Sunday, March 31, 2013

Comcast Q1 Beats, But Misses Investors’ Expectations

Shares of Comcast (CMCSA) were falling after the cable company’s first quarter report, despite top- and bottom-line beats.

Before the bell, Comcast said it logged a profit of $1.22 billion, compared with $943 million in the year-ago period. On a pro forma basis, excluding one-time items, earnings per share rose to 45 cents from 36 cents. Total revenue jumped 23% to $14.88 billion.

The results beat analysts expectations of 42 cents EPS on $14.43 billion in revenue.

Comcast continued to lose video subscribers but the rate of subscriber defections slowed for the sixth consecutive quarter to 37,000, a 5% improvement, the company said.� The company added 439,0000 residential broadband subscribers during the first quarter, a 5% increase, while new voice subscribers fell 37% from a year earlier to 164,000.

NBC’s revenue grew 18% to $5.47 billion.Revenue from video subscriptions increased 1.6% to $4.97 billion, and broadband revenue grew 10.3% to $2.32 billion. Revenue from business services increased 37% to $541 million.

Citi analyst Jason Bazinet reiterated his Buy rating on the stock, calling it “a solid quarter,” but noting that expectations were very high, which likely accounts for the stock’s fall this morning.

The Short Story on the Demise of Books

Somewhere, Johannes Gutenberg is crying. The inventor of movable type and the man who introduced printing to Europe would undoubtedly be sad today to learn that the product of his beloved revolutionary press is on its last legs.

Certainly the slow death of books has been written about before, but with Barnes & Noble (NYSE: BKS  ) set to close up to a third of its bookstores over the next decade, it seems we're much closer to their demise than before.

A world without borders
Undoubtedly the success Amazon.com (NASDAQ: AMZN  ) has achieved in fulfilling the role of bookseller plays a role in the decision, but B&N identified the growth of electronic books as the key reason behind its decision to accelerate store closings. The downfall of Borders Group was just the herald of what was to come.

We've seen this play out many times in a number of industries over the years, as e-commerce has invaded the purview of the bricks-and-mortar business model. Investors (myself included) thought Best Buy (NYSE: BBY  ) would excel after the downfall of archrival Circuit City, but the gains quickly evaporated as it became apparent it was the growth of Internet sales, particularly at Amazon, that hastened the chain's death and not some more rudimentary issue with the chain's business. Best Buy itself now struggles to reshape itself to coexist with the online world.

Similarly, the record industry has become a quaint memory as music turned digital. While there's romance still attached to putting vinyl onto a record player and hearing all the pops and cracks, Apple's iTunes store and the myriad other digital download sites put that sort of audiophile into a nostalgic category all its own. One day we'll likely find that people like myself who find holding an actual book in their hands a wondrous and exciting feeling will be looked upon with the same pitying, knowing glances that accompany those we see flipping through vinyl records at some hippie's corner shop.

Rise of the machines
According to a Wall Street Journal article discussing Barnes & Noble's decision to cut its physical footprint, the largest publisher of consumer books, Bertelsmann's Random House division, says e-books account for 22% of its sales versus virtually zero just five years ago. And one rival says by next year e-books will make up half its sales, let alone what the industry will look like five years from now. Although B&N says it will have 450 to 500 stores in a decade, down from the 689 it currently operates, the actual number is likely to be a lot lower than that.

The bookseller opened no new stores in 2012 and just one in 2011. Though we may see one or two opened here and there in the future, gone are the days of its heady expansion along the way toward hitting a peak of 726 stores in 2008 as it opened 30 or more stores a year. Instead it will close 20 stores or so annually from now on to achieve a stable, more profitable size.

Book nook
Even though Barnes & Noble had to confront the popularity of Amazon's Kindle e-book reader by introducing its own Nook, it served to hasten the position it finds itself in today. But that effort is faltering, too. Sales of the e-reader fell over the holiday shopping season while Amazon's Kindle Fire HD tablet was the single "best-selling, most gifted, and most wished for product" on the entire site, the e-commerce leader recently trumpeted. Cyber Monday was the biggest day ever for Kindle sales.

While I'd like to see some hard and fast numbers accompany such glowing accolades (Amazon is notably stingy with real sales data), it's clear that not only is Barnes & Noble threatened by its advance, but so is Apple, which saw demand for iPads stall in the latest quarter. Some of that was no doubt due to demand for the iPad Mini, but that device in itself was a response to the popularity of the Kindle (maybe we should mourn the death of the e-reader, too).

Fit to print
It would be a greatly diminished world if there were no books in it that we could actually hold in our hand, smell the pages after cracking open its binding for the first time, and run our fingers across the words before us. But it's also possible that rather than lamenting a future without printed books as Barnes & Noble move suggests is before us, Johannes Gutenberg would really say Jeff Bezos is actually heir to his noble legacy and is bringing the gift of reading to a much broader audience than ever before.

That is the real lesson of the printing press, even if today it's a virtual one.

Everyone knows Amazon is the big bad wolf in the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of its competitors'. We'll tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

Should You Buy ITV?

LONDON --�The shares of broadcaster�ITV� (LSE: ITV  ) �have steadily marched higher since the summer of 2012 and are currently up almost a quarter in the year to date against a 10% rise for the whole FTSE 100 index, just off a recent record peak of 132 pence.

The company has undergone extensive reshaping in recent years and last year delivered double-digit profit growth despite a subdued television advertising backdrop. Broker Liberum Capital has placed a 155 pence price target on the stock, suggesting the price still has further ground for gains.

Advertising revenues set to march higher
ITV's 2012 results released last month showed revenues rise 3% to 2.2 billion pounds, driving earnings before interest, taxes and amortization 13% higher to 520 million pounds.

The results were particularly encouraging, given the lack of growth in TV advertising, illustrating the strength of the firm's online and content divisions. But even here the environment looks ready to improve.

Liberum said it expects pay-TV and broadband advertising spending to become much more aggressive as we approach the summer.

With�BT Group�ready to launch its Premier League portfolio, prompting a scramble among competitors�British Sky Broadcasting,�Virgin Media, and�Talk Talk, ITV should experience rising advertising revenues.

And with ITV continuing to build its share of the television advertising market -- 2012 levels stood at 45.8% versus 44.7% in 2009 -- and "real time" TV viewing rising over the period, the broadcaster's structural drivers continue to improve.

Elsewhere, ITV's extensive cost-cutting program is set to match last year's 20 million pounds of savings in 2013. And further savings can be expected further out as additional measures come to fruition, including the restructuring of its news operations.

The price is right
City analysts expect earnings per share to rise 11% in 2013, to 10 pence, before rising a further 7% next year to 11 pence.

ITV's shares currently change hands on P/E ratios of 12.9 and 12 for 2013 and 2014, respectively, below the wider media average of 13.6. I expect the P/E multiple to continue trending lower as earnings improve further out.

The broadcaster is also anticipated to continue building dividends, and analysts predict last year's 2.6 pence-per-share payout to rise to 3.9 pence in 2013 and to 4 pence per share in 2014.

These prospective payments are represented by yields of 3% and 3.1% for this year and next, below the FTSE 100 average, but they are safeguarded with coverage of about 2.6 times for both years. A reading above 2 is considered the benchmark for splendid protection.

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Our "5 Dividend Winners to Retire On" wealth report highlights a selection of tasty stocks with an excellent record of providing juicy shareholder returns.

Among our picks are top retail, pharmaceutical and utilities plays that we are convinced should continue to provide red-hot dividends.�Click here to download the report�-- it's 100% free and comes with no obligation.

Top Stocks To Buy For 3/31/2013-4

Petrohawk Energy Corporation (NYSE:HK) witnessed volume of 35.87 million shares during last trade however it holds an average trading capacity of 19.78 million shares. HK last trade opened at $38.31 reached intraday low of $38.29 and went +0.18% up to close at $38.31.

HK has a market capitalization $11.64 billion and an enterprise value at $14.60 billion. Trailing twelve months price to sales ratio of the stock was 7.05 while price to book ratio in most recent quarter was 3.28. In profitability ratios, net profit margin in past twelve months appeared at 1.90% whereas operating profit margin for the same period at 12.22%.

The company made a return on asset of 1.63% in past twelve months and return on equity of 2.26% for similar period. In the period of trailing 12 months it generated revenue amounted to $1.65 billion gaining $5.49 revenue per share. Its year over year, quarterly growth of revenue was 12.30%.

According to preceding quarter balance sheet results, the company had $1.54 million cash in hand making cash per share at 0.01. The total of $2.99 billion debt was there putting a total debt to equity ratio 84.13. Moreover its current ratio according to same quarter results was 0.54 and book value per share was 11.70.

Looking at the trading information, the stock price history displayed that its S&P500 52 Week Change illustrated 19.95% where the stock current price exhibited up beat from its 50 day moving average price of $27.07 and remained above from its 200 Day Moving Average price of $23.78.

HK holds 303.79 million outstanding shares with 275.54 million floating shares where insider possessed 2.71% and institutions kept 84.90%.

Top Stocks For 3/31/2013-16

Crown Equity Holdings Inc. (OTCBB:CRWE) announced recently that it has launched its crwenewswire.fr website to provide news in France’s native language. Crown Equity Holdings Inc. had previously launched its German website crwenewswire.de and is launching its Canadian website crwenewswire.ca shortly.

“The new website is one step in many towards the company goal of expanding its footprint internationally, ” commented Kenneth Bosket, President and CEO of Crown Equity Holdings Inc. “Our goal for 2010 is to have all CRWE’s clients’ press releases, articles and news content published in every major financial country’s native language, as well as within cities of every state of our country,” stated Mr. Bosket.

