However, its overdependence on developed markets and a sluggish U.S. consumer are currently holding the company back.

Emerging markets are where growth is today. It’s clear that Heinz understands that, because emerging markets now account for about 14% of the company’s sales.  But the rate of Heinz’s emerging market sales growth is still disappointing.

Heinz has been growing this category, but only at a rate of about 1% to 2% of its total sales per year – even with the company’s brand acquisitions. And to make matters worse Heinz was hit with currency losses in its most recent quarter, and these currency dynamics will likely persist.

Heinz’s emphasis on China, Russia, India, as well as other emerging markets like Poland and the Middle East is encouraging.  But it is disappointing to see a lack of emphasis on Brazil.

In addition to the challenges Heinz faces in penetrating new markets, the company is up against strong headwinds at home. Heinz’s vulnerability to upswings in commodity prices poses a risk to margins.  And while Heinz has been confident enough in the strength of its brands to increase prices, more cash-strapped consumers are switching to generic brands to increase savings.  The result has been a 4% drop in volumes.  Consumer habits do not change easily, so this trend will be difficult to reverse.

Looking forward, the consumers in the United States and other advanced economies will remain weak.  American consumers, in particular, continue to struggle with high levels of debt, surging unemployment, and depleted nest eggs.  In fact, the wealth effect of seeing an average 15% drop in the value of their homes – which comprises some 70% of the equity of a typical U.S. household – and the huge drop in the equity markets – which represents another 20% of the wealth of households – has prompted consumers to increase their savings rate for the first time in decades.

The personal savings rateis near 5%, and it could exceed 8%.  This means that consumption will remain depressed and consumers will remain focused on cost savings for the foreseeable future.  Therefore, the shift at supermarkets to generic labels will continue.

This trend also will have a negative impact on Heinz’s food-service segment, which comprises almost 15% of its sales.   Food-service sales will suffer disproportionately as people stay more at home instead of dining out.

Longer term, as the U.S. and other advanced economies recover, and Heinz achieves stronger market penetrations in fast-growing markets, I believe it will indeed be able to produce above-average returns.  But in the meantime, very strong cashflows from its existing brands will support Heinz stock and allow the company to return an attractive dividend.

And right now, the 4.2% dividend yield that Heinz’s stock offers is very appetizing.  So long term holders should keep holding the stock.

However, the current headwinds for the company and challenges in the U.S. market, foreign exchange, commodity costs and other costs involved in penetrating new markets will keep limiting the stock’s appeal — even as a defensive play in down market periods.

The stock’s Price/Earnings to Growth (PEG) ratio, which is above 2, is a strong warning sign.  It says that buying at these levels is paying too high a premium for the Heinz’s earnings growth rate.  That is symptomatic of the headwinds in earnings that I mentioned previously.  Thus, it is not advisable to go into this stock right now.

I would stick with our many defensive stock recommendations, likeCampbell Soup Co. (NYSE: CPB), The Coca-Cola Co. (NYSE: KO)and Goldman Sachs Group Inc. (NYSE: GS), which have outperformed and are executing strongly in emerging economies.

Recommendation: Hold H.J. Heinz Co. (NYSE: HNZ) long term.  Short term-oriented buyers should abstain for the moment (**).

Source: H.J. Heinz Co. (NYSE: HNZ) Is a Long-Term Keeper, but Will Struggle in the Months Ahead

In June, financial advisor and CNBC contributor Dennis Gartman even called Buffett “an idiot.”

But now that Berkshire has rallied more than 35% from its March lows, the only idiots to be found are those that ever doubted the world’s second-richest man’s business savvy. Indeed, many of the moves Buffett made during last year’s market melee are paying off in a big way.

Take, for instance, his $5 billion investment in Goldman Sachs Group Inc. (NYSE: GS). Berkshire last September agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest.  In addition, Berkshire received warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share.

Critics lampooned that deal when shares of Goldman Sachs fell to a 52-week low of $47.41 in November. Since then, however, Goldman’s stock has rocketed more than 240% to close yesterday (Tuesday) at $160.25.

If Berkshire cashed in it’s warrants today, it would make a 40% profit or about $2 billion. But Warren Buffett has always been a long-term investor, which makes that highly unlikely.

“We will hold the warrants,” Buffett said on Fox Business Network. “Every instinct in my body tells me that we will want to hold those warrants until they’re very close to their expiration date. The preferred pays us the dividend and the warrants are going to make us the money.”

While Berkshire waits, the $5 billion in preferred Goldman shares pay an annual interest of $800 million in dividends.

Berkshire’s total stake in Goldman is now worth more than $9 billion – $4 billion more than the company paid for it – according to University of Louisiana finance professor Linus Wilson.

Berkshire’s investment in BYD Co. Ltd., a Chinese producer of both cars and specialized batteries, has also paid off.  Berkshire’s MidAmerican Energy Holdings Co. agreed last Sept. 26 – just three days after the Goldman deal was announced – pay roughly $230 million for a 9.89% stake in BYD. MidAmerican bought 225 million shares of BYD at a HK$8 a piece. Those shares have since risen 430% to close yesterday at HK$42.40, handing Buffett a paper profit of about $1 billion.

