Herbalife Ltd. (HLF) Q4 Earnings Preview: What To Watch?

Herbalife Ltd. (NYSE:HLF) plans to release its fourth quarter and full-year 2013 financial results on Feb.18. It would hold a conference call on Feb. 19 at 8 a.m. PST (11 a.m. EST) to discuss its recent results and provide an update on current business trends.

Herbalife is a global nutrition company that sells weight-management, nutrition and personal care products. Herbalife products are sold in more than 90 countries through a network of independent distributors.

Wall Street expects Herbalife to earn $1.24 a share, according to analysts polled by Thomson Reuters. The consensus estimate implies an increase of 18.1 percent from last year's $1.05 a share. The company sees fourth quarter adjusted EPS of $1.26 to $1.30.

[Related -Herbalife Ltd. (HLF) Q3 Earnings Preview: What To Watch?]

Herbalife's earnings have topped the Street's view in all of the past four quarters, with upside surprise ranging between 1.9 and 23.7 percent. The consensus estimate has gained 7 cents in the past 90 days, and three analysts raised their quarterly profit views in the last month. This reflects the ongoing positive sentiment of the Street. The company has grown profit for the last nine quarters.

Quarterly sales are estimated to grow 17.6 percent to $1.25 billion from $1.06 billion a year-ago. In the past four quarters, the company has recorded an average sales growth of 18.5 percent while the company expects revenue growth of 19.8 percent for the fourth quarter.

[Related -How To Invest Like Bill Ackman]

For the full year, Herbalife is estimated to report earnings of $5.32 a share on revenue of $4.81 billion. The company forecasts full-year earnings of $5.35 to $5.39 a share and sales growth of 18.5 percent

Volume points would be one of the key metrics to watch. The company sees volume points for the full year and fourth quarter 2013 to increase approximately 13.1 percent and 12.7 percent, respectively.

Third-quarter worldwide volume growth was 14 percent, with a spurt in all regions including North America, South and Central America, and EMEA. The Street would be focusing on the volume growth on emerging markets such as China and India apart from South & Central America. China witnessed a growth of 71 percent in volume points in the third quarter.

Further, inventory and accounts receivables figures would be keenly monitored. As of Sept.30, the company had inventories of $347.73 million, and receivables valued at $109.83 million.

The long-term debt of $875 million should also be on investors' radar. The company had a cash balance of about $892.55 million at the end of the third quarter.

The company recently entered into an amendment relating to its $500 million senior term loan and $700 million senior revolving loan credit facility. The amendment will increase the highest applicable margin payable by Herbalife by 0.50 percent when its total leverage ratio exceeds 2.50 to 1.00 and increase the permitted consolidated total leverage ratio of Herbalife under the credit facility.

The company also sold $1 billion of convertible senior notes due 2019 with the intention to use the majority of net proceeds for share repurchases. The initial purchasers of the notes will be Bank of America Merrill Lynch, Credit Suisse, HSBC and Morgan Stanley.

Herbalife has been in the news ever since William Ackman, the activist manager of hedge fund Pershing Square, announced a large short-position in the company calling it a pyramid scheme that would fail soon.

Herbalife has 2.5 million distributors and Ackman said the company posts its profits from selling its products amongst distributors and not to the consumers. He claimed that 90 percent of the profits from the distributors are earned by adding other distributors to the network. Ackman calls for a regulatory probe on Herbalife.

Senator Ed Markey is also lobbying for an investigation into accusations that the company is running a pyramid scheme. However, there haven't been signs of any regulatory probe in the U.S. on Herbalife.

Moreover, the company's fundamental thesis remains strong as consumers are becoming more health conscious, driving demand for Herbalife's products. These healthy products attract consumers to join the distribution network to gain monetary benefits and this augments sales.

In December, the company filed amended financial statements for 2010, 2011 and 2012 as audited by PricewaterhouseCoopers (PwC) with no material changes. In April, Herbalife's auditor KPMG resigned due to alleged insider trading by an auditor.

According to regulatory filings, some investors have added positions, and some have sold the stock during the quarter. Hayman Capital sold its entire stake of over 2.2 million Herbalife shares.

On the other hand, Susquehanna disclosed a 6.7 percent stake (in excess of 6.8 million shares) in the company. Morgan Stanley currently owns more than 2.9 million shares of Herbalife, accounting for 2.9 percent stake in nutrition-supplement maker.

Investors would expect the company to update on its buyback plans. The company's board of directors has increased the existing share repurchase authorization to an available balance of $1.5 billion. The company's former share repurchase authorization of $1 billion had an available balance of $653 million.