Crown Equity Holdings Inc. is a consulting organization which provides and assists small business owners with the knowledge required in taking their company public, and has re-focused its primary vision with its aligned group of independent website divisions to providing media advertising services, as a worldwide online media advertising publisher, dedicated to the distribution of quality branding information, as well as search engine optimization for its clients.

The true beauty of Halloween is in the details. A sound in the distance you can barely make out, a passing glimpse you aren’t sure you really saw, a sudden cold breeze you didn’t expect. These are just some of the subtleties that give the season its sense of fright and fun, and they are all reflected in the latest collection from American Greetings Corporation (NYSE:AM), which combines traditions and innovation to offer an appropriately sweet variety.

Shoppers looking to share the Halloween spirit need look no further than the card aisle this year to find everything they could desire. A playful mix of dark shades and bedeviling designs enliven classic characters, and the fun combination may just cause a bit of nostalgia for parents as they watch their children enjoy the same traditions they once did.

One new collection this Halloween sure to inspire some nostalgic smiles is Flipbook�. Similar to the homemade flipbook “cartoons” of youth, these cards offer both trick and treat.

Each Flipbook greeting features an entertaining animation that is produced by simply pulling panels to reveal a surprising design. From a cute black cat popping out of a pumpkin to a witch in flight, the scenes are fun to produce over and over again and sure to be enjoyed by any recipient.

American Safety Insurance Holdings, Ltd. (NYSE: ASI) announced recently that Stephen R. Crim, President and Chief Executive Officer, and Mark W. Haushill, Chief Financial Officer, will present at the Keefe, Bruyette & Woods 2010 Insurance Conference at the Waldorf-Astoria Hotel in New York City on Wednesday, September 8, 2010, at 11:25 a.m. EDT.

The presentation will be available live via webcast on our website, www.amsafety.com or http://cc.talkpoint.com/confcastsignup/keef001/090710a_me.asp, and will be archived for replay up to 60 days after the conference. For general information on accessing the webcast, please refer to KBW�s website at www.kbw.com.

Amsterdam Molecular Therapeutics (AMT) Holding N.V. (Euronext: AMT), a leader in the field of human gene therapy, announced today that the U.S. Food and Drug Administration (FDA) has designated AMT-080, a gene therapy for Duchenne muscular dystrophy (DMD) as an orphan drug. In October 2009, the Committee for Orphan Medical Products of the European Medicines Agency granted AMT-080 orphan designation for the same indication in the European Union.

AMT has shown efficacy in studies of a preclinical model of DMD. These proof of concept studies demonstrated that AMT’s technology resulted in functional dystrophin synthesis in both the heart and skeletal muscles, leading to the prevention of muscular dystrophy. These data are strengthened by a study in which this gene therapy approach was shown to successfully restore dystrophin activity in diseased human muscle cells obtained from biopsies of DMD patients. A Phase I/II clinical trial is scheduled to start by the end of 2012.

AMT has received an Innovation Credit of up to EUR 4 million from the Dutch government to support the development of AMT’s gene therapy treatment for Duchenne Muscular Dystrophy (DMD). The credit is granted by SenterNovem, an agency of the Dutch Ministry of Economic affairs.

Top Stocks For 2/24/2013-11

Tiens Biotech Group Inc. (AMEX:TBV), is a leading nutritional products company engaged in the research, development, manufacturing and marketing of high quality nutritional supplements and wellness products worldwide.

Tiens‘ herbal products, vitamin and mineral supplements and personal care products are sold in China and approximately 90 countries on six continents.

A rapidly-growing company, Tiens has generated significant revenue and earnings increases by capitalizing on worldwide consumer demand for nutritional and wellness products. Tiens is well positioned to further expand its market share through product line enhancements and additional channels of distribution.

Holding the principle of “contributing to the health of mankind, benefiting the society, developing the industry and serving our country”, Tiens is committed to developing, manufacturing and delivering the highest quality healthcare products that benefit the well being of people throughout the world.

Tiens’ dedicated management team and personnel are firmly committed to improving the life quality of our customers who are the cornerstone of our success, increasing our dominant industry presence and generating greater acceptance of our products worldwide.

MusclePharm Corporation (OTCBB:MSLP), one of the fastest growing nutritional supplement companies in the United States with a proprietary formulation used in eight performance products, reports that MuscleGel has achieved NSF certification. In addition, the Company�s Recon and Assault nutritional products will be NSF certified within the coming months.

�We are extremely pleased MusclePharm�s MuscleGel is now NSF certified and look forward to Recon and Assault�s future addition to the NSF�s list of approved supplements,� commented Brad Pyatt, MusclePharm�s Chief Executive Officer. �Our Chief Medical Researcher, Dr. Jeffery Stout, Ph.D. and his team of scientists, doctors, and top professional athletes were instrumental in achieving the NSF�s certification of MuscleGel, Recon and Assault. These three products provide strong, unique opportunities for us to expand MusclePharm�s distribution within the professional athletic community, including the MLB and NFL.�

NSF International is an independent, not-for-profit organization that meets the growing demands of athletes, coaches and all those concerned about banned substances in sports supplements. NSF International created the new NSF Certified for Sport Program. This new NSF program is a focused solution designed to minimize the risk that a dietary supplement or sports nutrition product contains banned substances. This program is part of NSF’s successful 60-year history of providing certification programs for food, water and consumer goods.

MLB, the MLB Player�s Association, NFL, the NFL Player�s Association, PGA, LPGA and the CCES have all chosen NSF�s Certified for Sport program to help verify the products their athletes use are safer and free of banned substances. NSF GMP for Sport certification verifies that the facility, operations and ingredient sourcing are in compliance with GMP requirements via ongoing audits.

Saturday, March 30, 2013

5 Stocks Investors Are Currently Adding to Their Portfolios

By Max Magee

When researching stocks, it can be pretty common to wonder what your fellow investors are up to. It's not always a great idea to follow the crowd when investing in equities, but peeking into the activity of other investors may reveal fresh names for consideration, and new story ines that may not have been on the radar.

The stocks we'll consider today, for example, include recent IPOs, a private equity firm, a thinly traded chemicals stock, and a household brand name that's been on a tear.

To compile our list, we'll look at the aggregated recent activity of our member watchlists and portfolios. Our "most added" metric measures how quickly stocks are being added to member portfolios in relation to the expected rate based on historical trends. A value greater than one indicates a greater than normal number of adds over the last seven days, and a value less than one indicates a less than normal number of adds.

We'll limit our search to stocks with a market cap above $500 million to weed out penny stocks and micro caps. The full list is available here (please note that this list updates regularly, so new names may replace those discussed below).

Arcos Dorados Holdings (NYSE: ARCO) and CVR Partners (NYSE: UAN) are recent IPOs in two very different industries that have jumped out from the recent bumper crop of IPOs to draw the most investor interest. In many ways, these firms are in "boring" segments. Arcos, operating primarily in Latin America, is the world's largest McDonald's (NYSE: MCD) franchisee. Arcos, based in Argentina, is a member of the Argentina Stocks and ADRs, a group that has lagged badly over the last month. (only the South Africa Stocks and ADRs Index has fared worse across 22 international Indexes.) Arcos has been added to tickerspy portfolios at 54.4x the expected rate over the last seven days.

Meanwhile, CVR is a fertilizer MLP spun off from CVR Energy (NYSE: CVI) that is boasting an expected yield of 14.8%. This compares very favorably with the MLPs Index, where the current average yield is 6.1%. CVR has been added to tickerspy portfolios at 42.3x the expected rate over the last seven days.

KKR & Co (NYSE: KKR) is a well-known name in the private equity world and the stock has been strong of late, up about 25% so far in 2011, a performance that no doubt helps account for the investor interest. But what really had investors adding it to watchlists last week was likely a mention by CNBC guru Jim Cramer, who in response to a viewer question about American Capital (NASDAQ: ACAS) said "Too risky for me. I don't know what they own. I'm going to send you to Kohlberg Kravis Roberts."

The firm also reported earnings last week that beat analyst estimates by a wide margin. Clearly, private equity is seeing a more favorable environment in which to generate big returns, and so the sector may be worth watching. KKR has been added to tickerspy portfolios at 29.1x the expected rate over the last seven days.

Sparsely followed NL Industries (NYSE: NL), which makes pigments and components for locks, furniture and gauges is the mystery on this list. The stock spiked 12% on no news on May 2 and was able to hold the gains after reporting earnings on May 4. The stock has been on the move, up 61% so far this year. According to its website, NL owns "a significant interest" in Kronos Worldwide (NYSE: KRO), another stock on the move, and that may account for NL's strength. NL has been added to tickerspy portfolios at 22x the expected rate over the last seven days.

Finally, a better known name attracting a lot of investor interest is weight loss products firm Weight Watchers Intl (NYSE: WTW), which is up an incredible 144% this year. Blowout earnings in February sent the stock sharply higher. The stock dipped on a new earnings report last week, but rebounded sharply after Wall Street digested the numbers. On Monday, Wedbush raised estimates on the name, citing the successful launch of the new Weight Watchers PointsPlus program.

Weight Watchers' strength has helped push the Fitness and Dieting Stocks Index higher, and the Index was charging ahead again yesterday following a strong earnings report from Medifast (NYSE: MED). Weight Watchers has been added to tickerspy portfolios at 20x the expected rate over the last seven days.

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

Will Best Buy Die an Old Maid?

Best Buy's (NYSE: BBY  ) founder may be turning to Plan B in his goal to assume control of the meandering consumer electronics retailer.

The Wall Street Journal reported -- and sources later confirmed to Reuters -- that Richard Schulze could be moving away from an outright bid to take Best Buy private.

He's not walking away. He still has his roughly 20% stake in the chain that has struggled in recent years as price-savvy consumers turn to online shopping and digital distribution makes physical media purchases less popular. In fact, the sources claim that Schulze is trying to turn many of the investors that he was hoping would join together to buy out the company to take minority positions in the company.

