Search results matching tag 'Louis Navellier '

7 reasons housing is doomed

Louis Navellier — Thu, 22 Oct 2009 20:06:00 GMT

Buying a house is one of the biggest purchases most Americans will ever make. And right now, the housing market is the one of the biggest anchors holding back the U.S. economy. Though a recovery is under way in many sectors, the housing market remains a problem, and it looks likes it's going to get even worse.

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Why do I say that? Here are seven reasons I'm convinced the housing market will continue to crater:

Reason #1 - Low Housing Starts

On October 20, data showed new housing starts were worse than expected, as builders remain cautious. While the total number of starts edged up a bit from 587,000 to 590,000, the increase was well under Wall Street's forecast of 610,000. Single-family starts appear to be leveling off—not increasing as some had hoped—and multi-family units saw a dramatic 15.2% drop on the month.

Reason #2 - Foreclosures Hit Record Numbers

Part of the reason it's so difficult to pare down the inventory of unsold homes is because of record foreclosure rates flooding the market with properties.

During the third quarter, foreclosure activity hit an all-time record, as 937,840 homeowners received foreclosure letters. That works out to 1 in every 136 U.S. homes.

If that's not bad enough, consider the concerted government and lender efforts to prevent foreclosures right now. Without any workout programs, the number could easily have topped 1 million homes. As it stands, the figures show a 5% increase from the second quarter and a 23% jump over the third quarter of 2008. Ouch!

Reason #3 - Housing Has No Relief at the Top

The Wall Street Journal recently reported that expensive homes continue to represent more and more of the growing foreclosure market. That's because the financing that people used to get to buy expensive homes, such as jumbo mortgages, are increasingly hard to get. Once a mortgage tops $729,750, banks can't sell the loans to Fannie Mae or Freddie Mac, meaning interest rates for homeowners soar, and banks require much more money down for the loan.

The housing bubble killed any complex mortgages, such as zero-down and interest-only mortgages, that could make it easier to obtain jumbo loans. This puts high-end houses out of reach for everyone but the extremely wealthy.

Reason #4 - Banks Are Reeling From Mortgage Losses

In order for banks to feel comfortable extending loans of any size, they need to feel comfortable with their current portfolio of mortgages and willing to lend more cash. And unfortunately, mortgage-related losses continue to creep up, so lending is not going to get any easier anytime soon.

We also saw a number of banks release earnings recently that were weighed down by bad debt charges. And worse, these companies raised their loan loss reserves for the coming months in anticipation of even more problems.

At the beginning of October, JPMorganChase (JPM) reported pretty good numbers, but even this leading bank said that its past-due loans doubled in the third quarter, with a total price tag of $20.4 billion in bad debt. When one of the best banks is facing troubles like this, it's a very bad sign.

7 Housing Stocks to Sell Now

Reason #5 - Property Prices Still Falling

In my home state of Nevada, the Las Vegas metro area is a case study in how badly the hosing market has cratered. In August, the median sales price in this metro area was down a jaw-dropping 46% compared with 2008.

While it's true that all real estate markets are unique, it's hard to deny that areas like Nevada, Florida and Michigan more than offset any "favorable" markets that are firming up.

Reason #6 - Housing Permits Drop

Housing permits are a gauge of future construction, since you need legal approval before building. Looking forward, things are bleak, because home building permits fell in September by the largest amount in five months, so we'll see fewer homes popping up in October and November.

Specifically, building permits rose dipped 1.2% to 573,000. What's more, this was also dramatically below the consensus estimate of 595,000. Looks like the housing market isn't just bad, it's worse than most economists thought.

Reason #7 - New Homebuyer Tax Credit Expiring

As a capstone to all this, it's important to acknowledge that any anemic growth in the housing market over the last several months will come screeching to a halt on December 1, when the $8,000 tax credit for new homeowners expires. If we're seeing slow growth—or worse, continued declines—in the housing market even with this cash incentive to buy a home, just imagine how bad it will be when the credit expires and the real estate market enters the seasonally weak winter months.

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Goldman Sachs' upcoming blowout earnings

Louis Navellier — Wed, 14 Oct 2009 18:10:00 GMT

Banking giant Goldman Sachs (GS) is set to report earnings on Thursday and I, for one, am expecting an impressive blow-out.