In addition, the market will keep an eye on the 2014 outlook. The company's sees 2014 volume point growth and adjusted EPS of 6.5 percent to 8.5 percent and $5.45 to $5.65, respectively. For the first quarter, it expects adjusted EPS of $1.24 to $1.28.

For the third quarter, Los Angeles, California-based Herbalife's profit rose to $142.0 million or $1.32 a share from $111.9 million or 98 cents a share last year. Adjusted earnings were $1.41 a share. Sales for the third quarter grew 19 percent to $1.21 billion.

Shares of Herbalife have gained 75 percent in the last one year but dropped 1.5 percent since its last earnings report and 17 percent in the last one month. The stock trades 11.4 times its forward earnings and traded between $34.52 and $83.51 during the past 52-weeks. An upside surprise and upbeat outlook could take the stock close to $75.

Dollar ends week with a loss after U.S. jobs data

NEW YORK (MarketWatch) — The U.S. dollar gave up gains on Friday, pushing it to a weekly loss against major rivals, after the American economy in December saw the smallest monthly job gain in three years.

The economy created 74,000 jobs last month, sharply lower than the gain of 193,000 expected by economists polled by MarketWatch. The December increase was the smallest since the beginning of 2011. The report also showed the unemployment rate dropped to 6.7% from 7%.

AFP/Getty Images Enlarge Image

The ICE dollar index (DXY) , a measure of the greenback against six other currencies, fell to 80.646 from 80.978 late Thursday. The index had touched an intraday high of 81.14 just ahead of the report, according to FactSet. Friday's move lower pushed the dollar index to a weekly loss of 0.2%.

The WSJ Dollar Index (XX:BUXX) , a rival gauge of the dollar's strength, fell to 73.86 from 74.25.

The Federal Reserve said in December that it will start reducing the pace of monthly bond purchases by $10 billion a month to $75 billion, which implies that the central bankers believe the economy can withstand the withdrawal. Minutes from the Fed's meeting indicate that officials believed the benefits of its stimulus program were declining. The Fed's bond purchases have been understood to weigh on the dollar.

Investors had been looking to the jobs report, the first since the Fed decided to reduce its monthly bond purchases, for clues on the speed of potential further reductions in purchases. But Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman, emphasized that the central bank needs a series of data points before changing its course.

"The Fed can't just react to month-by-month numbers," said Thin, adding that he expects the Fed to continue reducing its bond purchases by another $10 billion at its next meeting.

The weather may have caused distortions in the jobs data, which was another reason to take the report with a grain of salt, analysts said.

Click to Play December jobs growth disappoints

The Labor Department said U.S. payrolls rose by 74,000 in December and the unemployment rate fell to 6.7% from 7%. Expectations were for 200,000 new jobs to be created with the unemployment rate sticking at 7.0%. Sudeep Reddy and Phil Izzo report. Photo: Getty.

"Everything we know about the U.S. economy — the totality of all the numbers — suggests that Q4, including December, was showing a bit of momentum," said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp.

Investors should watch next week's retail sales and January's jobs report for a read on the economy. "A soft retail sales number and another weaker payrolls is going to be a concern for the dollar," he said.

The decline in the unemployment rate to 6.7% could also attract attention in light of last month's conversation at the Fed about lowering the 6.5% unemployment threshold for raising rates. The minutes of the December meeting showed that only a few voting members wanted to lower the threshold to 6%, with dissenters saying the change could chip away at the bank's credibility. The bank has emphasized that it is in no hurry to raise rates.

The euro (EURUSD) jumped to $1.3667 from Thursday's $1.3596, ending the week with a 0.6% gain against the greenback. European Central Bank President Mario Draghi on Thursday emphasized what could cause the central bank to ease further, in a dovish press conference following the ECB's decision to keep interest rates unchanged.

"The divergence of the monetary-policy trajectory should eventually be dollar positive, but we're not quite there yet," said Thin of Brown Brothers Harriman.

The British pound (GBPUSD) was little changed at $1.6481 from late Thursday's $1.6479. For the week, the pound was up 0.4% against the dollar. Industrial output in the U.K. was flat in November from the previous month, missing expectations of a 0.4% rise.

The dollar (USDJPY)  dropped to ¥104.08 from ¥104.79. The dollar fell below the ¥104 level a few times Friday, pushing it to a 0.7% weekly loss against the yen.

The Australian dollar (AUDUSD)  rose to 89.95 U.S. cents from 88.90 U.S. cents late Thursday, for a weekly gain of 0.6% against the greenback. Data from China, Australia's largest trading partner, for December's exports and trade surplus missed expectations.

