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Ben Bernanke's term as chairman of the Federal Reserve ends in just eight months. Most of those familiar with his thinking say he doesn't want another term. Moving back to Princeton where he can lecture undergrads who don't understand Fed policy is apparently more appealing than being lectured by pundits who don't understand Fed policy.
As Bernanke's term winds down, a lot of people are going to be asking the question: How'd he do? How is history going to judge him?
And here's the truth: We are terrible at answering that question.
The last two Fed chairman -- Paul Volcker and Alan Greenspan -- were eventually remembered in a completely different light than when they ran the Fed.
Paul Volcker was likely the most hated Fed chairman to have ever served. In an attempt to slay inflation, he jacked up short-term interest rates to near 20% in the early 1980s, in effect intentionally sending the economy into recession.
Outrage ensued. Barely a year into his term, Volcker was burned in effigy by protestors on the steps of the Capitol. Neil Irwin writes in his book The Alchemists:
Homebuilders began mailing two-by-fours to Volcker in protest ... Automakers were similarly livid: High interest rates meant that customers couldn't afford to buy cars either. Not to be outdone by the construction workers, they mailed Volcker the keys to unsold vehicles. But farmers may have had it worst of all ... They protested by driving their tractors to Washington and circling the Federal Reserve's grand marble headquarters ...
A building-trades magazine accused Volcker of "premeditated and cold-blooded murder of millions of small businesses."
In 1981, Irwin writes, a man stormed Fed headquarters with a shotgun, pistol, knife, and fake bomb before being tackled by a security guard "just short of the main boardroom."
But 30 years later, people love Volcker. He ended up being known as the guy brave enough to do what was needed even when it wasn't popular. Volcker is, I'd venture, one of the most respected policymakers alive. Once called "one of the most unpopular people in the country," we later flattered Volcker with phrases like:
"Paul A. Volcker's legacy is an economy that he freed from its worst predicament since the Depression."
"Paul Volcker, now the most respected chairman of the Federal Reserve in recent memory..."
"Ranking the Fed Chairmen: Why Paul Volcker Was The Best."
Alan Greenspan is the polar opposite.
During his tenure, Greenspan was adored to a cult-like extent. While protestors literally tried to kill Volcker, Greenspan once admitted that, "People would stop me on the street and thank me for their 401(k)."
This Dow Jones (DJINDICES: ^DJI ) increased fourfold in the first 13 years of Greenspan's reign. In 1997, The New York Times gushed: "The latest surge in stock prices -- one of the most powerful moves ever -- is properly credited to one man: Alan Greenspan." The Daily Sentinel crowned Greenspan the "man of the year" in 1997, writing:
Alan Greenspan is a virtuoso. He tightens a string here and he loosens one there and he makes the American economy sing like a Stradivarius. And he does it over and over again, steadily improving his technique with each passing year. Alan Greenspan, take a bow.
In a 2006 farewell lovefest marking Greenspan's retirement, two economists opined that, "we think he has a legitimate claim to being the greatest central banker who ever lived."
A few years later, two bubbles burst: The debt-fueled economy, and Greenspan's reputation.
Now apparent that Greenspan's greatest gift was blowing bubbles, toady we talk about him like this:
"Greenspan: The worst Fed chief ever."
"Alan Greenspan: feted for failure."
"History Will Show That Alan Greenspan Was Responsible for the U.S. Housing Market Bubble."
"Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy."The rule of thumb seems to be: However the masses feel about a Fed chairman, history will ultimately judge the opposite.
Why is that? I think part of it is that the Fed chair is a more secretive position than other government posts. Bank lobbyist Andrew Lowenthal once remarked:
Most of our government is very transparent. I can find out exactly how much we spend on Guantanamo, trade pacts with China, what we're spending on prescription drug coverage, or what the budget of the CIA is. Most of it is all out in the open. But you can't find anything out about what the Fed does with our money. With the Fed, we're told "Close your eyes and listen to those brilliant men over there."
That adds a mystique to the job that probably causes us to glorify Fed chairmen when things are good and savagely criticize when they aren't, both to an excessive degree. When you don't know what someone is doing behind the scenes, you get to make up a narrative in your head that likely exaggerates what they're doing and what their motives are.
But more importantly, we know that the outcome of the Fed's actions usually aren't known until years after the fact. Bernanke might be leaving the Fed in January, but his final report card won't be out for decades.
Keep that in mind as pundits begin issuing their grades.