This isn't a retreat at all if he's trying to infiltrate the ranks of Best Buy investors with agreeable folks who happen to have deep pockets. Best Buy's stock may have initially taken a hit yesterday on the news, but the stock bounced back early on Thursday.

However, taking a longer path toward eventual privatization isn't going to serve today's Best Buy shareholders well. The model's shortcomings are real, and Best Buy's board should've taken Schulze up on his offer to take out the retailer between $24 and $26 a share last summer.

Shares rallied last month after Best Buy merely posted flat comps for the nine-week holiday shopping period. An improving economy is also leading investors to believe that Best Buy will return to its glory days.

It won't.

It's not just about the showrooming trend. Sure, that's happening. Amazon.com�has legitimate pricing advantages, and that's a game of limbo that Best Buy can't win. The reason that I have been bearish on Best Buy over the past couple of years -- and rightfully so -- is that the CDs, DVDs, books, and video games that Best Buy relies on for store traffic are fading product categories.

Another perspective on Best Buy
After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.

Opinion: Timothy Thomas: Why China Is Reading Your Email

Fort Leavenworth, Kan.

For several years, Washington has treated China as the Lord Voldemort of geopolitics�the foe who must not be named, lest all economic and diplomatic hell break loose. That policy seemed to be ending in recent weeks, and Timothy Thomas thinks it's about time.

The clearest sign of change came in a March 11 speech by Tom Donilon, President Obama's national security adviser, who condemned "cyber intrusions emanating from China on an unprecedented scale" and declared that "the international community cannot tolerate such activity from any country." Chinese cyber aggression poses risks "to international trade, to the reputation of Chinese industry and to our overall relations," Mr. Donilon said, and Beijing must stop it.

"Why did we wait so long?" wonders Mr. Thomas as we sit in the U.S. Army's Foreign Military Studies Office, where the 64-year-old retired lieutenant colonel has studied Chinese cyber strategy for two decades. More than enough evidence accumulated long ago, he says, for the U.S. to say to Beijing and its denials of responsibility, "Folks, you don't have a leg to stand on, sorry."

U.S. targets of suspected Chinese cyber attacks include news organizations (this newspaper, the New York Times, Bloomberg), tech firms (Google, Adobe, Yahoo ), multinationals (Coca-Cola, Dow Chemical ), defense contractors (Lockheed Martin, Northrop Grumman ), federal departments (Homeland Security, State, Energy, Commerce), senior officials (Hillary Clinton, Adm. Mike Mullen), nuclear-weapons labs (Los Alamos, Oak Ridge) and just about every other node of American commerce, infrastructure or authority. Identities of confidential sources, hide-outs of human-rights dissidents, negotiation strategies of major corporations, classified avionics of the F-35 fighter jet, the ins and outs of America's power grid: Hackers probe for all this, extracting secrets and possibly laying groundwork for acts of sabotage.

Enlarge Image

Close Ken Fallin

Timothy Thomas

China's aggression has so far persisted, Mr. Thomas says, because "it makes perfect sense to them." The U.S. has difficulty defending its cyber systems, the relatively new realm of cyber isn't subject to international norms, and years of intrusions have provoked little American response. "I think they're willing to take the risk right now because they believe that we can't do anything to them," he says. "You have to change the playing field for them, and if you don't, they're not going to change. They're going to continue to rip off every bit of information they can."

Hence the promise of Washington's apparent shift in policy. "There's something going on," Mr. Thomas says, and the Donilon speech was only one part. This month's more significant news, he argues, was the announcement that the U.S. military's Cyber Command (founded in 2009) would for the first time develop and field 13 offensive cyber-warfare teams. The Chinese "now know we are ready to go on the offense. There's something that's been put in place that I think is going to change their view."

Not that he expects Beijing to back down lightly. On the contrary, Mr. Thomas points to the literature of the People's Liberation Army to demonstrate that China's cyber strategy has deep�even ancient�roots.

The essence of China's thinking about cyber warfare is the concept of shi, he says, first introduced in Sun Tzu's "The Art of War" about 2,500 years ago. The concept's English translation is debated, but Mr. Thomas subscribes to the rendering of Chinese Gen. Tao Hanzhang, who defines shi as "the strategically advantageous posture before a battle."

"When I do reconnaissance activities of your [cyber] system," Mr. Thomas explains of China's thinking, "I'm looking for your vulnerabilities. I'm establishing a strategic advantage that enables me to 'win victory before the first battle' "�another classic concept, this one from the "36 Stratagems" of Chinese lore. "I've established the playing field. I have 'prepped the battlefield,' to put it in the U.S. lexicon."

Or, as Chinese Gen. Dai Qingmin wrote in his 2002 book, "Direct Information Warfare": "Computer network reconnaissance is the prerequisite for seizing victory in warfare. It helps to choose opportune moments, places and measures for attack." Says Mr. Thomas: "He's telling you right there�10 years ago�that if we're going to win, we have to do recon."

A 1999 book by two Chinese colonels put it more aggressively (albeit in a sentence as verbose as it is apocalyptic): "If the attacking side secretly musters large amounts of capital without the enemy nations being aware of this at all and launches a sneak attack against its financial markets," wrote Qiao Liang and Wang Xiangsui, "then, after causing a financial crisis, buries a computer virus and hacker detachment in the opponent's computer system in advance, while at the same time carrying out a network attack against the enemy so that the civilian electricity network, traffic dispatching network, financial transaction network, telephone communications network, and mass media network are completely paralyzed, this will cause the enemy nation to fall into social panic, street riots, and a political crisis." No kidding.

This vision from 1999 reads like an outline of the report published last month by Mandiant, a private-security firm, about "Unit 61398," a Shanghai-based Chinese military team that since 2006 has mounted cyber assaults to steal terabytes of codes and other information from U.S. assets. Among the targets of Unit 61398 was Telvent Canada, which provides remote-access software for more than 60% of the oil and gas pipelines in North America and Latin America.

Unit 61398 is said to engage in "spearphishing," whereby would-be cyber intruders send emails with links and attachments that, if clicked, install malware on target computers. Lesser hackers might spearphish while posing as Nigerian princes, but Unit 61398 developed sophisticated ways, including colloquial language, to mimic corporate and governmental interoffice emails.

Spearphishing, too, draws on traditional Chinese stratagems: "The Chinese strive to impel opponents to follow a line of reasoning that they (the Chinese) craft," Mr. Thomas wrote in 2007. With this kind of asymmetric approach, he says, "anybody can become an unsuspecting accomplice."

In this context Mr. Thomas mentions a cartoon published last year in Army magazine in which one Chinese general says to another: "To hell with 'The Art of War,' I say we hack into their infrastructure." Good for a chuckle, perhaps, but Mr. Thomas warns against taking the message seriously. China's hacking is in fact "a manifestation of 'The Art of War,' " he says, and if the U.S. military doesn't realize that, it "can make mistakes. . . . You have to stay with their line of thought if you're going to try to think like them."

"Boy," he later laments, "we need a lot more Chinese speakers in this country"�a point underscored by the fact that he isn't one himself. He reads Chinese military texts in translation, some published by the U.S. government's Open Source Center and some he has found himself. He stumbled upon Gen. Dai's "Direct Information Warfare" on a trip several years ago to Shanghai, when an associate led him (and an interpreter) to an unmarked military bookstore on the top floor of a building on the outskirts of town. "I could tell when I walked in that the people behind the cash register were stunned I was there," he recalls. In public bookstores, he says, material addressing Chinese national security is often marked "not for foreign sale" on the inside cover.

The Ohio native does speak Russian, having focused most of his military service (from West Point graduation in 1973 until 1993) on the Soviet Union. That language skill still comes in handy, and not just because Russia is suspected of having carried out cyber assaults against Estonia in 2007 and Georgia in 2008.

Look at the Mandiant report's map of Chinese cyber intrusions (at least those tied to Unit 61398): Russia is untouched. "That's a huge area. . . . I really would wonder why they're after South Africa, the U.A.E. and Singapore but not Russia. And Luxembourg. They went after Luxembourg but not Russia?" Together with Iran, he argues, China and Russia make up "not the axis of evil but the axis of cyber."

So what is to be done? Security firms are working to harden networks against hackers, and members of Congress are promoting legislation to let the government work more closely with Internet service providers without opening up the companies to lawsuits or infringing on civil liberties. Washington could challenge Chinese cyber espionage with targeted economic sanctions. Meanwhile, there is much talk about establishing international standards for cyber space, but it is unclear what that would mean�which probably explains why top officials in Washington and Beijing have both endorsed the idea.

None of this seems promising to Mr. Thomas, who stresses building deterrence through offensive capabilities, such as the 13 new teams at U.S. Cyber Command. The implication is that the best defense is a good offense.

And doesn't that suggest, in turn, that the U.S. and China are headed toward a dynamic of mutually assured cyber destruction? "It seems like it," he says.

It's heartening to hear, then, that Chinese military literature isn't uniformly aggressive toward America. This includes writings about the "China Dream," which posits that China will overtake the U.S. economically and militarily by midcentury�and which has been adopted as the signature cause of new President Xi Jinping.

"They give you both versions," says Mr. Thomas. "They give you a model that says, 'There will be no way we'll ever fight [the U.S.], we'll work on cooperation.' A chapter later, 'There could be a time where if pushed hard enough, we'll have to do something and there will be a battle.' "

But what about the argument that the U.S. is shedding crocodile tears? America (and Israel) were almost certainly behind the most successful known cyber attack to date: the Stuxnet virus that impeded Iran's uranium-enrichment program. There might be some comfort in knowing that the U.S. is doing unto China what China is doing unto the U.S., says Mr. Thomas, but "we don't seem as intrusive as the other side." That is illustrated especially, he says, by China's state-sponsored commercial espionage. He frequently hears complaints from U.S. firms dealing with Chinese counterparts who know their secrets, adding that "I don't think people really get the security briefing of just how invasive it is."