More news from MarketWatch.com:

Carson Block sticks by China short calls as buyers circle

Investors bet on rate hikes as bond market tests Fed

Participation rate in labor force matches 35-year low: Charts

Old LeapFrog's New Tricks Can't Compete with Real Tablets

Getty Images Shares of LeapFrog (LF) opened lower on Thursday after posting uninspiring quarterly results. By market close, it was down almost 9 percent. The leading maker of electronic learning toys for children had warned investors that it would disappoint during the seasonally potent holiday quarter. Back in November, it stunned the market by forecasting sales to drop by 9 percent to 17 percent. It turned out to be a lot worse. From Learning Leader to Laggard Sales plunged 24 percent to $186.7 million, well short of the $215.4 million that analysts were expecting. LeapFrog broke even on an adjusted basis, missing Wall Street projections calling for a small profit. LeapFrog knows that young children have abandoned its signature handheld learning toys for apps on full-function tablets. Its own entry into the tablet game failed to generate material buzz in a market that's now overrun with cheap kid-friendly devices. Retailers also didn't help by discounting its entry-level LeapPad2 tablet in December to drive traffic to their stores, a move that disrupted the value proposition of its more expensive higher margin LeapPad2 Power and LeapPad Ultra. LeapFrog used to be on top of the toy world. It was the toast of the industry in 2011 with the debut of its original LeapPad tablet. The rugged touchscreen device didn't surf the Web nor fire up third-party apps, but it dovetailed nicely with its proven ecosystem of learning programs, including storybooks where the words get more complex as a child's aptitude grows. Parents flocked to the brand, and by mid-November of that year LeapPad was the most requested toy on Walmart's (WMT) layaway program. Demand outstripped supply, and by early December, bids for the learning tablet on eBay were roughly twice the suggested retail price. LeapFrog was ready in 2012. It introduced the enhanced LeapPad2, making sure that there were plenty of both tablets available for shoppers. LeapFrog was thriving, but the success didn't last. Today, the stock is hitting lows last seen nearly two years ago. Is it too late for the leader in electronic learning toys to learn a few new tricks of its own? C Is for Competition LeapFrog updated its product line again last year, adding a long overdue recharger in the LeapPad2 Power. It also introduced LeapPad Ultra. This should have been a proud moment for LeapFrog. It was an evolutionary leap forward from the LeapPad and LeapPad2, an ambitious push toward something that resembled an actual tablet with Wi-Fi access. Kids couldn't surf the Web or stream YouTube clips, but LeapPad Ultra worked with hundreds of educator-approved apps. It could have been a game changer, but then came negative reviews, analyst skepticism, and an onslaught of cheap kid-friendly tablets. Apple (AAPL) had introduced the iPad mini in 2012, but it dropped the price of the original petite tablet to $299 in the fall of 2013. It wasn't just Apple. Samsung took its popular Galaxy Tab 3 device and repurposed it with a sturdy cover that could sustain the clumsy pounding of young users. The Galaxy Tab 3 Kids cost a little more than the original tablet when it hit the market in October, but it also offered parental controls, a restricted app store, and dozens of free apps. Amazon.com (AMZN) also blurred the marketplace for kid tablets by continuing to lower Kindle Fire prices and making its Kindle FreeTime service for kids more compelling. This all added up to a difficult market for LeapFrog. Instead of positioning its LeapPad Ultra as a more complete tablet experience than the original LeapPad, it had to face tech giants with full-blown tablets at low prices. LeapFrog thinks it can win young users back, but if it's right, it won't happen right away. The toymaker isn't forecasting sales to grow again until the second half of this year. However, after seeing its stock shed nearly half of its value since peaking two years ago, there's so much to gain if LeapFrog can buck the trend and fight its way back to relevance for young families.

5 Stocks With Prime Earnings Momentum — KNSY REGI STV FTEK EVAC

Popular Posts: 8 Pharmaceutical Stocks to Buy Now4 Commercial Banking Stocks to Buy Now7 Biotechnology Stocks to Buy Now Recent Posts: 5 Stocks With Prime Earnings Momentum — KNSY REGI STV FTEK EVAC 5 Stocks With Awful Earnings Momentum — FNBN GYRO MTGE PNX SHLD 5 Insurance Stocks to Sell Now View All Posts

This week, these five stocks have the best ratings in Earnings Momentum, one of the eight Fundamental Categories on Portfolio Grader.

Kensey Nash () develops, manufactures, and processes resorbable biomaterials products. KNSY also gets an A in Operating Margin Growth. .