Berkshire reported second-quarter profit of $3.3 billion, up from $2.88 billion a year earlier. The boost was largely attributable to derivative gains, which soared to $2.36 billion from $689 million the year prior.

Berkshire’s book value rose 11.4% in the second quarter, to $73,806 a share, and Barron’s estimates that it already could have increased since to around $79,000 now.

What Buffett’s Buying

So if Buffett’s supposedly cold hand has suddenly turned hot, how can investors benefit? Simple: By following the leader.

A 2007 study by two university professors titled “Imitation is the Sincerest Form of Flattery” showed that buying what Buffett has bought – even a month after his purchases – is a pathway to superior returns.

“The market … appears to under-react to the news of a Berkshire stock investment since a hypothetical portfolio that mimics Berkshire’s investments created the month after they are publicly disclosed earns positive abnormal returns of 14.26% per year,” the study said.

And according to a regulatory filing disclosed Aug. 14, Berkshire is reading the tealeaves on healthcare reform. As of June 30, the company had loaded up 1.2 million shares of Becton Dickinson & Co. (NYSE: BDX), a maker of such medical equipment as scalpels, catheters and syringes, while winding down its positions in healthcare insurers. Berkshire cut its holdings in WellPoint Inc. (NYSE: WLP) by 27% to 3.5 million shares and sold 3.4 million shares, or 24%, of its UnitedHealth Group Inc. (NYSE: UNH) stock.

“If the government is going to open health care to more people, demand for health care supplies would increase,” Gerald Martin, a finance professor at American University’s Kogod School of Business told Bloomberg. “The plan that’s going through Congress could be a real negative to the health insurers, but the people who provide the supplies could really benefit.”

Berkshire also increased its holdings in Johnson & Johnson (NYSE: JNJ), the world’s largest maker of health-care products, by 14% to 36.9 million shares. The purchase of J&J shares marks the second straight increase in the size of Berkshire’s stake, according to Bloomberg.

All of the biggest holdings listed in Berkshire’s filing gained in value in the second quarter. American Express Co. (NYSE: AXP) rose 71% in the period, Wells Fargo & Co. (NYSE: WFC) rose 70%, and Burlington Northern Santa Fe Corp. (NYSE: BNI) jumped 22%. Berkshire’s single largest holding, The Coca-Cola Co. (NYSE: KO), rose 9.2% in the three months ended June 30.

Source: Berkshire’s Back, So What’s Warren Buffett Buying Now?

If they haven’t, it’s not a surprise. You see, Snow Beer is only sold in China, where the greed-bottled brew is a ubiquitous denizen of any retailer that carries beer. According to beer-market-researcher Plato Logic Ltd., more than 6.1 billion kiloliters of Snow Beer was sold in 2008, up 19.1% from the year before – easily outselling such former worldwide leaders as Bud Light and Budweiser.

What may be a surprise is the fact that China is now the largest beer market in the world, having surpassed the United States way back in 2001.

“To many investors, China is an old, worn-out ‘been there/done that’ investing story,” says Money Morning Investment Director Keith Fitz-Gerald. “And some folks are downright scared of it. They got burned jumping into the “China Rush” back when China was the hot, next-big thing – and they jumped out for good. What those skeptical investors don’t realize is that they only experienced the first chapter of the China story.”

Says Fitz-Gerald: “Ironically, the worldwide financial crisis marks the beginning of the second chapter of China’s rise to economic dominance, as well as its emergence as a global economic superpower.”

Welcome to the new game of post-financial-crisis global investing, where the rules have changed completely, and where there are $300 trillion in profit opportunities – if you know where to look.

Global Investing Web Summit

In fact, these new profit plays are the focus of a free-of-charge Money Morning Web summit that Fitz-Gerald will host on Thursday afternoon. The 4 p.m. event – “The $300 Trillion ‘Recovery’ That No One’s Talking About” – is planned as a half-hour streaming video session in which Fitz-Gerald will address the changing rules of global investing, as well as a number of potential investment ideas that investors might wish to study more closely.

But the greatest benefit for investors who take the time to watch and listen to the free Web summit might be a perspective on globalization that they won’t be able to get anywhere else. Fitz-Gerald, a former professional trade advisor, is a well-known expert on global market trends who actually lives in Asia for part of each year. He heads an investing trip to Mainland China every year and in each of the past two years has actually written a multi-installment investment travelogue for Money Morning readers.

It’s that time actually spent on the ground in China – and the high-level contacts that he’s nurtured as a result – that’s enabled Fitz-Gerald to provide Money Morning readers with unique and independently conceived insights on China that just aren’t freely available.

Let’s take a look at some of the new rules of the global investing game that the Web summit will address – as they relate to China.

The Market Investors Can’t Afford to Ignore

Far too many investors view China as a near-term investing bubble. In doing so, they miss the real point: China is probably the single-biggest profit opportunity of this generation – if not of our lifetimes. But it’s a long-term opportunity, and one that admittedly will experience some ups and downs – and even some major bumps – along the way.

But any near-term risks are dwarfed by the long-term growth potential China poses. For one thing, China is using the global financial crisis as an opportunity to transform itself – both from an internal and external standpoint.

There’s plenty of long-term growth potential from an internal standpoint alone.