As a behemoth on Wall Street, GS has managed to stay successful in both good times and bad. Shares are up nearly 100% over the past five years, while the Dow Jones Financial Services index fell 11% in the same time period. The future is bright for Goldman as well, with a five-year expected growth rate of 12.5%.

Bing: More on Goldman Sachs

Presently, Goldman Sachs is close to a 52-week high and closing in on the $200 per share mark. Over the past 30 days, more than half of covering analysts raised their third-quarter profit forecasts. Last quarter, the company beat expectations by $1.41.

The thing is, with a company like Goldman Sachs, it’s nearly impossible to give an accurate earnings forecast. The bank makes so much money from so many different sources, it’s like trying to herd cats.

Just look at recent results: In July, Goldman topped Wall Street’s forecast by nearly 40%, and in April the company more than doubled Wall Street’s consensus.

Another report like that would create a frenzy among traders and would send the shares well over $200.

The current consensus on Wall Street is for Goldman to report earnings of $4.81 a share, which represents growth of 130% over the same quarter last year.

Bear in mind that when Goldman converted to being a bank last year, the company changed its fiscal year to end in December. As a result, the fourth quarter of last year was actually a fourth-month quarter -- actually a third instead of a quarter, which may account for some of the astronomical growth.

The bottom line is that Goldman is a money machine. You can see why the press likes to call it Goldmine $acks. I should add that I’m very pleased that Goldman has paid all of its TARP money to the U.S. Treasury. It’s good to have the government off its back.

I rate Goldman a B, making it a solid buy.

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Sotomayor and your gun stocks

Louis Navellier — Thu, 08 Oct 2009 20:52:00 GMT

Supreme Court Justice Sonia Sotomayor started her first term on the bench Monday. And at the top of her docket is a case that will show how much she has changed the court's dynamic -- the case of McDonald v. Chicago, which seeks to overturn the city's handgun ban.

Some fear it could be the death of the Second Amendment as we know it.

Bing: More on McDonald v. Chicago

Me, I'm not worried about that. Sotomayor is replacing retired Justice David Souter who had been a reliable vote for the court's liberal wing. She's just a different vote on the left, not a new one. And since last term the court successfully overturned a similar handgun ban in Washington, D.C., I expect a similar result in the Chicago case.

So why should you care about all this judicial nonsense if you're an investor? Because it presents a perfect window of opportunity for gun stocks right now.

In fact, firearm bans are being overturned and gun ownership is getting easier -- but, Second Amendment lovers fear, only for the short term. They say it's only a matter of time before the Democrats in Congress and President Obama put hurdles in front of gun owners. So they're racing right now to buy guns, and gun stocks are seeing booming sales and profits as a result.

Look at the numbers -- just a few weeks ago, an FBI report indicated background checks for firearms are up double-digits compared to 2008. That means prospective gun owners are getting approval to buy -- and they're purchasing now.

There have been rumblings, for example, that Democrats in Congress are looking to revive a Clinton-era assault weapons ban, but they simply have too much on their plate right now. So gun buyers are rushing to purchase weapons that could fall under a new form of this law.

So how can you cash in on this trend? By buying gun stocks. My two favorites right now are Smith & Wesson (SWHC) and Sturm, Ruger & Co. (RGR). Both stocks have almost doubled since January of this year. I expect strong sales to continue across the next several months.

SWHC and RGR are two gun stocks to consider buying now -- see the complete list of "Anarchy Stocks" here.

At the time of publication, Louis Navellier held positions in Smith & Wesson and Sturm, Ruger.

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So long, Ken Lewis

Louis Navellier — Thu, 01 Oct 2009 18:42:00 GMT

Great news this week for shareholders of Bank of America (BAC). Ken Lewis will finally be leaving as chief executive.

Sorry, Kenny. Hate to see you go.

Bing: More on Ken Lewis

You want to know how happy BAC shareholders are? When the news hit the wires, the stock traded up in the after-hours market by about 1%. In other words, the bank is already worth $1.5 billion more without him!

As you can probably tell, I don't have a lot of sympathy for Mr. Lewis (I'll get to more on that in a bit). Back in April after a disastrous shareholder meeting, I wrote:

"BAC shareholders were plenty angry at today's meeting and demanded that the jobs of chairman and CEO be separate. Lewis held them both. Given this move, I doubt he'll hang around as CEO much longer. "

Pretty prescient on my part, no?