Hot Oil Stocks To Own For 2015

Renewable Energy Group, Inc. () engages in the production, marketing and distribution of biodiesel and its co-products in the United States. REGI gets A’s in Analyst Earnings Revisions, Earnings Surprises, Equity, Cash Flow and Sales Growth as well. The stock’s current trailing PE Ratio is 2.50. .

China Digital TV Holding Co., Ltd. Sponsored ADR () provides conditional access (CA) systems to the digital television market in the People's Republic of China. STV also gets A’s in Equity, Cash Flow and Operating Margin Growth. The stock currently has a trailing PE Ratio of 7.40. .

Fuel Tech, Inc. () develops and commercializes air pollution control technologies and provides engineering services. FTEK also gets A’s in Earnings Growth, Analyst Earnings Revisions, Earnings Surprises and Sales Growth. .

Edwards Group Ltd. ADR () is an industrial technology company that manufactures and sells vacuum products and abatement systems. EVAC also gets A’s in Earnings Growth, Analyst Earnings Revisions, Earnings Surprises, Cash Flow and Sales Growth. .

Louis Navellier’s proprietary Portfolio Grader stock ranking system assesses roughly 5,000 companies every week based on a number of fundamental and quantitative measures. Stocks are given a letter grade based on their results — with A being “strong buy,” and F being “strong sell.” Explore the tool here.

Google signs ad measurement deal with comScore

SAN FRANCISCO — Google signed a major advertising deal with comScore to help the world's largest Internet search provider win more business from big brands like Kellogg.

Google is integrating comScore's Validated Campaign Essentials, or vCE, measurement technology into its DoubleClick ad business.

The combination will let advertisers and publishers track online ads in near real time, allowing them to change things on the fly if campaigns are not performing as expected. The addition of vCE will also help Google share more data with advertisers about what types of people see their ads and what their interests are.

The deal, which has been in the works for almost a year, may affect billions of ads a day, changing the way agencies and big companies run and monitor campaigns. This is part of a broader push by Google to attract more big brands, which have traditionally spent most of their money on TV.

"To really crack the nut and bring brand dollars to digital advertising, you have to crack the brand-measurement nut," says Neal Mohan, vice president of display advertising at Google. "This integration and partnership with comScore is our bet on real-time audience measurement."

Google already dominates performance-related ads online through its leading search engine, limiting future growth there. Brand advertising is a big market that the company has yet to embrace fully, giving it more room to grow.

The total brand advertising market, which includes digital, TV and more traditional offline ads, is worth at least $300 billion a year. As more of this moves online, Google is positioning itself and partnering with more companies to grab as much of this money as possible.

Digital brand advertising spending will grow from $18 billion in 2013 to $31 billion by 2017, while spending on direct response, or performance, ads online will climb from $25 billion to $32 billion, according to eMarketer.

Google has been working on its own ad-measurement technology for years. But ! as the company focuses more on brands, it has become more open to working with third-party measurement firms such as Nielsen and comScore. That's because big ad spenders require independent data on how their campaigns are going and want the data to be comparable with the information they get on the performance of their TV ads.

"The end game is to integrate this with TV measurement," comScore President Serge Matta says. "Most of the ad dollars are on TV, and over time that will shift to digital, and you will want to measure this in real time across all platforms."

Google seems to be favoring comScore over Nielsen as it adopts more third-party measurement services.

"DoubleClick is an open platform, and we work with other measurement partners like Nielsen. But this is a deeper integration with comScore," Mohan says. "We've been really impressed with feedback on vCE from the market, including some large advertisers like Kellogg."

Mohan declined to comment on how much money Google or comScore is paying for the deal. However, Matta said Google is paying comScore to use vCE.

"vCE has been generating a significant amount of revenue for comScore. We would not have done this deal if we did not secure significantly more revenue from it," Matta says.

The multiyear deal covers display ads and advertising on video and mobile devices, but it will also extend to future ad products, technology and platforms that Google may develop, according to Mohan and Matta.

"A lot of our technology going forward will be built with comScore vCE, and any advances will be contributed to the partnership," Mohan says.

In early 2013, Google allowed comScore to put its measurement tags on YouTube. These tags are small pieces of html code that are placed on websites to scoop up audience information. Later in the year, Nielsen's OCR measurement technology was also adopted by YouTube.

But until now, Google's relationships with Nielsen and comScore have mostly been arm's length. When an ad ! runs on Y! ouTube today, the site has to communicate with the DoubleClick ad server being used by the advertiser or publisher. Then DoubleClick sends information to the measurement firms.