Then there's the argument that all this is overblown because no cyber attack has ever killed anyone. Mr. Thomas responds, somewhat impatiently: "If I had access to your bank account, would you worry? If I had access to your home security system, would you worry? If I have access to the pipes coming into your house? Not just your security system but your gas, your electric�and you're the Pentagon?"

He adds: "Maybe nobody's been killed yet, but I don't want you having the ability to hold me hostage. I don't want that. I don't want you to be able to blackmail me at any point in time that you want." He cites the Chinese colonels' vision, back in 1999, of "social panic" and "street riots." "I wonder what would happen if none of us could withdraw money out of our banks. I watched the Russians when the crash came and they stood in line and . . . they had nothing."

Mr. Feith is an assistant editorial features editor at the Journal.

Should I Buy National Grid for My ISA?

LONDON -- I've long been a fan of Individual Savings Accounts (ISAs) as tax-efficient wrappers for equity holdings. Quite simply, if you're going to buy and sell shares -- especially as a long-term investor -- then it makes sense to do so inside an ISA.

There's no further income tax to pay on dividends; no capital gains tax to pay at all; and total freedom from the burden of reporting both income and capital gains to the taxman. Want to know more?�Start here.

And simply put, from both the capital gains and income perspectives, I reckon�National Grid (LSE: NG  ) (NYSE: NGG  ) makes an ideal ISA share. Why? Let's take a look.

Decent yield
Trading today on a forecast yield of 5.5%, an investor making full use of his or her �11,280 annual ISA allowance for 2012-2013 to buy National Grid could earn �620 in dividends next year -- without having to pay a penny more in income tax. Which is especially useful if you're a higher-rate taxpayer, of course.

Better still, National Grid is a cash cow with a long-term track record of throwing off juicy dividends -- and juicy dividend�growth�-- year after year. Which is why, of course, it's long been a share that's popular with income investors.

And just look at what that growth has delivered. Back in 2008 -- the start of the worst recession in 60 years, you'll remember -- National Grid investors were rewarded with an annual dividend of 29.67 pence per share. For 2012, the dividend was 39.28 pence per share.

Over the period 2008-2012, that's an annual growth rate of 7.3% -- comfortably ahead of the rate of inflation over the period, and a decent return from a dull, boring utility.

And as a utility, what's more, National Grid is also a�strongly defensive�share. Owning and operating networks that deliver electricity and gas across the U.K., the business also has millions of customers in the northeastern Unites States, with revenues split roughly 50-50 between the U.K. and the United States.

So investors can be reasonably assured that the revenues, earnings and dividend growth the share has delivered in the past, will continue into the future.

Capital upside
Now, the principal charm of safe and boring utilities is clearly for income investors, via the sector's safe and predictable earnings.

But National Grid is a utility with a difference: here in the U.K., it leaves others to sell directly to consumers, restricting its own offerings to operating the networks through which gas and electricity flow. Which in terms of regulatory supervision, gives it a little more wiggle room, and scope for capital growth.

In the last week, for instance, National Grid's shares have hit a 52-week high, on the back of its announcement that it has agreed price controls with Ofgem for the next eight years, helping to pave the way for the company to decide on its future dividend policy.

In short, while the upside in National Grid's share price is never going to be electrifying, it still makes no sense to pay capital gains tax, if sheltering the investment in an ISA can avoid that risk.

Good company
Another investor with an eye on dependable dividend-paying shares is investing legend Neil Woodford. And with �21 billion under management, coupled to a track record of comfortably outstripping the returns from the market as a whole, Woodford is a voice worth listening to.

Over the past five years, for instance, his Invesco Perpetual High Income fund has returned precisely double the return from the FTSE All-Share index. And an investor putting �10,000 into his High Income fund back in 1988 would have seen it grow to �193,000 today -- that's quite some return.

Interested in discovering what other shares this investing maestro owns? Motley Fool analysts have just updated one of our most popular free reports -- "8 Shares Held By Britain's Super-Investor" -- in the light of recent changes in Woodford's portfolio. To download the report, simply�click here. It's free, so what have you go to lose?

link

Egyptian coastguard arrests divers over major broadband cable cut - 04:02 AM

(gigaom.com) -- Most times a submarine internet cable gets cut, it’s because someone dropped anchor in the wrong place. In the case of the cut off the Egyptian coast, which my colleague Om Malik reported on yesterday, it seems that more deliberate action may have been involved.

According to the Associated Press, on Wednesday the Egyptian Navy detained three scuba divers in a dinghy near Alexandria, who were “cutting the undersea cable” of local telco Telecom Egypt. This was confirmed on the Navy’s Facebook page. Egyptian news agency MENA identified the affected cable as SMW4: the same one whose cutting caused an internet slowdown in parts of Africa, the Middle East and Asia.

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MENA quoted officials saying services would be “back 100 percent on Thursday morning” via the use of “alternative feeds”. Telecom Egypt will apparently bear the cost of the repairs, both of this disruption and a separate cable cut last Friday.

Incidentally, the SMW4 cable (more properly known as South East Asia–Middle East–Western Europe 4 or SEA-ME-WE 4) was also involved in a very serious outage five years ago, which cut the capacity of the main Europe-Middle East connection by 75 percent. This one appears to have been less drastic.

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A "Good" Friday for Pentagon Contractors Yields $374 Million in Contracts

Much of America was on holiday Friday -- but America's Department of Defense never sleeps, and on Friday, the generals were hard at work awarding defense contracts. Some of the lucky (publicly traded) winners were:

  • General Dynamics (NYSE: GD  ) , whose Ordnance and Tactical Systems unit split a $100.6 million "indefinite-delivery/indefinite-quantity, fixed-price with economic price adjustment, multiple-award" contract to supply "M107 projectile metal parts" (for 155mm howitzer rounds) with fellow munitions supplier IMT Defense of Westerville, Ohio. Both companies are contracted to supply the needed munitions through March 26, 2018.
  • British defense contractor BAE Systems (NASDAQOTH: BAESY  ) , which won an $85.5 million cost-plus-fixed-fee contract all for itself. This contract hires BAE to perform research, development, test, and evaluation services in support of the U.S. Army's Future Warfare Center. Simultaneously, a contract of identical size -- $85.5 million -- and description was awarded to Huntsville, Ala.-based Quantum Research International. Both contracts run through Sept. 30, 2015.
  • Engility Holdings (NYSE: EGL  ) , which was awarded $77.9 million in a cost-plus-fixed-fee, incrementally funded contract to train U.S. and Coalition forces serving in Afghanistan in "law enforcement and investigation techniques."�This contract runs through Dec. 31, 2014.
  • CACI Technologies (NYSE: CACI  ) , which won a $14 million cost-plus-fixed-fee modification, extending a previously awarded contract to support program analysis, communications, human resources and other activities at the Navy's Expeditionary Warfare Program Office, through March 2014.
  • United Technologies' (NYSE: UTX  ) , whose Pratt & Whitney division won $10.8 million to supply the Air Force with aircraft engine compressors and spare parts. Completion date: Dec. 30, 2016.

3 Stocks Near 52-Week Highs Worth Selling

The broad-based S&P 500 may be having one heck of a time trying to eclipse its previous all-time high, but that hasn't stopped a breathtaking 54% of companies listed in the Motley Fool CAPS Screener from trading 10% or less from a new 52-week high. For skeptics like me, that's an opportunity to see whether companies have earned their current valuations.

Keep in mind that some companies�deserve�their current valuations. Shares of health care conglomerate Johnson & Johnson (NYSE: JNJ  ) , for instance, are valued at an all-time high in anticipation of receiving a favorable ruling from the Food and Drug Administration on Invokana later this week for Type 2 diabetes. In trials, this SGLT2 inhibitor mopped the floor with Merck's�Januvia and could represent the next wave of Type 2 diabetes treatments.

Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.

So nice, I'll bet against it twice!
The first time I bet against independent energy producer Dynegy (NYSE: DYN  ) , it went bankrupt. Having emerged once again in October, I'm going to advocate pulling the trigger again on a company that simply hasn't learned.

Dynegy shares have rallied significantly since it debuted on the NYSE in October -- especially after announcing a deal to purchase five coal plants from Ameren Energy Resources, a subsidiary of Ameren (NYSE: AEE  ) . Dynegy's Illinois subsidiary will acquire the additional 4,119 megawatts in production from Ameren which should result in $60 million in annual synergies, according to Dynegy. However, the deal isn't being financed with cash or stock, but with Dynegy assuming $825 million in Ameren's debt... and debt had nothing to do with Dynegy's first bankruptcy (I wish you could see me rolling my eyes over here).

The stark reality is that Dynegy forecast a loss in 2013 of up to $332 million in mid-January as it struggles under weak electricity pricing and to refinance its debt. Normally when a company emerges from Chapter 11 bankruptcy, it's in decent shape. But, a closer examination of Dynegy would show that the Ameren deal would push its net debt position from approximately $1 billion to greater than $1.8 billion. Even with $592 million in liquidity, shareholders should be sweating bullets. With few growth prospects and plenty of losses on the horizon, Dynegy is still the horror of an investment it was when I chose it to underperform in 2011.

You're at a 10; I need you at a two
Guidewire Software (NYSE: GWRE  ) , a developer of software for the property and casualty insurance industry, certainly has reason to celebrate after four consecutive quarterly beat downs of the Street's estimates. Its most recent quarter was the most impressive, with the company earnings $0.21 per share on $72.2 million in revenue when the Street called for just $0.02 in EPS on $64.3 million. Management attributed the solid results to up-selling customers, as well as early payments from customers.

