Karim Rahemtulla (Investment U):
Of all the great investments you could have made in 2009, gold is right up there among the best of them.

The price of gold has surged this year, taking gold shares upwards with it. Readers of my Xcelerated Profits Report have rung the register with 45% profits on Goldcorp (NYSE: GG) and a triple-digit winner on Golden Star Resources (NYSE: GSS). We’re also up big on Yamana Gold (NYSE: AUY) at the moment.

All is good, right?

On the surface, perhaps. But not if you believe what the options market is saying…

Yamana Options Signal a Share Price Drop

Using Yamana as an example, the options market is betting that over the next 12 months or so, Yamana may fall from current levels of around $13 back into the single digits again.

Just take a look at the January 2011 $7.50 put options (the right to sell Yamana shares at $7.50), currently trading at $0.70 cents per contract. This means the put buyer thinks Yamana’s price will fall to $6.80 – almost 50% below current levels – in order to be in the money. The $6.80 price is derived from subtracting the price of the option from the strike price ($7.50 minus $0.70 = $6.80). This tale is similar across other gold shares, too.

These put options are expensive relative to Yamana’s share price – the result of gold prices moving sharply in previous weeks and causing the volatility in gold stocks to increase.

As a quick refresher, the price of an option is based on four major factors:

The price of the underlying shares
The options strike price
The time to expiration
The volatility of the underlying shares
Two Ways to Play Gold Prices… But Only One Viable Option

So if you’re a gold investor looking to participate in the market, what can you do to protect your profits, or buy shares at a lower price? Here are two potential ways…

Click here for the rest of Mr. Rahemtulla’s Analysis at Investment U.

That was the general reaction from the press when US food giant Kraft launched its first bid for British confectioner Cadbury less than two months ago. Pundits spewed out potential target prices like bingo numbers – £8, no £10, no £12! – and analysts scribbled out scenarios involving white knights and rival bidders from across the globe.

Reality has been a little more disappointing. Despite attempts to talk up the deal, no rival bidders have come forth. And yesterday Kraft came back to the table with an offer that can only be described as – as Cadbury’s board put it – ‘derisory’.

It’s just another sign that there’s a vast gap between conditions in the financial world and those in the ‘real’ world…

Market hopes are stretched far beyond reality
The Cadbury / Kraft bid saga shows just how far market hopes are stretched beyond reality.

Right up to yesterday’s bid deadline, analysts and investors were clearly expecting Kraft to pull some rabbit out of the hat that would give them an excuse to drive the confectioner’s share price higher from its already optimistic level of around 760p.

Instead, Kraft came back with an offer that suggested that, frankly, they can take Cadbury or leave it. The bid terms were exactly the same, which – because Kraft’s share price has fallen since the original bid was made – meant that the actual per share value had fallen, from the equivalent of 745p to 717p.

Yet, the Cadbury share price is still hovering pretty much exactly where it was yesterday. You can read more about the background to the story, and what we reckon Cadbury shareholders should do now, in my colleague David Stevenson’s blog on the topic.

What’s perhaps more interesting about this bid battle is what it says about the bigger picture and the market’s psychology right now. When this deal was first announced, the excitement in the City pages was palpable. This was the return of big deals, a sign that the recovery was on track.

Click here to finish this article at Money Week UK.

Martin applied four criteria when examining banks’ health:

Banks that made profits in the very difficult fourth quarter of 2008 and first quarter of 2009 are probably in good shape, especially if their loan-loss provisions exceeded their charge-offs (the amount actually lost.)

Banks that lost money in the fourth quarter and first quarter may or may not be in terminal trouble; it depends on the amount of those losses and whether the red ink is expected to continue to flow going forward.

With the run-up in bank stocks in recent weeks, there’s been an accompanying rise in the ratio of share price to book value (stock price per share/book value per share). If that ratio is still below 30% – even after the recent price increases – the market lacks confidence in the bank’s ability to solve its own problems. Unfortunately, the market currently appears to be overly optimistic about some of the banks that still have considerable ongoing problems.

Management’s dividend policy is less of an indicator than it was just a few short months ago; several banks have sharply cut their dividends in order to repay the Troubled Assets Relief Program (TARP) capital they got in late 2008. Reasonably, profitable banks don’t want the government meddling in their business or compensation structures

This research revealed three “hidden gem” banks among the dross. They are (in alphabetical order):

BB&T Corporation (NYSE:BBT) – With $152 billion in assets, and a $3.1 billion TARP investment, this North Carolina-based regional bank has its primary operations in the Mid-Atlantic region. A recent share price of $23.42 meant that BB&T was trading at about 94% of book value. BB&T was profitable in each quarter of 2008 and in the first quarter of 2009, making $1.5 billion for all of last year and $271 million in first quarter of 2009. It maintained its dividend of 47 cents a share for first quarter of 2009, the only bank to maintain its full payout. The question, of course, it whether management will be tempted to follow fashion and cut the dividend next quarter; otherwise, it looks very solid.