Well, I'd like to think so, but in reality, the writing's been on the wall for a long time for Mr. Lewis. The fact is, I've never trusted Ken Lewis. For one, Bank of America has consistently tried to massage its earnings. As an analyst, I can't stand that.

Last year, other banks were compensating their institutional clients for losses in their controversial high-yielding institutional money market funds, what did BofA do? They simply returned the illiquid securities to their clients.

Technically, mutual funds are allowed to do this, but BofA did it so they wouldn't have to disclose their losses. For BofA, it was more important to try and mask their losses rather than to take care of their clients.

In my opinion, Lewis seriously overpaid for Merrill Lynch. Add to that the fact that things got so bad for BofA that they went to the Treasury Department to be rescued. Twice! And the bank has been sued for the Merrill deal by the SEC. Perhaps that explains his, um, early retirement.

I'm not sure what the future holds for Bank of America, but a huge cloud has been lifted from over it. For now, I rate the bank a Hold. That means don't buy if you don't own it. However, if you do own it, there's no reason to sell right now.

At the time of publication, Louis Navellier held a position in Bank of America.

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3 reasons an October crash isn't coming

Louis Navellier — Fri, 25 Sep 2009 18:43:00 GMT

The market just called to say the crash is canceled. You can go back to sleep now.

It's really silly. All this ink being spilled over the market going down in September and the potential for a crash in October. Will it happen this year? Should you take your profits from the last six months and run for cover?

Hardly. If anything, I believe September will be the start of the new bull market. Here are three key reasons why.

Reason #1 - We've Already Hit the Technical Bottom

Wall Street made three important lows in the bear market. On October 10, 2008, stocks bottomed out, then reversed intraday on no news. I like to point to this day because it marked a particularly interesting milestone: That was the moment Oprah Winfrey personally became worth more than the soon-to-be-bankrupt General Motors (GM).

The second low came on November 20, 2008, right before the holidays. We saw a rebound into Thanksgiving of last year that was the best bounce for the Dow since 1932.

But then the wheels fell off a third time, and we set the March 9, 2009 lows: A close of 6,547 for the Dow and 676 for the S&P 500. But it's important to note that this final low was largely a low among financial stocks. What precipitated the deep declines was that the week before, U.S. Bancorp (USB) and Wells Fargo (WFC) cut their dividends and sold off. Intraday, Citigroup (C) actually traded for less than a dollar.

Let's face it: Financial stocks had to bottom out eventually after the financial crisis. We needed a change of leadership in the market. Shortly after this low was set, Citigroup it was booted out of the 30 Dow components. So was GM. The indexes suffered as the financial sector suffered, and after these companies hit the floor, there was finally support for the broader market.

I must point out that three is the magic number here. Making three significant lows over a short period of time -- several months -- is a very important development. That's exactly what happened back in 2002 to 2003, the last major bottom we had. We had a low in July of 2002, October 2002, and finally March 2003. So just like then, I am confident we exhausted the bottom-making process with our three dips in the past year or so.

Reason #2 - There's a Whole Lot of Short Squeezing Going On

The second reason I don't see a crash coming has to do with short activity. We had this incredible short squeeze in March. And stocks like AIG, Fannie Mae and Freddie Mac had this incredible rally essentially from March 10th into early April. Then some of them just consolidated in a heartbeat.

Then they had a second short squeeze from August 3rd into the last Friday of August. In fact, financial stocks bounced over 200% in that squeeze.

Short squeezes and short covering are how bear markets end, because people betting on the downside get wise to the recovery and have to cover their behinds. This is a great sign for the bulls, since it means contrarians are finally coming around to their camp.

Reason #3 - Seasonality Isn't a Factor

The final reason I do not expect another bottom is because we don't have to worry about seasonal problems. September through May should welcome an avalanche of good news simply due to ridiculously favorable year-over-year comparisons.

Remember how bad the fall of 2008 was? When you compare the current conditions, things look pretty good, don't they?

We have a legitimate business recovery underway, but the question is, "Will consumers join the party?" Based on August retail sales, it looks like they are. So I'm very, very encouraged here.

What's more, the weak seasonal periods that you used to see mostly in September and October were distorted in the old days, but no more. Analysts used to hype stocks at the beginning of the year and slash their estimates at this time. Analysts aren't allowed to hype stock anymore. It's something to do with Mr. Spitzer and all the scrutiny on them…. So I don't think we have to worry about the seasonality factor at all.