China’s leaders understand that they can no longer afford to allow their economy to function as an export-only machine – whose fortunes rise or fall depending upon the health of such trading partners as the United States. So they’re transforming the economy into one where there’s actual domestic demand from China’s consumers.

That creates a massive opportunity. China’s emerging middle class is already a major economic force. Estimates of its size right now range from 100 million to 247 million, although one prediction says it could reach 600 million by 2015. For some perspective, consider this: The entire U.S. population is about 300 million.

Right now, about 35% of China’s economic activity is consumer driven. But households there save 35% of their wages. In the United States, by contrast, consumer spending drives 70% of the economy and the household savings rate is in the low single digits most of the time.

Consider this: As China’s economy evolves into more of a domestic/consumer-driven market, there’s plenty of fuel to keep driving an economy that – even now, tempered a bit by the global malaise – will advance at about an 8% clip through the rest of this year. And that’s considered a conservative estimate.

That bullish outlook is one reason that China’s stock market has outperformed its U.S. counterpart in recent years [See accompanying graphic for additional insights]

Just think what will happen as China’s worker wages continue to advance, even as that country’s consumers save less and spend more, meaning that a greater percentage of China’s overall economic growth will be consumer driven.

Even as China makes that shift internally, however, that country will continue to become a bigger and bigger force in the global economy.

As we noted above, the global downturn is viewed inside China as a major expansion opportunity.

China’s companies are capitalizing on the weakness being experienced by the United States and Europe, and are working to grab market share away from their wheezing Western rivals.

And with U.S. stock prices still well below their record highs, expect to see cash-rich foreign firms – including those from China – buying market share, needed technologies or winning products by purchasing companies outright. The next round of U.S. takeovers will be made by foreign companies.

China has the financial firepower to make this happen: It’s foreign reserves are an all-time-world record of $2.1 trillion, meaning it will be able to help its companies finance deals that are deemed strategic in nature.

“The global blue chips of the future may well be companies whose names you have trouble pronouncing, with corporate headquarters in cities that are on the other side of the world,” Money Morning’s Fitz-Gerald says.

But don’t let that deter you. When it comes to profitable investing, the name of the game is ferreting out the most-promising profit plays – no matter where they are – while also managing risk.

And in the new global reality, one of the biggest risks is the risk of getting left behind – by failing to capitalize on the next round of global trends.

“Emerging” Profit Plays

Although his Thursday Web summit will focus a great deal on China, it won’t ignore the other developing investment opportunities that investors need to know about.

Take the emerging markets of Asia, Eastern Europe and Latin America, for example.

According to a 2008 report by the University of Pennsylvania’s Wharton Business School, the World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15 billion in 2030. Muhtar Kent, chief executive officer of The Coca-Cola Co. (NYSE: KO) since July 2008, says this opportunity is the equivalent of adding a city the size of New York to the world every three months.

In 2000, developing countries such as Brazil, India, China and others were home to 56% of the global middle class. By 2030, that figure is expected to reach 93%. China and India alone will account for two-thirds of the expansion – with China contributing 52% of the increase and India 12%, the World Bank said.

Among the biggest winners will be the multinational companies that are able to conceive, develop and market products and services that are “tailor-made for the burgeoning ranks of first-time consumers,” Wharton faculty and analysts found.

It goes without saying that the other winners will be the investors who find those companies while they are still undiscovered gems – and who then stick with them, understanding, as they do, the magnitude of the profit opportunity that stands before them.

One early example is Snow Beer, which is a partnered product – the result of a collaboration between China Resource Enterprise Ltd., and London-based SABMiller PLC (OTC ADR: SBMRY).

And there will be plenty more to come.

Source: How the Economic Rebound and China’s Emergence Will Help Create a $300 Trillion Profit Opportunity for Investors

However, the stock has underperformed since the market began its rebound on March 10. And since the end of March, Pepsi’s shares have lagged those of arch rival, The Coca-Cola Co. (NYSE: KO), since the end of March, as well.  I recommended Coca Cola last week after the company reported stellar growth in the emerging markets.

While Pepsi’s less-than-stellar performance is not yet a major concern, the trend is discomforting.  In addition, there has been a major divergence in the strategies of these two companies.

While both Coke and Pepsi divested of their bottling operations many years ago, Pepsi just agreed to buy back two of them: Pepsi Bottling Group Inc. (NYSE: PBG) and PepsiAmericas Inc. (NYSE: PAS). And it paid a stiff premium in each deal, about 24% and 23%, respectively, above their pre-deal market prices. The total value of the deal was a cool $7.8 billion.

Now allow me to say that these companies are impressive operations by themselves:

• Pepsi Bottling Group is PepsiCo’s largest bottler. The company takes in $14 billion a year and operates in the United States, Canada, Greece, Mexico, Russia, Spain and Turkey, and boasts 67,000 employees.

• Pepsi Americas is PepsiCo’s second-largest bottler. It brings in $4.9 billion annually from operations in the United States, Ukraine, Poland, Romania, Hungary, the Czech Republic and Slovakia.  In addition, its new joint venture covers the Caribbean and Central America.

So why bother with these acquisitions?

The justification for this move is that “in a rapidly changing, more-complicated global market, a leaner, more agile business model is pretty important,” said Pepsi Bottling Group Chief Executive Officer Eric J. Foss.