State Street Corporation (NYSE:STT) – With $174 billion in assets, and a $2 billion TARP investment, this Boston-based bank is focused chiefly on serving institutional investors worldwide. Its recent share price of $37 meant that State Street was trading at 146% of book value. Its 2008 earnings per share (EPS) of $3.89 represented a year-over-year increase of 13%. First quarter net income down 16%, but State Street still earned $445 million. It pays a quarterly dividend of 24 cents per share. With a global business, conservative leverage and Boston management, State Street is a great risk. But it’s somewhat of an unexciting investment currently as securities issues and trading volume have fallen.

Bank of New York Mellon Corporation (NYSE:BK) – With $237 billion in assets and a $3 billion TARP investment, this New York-based bank has its primary operations in New York and Pennsylvania and has an institutional/corporate orientation. With its recent share price of $26.88, it is trading at 122% of book value. It reported 2008 net income of $1.39 billion, and first quarter profit of $322 million, after which the bank reduced its quarterly dividend from 24 cents to 9 cents a share. Looks solid to me.

U.S. Bancorp (NYSE:USB) has $266 billion in assets, and a $6.6 billion TARP investment and is a regional bank headquartered in Minneapolis that operates primarily in the Midwest and Northwest. A recent share price $18.97 means it is trading at 176% of book value. It reported a 2008 profit of $2.94 billion, and a first quarter profit of $419 million. U.S. Bancorp cut its quarterly dividend from 42.5 cents per common share to 5 cents a share, as it wants to pay back its TARP investment. This bank is in good shape, but its capital base would become too thin if it repaid TARP; I’m not sure I want to pay 11-12 times earnings for this stock when the dividend’s so low and the uncertainties are so high, as there’s still some chance of dilution, should it raise capital.

Under Armour (NYSE:UA) is doing what it does best, using marketing glitz to gain the attention of consumers and investors. As I have said countless times before, it is not a sustainable business model.

While slurping down my morning bowl of cereal, I typically watch something with a bit more grit than NBC’s Today Show (even Screech on Saved by the Bell offers more intellectual value), but my wife had the day off work and somehow gained control of the remote.

I am glad she did, because as soon as I saw Under Armour’s founder Kevin Plank chatting about his company’s “unique” product offerings, I knew my recent preachings were dead-on accurate. This company is getting desperate.

If you follow Under Armour, you know its products, while popular, are certainly not unique. Lower-priced competitors have been busy knocking away the company’s foundation one brick at a time. Plank and his company were hoping for a huge launch of their footwear line, but have failed on several different attempts to gain the attention the company needs to meet shareholder expectations.

Share price won’t need running shoes

In less than two weeks, investors are in for the wake-up call they need. When the company releases its latest earnings figures, Under Armour’s overvalued shares, with a P/E of 23 and all, will get cut to where they belong. I am prepared to see shares drop to $14 or less on news sales were nowhere close to investor-expected levels.

Yesterday’s retail sales figures were a foretelling of what’s to come.

Read the full article here at TFN:Under Armour: Desperate for attention

If your portfolio is filled with green today, you have just one person to thank. Vikram Pandit, the same Citigroup (NYSE:C) CEO that helped bring the Dow to 6,500, gave the equities market a boost today when he told his staff he is confident of his company’s capital strength.

In an open letter to his employees that was obviously designed to find its way to Wall Street, Pandit tells anybody that will listen he believes the company’s pummeled share price was due to “broad-based misperceptions about our company and its financial position.”

He went on to discuss the company’s financial success so far this year. Thanks to revenues of $19 billion in January and February, the company has recorded an operating profit of $8.3 billion so far this year.

Of course, Pandit warns, that figure is before taxes and any special charges or write-downs. He also says March’s volatility could take its toll on the figures.

In other words, those are merely accounting figures. The real numbers will be nowhere close when we close this quarter’s books.

Why should we believe them now?

Pandit may be shooting himself in the foot with this memo. He is setting the earnings bar pretty high and has proven the company’s business model still works. If his next quarterly earnings report does not live up to today’s expectations, Pandit will be in the hot seat with no excuses.

Read the full article here: Citi’s memo: Can you believe it?