Tuesday, April 28, 2015

Selecting 'your' financial advisor

During my visit to Chennai earlier this week, I met a motley bunch of people as part of my work. One who wanted to understand how a financial plan would help him. There was a couple whose plan was made, but who were contemplating whether the fees for executing and managing their investments would be justified. Then there was a young business owner who wanted to make a quick return on his stocks. And a man who had retired early, at peace with himself and getting set for a long sojourn to the foothills of the Himalayas.

At the end of day, I realized that each one of them was interested in a relationship. They wanted someone they could talk to � who would understand their dreams and help make them a reality; who would reassure them that reaching a future goal was within reach with discipline, no matter how insurmountable the odds.

Financial Planning: An Art or A Science?

I am sometimes asked whether financial planning is an art or a science. The answer � not a diplomatic one � is that it is a bit of both: a science, as it requires the study of financial products and complex calculations; an art, as it requires the understanding of human behavior and financial psychology. The number crunching or competency test becomes the entry gates through which the relationship is started, and is like the compulsory question in your examination: there is no choice other than being upto speed with the latest knowledge in the field. However, the strength of the relationship will be determined by the way you deal with the client, hold his hand during times of uncertainty and help him achieve his goals.

Look for an advisor in the Long Run

For you to get maximum value from your advisor, you should be in a position to share with him your concerns, needs and desires. This can only happen after you develop the trust in him and his advice. But it surely takes time. The competence that the advisor needs to display will extend beyond just understanding and explaining of financial products; it will! include understanding of operational procedures especially in resolving issues.

For example, a client may have multiple demat accounts and may be delaying closing them because he has to dispose off the shares that are held in them (possibly at a loss), and he imagines that he may need to physically visit the demat offices to shut these accounts, for which he does not have the time. As an advisor, I must not only recommend whether the share should be held or sold, keeping in mind his total portfolio, but also assist him in the closure of the account.

The Past Experience of the Advisor

Everyone needs a financial advisor. But how do you select the one that fits your needs. Here, then, are a few questions that you can consider before selecting your advisor. How long has the advisor been in business?  How many market cycles has he seen? How many clients does he have? And how many of his clients of 3 or 5 years ago are still continuing with him? Can he give references of a couple of his clients, preferably at the same age and status in society as you? Does he concentrate on a particular segment of clients: only retirees, only IT professionals, etc? What is the organizational back up to ensure that the advisory business will remain a running entity? May be, there should be legislation to define advisors and an audit or rating system in place to ensure that you are not misled by your �advisor� any more.

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Monday, April 20, 2015

Stocks to Watch: Tesla, Humana, Hospira

Among the companies with shares expected to actively trade in Wednesday’s session are Tesla Motors Inc.(TSLA) Humana Inc.(HUM) and Hospira Inc.(HSP)

Electric car maker Tesla Motors Inc. reported a narrower third-quarter net loss of $38 million and said it plans to expand production of its Model S sedans to meet rising demand in the U.S. and overseas. Though adjusted profit and revenue beat expectations, shares fell 11% to $157.25 in premarket trading as some had hoped for a bigger beat. The stock, meanwhile, has surged this year.

Humana’s third-quarter earnings fell 14% as the Medicare-focused insurer logged an increase in health-care and operating expenses, though membership continued to increase. Results beat expectations, but the company issued downbeat earnings guidance for 2014. Shares dropped 4.2% to $90 premarket.

Hospira’s third-quarter earnings rose 58% as the provider of injectable drugs and infusion technologies reported improved margins and higher sales for its Precedex sedative. Shares jumped 7.4% to $42.96 in light premarket trading as results topped Wall Street estimates.

Time Warner Inc.(TWX)'s third-quarter earnings jumped 44% as the media company’s cost cutting and asset gains helped make up for essentially flat revenue. The bottom line easily topped expectations, but the company kept its guidance for the year intact. Shares rose 2.2% to $69.75 premarket.

Abercrombie & Fitch Co.(ANF) appears to be in for a blue Christmas as the teen-apparel retailer reported a double-digit drop in sales for the fiscal-third quarter and expects the same for the upcoming holiday period. In premarket trading, the stock dropped 6.7% to $35.75.

BioTelemetry Inc.'s(BEAT) third-quarter loss narrowed slightly as the wireless medical technology company logged volume growth in its patient services segment, in part due to its contract with UnitedHealth Group Inc.(UNH) Shares jumped 12% to $10.12 premarket as the company reported a surprise adjusted profit.