Pepsi touted the tie-up itself, citing such advantages as attempting to create a more-flexible, efficient and competitive system that is more inclusive of other Pepsi brands.

The idea is that a merged operation will allow for much faster introduction of new products, for bundled offers, for enhanced customer service, and for cost savings from redundancies and economies of scale.

Sure, we can buy into many of those ideas, which are sure to result in some gains.  In fact, we can even envision the many new marketing initiatives that will result from these acquisitions.

But make no mistake: What has pushed Pepsi to go in this direction is the superiority of Coca Cola in the emerging markets.  While both firms prided themselves on product innovation and marketing, Coca-Cola has come out on top, as I wrote last week.

In addition, the capital requirements of a bottling and distribution operation are very high and the return on equity is much lower than Coca-Cola’s core business of creating the product, marketing it, and selling the concentrate and bottling rights to bottlers.  This decision will make less cash available in the immediate future for stock buybacks and dividend increases and represents a big gamble.

There are two pressing questions to have in mind:

• Will the marketing synergies PepsiCo claims it will garner from the deals be successful in winning market share away from its rival and thus justify the added capital requirements of the newly acquired operations?
• And will Pepsi be able to capture the synergies from the merger fast enough?

What’s for sure is that Pepsi’s action goes against its decision to concentrate on its core competencies. Management theory has proven time and again that companies should concentrate in one segment of the entire value chain (in Coca Coal’s case, product innovation and marketing) and leave the less-attractive and less-profitable areas to others.

Furthermore, it’s clear to me that “asset-light” companies – firms such as C.H. Robinson Worldwide Inc. (NYSE: CHRW), which divested assets that have large financing requirements and that carry large fixed costs – reduce the cyclicality of the business, and thus reduce the risks to profits from economic downturns.  That means “asset-light” companies are preferable to “asset-heavy” companies.

Therefore, my bias is against the added complexity and capital requirements involved with the Pepsi deal.  And we must now wait to see if the company can deliver on the two key questions above.  But we can never count out Pepsi’s innovation and resiliency, and so we will give them the benefit of the doubt.

PepsiCo stock closed down 9 cents, or 0.16%, at $57.74 a share Friday. That’s up 32% from its hit 52-week low of $43.78, reached in Early March.

Recommendation: “Hold” PepsiCo Inc. (NYSE: PEP), but do not add to your position, and give preference to Coca Cola’s stock – at least until Pepsi is able to prove that it can execute the merger efficiencies and win market share from its arch-rival (**).

** Special Note of Disclosure: Horacio Marquez holds no interest in PepsiCo Inc.

Source: Buy, Sell or Hold: Will PepsiCo Inc.’s (NYSE: PEP) Recent Acquisitions Pay Off?

Coca-Cola beat earnings, increased guidance, increased dividends and reinstated its stock buyback program.  The company plans to repurchase $1 billion in shares of stock in the second half of 2009.  What more do we need?  The answer is: Consistent performance.

As I tracked the developments in Coca Cola and their global markets, I ascertained that my original view remains unchanged and Coca Cola should keep growing profits consistently, which should keep propelling its stock up.

Remember, on March 9, a few of weeks after our Coca Cola recommendation, I called the U.S. market turn by recommending a pro-cyclical energy play with Diamond Offshore Drilling Co. (NYSE: DO).  That call coincided with the turn on Diamond Offshore stock as well, which has since soared about 67%.

Earlier, on October 27, I had called for the turn on iShares MSCI Brazil Index (NYSE: EWZ), which has since soared more than 90%.

The point is that emerging markets, as was my thesis, are going to turn around much faster and come back much stronger than developed economies.

Prudent emerging economies – like Brazil and Chile – having enjoyed a few years of exponential growth in commodity prices did not over-extended themselves. Instead, they captured a sizable portion of those huge price increases and turned them into huge national savings, improving their fiscal positions.  They kept their banks clean and disciplined and became net creditors to the world.

So, while the advanced economies are saddled with debt, many emerging economies are the exact opposite.  Their fiscal positions are strong; their social security systems are not in peril, and their population growth means strong economic growth.

So, my initial thesis was predicated primarily on the fact that strong growth in emerging markets would lead to success for major international players.

While it’s true that Coca-Cola’s soft drinks are consumer staples, which are very resilient in economic downturns, the company’s biggest advantage is that a full 75% of its income is generated abroad.

Additionally, Coca-Cola is the most widely recognized brand name in the world.  With a distribution network that covers more than 200 countries and a 50% of the global market for carbonated drinks, Coca-Cola is the poster-child of a multinational.

What’s more, having kept its rival PepsiCo Inc. (NYSE: PEP) at bay by beating them in the market, their price wars are not an issue any more.  This is crucial because pricing power has returned.

The strong U.S. dollar shaved 14% off of operating income during the quarter, but this is a temporary phenomenon, since the dollar is likely to remain week in the months to come.

Meanwhile, Coca-Cola continues to excel in emerging markets, just as we anticipated.  While overall volume growth was 4%, up from 2% in the first quarter, emerging markets took the prize: China was up 14%, India 33% and Brazil up 5%.

India, for example, has a high birth rate and 1 billion people with an average age of 25 years, and going lower.  This is a very receptive crowd for carbonated, sugary drinks, especially as their income soars.