Now Google is building comScore's vCE technology deeply into its DoubleClick platform. No software code integration will be needed. Instead, users will just check a box at the front of their DoubleClick sign-up saying that they want to measure their ad campaign with vCE.

The main benefit will be that advertisers and publishers get data on their campaigns within minutes, rather than the following day, which is typical now, Mohan explained. The tracking technology is also being built into the same system that advertisers and publishers use to manage ad inventory, which means they will be able to change campaigns quicker.

"You can spot that you are not going to hit a target and give the DoubleClick ad server new instructions, and it will respond," he says. "The way it works today, the data would not arrive until a day later, which means some ad dollars will have been wasted."

Morning MoneyBeat: This Bull Market Is Par for the Course

MARKET SNAP: At 6:15 a.m. ET, S&P 500 futures up 0.07%. Treasury yields slightly lower. Nymex crude up 0.04% at $100.36. Gold down 0.92% at $1203. In Europe, FTSE 100 down 0.19%, DAX down 0.09% and CAC 40 down 0.07%. In Asia, Nikkei 225 closed up 0.69% and Hang Seng closed up 0.01%.

WATCH FOR: November Pending Home Sales (10:00 a.m. Eastern Time): seen +1.5%, previously -0.6%. Dallas Fed Manufacturing Survey (10:30): seen 4.0; previously 1.9. Cal-Maine Foods is expected to report results.

THE BREAKFAST BRIEFING

The U.S. stock market's relentless march to all-time highs has grabbed plenty of headlines this year.

Yet it looks unremarkable by historic metrics.

The Dow Jones Industrial Average has set 50 record closing highs, while the S&P 500 is up 29%, on track for its best yearly gain since 1997. The S&P 500 has now risen 172% since bottoming in March 2009.

And yet the 57-month-long bull market following the depths of the financial crisis is on par with previous bull runs.

The S&P 500 has rallied about 165% during 13 bull markets (including the current one) dating back to 1928, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Those bull markets have lasted about 57 months, on average, matching the current rally.

A bull market is characterized as a 20% increase from a prior low, ending when the index peaks and then falls by 20%.

The S&P 500 surged 417% from October 1990 through March 2000, the longest and best performing bull market, according to Mr. Silverblatt’s calculations. The stock index advanced 324% from June 1932 through March 1937.

By comparison, stocks rallied 64% during a 31-month stretch from December 1987 through July 1990. And the market advanced 25% from October 1966 through November 1968 before falling into a bear market.

The current rally stacks up as the fifth longest and fifth-best-performing of the 13 bull markets through history, Mr. Silverblatt says. It is essentially in the middle of the pack, leaving few clues for what will happen when the calendar flips to 2014.

Some signs suggest this year's stock rally will keep humming along. As WSJ's Alexandra Scaggs reports, inexpensive stocks are leading the rally, with investors homing in on shares seen as bargains. Leading the S&P 500 this year are stocks with characteristics that broadly place them in the “inexpensive” category: those with relatively low valuations based on earnings forecasts and increasing estimated profits, among others.

The 100 stocks in the S&P 500 with the lowest price/earnings ratios rose 41%, on average, in the first 11 months of the year, compared with a 27% gain in the S&P 500, according to Fidelity.

The recent uptick in the market even after the Federal Reserve announced plans to start dialing back its bond-buying program is being viewed as a vote of confidence in the economy and the markets heading into the new year.

Meanwhile, Mr. Silverblatt of S&P suggests performance-chasing played a role in the market's rally over the past few months, and could continue into 2014.

"Chasing returns is not a good reason to invest, but when enough do it, the short-term impact is more buying and higher prices," Mr. Silverblatt says. "Absent large-scale profit taking or an incident, we may see another inflow of funds and another short-term uptick from investors chasing profits in the first few weeks of the year."

Earnings season kicks off in the third week of January, which will "add or subtract from investors' appetite to get back in the market," he says.

Morning MoneyBeat Daily Factoid: On this day in 1972, the U.S. stopped heavy bombing of North Vietnam and announced peace talks would commence.

10 Best Cheap Stocks To Invest In 2014

-By Steven Russolillo; follow him on Twitter @srussolillo.

STOCKS TO WATCH

Merck & Co., Twitter Inc. and Apple Inc. are among the stocks expected to see active trading during Monday's session.

Merck is planning a massive overhaul of its research and development practices, according to a report from The Wall Street Journal late Friday. Shares of the Dow industrials component rose 0.2% to $49.91 in after-hours activity.