While I feel optimism is deserved, investors are currently expecting the world from Guidewire when they should, in reality, be dialing back their expectations. To begin with, management clued investors into the reason for the beat: up-selling and prepayments. I'd speculate that those prepayments are unlikely to be there next quarter and were more of an end-of-the-year type event. That will drastically reduce quarter-over-quarter comparisons.

Valuation is another big sticking point. Even if Guidewire were to grow by 23% to 26% in 2013 as its management forecast, it would need to earn about $0.78 in EPS just to maintain a PEG ratio of 2 (an aggressive growth level for high-tech companies). But, Guidewire's estimates aren't anywhere near $0.78. In fact, looking ahead to 2014, it's only expected to net $0.48 for a forward P/E of 80!

Simply put, competition in this space is increasing and revenue is only going to slowly taper off. While Guidewire is rocking now, its results are going to be very difficult to compare to previous years, perhaps beginning as early as the second half of 2013. I'd suggest bringing your expectations down a few notches on Guidewire.

Don't tread on me
There are quite a few sectors taking full advantage of consumers' push toward a healthier lifestyle. Starbucks, for instance, has been a revolutionary force in promoting local and organic products in its stores to encourage healthier eating habits and to cater to requests for more nutritious options.

You'd think this trend would play perfectly into Nautilus' (NYSE: NLS  ) hands, since it makes various fitness products like treadmills and ellipticals, but I feel that Nautlius' product line presents plenty of unforeseen risk.

For starters, Nautilus sells its products directly to the consumer. If Nautilus was working with brand-name gyms (which I also don't particularly care for), I could potentially support this valuation as the gym business is highly cyclical and big replacement orders could be boosting current sales. However, targeting only consumers via television and Internet advertising leaves Nautilus incredibly exposed to falling sales from higher payroll taxation and unforeseen economic downturns.

Another factor that turns me off of Nautilus is the aforementioned cyclicality of the business. Loyalty among consumers to gyms and for fitness products is minimal at best, and those products and memberships tend to be the first thing to go if consumers' personal finances take a turn for the worse.

Foolish roundup
This week's theme is all about keeping your emotions and expectations in check. With Dynegy projecting a large annual loss, Nautilus susceptible to rapidly changing consumer spending habits, and Guidewire facing some stiff comparable-sale comparisons, all three companies could afford to be knocked down off their pedestal.

I'm so confident in my three calls that I plan to make a�CAPScall�of�underperform on each one. The question is: Would you do the same?

Is bigger really better?
Involved in everything from baby powder to biotech, Johnson & Johnson's critics are convinced that the company is spread way too thin. If you want to know if J&J is nothing but a bloated corporate whale -- or a well-diversified giant that's perfect for your portfolio -- check out The Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now.�

Friday, March 29, 2013

eBay Expects to Drive $300 Billion in Commerce in 2015

eBay (NASDAQ: EBAY  ) outlined its three-year growth strategies to capitalize on what they see as the new commerce environment. Specifically, eBay intends to grow its core Marketplaces, PayPal, and GSI Commerce business. In the process, the company will focus on leveraging its mobile commerce technologies to enable new experiences for consumers and retailers.

In 2015, the company expects to make $300 billion in commerce, compared to $175 billion in 2012. That represents revenue growth of more than 50% to at least $21.5 billion in 2015 vs. $14.1 billion in 2012. Altogether, enabled commerce volume is the total commerce and payment volume across all three business units.�

CEO John Donahoe outlined three advantages that will help eBay achieve its growth targets:

  • An expanded addressable market. Donahoe's focus on becoming a "global commerce leader" takes eBay from an e-commerce company to one with an estimated $10 trillion commerce market.�
  • Mobile commerce leadership and innovation.�eBay's has improved its mobile capabilities across all operating systems and devices and expects to generate $20 billion in mobile commerce and payments volume.
  • A portfolio of technology assets and capabilities. Donahoe believes its core businesses and assets well position the company to capitalize on the new commerce environment.
In the company's press release, Donahoe noted:

Led by mobile, a commerce revolution is under way. Technology is creating a new web-enabled retail interface, a new seamless, multiscreen commerce experience that connects consumers anytime, anywhere. This will expand shopping beyond conventional store environments and e-commerce sites. How we shop is being transformed, and eBay intends to be a leader in this new commerce world.

An Income Investor’s Guide to Real Estate Investing

Last week, I wrote an article about the resurging housing market. After five years, recent data indicates that we're in the midst of a recovery. Many individuals are buying homes for their own housing needs, but a large number of investors are jumping into the market as well.

There are several ways investors looking for income can get into the market without taking on ownership of physical property. But before we discuss some real estate plays for investors, let's take a deeper look at who's buying real estate these days.

Profile of today's homebuyer
Not surprisingly, many people who walked away from their homes in the mid-2000s have waited the requisite three to seven years until their credit has cleaned up and are now getting back into the housing market. And those individuals who hunkered down, sat out the mid-2000s, and saved their pennies for a more prudent down payment are also getting in.

But many individuals have circumstances -- such as subpar credit or insufficient savings for a down payment -- that simply don't allow them to buy a home. Meanwhile, others have chosen to completely forgo the dream of homeownership. Renting is these folks' only option, leaving a different breed of homebuyer to scoop up the limited inventory of single-family homes: investors. But, unlike 2005, when your brother-in-law bought a handful of homes with the intention of flipping them for a quick buck, these days it's institutional investors buying droves of them as rentals.

As The Wall Street Journal reported last week, such large private equity firms as�Blackstone Group (NYSE: BX  ) have spent billions of dollars during the past year scooping up single-family homes. Blackstone is buying in excess of $100 million worth of homes each week and has forked over roughly $3.5 billion since early last year. Cash buyers -- largely these types of investors -- currently make up one-third of sales nationally. In fact, in Orange County, California, fewer than 10% of foreclosures went to investors at courthouse auctions in 2008. Last year, however, investors bought half of foreclosures at such fire sales in that county.�

An easier way
Instead of trying to beat these big-fish investors, how about getting into real estate a different way? REITs, or real estate investment trusts, are a way to invest in real estate minus the headaches that come with being a landlord. Not only do investors buy REITs for the potential share-price appreciation but they do so also for their current income.

REITs come in different flavors -- mortgage and equity. Mortgage REITs carry inherent risks that long-term individual investors need to carefully consider before diving in. During the past five years, many mortgage REITs have cut their dividends many times and have issued substantial numbers of new shares to fund their business activities. They also borrow more to fund their operations than equity REITs, making mortgage REITs relatively vulnerable to rising interest rates. Understand the difference between these two before jumping into the world of REIT investing.

More on equity REITs
Equity REITs typically focus on commercial properties such as shopping centers, industrial parks, and senior living real estate. For example, Kimco Realty (NYSE: KIM  ) has become the largest REIT focused on shopping centers. Some of its largest tenants include big-box retailers such as�Wal-Mart�and Home Depot. The company pays a 3.8% dividend, and its portfolio includes properties in 44 U.S. states, Canada, Mexico, and South America.

Similar in its focus on commercial properties, National Retail Properties (NYSE: NNN  ) has interests within the U.S. only but in nearly every state. Properties are leased to several hundred different retail tenants. The Florida-based REIT pays a 4.5% dividend.

Unlike the abovementioned REITs, Realty Income (NYSE: O  ) pays its 4.8% annual dividend on a monthly basis, as opposed to semiannually. The California-based REIT owns and leases several thousand freestanding, single-tenant properties in nearly every U.S. state.

Meanwhile, Health Care REIT (NYSE: HCN  ) focuses on the development, ownership, and management of health-care real estate. Health-Care REIT has ownership interests in roughly 1,000 health-care properties located in the U.S., Canada, and the U.K. It pay a 4.6% dividend yield.

Foolish bottom line
If you're an investor looking for income, don't limit yourself to thinking your only real estate option involves owning a physical piece of property. Many investors favor REITs due to their passive nature (think not having to deal with a water pipe rupture at 2 a.m.), capital appreciation potential, and generous dividend income. Consider REITs for your portfolio today.

Looking for more long-term income investing ideas? You've come to the right place. Check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Japan Stocks Rebound; European Markets Feel Portugal Rating Cut

The Nikkei recovered some lost territory on Wednesday as markets in Europe felt the pain of local problems amidst the turmoil over Japan’s tragedy. Moody’s Investors Service cut Portugal’s rating by two notches to A3, and markets in Europe reacted, with bank stocks limiting a rise caused by bargain-hunting buyers and in the end weighing heavily on the finish.

The Nikkei bounced back from two days of massive losses to regain some 5.68% at its close of 9,093.72, and TOPIX was up 6.64% to 817.63. In its continuing efforts to calm the markets, the Japanese central bank injected $43 billion more in liquidity into the economy.

Reuters reported that the FTSE regained some of its own losses thanks to investors taking a breather from the panic selling on Tuesday, spurred by nuclear meltdown fears, that chopped almost 21 billion pounds ($33.86 billion) from the market. Banks, however, limited the upside of that recovery, with the news of Portugal’s lower status serving as a grim reminder of problems closer to home.

Early trading saw the FTSE 100 up 5.16 points at 5,700.44 after five consecutive down days, but banks shaved 12 points from the index on Portugal’s news. But midday, stocks felt pressure as the FTSEurofirst 300 index of top shares lost 0.5% at 1,079.25 points, after a 3½-month low finish on Tuesday. The STOXX Europe 600 Banks fell 1.5%; STOXX Europe 600 Technology index dropped 0.3%; the FTSE 100 fell 0.7%, Germany's DAX was down 0.3%, and France's CAC 40 lost 0.8%.