Hence, with the strong recovery in China, India, Brazil and Russia, and many more emerging markets, plus the renewed weakness in the U.S. dollar, Coca-Cola should continue to perform in the second half and beyond.

Coca-Cola stock closed Friday up 17 cents, or 0.34%, at $49.84 a share.

Recommendation: Buy The Coca-Cola Co. (NYSE: KO) at market(**).

(**)  Special Note of Disclosure: Horacio Marquez holds no interest inThe Coca-Cola Co. (NYSE: KO).

Source: Buy, Sell or Hold: The Coca-Cola Company (NYSE: KO) Continues to Deliver Knockout Profits

Here are listed sales in the filing, courtesy of 24/7WallStreet.com:

· 7/20/09… 1,817,000 at $28.7269 average in open market sale.

· 7/21/09… 3,915,100 at $26.9188 average in open market sale.

· 7/22/09… 2,254,200 at $26.6425 average in open market sale.

What took Buffett so long to start selling Moody’s? We have no idea. Moody’s runs one of the biggest scams on Wall Street. It charges the companies whose securities it rates (just like Standard & Poor’s and Fitch also do).

So what do you think these ratings agencies did when presented with a whole load of junk mortgage-backed securities to rate? They assigned them investment grade status and pocketed the cash.

If these ratings agencies had instead acted honestly and responsibly (rather than pimping themselves out to the highest bidder) the whole subprime debacle and the ensuing credit crisis could have been avoided.

Buffett isn’t the only investment whizz who thinks Moody’s is heading for trouble. Hedge-fund legend David Einhorn of Greenlight Capital is selling Moody’s short.

Yesterday, Moody’s shares tumbled almost 4% on the news that the Buffett had began to unwind his position in the company. We’d like to see Moody’s go out of business. But that’s maybe wishful thinking. Make sure you don’t own any shares in Moody’s. And if you’re feeling speculative, consider going short Moody’s along with Einhorn.

One of the easiest ways of deciding what stocks you should own is by “standing on the shoulders of giants.” We’re no geniuses here at Notes. But at least we are smart enough to recognize it. And that’s why we track what people far smarter than us are doing with their money.

As of the end of the first quarter this year, this is how Warren Buffett’s holdings (via Berkshire Hathaway, his investment vehicle) looked like:

1. American Express Co. (NYSE:AXP) over 151.6 million shares, same as before.

2. Bank of America Corp. (NYSE:BAC) 5 million shares; same as last quarter.

3. Burlington Northern Santa Fe (NYSE:BNI) 76.77 million shares; HIGHER than 70.089 million shares of last quarter.

4. Carmax Inc. (NYSE:KMX) 12 million shares; LOWER than the 17.63 million and that is two straight quarters of declines.

5. Coca Cola (NYSE:KO) right at 200 million shares, still same as before.

6. Comcast (NASDAQ:CMCSA) 12 million shares, same as before.

7. Comdisco Holdings (NASDAQ:CDCO) roughly 1.5 million shares, same as before.

8. ConocoPhillips (NYSE:COP) is really lower than the 71.228 million shares reported as this has been used for cutting taxes, and we already know that the number is lower than what the filing says.

9. Constellation Energy Group (NYSE:CEG) was just updated this week so the number is actually about 12.4 million rather than what the filing shows as being 14.828 million shares.

10. Costco Wholesale (NASDAQ:COST) 5.254 million shares, same as before.

11. Eaton Corp. (NYSE:ETN) 3.2 million shares; looks like new holding but may have been missed before.

There’s a lot of talk these days about how Buffett has lost his touch. This may be so. But the guy remains the world’s most successful investor. If you have a medium- to long-term investment horizon, you could do a lot worse than consider following Buffett into some of these long positions. If you think you can outsmart the guy, go ahead. But we know who our money would be with…

• The introduction of the new iPhone 3GS and a price cut for the 8-gigabyte iPhone 3G propelled Apple Inc. (Nasdaq: AAPL) to easily exceed Wall Street expectations for its third quarter ended June 30. The company reported a net income of $1.23 billion, or $1.35 a share, on revenue of $8.34 billion, compared to a net income of $1.07 billion, or $1.19 a share, on revenue of $7.46 billion in the same quarter last year. Analysts were expecting earnings of $1.17 a share on revenue of $8.20 billion. Apple, which could lead a second-half tech sector rebound, sold 5.2 million iPhones in the quarter, compared to a mere 717,000 in the same quarter in 2008. The company’s computer business edged up 4% year-on-year, with sales totaling 2.6 million Macintosh computers in the quarter. Apple sold 10.2 million units of its ubiquitous iPod, down 7% from the previous year’s quarter.

• The Coca-Cola Co. (NYSE: KO) yesterday (Tuesday) reported better-than-expected second-quarter profit, as growth in emerging markets such as India and China helped offset the impact of the stronger U.S. dollar. Second-quarter profit rose 43% from the same period last year to $2.04 billion, or 88 cents per share. Sales fell 9% from last year, to $8.27 billion, something the company attributed to a rise in the value of the dollar. But international sales volume gained 5% in the second quarter, even as U.S. sales fell 1%.