Chesapeake Energy Corp.(CHK) swung to a profit in the third quarter as the natural-gas company posted improved oil and natural gas liquids production and a decrease in expenses. Revenue beat estimates, pushing shares up 2.9% to $28.95 premarket.

Devon Energy Corp.(DVN) swung to a third-quarter profit as the exploration and production company reported improved prices for oil and gas sold, helping push revenue significantly higher. The bottom line beat estimates, pushing shares up 1.6% to $64.79 in light premarket trading.

M/A-COM Technology Solutions Holdings Inc.(MTSI) agreed to acquire semiconductor manufacturer Mindspeed Technologies Inc.(MSPD) in a deal valued at $272 million, expanding the company’s markets to include enterprise applications. Mindspeed shares surged 70% to $5.04 premarket.

Molson Coors Brewing Co.'s(TAP) third-quarter earnings fell 39% as the beer company’s results were hurt by a write-down tied to two European brands and revenue weakened slightly. Results were mixed as the bottom line beat views and the top line missed. Shares edged up 1.8% to $55 in light premarket trading.

Skin-health company PhotoMedex Inc.(PHMD) issued a dour third-quarter report as it didn’t log any consumer sales to its Japanese distributor, which changed its business model and affected other companies besides PhotoMedex. Unless it generates revenue from Japan, the company’s current-quarter sales are poised to fall short of consensus views. Shares dropped 10% to $11.47 premarket.

Renewable Energy Group Inc.(REGI) swung to a third-quarter profit due to strong sales of biodiesel, news that sent shares sharply higher as the results easily exceeded Wall Street’s expectations. The strong earnings report pushed shares up 14% to $13.45 in premarket trading.

Shares of Tangoe Inc.(TNGO) slipped after the software and services provider issued weak outlook targets for the fourth quarter and trimmed full-year expectations. Tangoe’s stock slid 13% to $16.50 premarket. Investors appeared to ignore the company’s third-quarter results, as profit more than doubled on rising revenue and gross margins.

Tuesday, April 14, 2015

Don't Get Too Worked Up Over American Public Education's Earnings

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on American Public Education (Nasdaq: APEI  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, American Public Education generated $24.3 million cash while it booked net income of $44.6 million. That means it turned 7.6% of its revenue into FCF. That sounds OK. However, FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at American Public Education look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 14.3% of operating cash flow coming from questionable sources, American Public Education investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 6.7% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 58.6% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

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Sunday, April 5, 2015

GM and Honda Team Up on Fuel Cell Technology

Source: GM.com, Project Driveway Program. GM's Project Driveway program, launched in 2007, has accumulated nearly 3 million miles of real-world driving in a fleet of 119 hydrogen-powered vehicles.

General Motors (NYSE: GM  ) and Honda (NYSE: HMC  ) announced today a long-term agreement aimed at co-developing commercially feasible fuel cell technology by around 2020.

The two automakers said they plan to pool their resources, capitalizing on shared expertise, economies of scale, and common sourcing strategies to make their goals concerning next-generation fuel cell system and hydrogen storage technologies a reality.

"This collaboration builds upon Honda and GM's strengths as leaders in hydrogen fuel cell technology," said GM chairman and CEO Dan Akerson in a statement today. "We are convinced this is the best way to develop this important technology, which has the potential to help reduce the dependence on petroleum and establish sustainable mobility."

Honda President and CEO Takanobu Ito was quoted in the same press release as saying, "Among all zero CO2 emission technologies, fuel cell electric vehicles have a definitive advantage with range and refueling time that is as good as conventional gasoline cars. Honda and GM are eager to accelerate the market penetration of this ultimate clean mobility technology, and I am excited to form this collaboration to fuse our leading fuel cell technologies and create an advanced system that will be both more capable and more affordable."

Fuel cell vehicles have electric motors that are powered by a chemical reaction between hydrogen and oxygen. Ford, Daimler and Renault-Nissan announced a similar plan to collaborate on hydrogen vehicles earlier this year. GM and Honda said they will also push for more refueling infrastructure. The companies said fuel cell vehicles can have up to 400 miles driving range and can be refueled in as little as three minutes.

The auto companies said that according to the Clean Energy Patent Growth Index, they hold the top two spots with more than 1,200 fuel cell patents collectively filed between 2002 and 2012. GM is currently experimenting with 119 hydrogen-powered vehicles, while Honda has 85 units on the road.

-- Material from The Associated Press was used in this report.

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