Brent crude injected another note of reality, gaining more than $2 to rise above $110.50 per barrel around midday. U.S.crude futures also rose around the same time, adding $1.37 to reach $98.55 per barrel as concerns over events in Bahrain began to weigh heavily on Saudi Arabia.

Oil prices have not yet added a premium for an expected increase in demand from Japan; that may be a while in coming. However, barring a drastic development in alternative energy sources, it is to be expected, since Japan’s reactors damaged in the earthquake are likely beyond repair and will force the country back to a reliance on other conventional sources of energy as it works to rebuild.

Gold also saw renewed demand, regaining lost territory from Tuesday as investors saw a chance to buy on the dip. Opposing forces are working on gold: a thirst for liquidity, spurred by nuclear worries in Japan, and the need for safe havens, egged on by events in the Middle East/North Africa (MENA) region. Gold had lost 2.3% in Tuesday’s trading, its biggest one-day drop since January, but Wednesday the flight to safe havens over liquidity prevailed and spot gold was bid at $1,398.44 per ounce against New York’s Tuesday close of $1,393.95, and U.S. April gold futures gained $5.80 to $1,398.60.

Barclays Capital said in a note, "The twin shocks of Middle Eastern political uprisings and the largest earthquake ever to hit Japan have increased downside risks to global growth and metals prices in the short term. Until there is more clarity on these events and how policymakers will respond to inflationary pressures, prices of growth-sensitive assets ... will likely struggle, while safe havens, such as gold, should outperform."

North Korea Warned

Yonhap/Associated Press

A U.S. Air Force B-2 stealth bomber flew near Osan U.S. Air Base, south of Seoul, on Thursday in a display of force aimed at deterring North Korean threats of attacks on the U.S. and South Korea.

Two B-2 stealth bombers flew from a base in the American heartland, dropped test charges on targets near North Korea and returned to the U.S. on Thursday, as Washington mounted its most overt display of military force amid months of escalating tensions with North Korea.

The B-2s, the most advanced heavy bombers in the U.S. arsenal, flew low over the South Korean city of Osan before dropping eight dummy munitions on a South Korean bombing range as part of annual joint exercises with South Korea's military. The dummies were inert versions of 2,000-pound bombs, one of the bigger conventional weapons in the U.S. arsenal. The B-2 can also carry nuclear payloads.

The maneuvers illustrated the growing concern inside the Obama administration that North Korea and its 30-year-old leader, Kim Jong Eun, may move beyond threats that have been commonplace against the U.S., South Korea and other allies in Asia. The fear is that Mr. Kim will continue with a string of military provocations that run the risk of sparking a major security crisis in Northeast Asia.

In North Korea, Mr. Kim ordered rockets to be on standby to strike U.S. bases in South Korea and the Pacific, as well as the U.S. mainland, state media reported. The order came after Mr. Kim and senior military officials held an emergency meeting in the early hours Friday, according North Korea's official KCNA agency.

The B-2 flights were "an ultimatum that [the U.S.] will ignite a nuclear war at any cost on the Korean Peninsula," Mr. Kim said at the meeting. KCNA said the leader "said he has judged the time has come to settle accounts with the U.S. imperialists in view of the prevailing situation."

Tensions Escalate

North Korea Cuts Hotline North Korea said it was severing a military hot line with South Korea and showered invective on Seoul's new leader, even as Seoul pursued plans to improve relations with the North.

Signal Amid the Noise The hotine is used to coordinate traffic heading from the South into the Kaesong Industrial Complex, a few miles inside the North. So far, traffic heading from the South into the industrial zone has been unaffected.

Earlier

Record Profit at Gold Miner Centamin

LONDON -- Centamin (LSE: CEY  ) this morning released its audited annual results for the year ended Dec. 31, 2012, revealing record EBITDA of $233.3 million, up 10% on 2011.

Full-year production at the Egypt-focused gold-miner was up 30% on the previous year, with the final figure of�262,828 ounces above the guidance of 250,000 ounces. Basic earnings per shares rose 2% to $0.1827, while Centamin has continued to reap the benefits of the high gold price as it remains debt-free and unhedged with cash, bullion on hand, gold sales receivable, and available-for-sale financial assets of $219.4 million as of Dec. 31, 2012.

Centamin's Sukari gold mine -- now in its third year of production -- has been pivotal to�Centamin's fortunes in recent months and had a rollercoaster effect on the share price. First, operations were suspended due to a lack of diesel supplies and the halting of sales by "unforeseen and arbitrary" red tape, which caused a 61% crash in the share price in a single day. The price recovered 25% the following day as the fuel supply resumed and a further 25% a few days later as customs lifted its halt on gold exports from Sukari.

Management "remains confident that a satisfactory outcome will ultimately be achieved" over two separate court cases relating to Sukari. The first concerns a decision by the Egyptian General Petroleum Company to charge international prices, rather than local (subsidized) prices, for the supply of diesel fuel oil. The second involves a judgment by an Egyptian administrative court in relation to the validity of Centamin's 160-square-mile exploitation lease -- though normal operations are able to continue during this process.

Having shed 4.7% of its value as of 10:05 a.m. EDT today, at 54 pence Centamin's share price has yet to regain all of its value prior to the plunge, and whether the potential for recovery makes Centamin a buy remains your decision.

Indeed, you may wish to consult this free Motley Fool report, which explains how betting on battered shares can provide wonderful gains -- if the underlying company recovers. To put a possible turnaround into perspective, Centamin's shares reached a peak of 197 pence before the Egyptian troubles erupted. Anyway, if Centamin is tempting you today, please click here to read the Fool's exclusive "millionaire" report before you hit the buy button.

Dow Jones May Slip on Euro Fears

LONDON -- Stock index futures at 7 a.m. EDT indicate that the Dow Jones Industrial Average (DJINDICES: ^DJI  ) may open 0.35% lower this morning after closing at a new high last night, while the S&P 500 (SNPINDEX: ^GSPC  ) may open down by 0.37% after closing within two points of its all-time high yesterday. As the S&P 500 approaches record levels, the CNN Fear & Greed Index has also moved higher, closing at 76 yesterday in a return to "extreme greed" territory.

In Europe, protests continue in Cyprus as the country's central bank governor says its banks will open tomorrow with new capital restrictions in place. Italian markets moved lower after yet another set of negotiations failed to produce a coalition to govern the country. Italy has been without an effective government since elections were held at the end of February, and a new round of elections now looks increasingly likely.

In the U.K., the Bank of England said U.K. banks needed to raise a further $38 billion to meet capital shortfalls and cover potential loan losses. The report did not specify which banks were affected, but Lloyds Banking Group and Barclays moved higher after the announcement, which was lower than a previous $90 billion estimate. Revised GDP figures showed that the U.K. economy expanded by just 0.2% in 2012, less than the 0.3% previously reported. Both the British and French economies shrank by 0.3% in the final quarter of 2012.

In the U.S., investors will be looking ahead to February pending-home-sales figures, which are due at 10 a.m. EDT. Consensus forecasts suggest that sales may have fallen by 0.5% in February after rising by 4.5% in January. Also of interest may be the EIA weekly petroleum status report, due at 10:30 a.m. EDT.

Companies due to report before the opening bell today include UniFirst, which is expected to report earnings of $1.13 per share. Companies due to report after markets close today include Paychex, Red Hat, Texas Industries, SYNNEX, HB Fuller, Steelcase, Five Below, and PVH. SAIC stock could also be actively traded this morning after the technical-services provider announced a $1 special dividend in its full-year results, which were published after markets closed last night. SAIC shares moved 4.2% higher in after-hours trading last night.

Finally, let's not forget the Dow's daily movements can add up to serious long-term gains. Indeed, Warren Buffett recently wrote, "The Dow advanced from 66 to 11,497 in the 20th�Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions." If you, like Buffett, are convinced of the long-term power of the Dow, you should read�"5 Stocks To Retire On." Your long-term wealth could be transformed, even in this uncertain economy. Simply�click here now�to download this free, no-obligation report.

Egyptian coastguard arrests divers over major broadband cable cut - 04:02 AM

(gigaom.com) -- Most times a submarine internet cable gets cut, it’s because someone dropped anchor in the wrong place. In the case of the cut off the Egyptian coast, which my colleague Om Malik reported on yesterday, it seems that more deliberate action may have been involved.

According to the Associated Press, on Wednesday the Egyptian Navy detained three scuba divers in a dinghy near Alexandria, who were “cutting the undersea cable” of local telco Telecom Egypt. This was confirmed on the Navy’s Facebook page. Egyptian news agency MENA identified the affected cable as SMW4: the same one whose cutting caused an internet slowdown in parts of Africa, the Middle East and Asia.

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MENA quoted officials saying services would be “back 100 percent on Thursday morning” via the use of “alternative feeds”. Telecom Egypt will apparently bear the cost of the repairs, both of this disruption and a separate cable cut last Friday.

Incidentally, the SMW4 cable (more properly known as South East Asia–Middle East–Western Europe 4 or SEA-ME-WE 4) was also involved in a very serious outage five years ago, which cut the capacity of the main Europe-Middle East connection by 75 percent. This one appears to have been less drastic.

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S&P Record Is a Show of Faith in Fed

Investors nudged the broad, widely followed Standard & Poor's 500-stock index into record territory Thursday for the first time since 2007.

The index is closely tracked by professional investors and its four-year recovery since 2009 reflects a growing belief that the Federal Reserve's continuing support for markets and the economy will overcome modest U.S. growth and lingering economic and political weakness in Europe.

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A screen over the trading floor displays the final tally for the S&P 500 on Thursday.

Thursday's action�coming on the final trading day of the first quarter�was a small-scale model of the broad debate currently dominating financial markets.