LONDON -- The shares of Serco (LSE: SRP ) (NASDAQOTH: SECCY ) were flat at 633 pence yesterday morning after the international services group said it expects to see a modest improvement on last year's 4% growth in revenue.
Serco -- which operates over 700 outsourcing contracts around the world -- claimed it was on track for "strong organic revenue growth" in the first half of 2013, driven by last year's record number of new deals.
The company confirmed it had secured new business worth 900 million pounds since the start of the year, including an extension of its contract to operate London's Docklands Light Railway.
Chief executive Christopher Hyman said:
We have begun 2013 with many important new contracts under way and have achieved a good operational performance across our activities around the world. Our global BPO business and AMEAA division are delivering further excellent organic revenue growth.
We are developing new opportunities in the Americas division, though challenging conditions remain in the U.S. federal contracting market. Meanwhile in the U.K., markets continue to show more encouraging signs. We are therefore confident of Serco's portfolio achieving another year of good progress.
With a market cap of 3.1 billion pounds, Serco is valued at 14 times its expected earnings. Having increased its dividend for over 20 consecutive years, Serco offers a prospective yield of 1.8%.
Of course, whether that valuation and the prospects for the outsourcing industry combine to make Serco a "buy" is something only you can decide.
But if you already own shares in Serco Group and are looking for alternative investment opportunities, this exclusive wealth report reviews five attractive possibilities.
All five opportunities offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by the Fool as "5 Shares You Can Retire On"!
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Strawberry took home four World Series titles over his 17-year Major League Baseball career. NEW YORK (CNNMoney) You can own a piece of baseball history, but it's nothing that can be put on a shelf. The Internal Revenue Service is putting outfielder Darryl Strawberry's retirement annuity on the auction block next month.
The annuity, seized by the IRS because Strawberry owed back taxes, was part of a contract he signed in 1985, back when he was slugging home runs for the New York Mets.
The annuity will be worth about $1.3 million, to be paid out over nearly 19 years, when it goes up for sale on January 20, according to court documents.
The starting bid is $550,000.
The IRS filed a lien against Strawberry because he owes the IRS back taxes from 1989, 1990, 2003 and 2004. A court document from 2012 said he owed the IRS nearly $543,000.
The auction was authorized by a court, which will divide the money between the IRS and other parties.
The IRS will get to exchange two decades worth of monthly installments for an immediate lump sum that would settle Strawberry's outstanding tax debt.
Strawberry signed with the Mets in 1993 and over the course of his 17-year Major League Baseball career, took home four World Series titles. He was named an All-Star for eight consecutive seasons and had 335 career home runs. But he was plagued by a cocaine addiction and other troubles.
The auction is set to take place in Illinois, but bids will also be accepted by mail.
According to GuruFocus Insider Data, the recent CFO sales were: Texas Instruments Inc, Royal Caribbean Cruises Ltd, and Vertex Pharmaceuticals Inc.
Texas Instruments Inc. (TXN): Sr. Vice President and CFO Kevin P. March sold 318,750 shares
On 11/03/2014, Sr. Vice President and CFO Kevin P. March sold 318,750 shares at an average price of $50.01. The price of the stock has increased by 1.78% since. Texas Instruments Inc. has a market cap of $53.77 billion and its shares were traded at around $50.90. The company has a P/E ratio of 22.30 and P/S ratio of 4.33 with a dividend yield of 2.44%. Over the past 10 years, Texas Instruments Inc had an annual average earnings growth of 4.50%. GuruFocus rated Texas Instruments Inc the business predictability rank of 3-star.
Texas Instruments Inc. announced their 2014 second quarter results with revenues of $3.29 billion and gross profit of $1.9 billion; the net income was $683 million. The 2013 total revenue was $12.2 billion, a 5% decrease from the 2012 total revenue. The 2013 gross profit was $6.36 billion and the 2013 net income was $2.16 billion.
On 11/06/2014, SVP, Secretary and Gen Counsel Joseph F Hubach sold 109,375 shares at an average price of $50.85. The price of the stock has increased by 0.1% since. On 11/05/2014, Executive Vice President Brian T Crutcher sold 10,000 shares at an average price of $50.94. The price of the stock has decreased by 0.08% since. On 10/24/2014, Director Christine Todd Whitman sold 10,000 shares at an average price of $47.43. The price of the stock has increased by 7.29% since.