Click here to see all 6 Reasons There Will be No October Crash.

At the time of publication, Louis Navellier held a position in Wells Fargo.

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Is CarMax's success for real?

Louis Navellier — Tue, 22 Sep 2009 13:45:00 GMT

Car dealership chain CarMax (KMX) reported astounding earnings of $103 million, or 46 cents per share, on revenue of $2.08 billion Tuesday. That compares with earnings of $14 million, or 6 cents per share, on revenue of $1.84 billion a year ago.

The news is especially good, as analysts were looking for a second-quarter profit of 18 cents per share on revenue of $1.77 billion, so the company posted a 667% earnings increase and a 156% earnings surprise!

Even better: The gains did not come purely from cost-cutting. All-important same store unit sales increased 8% for the quarter and total unit sales rose 10%.

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Wall Street will surely be good to CarMax today. But with the economy is still struggling, and consumers continuing to cut back, where is this burst coming from? How exactly did CarMax pull it off?

Cash for Clunkers might have helped. While the program only gave rebates for replacing older cars with new and more fuel-efficient vehicles, CarMax chief executive Tom Folliard believes the incentive still brought in customers and boosted sales.

If nothing else, Cash for Clunkers put car buying on the minds of customers and lured them into showrooms across the country. Traffic was especially driven to CarMax, which works to buck the trend of "sleazy" car dealers pushing lemons on unsuspecting deal-seekers. People could come in for an appraisal to see if their old car was worth more than the rebate offered by the government. If it wasn't worth it, they were already surrounded by lower-cost vehicles ripe for picking.

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And Cash for Clunkers offered an additional boost to CarMax: Since cars that did qualify for the program had to be destroyed, the inventory of used cars got squeezed, driving up prices. Higher used car prices should help CarMax's operating margins down the road, too.

In addition, the bankruptcies of General Motors and Chrysler LLC have eliminated some of CarMax's competition -- CarMax's competition has always come from new-car dealers that also sell used cars.

CarMax Proves Resilient

CarMax has a history of being resilient. The Richmond, VA-based company managed to report earnings of seven cents higher than analyst estimates in the first quarter by decreasing its ad budget and instituting about 600 layoffs.

Since a year ago, when earnings plunged 78%, CarMax has focused on eliminating waste and reducing expenses for future growth. The company reported in June that it had cut costs in the previous six months by about $45 million, helping to offset declines in first-quarter sales.

While it's still unclear whether the Cash for Clunkers program has artificially inflated auto sales or given the industry a lasting boost, CarMax has managed to make the necessary adjustments to succeed in a tough environment. I rate this stock a B, or buy.

At the time of publication, Louis Navellier did not hold a position in CarMax.

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Is it safe to buy bank stocks?

Louis Navellier — Wed, 16 Sep 2009 15:33:00 GMT

It's been one year since Lehman Brothers filed for bankruptcy, creating the worst credit crisis in history. But we've come a long way in those 12 months. Banks that were teetering on the brink of ruin have seen their stocks surge lately.

So is it the right time to get into financials again?

I'll answer that by taking a look at two very different financial firms: JP Morgan Chase (JPM) and Citigroup (C).

	JP Morgan (JPM)	Citigroup (C)
Market Cap	$172.84 billion	$50.55 billion
52-Week Low	$14.96	$0.97
52-Week High	$50.63	$23.50

Citigroup Survived, But Barely

Right before Citigroup was forced to fold on November 23, 2008, the bank was bailed out, as Uncle Sam backed up about $306 billion in loans and securities and directly invested about $20 billion in Citi. Several months later, at the end of February, the government announced it would convert its $25 billion in TARP bailout funds to common shares, bringing its total ownership stake in the bank to 36%.

This steady government support has kept Citigroup from collapsing. Unfortunately, the same can't be said for the company's share price. On June 1, it was announced that Citi would no longer be one of the 30 stocks that make up the Dow Jones Industrial Average. Shares of C closed the day at $3.69, a jaw-dropping loss of about 83% from where shares traded 12 months beforehand.

Despite Citi's rollercoaster ride over the past year (mostly down, though, rather than up), there are plenty of bargain-hunters who think that Citigroup is a steal, now that the worst of the credit crisis is over. After all, shares are cheap, and the company posted a surprise profit in its Q2 earnings report.