On one side, Italy's difficulty in forming a new government stoked fears that Europe still hasn't dealt with its financial problems, despite the reopening of Cyprus's banks. In addition, new U.S. weekly unemployment claims surprised economists by ticking higher while another report showed soft manufacturing activity in the Midwest.

Offsetting those factors was an upgrade to economists' estimates of economic growth late last year. The revision reinforced a broad investor conviction that Fed stimulus is helping and that the slow improvement will prompt Chairman Ben Bernanke to continue supporting markets for months to come.

The S&P 500 rose just 6.34 points, or 0.41%, to 1569.19, but that was enough to push it past the record 1565.15 hit in October 2007. The Dow Jones Industrial Average rose 52.38 points, or 0.36%, to 14578.54, also ending the quarter at a new high. The Dow returned to record territory on March 5, ahead of the S&P by three weeks.

"It's a symbolic day�it does mean we've recovered from the experience of the past five years," said Jim Baird, chief investment strategist for Plante Moran Financial Advisors, which manages $7.2 billion in assets. "But I don't think anyone should look at today's move and think it suggests an all-clear, and that there are no worries in the market going forward."

This week, New York Federal Reserve Bank President William Dudley said that at some undetermined point, he will favor scaling back the Fed's $85 billion-a-month bond purchases, the backbone of its stimulus.

But Mr. Dudley and Mr. Bernanke remain committed to supporting markets and the economy as long as needed, which makes many investors shrug off the other comments. Eventually, investor complacency could blind them to signals that the rally is ending, but stock buyers are betting that this will happen later.

The Dow is up 11% this year�its best first quarter in 15 years�and some money managers have been selling stocks or hedging positions for fear that stocks are overdue for a pullback. But those trying to show stronger gains than competitors say they must either keep buying stocks or risk falling behind. On Thursday, Wells Fargo Advisors said it was projecting that the S&P 500 could rise as high as 1625 this year.

The firm, an affiliate of Wells Fargo & Co., said it was optimistic about economic prospects. It also was in danger of being overtaken by events: Its previous year-end forecast was for the S&P to go as high as 1575. Wells Fargo's strategists joined those of Goldman Sachs and Morgan Stanley in increasing their forecasts.

The Nasdaq Composite Index, dominated by technology stocks, rose 0.34% to 3267.52 Thursday. It has recovered all its losses from the financial crisis, but remains more than 50% below the record of 5048.62 hit in 2000, during the tech-stock bubble.

The single strongest explanation for stocks' "renaissance" of the past six years has been easy money from the world's central banks, Michael Hartnett, an investment strategist at Bank of America Merrill Lynch, told clients on Thursday.

"Over the past six years there have been 503 global rate cuts, $11.6 trillion of new central-bank liquidity and irrational exuberance in bond markets blessed by policy makers," he said. How much longer will stocks rise "will depend on whether European and Chinese growth expectations recover before reflation in the U.S. and Japan" forces authorities to slow the flow of easy money and kill the rally.

So far, annual inflation has been benign enough that policy makers have largely ignored it, but U.S. consumer prices nevertheless are up 13% since 2007. Stock indexes only recently have moved above their levels of that period, meaning they remain far from records after adjusting for inflation.

Ordinary investors began pushing money back into U.S. stock mutual funds in January and February. Many had sold during the crisis and some appeared to regain confidence as indexes neared records, meaning some had sold low and bought high.

But data from the Investment Company Institute, a mutual-fund trade group, show that net U.S.-stock mutual-fund purchases in March have been inconsistent and weak, raising questions about how enthusiastic the public really is.

The S&P took longer to return to record territory than the Dow partly because the conservatively composed Dow never fell as far at the S&P, which includes a variety of younger, smaller and more-volatile companies. The S&P also is influenced by Apple shares, which have fallen 17% this year.

Because so much of the recovery has depended on the Fed, investors continue to worry that the stock recovery will dry up once the Fed stops pumping money into financial markets.

One reason for investor concern is that the S&P 500, along with most other indexes, has been exceptionally volatile since 2000. In the wake of the financial crisis, it fell to 676.53 on March 9, 2009, down 57% in just 17 months. Just four years later, it has recouped all of that and more.

—Alexandra Scaggs contributed to this article.

Write to E.S. Browning at jim.browning@wsj.com

Microsoft Throws Down the Search Engine Gauntlet

Yesterday, Microsoft� (NASDAQ: MSFT  ) �published a blog post about how search engine results can help or hinder a website's page results (shocking!). The post wasn't published to enhance the world of search engine optimization, but rather to take another jab at Google (NASDAQ: GOOG  ) . And we all thought the Scroogled ad campaign was enough.

The post came from Susan Athey, a professor of economics at Stanford University Graduate School of Business and a "long-time" Microsoft consultant. She paired up with Microsoft's Bing team to study how website traffic is affected by where the page ranks on search engine results. Over the course of a few weeks, she and the Bing team played with the algorithms in the U.S. and overseas to test the change to search results. Here's what she found:

  • When a page falls from No. 1 spot to No. 3 spot on the search results page, its traffic plummets about 50%.
  • When a page goes from the No. 1 sport to the No. 10 spot, site traffic goes down by 85%.
  • A site that moves from the No. 5 spot up to the No. 1 spot sees a traffic increase of about 340%.

Source: Microsoft.

This is where it gets interesting. After laying out the data, Athey explains that a search engine company could increase a business' website exposure if that business was promoting the search engine's affiliate site. She writes, "In fact, the manipulation of results to preference a search engine's own products and services is one of four areas of concern identified by competition authorities investigating Google's business practices in Europe, where the world's largest Internet company controls more than 90 percent of the search market."

Oh yes, she did.

Athey is a consultant for Microsoft, posting on the company's site, so it's not surprising she points the finger at the search engine giant. Google is currently being investigated by the European Commission to determine whether it manipulated search results. A similar U.S. investigation by the Federal Trade Commission ended a few months ago, with no rulings issued against Google. If Google didn't respond to the Commission's complaint and was found guilty (an unlikely scenario) it could face fines up to $4 billion.

Searching for more market share
According to a comScore report released last month, Google holds 67% of the explicit core search market share. Microsoft trails in second with just 16.5%, followed by Yahoo!�with 12.5%. Search engine advertising is a huge business and Microsoft wants to grab a bigger piece of that pie. Attacking Google has been Microsoft's main strategy, and after this blog post it seems the company is sticking with that plan.

Microsoft's online services division, which includes Bing, typically loses almost half a billion dollars each quarter. But this past quarter the division only lost $289 million and revenues were up almost 11% year over year. That's a good start, but investors need to see more improvement. If Bing can take more market share, then it may be able to increase ad revenue and stop the division from losing more money. To do this, Bing will have to offer a superior product that gets set as the default search on devices. Microsoft won't win the search war against Google overnight, though, and I don't think they'll win it in the courtroom, either.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

3-D Printing News Investors Need to Know: Singapore, ExOne, and Early Adopters

In the following video, Motley Fool industrials analyst Blake Bos gives us the latest stories in the world of 3-D printing investing. He tells us about plans in Singapore to make huge investments in additive manufacturing as the city-state positions itself to be a major tech hub in Asia, discusses a difficult new certification that ExOne (NASDAQ: XONE  ) has just achieved that really gives the newly public company credibility, and highlights one report that talks about the advantage that early adopters of additive manufacturing technology will have over their competitors.

3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell the stock today. To start reading, simply click here now for instant access.

Allscripts: Turnaround in medical records


Allscripts (MDRX) is a leading provider of electronic record-keeping and practice management systems to doctors, hospitals, and various other health care providers.

After a prolonged fainting spell, the company is now getting the right treatment for a robust recovery, and we�re adding it to Small-Cap Portfolio.

The company struggled last year attempting to integrate products from a big acquisition, while customers balked at making purchases ahead of expected rollouts of new products and product upgrades.

Analysts cut their earnings expectations, and the shares dropped some 50 percent. But now a turnaround is well underway.

Allscripts had considered several options to maximize shareholder value, including shopping itself to private equity firms. In the end, though, after management and boardroom shake-ups, it remained a public entity, with greatly improved prospects.
One significant change was the installation of a new and capable CEO, Paul Black, former chief operating officer of rival healthcare software company Cerner, which grew rapidly under his tenure. Black�s hiring was the latest in a string of management changes that have brightened the company�s outlook.

Earlier, the chairman of the board was ousted and three other board members resigned in protest. Allscripts� chief financial officer and other executives likewise resigned.

With the turmoil resolved, the company is focusing on growing the business again. It�s notable that over the past year, Allscripts did not lose a single major customer. That�s important since nearly two-thirds of revenue comes from recurring sources.

Now the company has begun to introduce new products incorporating technology applicable to a range of healthcare organizations. This should help drive new and recurring sales going forward.

One particular area for growth is small medical practices. Currently only about two-thirds of family doctors use electronic record-keeping. That figure should grow substantially.

To speed the rollout of e-records, the Obama administration has put in place generous incentives that eventually will be replaced by penalties for providers that do not adopt electronic record-keeping.

International sales are another potential growth area, since currently Allscripts generates nearly all of its sales and profits in the U.S. According to one recent survey, spending on information technology is the top priority for European hospitals. Allscripts stands to capture a decent share of that market.

This year, we expect Allscripts to earn around 80 cents a share (up 13 percent from 2012), with profit growth averaging 15 percent a year over the next five years.

The shares trade at a substantial discount both to competitors� valuations and to expected growth. If the new management team rights the ship, as we expect, look for that valuation gap to narrow, resulting in a healthy gain for the stock. MDRX is a buy up to $12.



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Thursday, March 28, 2013

Futures Falling; Cliffs Plunges 13%

Futures for the Standard & Poor’s 500 and Dow Jones Industrial Average are down about 0.4% this morning, ahead of Wednesday’s bell. The S&P closed yesterday within just a couple of points of its all-time high.