Twitter is likely to remain on the radar of investors. Last week, the stock took a spectacular ride in an already spectacular month. Over the holiday-shortened trading week, the stock zoomed up 22% to close at $73.31 on Thursday, also its busiest day of trading since the November initial public offering as 82.7 million shares changed hands. The stock then plunged 13% on Friday after analysts started questioning the lofty heights of the stock price. Volume was heavy once again, at 56.9 million shares.

Apple Inc. is telling shareholders to reject a share buyback plan being pitched by billionaire investor Carl Icahn, according to a Securities and Exchange Commission filing late Friday.

MUST READS (LINKS)

Job Market in 2014 Likely to Be Healthier: “Recent strength in gross domestic product, industrial production and construction all underpin employment’s momentum going into next year. These indicators also support the case that, absent an economic shock, total jobs finally could surpass their prerecession peak by mid-2014.”

Bargain-Bin Stocks Take Lead in Rally: “Investors are homing in on shares seen as bargains, a shift that bulls say could keep this year’s epic stock rally going in 2014.”

Home Prices Back at Peaks in Some Areas: “The housing recovery remains uneven as cities that were spared in bust soar, but many others struggle.”

Abreast of the Market: Bargain Stocks Take Lead in Rally: “Investors are homing in on shares seen as bargains, a shift that bulls say could keep this year’s epic stock rally going in 2014.”

Ahead of the Tape: Euro Zone Can Celebrate: “There are good reasons to believe relative calm may persist in the euro zone for another 12 months.”

Heard on the Street: Amazon Counts With Prime Numbers: “The company isn’t that forthcoming with details about its Prime program, but that doesn’t diminish its importance.”

Google, Apple Forge Auto Ties: “Technology giants Google and Apple are about to expand their battle for digital supremacy to a new front: the automobile.”

Second Blast In Russia Kills At Least 15: “A suicide bomber struck in Volgograd, killing at least 15 people aboard a trolley bus in what authorities said was the city’s second terrorist attack in less than 24 hours.”

New Year’s Money Resolutions to Consider: “This is a good time to start getting your financial house in order.”

The Words That Popped in 2013: “From ‘selfie’ to ‘cronut,’ the croissant-doughnut hybrid that quickly became a must-have confection, new additions to English had us all talking.”

Euro Zone Rides the Shock Waves: “The euro zone in 2013 proved remarkably resilient to a series of shocks in Cyprus, Greece, Italy and Portugal, writes Simon Nixon.”

Rates Favor Shorter Junk Bonds: “Sales of long-term ‘junk’ bonds are lagging and prices are down, the latest sign that investors are flocking to shorter-term securities that are less vulnerable to rising interest rates.”

Loan Sharks Smell Blood in China: “A new breed of shadow bankers has stepped in to lend to debt-hungry businesses and households as the Chinese government tries to rein in traditional banks.”

Blackstone Invests in Crocs: “Crocs Inc. has found a way to plug some holes. Blackstone Group LP is pumping $200 million into the footwear company in the form of a preferred stock investment, said Crocs Chief Financial Officer Jeff Lasher.”

Nikkei Up 57% for 2013: “Tokyo stocks finished at their highest closing level in six years, capping a stellar performance for a year that has seen the benchmark Nikkei Stock Average surge 57%, its largest rise since 1972.”

 

IIHS names 22 cars as Top Safety Pick Plus

Just when it looked like every new car on the road would earn the Insurance Institute for Highway Safety's Top Safety Pick Plus designation, the rules get changed and the winners are winnowed down considerably.

Only 22 models now earn the IIHS' top award, coveted enough that it shows up endlessly in car advertising. To have won it, cars not only had to ace front, side, head restraint and roof crash tests, but the "small overlap crash test," which simulates crashing into a pole on the driver's side of the car.

That last test has been bedeviling automakers since it was introduced. Cars that had been on recommended lists for years suddenly found themselves failing. Automakers scrambled and make sure they could pass. Hence, Consumer Reports magazine today restores Toyota Corolla to its recommended list now that it passes the IIHS tests.

"We've made it more difficult for manufacturers this year," says IIHS President Adrian Lund in a statement. "Following a gradual

10 Best Media Stocks To Own Right Now

phase-in, the small overlap crash is now part of our basic battery of tests, and good or acceptable performance should

be part of every vehicle's safety credentials."