Royal Caribbean Cruises Ltd (RCL): CFO Jason T Liberty sold 13,531 shares
On 05/30/2014, CFO Jason T Liberty sold 13,351 shares at an average price of $55.39. The price of the stock has increased by 21.32% since. Royal Caribbean Cruises Ltd has a market cap of $14.96 billion and its shares were traded at around $67.20. The company has a P/E ratio of 22.70 and P/S ratio of 1.85 with a dividend yield of 1.56%. Over the past 10 years, Royal Caribbean Cruises Ltd had an annual average earnings growth of 1.60%. GuruFocus rated Royal Caribbean Cruises Ltd the business predictability rank of 2.5-star.
Royal Caribbean Cruises Ltd announced their 2014 third quarter results with revenues of $2.39 billion and gross profit of $961.88 million; the net income was $490.25 million. The 2013 total revenue was $7.96 billion, a 4% increase from the 2012 total revenue. The 2013 gross profit was $2.65 billion, a 5% increase from the 2012 gross profit. The 2013 net income was $473.7 million.
On 07/29/2014, Chairman and CEO Richard D Fain sold 94,850 shares at an average price of $62.38. The price of the stock has increased by 7.73% since. On 11/03/2014, 10% Owner Wilhelsmen A S A sold 7,000,000 shares at an average price of $67.45. The price of the stock has decreased by 0.37% since. On 11/03/2014, Director Arne Alexander Wilhelsmen sold 7,000,000 shares at an average price of $67.45. The price of the stock has decreased by 0.37% since.
Vertex Pharmaceuticals Inc. (VRTX): EVP and CFO Ian F Smith sold 108,026 shares
On 09/30/2014, EVP and CFO Ian F Smith sold 108,026 shares at an average price of $112.68. The price of the stock has increased by 2.88% since. Vertex Pharmaceuticals Inc. has a market cap of $27.88 billion and its shares were traded at around $115.93. The company has a P/S ratio of 34.30.
Vertex Pharmaceuticals Inc. announced their 2014 second quarter results with revenues of $138.4 million and gross profit of $121.1 million; the net income was $159.4 million. The 2013 total revenue was $1.21 billion, a 21% decrease from the 2012 total revenue. The 2013 gross profit was $1.1 billion, a 13% decrease from the 2012 gross profit. The 2013 net income was $445 million.
On 09/30/2014, CEO and President Jeffrey M Leiden sold 200,000 shares at an average price of $112.69. The price of the stock has increased by 2.88% since. On 11/06/2014, Director Bruce I Sachs sold 9,900 shares at an average price of $115.21. The price of the stock has increased by 0.62% since. On 11/05/2014, EVP and Chief Commercial Officer Stuart A Arbuckle sold 4,250 shares at an average price of $112.50. The price of the stock has increased by 3.05% since.
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Before Thursday's opening bell, a number of big name dividend stocks were the subject of analyst moves. Below, we highlight the important analyst commentary for investors.
Credit Suisse Cuts Estimates on AT&T
Credit Suisse has lowered its price target on AT&T Inc. (T
Lockheed Martin Upgraded to “Buy”
Lockheed Martin Corporation (LMT
Boeing Downgraded at Credit Suisse
Boeing Co (BA
BMO Cuts Estimates on U.S. Bancorp
BMO Capital has lowered its estimates on U.S. Bancorp (USB
Credit Suisse Boosts Estimates on General Dynamics
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NEW YORK (TheStreet) -- The day started off with strong employment indicators getting overshadowed by a Russian strike against Western sanctions. That set the tone for a choppy trading session Thursday. The S&P 500 suffered a setback of about 4% from its recent high. A 5% correction would then take the index down about another 16 points to 1,893.
The S&P 500 gave up 0.56% to 1,909.57. The Dow Jones Industrial Average was down 0.46% to 16,368.27. The Nasdaq fell 0.46% to 4,334.97. The vast majority of broad market sectors were weak. Down over 1%, health care was the biggest loser, followed by consumer discretionary, basic materials, and energy.
Read More: Will Gold's Recent Rally Last -- or Will It Evaporate?