What's more, the company has implemented deep cost-cutting measures that include slashing almost 100,000 jobs from peak levels and abandoning its "financial supermarket" business model by selling off parts of the company and streamlining operations.

My take? Don't be fooled by the recent "improvements" in this company. Citigroup is still a dog with fleas.

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Here's why.

While it's true that Citi managed to beat Wall Street expectations in the second quarter, a closer look at where that money came from indicates the stock isn't faring very well at all. The company reported net income of $4.3 billion, but these results included a one-time $11 billion gain associated with the sale of a 51% stake in Smith Barney!

Q2 numbers also showed that credit costs increased to $12.4 billion, including an addition of $3.9 billion to loan loss reserves, bringing the total allowance for loan losses to 5.6% of total loans. So essentially, even an influx of $11 billion from this one-time sale couldn't offset the damage of all the bad loans on Citigroup's books last quarter. Ouch!

I suppose if Citigroup can grow brokerage houses on trees and sell them off every quarter, it would be in good shape. But absent another massive one-time windfall, things are looking far less rosy for this company.

Out of 16 top analysts watching this company, only one estimates Citi will turn a profit, and his estimate is for anemic earnings that total a mere penny a share! The gloomiest estimate, on the other hand, is for a 40-cent loss when the company reports earnings on October 15 -- not good.

JP Morgan Knows How to Make a Buck

If Citigroup is a case study for "zombie banks" kept out of bankruptcy due to extraordinary governmental intervention, then JP Morgan Chase is an example of a company that knows how profit from other companies' shortcomings. In a move that would make the bank's namesake J.P. Morgan proud, this financial powerhouse snatched up market share for pennies on the dollar as ailing competitors had no choice but to join JPM or fall into ruin.

We all know the name, Bear Stearns, one of the first dominos to fall and hasten the stock market's collapse last year. But do you recall that on March 17, 2008, JP Morgan Chase offered to acquire Bear Stearns at a fire-sale price of $2 per share -- a paltry $236 million for a company that boasted total assets of $350 billion in 2006 at its peak! Angry shareholders managed to convince JPM to pay a bit more, but the company wound up walking away with Bear for a little more than $1 billion.

In a similar move a few months later, JP Morgan Chase bought most of the banking operations of Washington Mutual from the receivership of the FDIC. Most people remember this as the largest bank failure in American history, but JPM execs saw it as the opportunity of a lifetime and snatched up the bank's assets and deposits for $1.8 billion. The lowball price was shocking, considering that in June of 2008, WaMu boasted assets of over $300 billion. In fact, WaMu filed a lawsuit against the FDIC because the price seemed unfairly low. Unfortunately, when you're having a heart attack, it's pretty hard to quibble over ambulance fees, so Washington Mutual had no choice but to be merged with the much healthier operations of JPM.

But that was then. How does JP Morgan stack up right now? Let's take a look.

Unlike Citigroup or other ailing banks, JP Morgan always had sufficient capital under its belt during the credit crisis. It returned to profitability in late 2008 and has grown earnings every quarter of this year, including a stunning 600% earnings surprise in the second quarter that totaled $2.7 billion in profits.

What's more, unlike Citigroup's one-time sale that improved earnings, JPM was actually hurt by a one-time charge of $1.1 billion as it repaid some of the government's TARP funds! JP Morgan certainly put that bailout money to good use in the past year, climbing over struggling competitors and sucking up weaker rivals with cheap government financing, but the firm is now content to clobber the competition on its own without any help from Uncle Sam.

The future seems bright for JPM, but not quite as rosy as some think.

The company's latest earnings were bolstered by gains in retail banking, consumer lending and commercial banking divisions -- all thanks to the WaMu deal. While it's true that many banking customers have been finding a new home at JPM branches, gains like that aren't likely to be duplicated without the purchase of another major competitor.

It's also important to note that JPMorgan's commercial banking division increased its provision for credit losses to $312 million, compared with $47 million the year before. And in retail banking, the bank set aside $361 million for credit losses, compared with $62 million a year ago. That means that plenty of bad debt is still on the books and threatening the company's bottom line. While I'm sure that this won't sink JPM, it could severely cut into the potential for future gains.

Avoid Financials -- Particularly Citigroup

So here's my final verdict: Don't touch Citigroup with a 10-foot pole, and buy JPM very cautiously.