Those passing all the test include:

Honda Civic hybridMazda3 built after October 2013Toyota Prius built after November 2013Ford FusionChrysler 200Honda Accord 2-doorHonda Accord 4-doorMazda6Subaru LegacySubaru OutbackInfiniti Q50Lincoln MKZVolvo S60Volvo S80Mazda CX-5 built after October 2013Mitsubishi OutlanderSubaru ForesterToyota HighlanderAcura MDXMercedes-Benz M-Class built after August 2013Volvo XC60Honda Odyssey

Yum! Brands, Inc.(NYSE:YUM): An Attractive Stock To Own Given Potential EPS Growth

Yum! Brands, Inc. (NYSE:YUM) is one of the few names combining above-average EPS growth and room for multiple expansion into 2014. YUM's story is also supported by steady franchise royalty income, and the franchise model generates about two-thirds of YUM's profits.

Above all, the company's China woes appear to be subsiding with the region posting positive same store sales growth in November. Yum has clearly had a tough 12 months in China as the "triple whammy" of slowing macro trends, a poultry supplier issue, and Avian flu has hammered sales and earnings.

There have also been signs of more heated competition, especially in larger cities, alongside rising labor costs. All of this has added up to a big reset on China earnings expectations for the company.

[Related -Yum! Brands, Inc. (YUM): What To Watch At China Investor Day]

However, the situation is improving in China from where Yum! Brands gets more than 50 percent of its overall sales and operating profit. It operates about 6,000 restaurants in China mostly under KFC brand. The company has over 40,000 restaurants in more than 130 countries.

November same-store sales increased an estimated 1 percent for the China Division. This estimate included even sales at KFC and 7 percent growth at Pizza Hut Casual Dining.

On the cyclical front, Deutsche Bank analyst Jason West is seeing some early signs of improvement in China macro trends, including improving consumer confidence, CPI, exports, and PMI, along with stabilization in retail sales trends.

[Related -McDonald's Corporation (MCD) Dividend Stock Analysis For 2013]

For 2014, Yum! expects to deliver at least 20 percent EPS growth, with China Division operating profit growth of at least 40 percent. The company plans at least 1,850 new international units, including 700 new units in China For full-year 2013, EPS is expected at high-single to low double-digit decline versus the prior year.

YUM's recent announcement to combine Yum! Restaurants Internat! ional (YRI) and U.S.individual divisions for KFC, Pizza Hut and Taco Bell, effective January 1, 2014, makes it well positioned to more aggressively accelerate growth in the years ahead.

Meanwhile, the backdrop of steady cash flow provides downside support. YUM's global business consists of China, the US (31 percent of profits), YRI (35 percent of profits) and India (breakeven). The US and YRI businesses are each 91 percent franchised while China is 19 percent franchised and India 74 percent franchised. So, globally, about 80 percent of YUM's restaurants are franchised, which provides for a steady cash flow stream, even in down years.

YUM is on-track to generate $1.2 billion in free cash flow in 2013, similar to the prior two years, despite the earnings shortfall in China. YUM also has a relatively clean balance sheet, with debt/EBITDA of just 1.1 times.

West estimates about $1.2 billion to $1.3 billion in cash flow in 2014, which implies about 3.5 percent free cash flow yield. Given the likelihood of some recovery in China in the coming years, and franchise-heavy businesses for the balance of the portfolio, he does not see much downside risk to the free cash flow story, which suggests limited downside risk for the stock.

While YUM shares have gained recently, they have underperformed the market by 13 percent this year. YUM trades at 21 times its forward earnings, which is an 11 percent discount to the restaurant industry. Though YUM's earnings might not fully recover in the next 1-2 years, the market expects above-average growth off the lows seen in 2013.

West sees about 20 percent EPS CAGR over the next two years. As this recovery plays out, he believes YUM should be able to at least hold the current multiple, with some expansion possible if the overall market remains strong.

As a result, risk-reward is heavily skewed to the upside, particularly if investors are willing to look out a year. There are only few companies in the restaurant sector with room for multiple ! expansion! . While some might argue that many companies look inexpensive on 2015 earnings, few companies have such a clear path to accelerated EPS growth over the next couple years.

Going For Black Gold In Russia With Lukoil

Forbes Dividend Investor subscribers received this hotline on Jan. 15.

A recent recommendation was to buy gas station landlord Getty Realty (GTY). Today's pick is another one from the fuel pumping world with a nice yield and discounted valuations–plus it will give you something to talk about with your friends, family or fellow saloon patrons if you watch the 2014 Winter Olympics from Sochi, Russia.

Moscow-based Lukoil was created in November 1991 from three state-run oil and gas companies in western Siberia and called LangepasUrayKogalymneft. It became Open Joint-stock Company LUKOIL in 1993 and it's presently Russia's third biggest integrated energy company in terms of market value behind Gazprom and Rosneft. It's the second biggest oil driller and second only to Exxon Mobil in proven oil and gas reserves.