Shares of Cliffs Natural Resources (CLF) are tumbling, down as much as 13% in premarket action. The stock was downgraded this morning by Morgan Stanley, and its price target cut to $14 a share (it closed at $21.43 on Tuesday).

We believe Cliffs� key US iron ore business (~60% of 2012 EBITDA) will be halved in coming years as new Great Lakes supply cuts into volumes and pricing.More bad news to be priced in:�CLF stock has dropped ~44% YTD on deteriorating operational outlook (especially for Bloom Lake) and a surprise dividend cut and equity/convertible preferred raise. We see further downside as two issues are not priced in by the market:1) Deteriorating US iron ore market balance:�We believe that the supply-demand balance in the isolated Great Lakes pellet market will deteriorate as up to ~13 mt of new supply comes online over the next ~3 years in a ~60 mt market. As the only non-steelmaking producer in the region, we believe CLF will be most impacted. US Iron Ore segment EBITDA could halve vs. 2012 levels.2) Reserve depletion:�The company�s Asia-Pacific Iron Ore segment will deplete its reserves in ~6 years.

As if that wasn’t bad enough, analysts at Credit Suisse lowered their target price for the stock to $10, writing:

We believe that there are structural changes taking place in CLF�s key Great Lakes market that will compromise its pricing power and erode the earnings potential of the US Iron Ore business.

It wasn’t all bad for Cliffs, though: Goldman Sachs raised their rating to Neutral, based largely on the stock’s valuation. I’ve written about Cliffs before; the stock is one of the worst performers of the year, down 44% in 2013 — and that’s before a likely big drop today.

Shares of Boeing (BA) are down about 0.6% ahead of the bell. A Reuters report suggests the 787 Dreamliner may face hurdles even if it passes new safety tests and is permitted to return to the sky.

Aviation experts and government officials say the Federal Aviation Administration may shorten the permitted flying time of the 787 on certain routes when it approves a revamped battery system. The plane was grounded worldwide two months ago after lithium-ion batteries overheated on two separate aircraft.

Losing extended operations, or ETOPS, would deal a blow to�Boeing�and its airline customers by limiting use of the fuel-saving jet, designed to lower costs on long-distance routes that don’t require the capacity of the larger Boeing 777. Such a loss could even lead to cancellation of some routes.

Also falling are shares of Apollo Group (APOL), parent of the for-profit University of Phoenix, which are down 3.5%. The stock fell 2.7% yesterday and is down 40% in the past six months.

GameStop’s Crazy Day

After falling 6% in the wake of its earnings results premarket, shares of GameStop (GME) are now up almost 5%. The day’s trading chart looks like this:

FactSet

(Click for a larger version.)

What could explain the upward move despite the full-year guidance that came in well below Wall Street estimates?

Well, the charitable view would be that GameStop’s argument that sales will pick up once blockbuster games and new consoles are released later in the year is driving enthusiasm:

“The first half of the year is going to be very challenging because we’re continuing the trend that we have seen in the last two or three months on sales of hardware from the current console set and sales of software,” Chief Financial Officer Robert Lloyd said in an interview…

The videogame industry is anticipating a strong finish to 2013 with the release of Take-Two Interactive Software’s “Grand Theft Auto V,” Electronic Arts Inc’s “Battlefield 4″ and at least one next-generation console by the holidays.

As a result, consumers are postponing purchases until the fourth-quarter console introductions.

“But we expect to return to growth in the back half of the year,” Lloyd said.

On the other hand it’s worth noting that, according to Yahoo Finance, 51% of GameStop’s float was held by short sellers as of Feb. 28.

History Set to Repeat: The House as Investment Fad Strikes Again

When the housing market crashed, fingers were pointed in every direction possible.

But one common recipient of the blame was the home-as-an-investment concept. Homeowners spent more than they could reasonably afford on monthly payments and upkeep, while others used their home equity to borrow frivolously-spent money.

Time has passed and strict regulations have slackened once again, causing some to fear or predict that the idea is starting up once again.

Have consumers learned nothing from history, or is there a way to approach a home as a positive investment source?

Paul LeJoy, CEO and founder of Pacific Realty Partners, said the idea of a house as an investment is not a fad.

“Your home, if it has equity, it can be the best source of investment,” he told loans.org.

And the potential for investment is only growing.

According to Federal Reserve statistics released on March 7, household net worth was about $66 trillion at the end of Q4 2012. Household net worth, the difference between the value of households’ assets and liabilities, was $1.1 trillion more than Q3 2012. This was the highest level since the beginning of the 2008-09 recession.

Recovery, in some form, is at hand, according to CEO of OwnAmerica, Greg Rand.

“The general consensus is that every market was better in 2012 than in 2011 and better in 2013 than in 2012,” the 20-year real estate veteran said.

He continued explaining that even with the recession, the boom and correction still left the housing economy ahead.

Rand said that throughout history, homes were viewed as a “forced savings plan” which created wealth. During the recent housing crisis, the country recently experienced the dot-com wave and subsequent stock market crash.

Consumer faith in the stock market was low, so people turned to supposedly safer options. Rick Sharga, executive vice president of Carrington Mortgage Holdings, said real estate was a popular option.

But something changed, and consumers began using their homes as ATM machines.

Rand said to prevent a crash from occurring again, home buying is being treated differently.

“We are getting back to the home as a conservative, forced savings plan, similar to a life insurance policy,” Rand said. “This is different than treating a home purchases like a tech stock or a day trade.”

A Changed Market

Chuck Iverson, broker associate for Coldwell Banker Previews, said due to extensive media coverage of foreclosures and short sales, people think more carefully about the home they decide to purchase and live in.

Although consumers are cautious now, in the past, decisions were made quickly and without thought for the future. Iverson said consumers took more out for home improvement or luxury items, thinking that rapid appreciation would continue for a long period, only to find out the opposite. 

Conversely, Sharga isn’t sure if homeowners are truly making better decisions or if the market is simply forcing them to make prudent decisions.

“The reality today is that there is far less risk allowed by lenders, so only borrowers who can absolutely prove they’re capable of making their payments are getting the financing they need to purchase a home,” he said.

LeJoy believes heavier regulation, as well as low interest rates, are the driving factors for the economy.

“It’s good to be regulated,” he said. “You don’t want to buy something you’re not going to be able to afford. If they had those rules back in 2006 and 2007, we wouldn’t have had that crash that we had.”

Increased regulation such as extensively scrutinized appraisals and eliminating the idea of no-money-down financing has practically disappeared, Sharga said.

“There’s always very limited home equity lending going on, which means that borrowers are less likely to get themselves into financial trouble by using their house as an ATM,” he said.

Car and Home Values

The amount that a person or company can or should invest in a property is highly disputed among real estate professionals, economists, and homeowners.

In a February 2013 video interview with Bloomberg TV, Robert Shiller, a Yale University economist and a part of the industry-wide Case-Shiller index, said that the idea of housing as an investment was merely a fad and he even compared home values to car values. He said most consumers would not attempt to re-sell a 20-year-old car.

Sharga said that although he understands the comparison, he doesn’t believe the theory stands up after closer scrutiny. He said people have different expectations when buying a car or when buying a home.

“We know that a car loses value the minute drive it off the lot, and will continue to lose value until the day we sell it or trade it in. Cars are purchased with the understanding that they are fundamentally going to be obsolete after a period of years,” Sharga said. “Most people who buy a home anticipate that it will go up in value over time, or at least not lose value.”

Sharga said in some instances, a car can become a collector’s item. But this is rare. The potential for a home to appreciate in value is much more likely.

Homeowner vs. Investor

According to a recent survey by OwnAmerica, 84 percent of respondents believe that real estate is still the best long-term investment. Among respondents who have invested in real estate, almost 82 percent state they made money, and the same percentage expect real estate values to appreciate over the next 10 years.

Rand said the most significant outcome of the survey is the vast confidence in a long-term recovery.

“People understand now, more than ever, that building wealth in real estate takes time,” Rand told loans.org.

Sharga said if homeowners want to approach their home as an investment, they need to take a long-term view and set realistic financial expectations that “will not deliver outrageously high returns.”

“A homeowner should be looking at a property first as a place to live and raise a family, and second as an opportunity to build equity over time, along with some amount of price appreciation on the home,” Sharga said. “Investors, on the other hand, are typically looking at shorter durations and treating the properties like any other investment asset.”

LeJoy said homeowners approach the buying process with emotion, whereas investors approach a new deal with mainly money in mind.

“I don’t care where the house is, I just want the figures. I buy homes in the hills, in the ghetto. It’s not a home, it’s a house,” LeJoy said. “If an investment equals profit, then price is paramount.”

Beyond a differing mentality, investors are able to make quicker decisions such as “buy and sell,” whereas for a family homeowner, moving frequently and changing schools for their children, all cause a disruptive streak in the family balance.

In addition, using a home as an investment property does not tend to offer as much return on investment potential as others. Homes require regular maintenance, unforeseen repairs, as well as additional property taxes and utilities that renters do not experience. Monthly bills, as well as unexpected costs, are typically underestimated by homeowners.

“They may be one water heater malfunction away from financial insolvency,” Sharga said.

In order for a positive outcome to occur, homeowners need to make smarter decisions, according to Texas-based real estate expert Cathy Guasque.

“A home is a living breathing entity and must be maintained in order to increase in value over time,” she said.

But a lack of financial literacy is not just a downside for homeowners. It can strike for novice investors as well.

Sharga said that even though buying property can be an incredible risk, it can still be a good investment if the owners view it in the correct manner.

“If you view the house as a place to live — as a place to raise your family — and assume that your monthly cost of housing expense is roughly equivalent to what you’d pay as a renter, whatever positive return you get from the property is a bonus,” Sharga said.