The bottom line is that no financial companies are growth stocks now, and there is still a lot of uncertainty in this sector. Even the more stable banks are very aggressive investments right now with a lot of volatility in share price.

One final note about the financial sector in general: While your mouth may be watering at the low prices of some companies' shares, please understand that there is an incredibly important difference between buying a stock that is a bargain and buying a stock that is cheap because nobody wants it.

At the time of publication, Louis Navellier held a position in JP Morgan.

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Will Starbucks win the coffee wars?

Louis Navellier — Thu, 10 Sep 2009 16:06:00 GMT

Quietly, Starbucks (SBUX) has hit a 52-week high of $20.21.

It may not be a coincidence that this happened as McDonald's (MCD) same-store sales posted an increase of just 2.2%, a disappointment. Starbucks may be taking back some of its core coffee drinkers. The coffee shop chain has certainly done everything in its power to restore the value of its brand and reclaim its franchise.

Bing: Starbucks taste test results

Moody's acknowledged this early in the week by upgrading the Starbucks short-term and commercial paper rating from A-3 to A-2.

"The ratings are based on Starbucks' leading market position and excellent brand recognition in the specialty coffee market in the U.S., as well as a history of strong cash flow generation," said Jackie Oberoi, an S&P credit analyst, in a statement.

Starbucks struggled early in its turnaround attempt just after founder Howard Schultz returned to the CEO's job in January 2008. The company's shares traded close to $20 then. Schulz cut costs and fired 12,000 people, but he could not reverse a sharp decline in revenue. By November 2008, the firm's stock was trading just above $7.

The recent success of Starbucks is improbable. McDonald's has many more locations and its premium coffee has gotten very good grades from places like Consumer Reports. Some analysts believed that McDonald's and Dunkin Donuts seized many of Starbucks regular customers. Schulz had no clear way to counter this, so he tried a large number of tactics, probably hoping that some of them would work.

One tactic was to change the layout of the stores so that customers could see the baristas who make and serve the coffee more easily. This may have made the atmosphere at the firm's locations more pleasant, but it is hard to see how it sold more coffee.

Starbucks also offered customers the opportunity to turn their drinks back in for new ones if they were not made to their satisfaction. While it is impossible to measure whether or not this worked, it certainly gave the people coming to the stores a sense of satisfaction, knowing that Starbucks would make every effort to see they were happy. In an attempt to keep customers, the firm even introduced a customer loyalty program, with benefits like free WiFi and discounts on items sold in the company's stores.

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But perhaps the two most critical moves by Starbucks were in the pricing area. Starbucks has been viewed as a premium coffee company that charges premium prices. Not an appealing positioning during a recession. Starbucks reintroduced its original "Pike's Peak" blend for budget drinkers, then began to market its own instant coffee at a low price of $2.95 for every three-pack. Suddenly, Starbucks was a low-priced provider.

Starbucks has almost 11,000 stores in the US. Across such a vast network, it's impossible to pinpoint what changes in marketing and pricing techniques were responsible for getting Starbucks back on its feet. Schultz did what many CEOs do. He tried almost everything he could think of, and some of it worked. It may not be a technique that is taught at Harvard Business School, but the stock has nearly tripled from its low.

I rate Starbucks a B, making it a solid buy, but my favorite coffee stock remains Green Mountain Coffee Roasters (GMCR), which I rate an A, or strong buy.

At the time of publication, Louis Navellier held positions in Starbucks, McDonald's and Green Mountain Coffee Roasters.

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Apple vs. Microsoft - More than a cute ad war

Louis Navellier — Wed, 09 Sep 2009 16:55:00 GMT

Apple (APPL) has almost single-handedly redefined the consumer electronics market with innovative products, from changing the way we listen to music to redefining the role of cell phones.

But don't think this company is all fun and games. Apple continues to make inroads into the computer market and erode the market share of fellow tech icon Microsoft (MSFT). The Mac vs. PC rivalry is more than just a cute ad war.

Bing: Apple or Microsoft - who's winning?

Actually, I'm a big fan of those Mac vs. PC ads -- and not just because they're funny. I think they provide a glimpse into the corporate culture of each company. Apple is, at heart, an inventive company looking to grow by creating the next big thing. On the other hand, Microsoft is an established giant that keeps doing what it has always done well … then using the profits to purchase a smaller company's ideas and leverage them to even bigger returns. Apple's strategy is obviously much more glamorous and appeals to image-conscious consumers, however both of these strategies have merit.