• The $3 billion bridge loan CIT Group Inc. (NYSE: CIT) may not be enough to keep the lender out of bankruptcy, according to a filing with the Securities and Exchange Commission SEC. With $1.7 billion in debt payments due by year’s end, and another $8 billion coming due in 2010, analysts at CreditSights have said the company may need about $6 billion to avoid bankruptcy protection, the Wall Street Journal reported.

• Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program (TARP), said yesterday (Tuesday) that Treasury officials have not done enough to ensure American tax dollars are being used appropriately, CNNMoney reported. The TARP Czar said the Treasury should require banks to report exactly how they’re using their bailout dollars. Barofsky also wants Treasury to report the actual worth of the assets it has purchased via the bailout. The inspector general’s office has launched 35 criminal and civil investigations into a range of allegations from accounting and securities fraud to insider trading and public corruption.

• Caterpillar Inc. (NYSE: CAT) stock jumped more than 7.5% yesterday (Tuesday) after the company boosted its 2009 profit forecast. Second-quarter profit tumbled 66% to $371 million, or 60 cents per share, but the company said it saw evidence that government stimulus plans, particularly in China, are beginning to have an effect. Caterpillar stock surged $2.83 a share, or 7.72%, to close at $39.48.

• Investment management firms BlackRock Inc. (NYSE: BLK) andState Street Corp. (NYSE: STT) beat and missed Wall Street expectations in the second quarter. BlackRock reported a net income of $218 million on revenues of $1.03 billion, or $1.59 a share for the quarter ended June 30, down from last year’s net income of $274 million, or $2 a share. Analysts at FactSet Research were expecting BlackRock’s earnings to be $1.58 a share on revenues of $1.01 billion. Meanwhile, State Street posted a net loss of $3.18 billion, or $7.12 a share on revenues of $2.12 billion. That compares to a net income of $548 million, or $1.35 a share. Analysts were expecting earnings of 97 cents on revenues of $2.16 billion.

• Merck & Co. (NYSE: MRK) may consider partnering with another company to invest in the consumer-health operations it will inherit with its planned purchase of Schering-Plough Corp. (NYSE:SGP) Chief Executive Officer Richard Clark said in an analyst conference call yesterday (Tuesday). “Certainly there will have to be an investment in the consumer business,” Clark said, adding that the drug maker is now considering whether “we do it alone or can we do it with a partner?” Clark later said in an interview withThe Wall Street Journal that is was too early to say which direction Merck was leaning.

• A tough advertising market led to a decline in sales for Yahoo Inc. (Nasdaq: YHOO), but the search giant still managed to beat Wall Street estimates. For the quarter ended June 30, Yahoo reported a net income of $141 million, or 10 cents a share on revenues of $1.57 billion, compared to a net income of $131 million, or 9 cents a share on revenues of $1.79 billion. Wall Street estimates called for average earnings per share of 8 cents and revenues of $1.14 billion.

Source: Investment News Briefs Wednesday, July 22, 2009

With options running out over the weekend, CIT advisors began preparations for a bankruptcy filing. As of Sunday, JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (MS) were talking with other banks about a debtor-in-possession loan, used to fund a company’s operations after it seeks court protection from creditors, Bloomberg News reported.

Bondholders held calls last week to discuss whether to swap some claims for equity to reduce indebtedness. Thomas Lauria, a lawyer at White & Case LLP, told Bloomberg that a group of CIT creditors he represents offered to provide $3 billion in new loans to bridge CIT to an out-of-court restructuring or an orderly bankruptcy, but had yet to hear back from CIT management.

“It seems CIT was ill-prepared for this moment, so they’re scrambling,” Scott Peltz, a managing director at consulting firm RSM McGladrey Inc. told Bloomberg. “Unless you have all these bondholders holding hands and singing Kumbaya, I think they’re too far behind the eight ball to avoid filing.”

While CIT is not nearly the household name of Citigroup Inc. (NYSE: C)or Bank of America Corp. (NYSE: BAC), the lender finances over 1 million businesses – including Dunkin Donuts and Eddie Bauer.

Three prominent retail trade groups sent letters to financial regulators this week warning that the failure of CIT would undermine the industry supply chain.
“[Retailers] are unbelievably concerned right now,” New York bankruptcy lawyer Jerry Reisman told the Buffalo News. “What we may have here is a total disruption in small business.”

Reisman said he received more than two dozen calls from panicked stores and apparel manufacturers, some of which said they may not have the money to pay their employees.

An otherwise light week on the economic calendar gives way to the next round of earnings as Apple Inc (Nasdaq: AAPL) and Texas Instruments Inc. (NYSE: TXN) highlight the corporate releases this week, while consumer companies The Coca Cola Co. (NYSE: KO),McDonalds Corp. (NYSE: MCD), and Amazon.com Inc. (Nasdaq:AMZN) join the mix.

U.S. Federal Reserve Chairman Ben S. Bernanke will head to Congress where several critics await.  As for the healthcare debate, the August deadline seems less likely, though the Senate has its two cents to add in the coming days.  Expect plenty of politicized talk about the ballooning deficit and the impact on small businesses.

Market Matters

The financial sector appears to be on the mend as earnings season brought several positive signs that the worst is over and soon “business as usual” will return to Wall Street.  Goldman Sachs Group Inc. (NYSE: GS) easily surpassed analysts’ earnings estimates on solid trading revenues, while JP Morgan got a boost from its investment banking division to shatter the forecasts.