"We've entered a whole new level of geopolitical concerns that's creating growth worries for investors who would rather sell U.S. stocks today and ask questions later," said Andrew Wilkinson, chief market analyst at Interactive Brokers. Wall Street's upbeat start was supported by a downtrend in U.S. jobless claims. But the mood quickly soured after Russia retaliated against Western trade sanctions by threatening to ban imports of food and agricultural products from Europe and the U.S. Pressures on the market intensified on news that President Obama was considering airstrikes against violent militants in Iraq who were targeting religious minorities. European Central Bank President Mario Draghi said in a post-ECB press conference that geopolitical risks to the eurozone economy were rising and that the West's strained relations with Russia over Ukraine remains an area of uncertainty for the fragile eurozone economy. CBS (CBS) was flat at $56.91 in after-hours trading after reporting a profit of $439 million, or 76 cents per share, down from $472 million one year ago, but beating analysts' estimates of 72 cents per share. Zynga (ZNGA) was dropping more than 7% to $2.71 after missing analysts' estimates for revenue in the second quarter. Read More: Time Warner vs. 21st Century Fox: What Wall Street's Saying 21st Century Fox (FOXA) reported on Wednesday better-than-expected fiscal fourth-quarter earnings a day after it called off its pursuit of rival media giant Time Warner (TWX). Shares of Fox surged 5.04% to $33.96. Shares of Netflix (NFLX) were up 4.5% to $449.67 after it was reported that CEO Reed Hastings posted on Facebook (FB) that the company has beat Time Warner's HBO in subscriber revenue in the second quarter, adding that Netflix was "honored to be in the same league," according to CNBC. Time Warner shares were down 2.94% to $72.06. Read More: Aug. 7 Premarket Briefing: 10 Things You Should Know --By Andrea Tse in New York Follow @AndreaTTse
In this article, let´s see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the Return on Equity (ROE), and we are going to analyze it in the case of Oracle Corporation (ORCL), the leading provider of enterprise technology solutions, offering software, services and hardware.ROE is calculated as net income applicable to common shares divided by the average book value of common equity: ROE = Net Income / Av. Book ValueA higher ROE is viewed as a positive aspect for the company, but the reason behind it should be examine. From the equation above, we can see that if book value is decreasing more rapidly than net income, the ratio will increase, but this is not good for the firm.Dupont AnalysisThis approach can be used to analyze the ROE. With some algebra we can break down ROE into a function of different ratios. Firstly, we are going to consider the original approach:Original Dupont Equation: Three-Part DupontTaking the ROE equation: ROE = net income / shareholder's equity and multiplying ROE by (revenue / revenue), and rearranging terms we get:ROE = (net income / revenue) * (revenue / shareholder's equity)We now have ROE broken into two parts, the first is net profit margin, and the second is the equity turnover ratio. Now we can expand this by multiplying these terms by (assets / assets), and rearranging we end up with the three-step DuPont equation.ROE = (Net Income / Revenue) * (Revenue / Assets) * (Assets / Shareholder's Equity)This equation for ROE breaks it into three widely used and studied components:ROE = (Net profit margin)* (Asset Turnover) * (Leverage ratio)The first term is what we called previously net profit margin, the second term is asset turnover and the third tem is a financial leverage ratio. If we have a low ROE, one of the following must be true:The firm has a poor profit marginThe firm has a poor asset turnoverThe firm has a little leverage
| ROE (%! ) 3 Step | May-05 | May-06 | May-07 | May-08 | May-09 | May-10 | May-11 | May-12 | May-13 | May-14 |
| Net Profit Margin | 24.46 | 23.51 | 23.75 | 24.61 | 24.05 | 22.87 | 23.99 | 26.89 | 29.38 | 28.62 |
| Asset Turnover | 0.57 | 0.5 | 0.52 | 0.48 | 0.49 | 0.44 | 0.48 | 0.47 | 0.45 | 0.42 |
| Leverage | 1.92 | 1.92 | 2.04 | 2.04 | 1.89 | 2.00 | 1.85 | 1.79 | 1.82 | 1.92 |
| ROE | 26.63 | 22.52 | 25.26 | 23.98 | 22.29 | 19.92 | 21.49 | 22.85 | 24.47 | 23.37 |
As we can appreciate, the ROE has increased and it can be attributed to the rise in profitability as measured by the Net Profit Margin and the decline in financial leverage, which I think it is a very good thing and based on it I would recommend this stock. Further, the ROE of Oracle is ranked higher than 95% of the 1548 Companies in the Software - Infrastructure industry.Hedge fund gurus have also been active in the company. Gurus like Louis Moore Bacon (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and James Barrow (Trades, Portfolio) have bought the stock in the first quarter of 2014.Disclosure: Omar Venerio holds no position in any stocks mentioned.Also check out: James Barrow Undervalued Stocks James Barrow Top Growth Companies James Barrow High Yield stocks, and Stocks that James Barrow keeps buying Louis Moore Bacon Undervalued Stocks Louis Moore Bacon Top Growth Companies Louis Moore Bacon High Yield stocks, and Stocks that Louis Moore Bacon keeps buying | Currently 3.00/512345 Rating: 3.0/5 (2 votes) | Voters:  |
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