Which of these tech powerhouses is a better investment right now? Take a look at some numbers:

	Apple	Microsoft
Market Cap	$149.50 billion	$145.42 billion
2Q Earnings	$1.35 per share	$0.36 per share
2Q Surprise	15.4%	+0.0%

Apple Thrives on Innovation

In 2004, as Apple's iPod started to gain widespread appeal, and its iTunes store became one of the premier marketplaces for digital music, I quickly realized the potential of this company's innovative approach to consumer electronics. I told subscribers to my Blue Chip Growth newsletter to buy this stock, and we rode it for almost four years to close out a stunning 250% profit in late 2008.

Many investors ask me if I think the stock is good investment right now. My simple answer is, "not yet." Here's why:

First, Apple thrives on innovation and managing its product cycles, and despite rumors about the company launching its own netbook "tablet," Apple doesn't have any new blockbuster products on the immediate horizon.

Apple's Soft Spot - the iPod

Second, the volatility in share price caused by speculation over Steve Jobs' health makes this stock a little too risky for my tastes. A blue chip stock with a market capitalization of almost $150 billion should be a heck of a lot more stable than AAPL.

I run intensive screening and data-mining on more than 5,000 stocks each week that focus on two key factors: a stock's current strength and its potential for future growth. So how does AAPL stack up on these two fronts?

Strength:

Apple sure has current strength. This summer, the company's sold over 1 million next-generation 3GS iPhones in just three days after the new product hit the shelves in June.

What's more, the company said it sold 2.6 million Macs in the second quarter, up 4% from a year ago, as the company continues to slowly gain a bigger share of the computer market. It's performance like this that helped Apple increase both its 2Q profits and 2Q revenue by more than 10% compared with 2008.

Growth:

The future, unfortunately, is not quite as impressive for Apple. While the latest iPhone numbers are good, smart phone sales in general have been very strong, and AAPL hardly has the market cornered now that rivals like the Palm Pre and the Blackberry are gaining appeal.

What's more, it shipped only about 10 million iPods in the second quarter, down 7% year on year.

There are rumors that Apple may be gearing up to take on Amzon.com's Kindle e-reader, but any investor who puts his or her money behind a rumor is taking a risky gamble. Since this company relies on a strong product cycle, without any highly-anticipated offerings on the horizon, I have to be skeptical of Apple's future prospects.

Microsoft Thrives on Domination

Microsoft and I go way back. In fact, MSFT was one of my first-ever recommendations in my Blue Chip Growth newsletter. I told subscribers to buy the stock in August of 1997, and we sold in early 2000 for a return of 123%!

We got out just in time too, because the harsh reality is that Microsoft really hasn't done a lot of great things since the go-go days of the tech boom. Not that I blame them. Windows is a cash cow, and the software has achieved a level of dominance that is almost impossible for any product. This company is the true definition of a powerhouse with staying power.

But being a powerhouse doesn't mean Microsoft is a profit machine. Like Apple, I give Microsoft a very similar rating: good current strength, but limited growth potential. Here are the details:

Strength:

You just can't beat Windows or other Microsoft products. Even my Mac laptop uses Microsoft Office for word processing and spreadsheets, and PowerPoint has become synonymous with any visual presentation. MSFT is just as dominant as it ever has been in the software market.

Growth:

Aside from a foray with its Xbox, Microsoft hasn't come up with any new revenue streams in a very long time. This means sales growth is incredibly difficult to come by -- unless, of course, MSFT just repackages existing software and tries to get people to pay them again for an updated product. Not a very bright future for increasing profits and sales down the line.

Yes, the company has made a move to buy Yahoo! and is pushing into the search engine marketplace, but those moves will take a very long time to pay off. After all, it is going against Google -- an Internet behemoth that has achieved the same dominance in its industry that Microsoft has achieved in software.

Apple Is Better Than MSFT, But Not Great

All in all, if I had to pick between the two, I would rate Apple as the winner. This stock is an OK investment, since one or two good product offerings could send shares soaring, and Microsoft is very slow when it comes to new ideas. But I would hardly mortgage the farm for this tech pick at this point in time.