Even Citigroup and Bank of America posted solid results (thanks to one-time gains), though both entities have many ongoing challenges to overcome before the Feds let them fend for themselves.

Of course, the possibility that CIT will file for bankruptcy protection has left panicked customers without a significant source of funding for their daily operations.  After late hour negotiations failed, the government chose to pass on another sizable bailout and allow true capitalism to play itself out.  CIT turned to private firm and bondholders to help devise a financing plan and avoid the fate of Lehman Bros. and others.  But now, nervous retailers and manufacturers are lining up alternative funding sources with the hope of dodging significant business interruptions.

Bed Bath & Beyond (Nasdaq: BBBY) and Wal-Mart Stores Inc. (NYSE: WMT) are among CIT’s largest customers, though many are small independent operations.  A CIT failure could prove devastating for those firms considered the lifeblood of American business.

In other earnings news, techs enjoyed another decent quarter as Intel Corp. (INTC) easily bested expectations (that is, before that $1.45 billion antitrust fine) and International Business Machines Corp. (NYSE: IBM) earnings grew by double-digits, while management raised its outlook for the next few quarters.  Though both offered encouraging signs for the sector (and economy as a whole), Dell Inc. (Nasdaq:DELL) warned that lower margins are impacting its operations andGoogle Inc. (Nasdaq: GOOG) experienced its lowest rate of revenue growth since going public five years ago.

The travel industry continued to struggle as consumers and business professionals delayed trips and Marriott International Inc. (NYSE:MAR) and American Airlines parent AMR (NYSE: AMR) posted disappointing results.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (07/10/09)	Current Week (07/17/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	8,146.52	8,743.94	-0.37%
NASDAQ	1,577.03	1,835.04	1,756.03	1,886.61	+19.63%
S&P 500	903.25	919.32	879.13	940.38	+4.11%
Russell 2000	499.45	508.28	480.98	519.22	+3.96%
Global Dow	1526.21	1,629.31	1,561.11	1,664.23	+9.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.30%	3.65%	+141 bps

Economically Speaking

The White House also experienced a “good news/bad news” week as House Democrats began to push forward a major healthcare overhaul.  Before the real lobbying could begin in earnest, the Congressional Budget Office (CBO) Director proclaimed the proposal would have no positive results on reducing costs or expanding coverage and would actually increase government spending.

Investors shrugged off the CIT developments and focused on positive earnings and economic data.  Stocks surged early on the Goldman news and soared right through the technology reports.  Technicians joined the fun as the Standard & Poor’s 500 Index broke beyond resistance at 930, a strong sign for traders who monitor charts.  Major indexes snapped a month-long losing streak and the tech-heavy Nasdaq Composite climbed to levels not seen since last October, while fixed income suffered reverse “flight-to-quality” trades.  Oil rebounded on the favorable market and economic signs.

While the debate over a healthcare overhaul rages on, the Treasury Department reported that the budget deficit ballooned beyond a record $1 trillion and seemed prime to move even higher if Congress cannot reign in spending.   Analysts fear that interest rates ultimately will move higher should the alarming trend continue and foreign investors shy away from U.S. securities.

But for now, inflation seems very much under control, despite sizable jumps in both the retail and wholesale gauges.  Though gasoline prices surged by 17% in June, prices have already begun dropping at the pumps and most economists do not expect a repeat performance in the months to come.

Though retail sales increased in June for the second consecutive month, much of the gain was related to the rising gas prices and consumers remain reluctant to part with their hard-earned income in light of the weakening labor picture.

On a positive note, weekly jobless claims fell to its lowest level since January. However, naysayers claimed that much of the decline was due to calculation problems stemming from auto closures and layoffs are still very much on the rise.

Finally, the hectic economic calendar ended on a positive note as the housing sector showed renewed signs of a rebound as both new construction and permits for future activity experienced unexpected strength.  Even Dr. Doom himself, NYU professor Nouriel Roubini, the man best known for predicting the current crisis, reversed course and claimed the global economy would move out of recession by late 2009.

The minutes from the June Fed meeting showed that policymakers revised (positively) their forecasts for economic activity in 2009 and 2010, though they expect the unemployment situation to remain weak through next year.  Most Fed watchers do not see any change in the funds rate for the foreseeable future.

On another note, numerous renown economists (about 200), including a few Nobel prize winners, called on Congress to cease the grandstanding and stop criticizing the Fed’s handling of the financial crisis and economic downturn (particularly Bernanke’s “tactics” surrounding the Bank of America/Merrill Lynch deal).  The strongly worded letter by some of the nation’s sharpest minds stated that such politicizing could prove detrimental to the recovery.

Weekly Economic Calendar

Source: Market Recoils as CIT Edges Toward Bankruptcy

Two months later I recommended it to my readers. In the following six months its shares rose 15 percent. On February 25, 2009 utility company, FPL Group (NYSE:FPL), made a similar announcement. I began looking into the company right away. This time it only took me two weeks to recommend the company to my readers. In the following four months its shares rose 33 percent.

On March 11 Coke (NYSE:KO) made the same announcement. On April 1st, 2009 I recommended it. In just three months it’s gone up nine percent.

These three companies are members of a class of companies I call the “Group of 88.” They all love to please their shareholders.