Remember, this is just my take on Apple RIGHT NOW. As the past year has taught us, things can change on a dime on Wall Street. Here are some things I'd like to see happen at AAPL before I give this stock a ringing endorsement:

Renewed Focus on Computers -- I'll admit that I'm part of the Apple army, and I use a MacBook Air laptop when I'm on the road. But if this company wants to continue to maintain its presence in the computer market, it needs to continue to innovate and manage its products with the same zeal as its consumer gadgets. The iPod and iPhone were smash hits, but Apple needs to be competitive with its operating system and computers if it wants to really grow and thrive.
Less Focus on CEO Jobs -- I don't know how to make the future of Apple less linked to Steve Jobs' medical records, but it needs to happen for me to have faith in this stock. As of right now, all it takes is one blog post about Jobs to send shares reeling, and that doesn't sit well with me. I want a stock to move based on its sales and profits, not on the rumor mill.
More Impressive Numbers --For all the hype, the company's earnings performance hasn't been as impressive as I like. Yes, Apple has been growing its bottom line even in a recession; margins are at about 36%, so earnings and revenue are moving in lockstep. A larger profit margin would help earnings explode higher on even a small uptick in revenue -- or allow the company to significantly grow earnings even if sales stay flat.

At the time of publication, Louis Navellier held positions in both Apple and Microsoft.

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Forget Kraft and Cadbury -- Hershey is the sweet spot for investors

Louis Navellier — Tue, 08 Sep 2009 20:05:00 GMT

On Monday, Kraft Foods (KFT) stunned the investing world by offering to merge with Cadbury PLC (CBY) for $16.7 billion. That represented a 42% premium to Cadbury’s stock price. But what was even more stunning is that Cadbury’s board turned the offer down. They called Kraft’s bid “fundamentally inadequate.” Ouch!

If most people were offered a 42% premium on something—anything—they’d take it, so I have to credit Cadbury’s board for showing some moxie. At least they believe in their company.

Apparently, they’re not alone. Shares of Cadbury have surged on the news that someone else will make a bid for them. This is typical Wall Street—if one company is an interested buyer, then they all must be.

Bing: Kraft and Cadbury

So what’s going to happen now? I fully expect Kraft will come back to Cadbury with a sweetened offer. If I were Cadbury, I wouldn’t try to be too cute with potential suitors. Some analysts think the company could fetch as much as $21 billion, which is a lot of chocolate eggs. I currently rate both Kraft and Cadbury as sells, so almost any offer is worth taking.

Wall Street is a big playing field, so lots of corporate boards are watching this action and some are certainly interested in Cadbury.

Other Potential Suitors for Cadbury

Mega-mergers aren’t new in the candy biz. Last year, Mars took over Wrigley for $23 billion. Nestle is almost certainly interested in Cadbury. Some analysts think Pepsi (PEP) could jump in but I highly doubt it. My advice to investors is to have fun watching the price war, but steer clear of the fireworks. Instead, focus on my favorite stock in the sector, Hershey (HSY).

Hershey is an iconic name with huge brand loyalty and has seen sales boom as a result in the recession. The company’s products include Hershey kisses, Reese’s peanut butter cups, Swizzles licorice, Mounds, York Peppermint Patty and Kit Kat (licensed from Nestle). To be honest, I’m not much of a chocolate-lover myself, but if there’s a bowl of Hershey kisses with almonds, well…I have to eat at least one.

In tough times, people turn to small comforts like chocolate. The proof is in the profits. In the second quarter, Hershey saw sales and earnings jump even while the majority of other companies suffered. Earnings came in at 43 cents a share, which was nearly 50% higher than a year before. It also topped Wall Street’s forecast by eight cents a share. You can be sure that the government won't need to offer a Cash For Kit Kats program any time soon.

I also like the fact that Hershey does a lot of business overseas. Considering it grew sales and profits even while a strong dollar held back this stock in the first half of 2009, I expect great results, as stressed-out shoppers continue to find relief in junk food.

There’s talk that Hershey could jump in and make a bid for Cadbury. Sure, it’s possible, but it would take some creativity. A more likely scenario would be Hershey teaming up with a private equity partner, or even teaming up with Nestle. Stranger things have happened. Hershey and Cadbury even talked about merging a few years ago. The crucial fact is that financing markets are open again so that will fuel merger mania.

Whatever the outcome of the Kraft-Cadbury drama, it has certainly renewed interest in the sector, which will benefit Hershey. The stock is an excellent buy.

At the time of publication, Louis Navellier held positions in Kraft and Hershey.

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