So, what is this Group of 88?

Many of the companies belonging to the Group of 88 you know: Not only Coke, but also companies like Johnson and Johnson (NYSE:JNJ), IBM, Verizon (NYSE:VZ), McDonalds (NYSE:MCD) and Starbucks (NASDAQ:SBUX).

Many of them you don’t know. You probably haven’t heard of companies like VSE Corporation (NASDAQ:VSEC), W.P. Carey & Company (NYSE:WPC) and National Fuel Gas Company (NYSE:NFG).

These companies come in all sizes and from all kinds of sectors. And, since the beginning of the year, they all have one thing in common. All of them have raised their dividend.

Increasing dividends has always been a surefire way to please shareholders. So why have dividend hikers increased in popularity?

•    They’re now in the minority. For the first time in decades more companies are cutting rather than raising dividends.
•    They’re the ultimate “show-me-the-cash” companies. Dividends can’t be faked or staged. They must be paid for by real cash earnings.
•    They’ve become the alternative safe-haven group of companies to triple-A rated companies. The rating agencies – S&P, Moody’s, and Fitch – had given triple-A status to junk assets that crashed the global economy. Their grades aren’t taken nearly as seriously anymore.

Many of these dividend-paying companies give you interest payments of 4, 5, 6 percent and more. Compare that with 2-year U.S. government bonds giving 2 percent interest … or 10-year bonds giving 3.66 percent interest … or Canadian 10-years giving 3.43 percent and Germany’s giving 3.5 percent.

This is the perfect time to invest in recent dividend hikers. Several have been raising dividends not just over, say, the past 10-20 quarters but over the past 10-20 years!  Think about it. Many of them have raised dividends during oil embargoes, dotcom busts, and stagflation. They’ve proven themselves many times over.

And by recently raising their dividends, they’re showing investors once again that they’re the companies you can trust … they’re the ones generating real cash earnings … and that they’re the ones which will make it through these treacherous times and lead the market back up on the other side of the recession.

Invest well,
Andy

Source: Investors Are Flocking to a New Group of Companies

Without some big event or monolithic development coming down the road, there’s no reason for investors to care about these tiny companies.

You see, the majority of investors are only interested in making 5%–10% per year. That’s pretty much the maximum you can expect to gain if you are investing in blue chips. Here at Penny Sleuth, we view the stock market a little differently.

We want the money multipliers — double-, triple-, even quadruple-digit gains. For that to happen, we need some kind of spark to set our penny stocks apart from the rest. After all, there are currently over 6,000 to choose from.

So, what kind of catalysts can make a penny stock pop? Let’s look at a couple big ones:

• Commercialization — After years of research and development, and sometimes painstakingly long clinical trials and efficacy tests, there comes a time in any successful start up company’s life when it needs to actually manufacture and sell its products or services. Just take a look at what happened to Tata Motors Ltd. (NYSE: TTM)…

As you might already know, this was the growth story of last year, and it continues to today. Tata is the Indian car giant that made its mark on the global economy, when it released the world’s cheapest car.

In March of this year, the company commercialized a new product. It started selling the Tata Nano in India. Investors were so excited by this car design, they started buying enormous amounts of Tata stock. Since the company started pre-selling the car, shares are up 165%.

• Buyout Candidates — Sometimes, it’s as simple as waiting for a larger competitor to buy the penny stock. When one company buys another, they agree on a price. Many times, that price is much higher than what the soon-to-be-purchased company’s share price is currently trading. This gives those shareholders an instant gain.

A few weeks ago, I discussed the consolidation of the soda industry. Both PepsiCo Inc. (NYSE: PEP) and Coca-Cola Inc. (NYSE: KO) are buying out their bottling operations to save on expenses and double spending.

Pepsi is in the process of buying its two largest bottlers: PepsiAmericas and Pepsi Bottling Group. Shares of both of these companies popped more than 22% the day it was announced. From their March lows, PepsiAmericas is up 67% and Pepsi Bottling Group is up 94%.

• Legal Battles — The last of the major catalysts is court rulings. In many cases, a simple ruling can make or break a penny stock. Hardly any company has been entrenched in the courtroom like TiVo Inc. (NASDAQ: TIVO).

We wrote about TiVo back in December 2007. Its revolutionary digital recording technology is both a huge moneymaker and a legal nightmare. You see, plenty of other competitors claim rights to certain patents TiVo profits from.

It takes a tech geek to decipher the differences between most of its intellectual properties, which isn’t usually a prerequisite for a judge. For the last five years, TiVo has been tied up in court with its competitor EchoStar Communications Corp (NASDAQ:SATS), now part of Dish Network Corp. (NASDAQ:DISH), over a patent dispute. The court finally ruled in favor of TiVo, rewarding the company $103 million plus interest.

Upon the day of the ruling, shares of TiVo jumped 53%. This gain sent TiVo’s stock over $11 per share and out of penny stock land. That just a drop in the bucket of what a lawsuit ruling can do for a company. Imagine what $103-plus can do for an even smaller company…

These are just four types of things to consider when thinking about buying a penny stock. But even if you do have the perfect catalyst lined up, that’s only the beginning.

Sincerely,
Jim Nelson

Source: How to Tell When a Penny Stock Will Pop