Hot Companies To Invest In 2014

Russian gas station in Macedonia (LUKOIL) (Photo credit: Wikipedia)

Lukoil produces in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, South America, Africa and Southeast Asia, and it owns refining, retail and other petroleum-related businesses around the world.

Total revenue is expected to come in at $145.6 billion for 2013, with earnings of $13.33 per share. Operating cash flow over the past 12 months totals $19.08 billion, good for $25.27 per share.

Earnings and cash flow comfortably cover Lukoil's dividend of $3.07 per share, paid in two installments over the past year in May and August. The 5.1% yield is nearly double that of Exxon Mobil, and higher than the 4.6% you'll get if you buy past recommendations Total (TOT), BP (BP) or Royal Dutch Shell (RDS-A).

Lukoil's stated intent is to pay at least 15% of net income as dividends. Because they are paid in roubles, they fluctuate for U.S. investors, although the annual payout has risen 45% over the past five years.

Commodity-based businesses go through cycles of value, and Lukoil seems cheap from all angles. Its five-year average price-sales ratio is 0.53. That's 60% higher than its present 0.33 P/S multiple. On earnings, the five-year average price-earnings ratio of 5.4 is 23% higher than the present multiple of 4.4 times trailing 12 months of earnings.

John Dobosz is editor of Forbes Dividend Investor.  Click here for a 30-day risk free trial.

 

 

Yellen sworn in as new Fed chief …

WASHINGTON — Janet Yellen officially took over the leadership of the Federal Reserve on Monday — and along with it a delicate task: Unwinding the Fed's extraordinary economic stimulus without spooking investors or slowing a still-subpar economy.

Yellen, the first woman to lead the Fed in its 100 years, was sworn in during a brief ceremony in the central bank's board room. She succeeded Ben Bernanke, who stepped down last week after eight momentous years.

Bernanke is joining the Brookings Institution, a Washington think tank, where he will be a distinguished fellow in residence, Brookings announced Monday.

The economy Yellen inherits is far stronger than the one Bernanke faced in the fall of 2008, when the worst financial crisis since the 1930s erupted. Bernanke spent the rest of his tenure launching and managing an array of programs that are widely credited with helping restore lending and strengthen the financial system and economy after the Great Recession.

BERNANKE: Joins Brookings Institution

Yellen, 67, who served as vice chair under Bernanke, is taking over just as the Fed has begun its first modest moves to scale back its enormous support for the economy. At a meeting last week, the last under Bernanke's leadership, the Fed approved a second $10 billion reduction in its monthly bond purchases to $65 billion.

The first cut was announced at the Fed's December meeting, when it said it would trim its purchases from $85 billion a month, the level for more than a year. The Fed's bond buying has been intended to keep long-term interest rates near record lows to stimulate the economy.

But as the economy has improved, Fed officials have decided it could withstand less help. The Fed is expected to keep reducing its bond purchases this year and end them altogether in December.

If the Fed moves too quickly to withdraw its stimulus, it could spook financial markets and send rates higher. Conversely, paring its bond buying too slowly could risk creating bubbl! es — that might burst — in real estate, stocks or other assets.

Already, concern about reduced Fed bond buying and the prospect of higher U.S. rates has shaken global markets. Central banks in several emerging nations have raised rates to try to prop up their falling currencies and control inflation. Stock prices have sunk.

Countries such as Turkey, India and Brazil had benefited from the Fed's bond purchases. Investors poured money into these countries in search of higher yields than they could get in the United States and other developed nations. Now, with U.S. rates possibly headed up, investor money is flowing back out of these countries.

Sung Won Sohn, an economics professor at California State University Channel Islands, said he wouldn't be surprised if the Fed slowed or even halted its bond reductions if the turbulence overseas worsens.

Best Stocks To Invest In

"If the global market turmoil continues, I think the Fed will have to take notice," Sohn said. "We are living in an interconnected world, and I don't think the Fed can ignore what is happening overseas."

The Fed's next meeting, the first with Yellen in charge, is March 18-19. She is scheduled to hold a news conference afterward. Before then, Yellen will appear before Congress next week to deliver the Fed's twice-a-year report on its handling of rates and its economic outlook.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has been vocal in his criticism of the Fed's policymaking. Hensarling has argued that the Fed's use of trillions in bond purchases and ultra-low rates have left the country vulnerable to higher inflation and economic instability. He has announced hearings on the Fed's bond buying and its "potential unintended consequences."

Yellen has said that such fears are overblown and that the Fed has the means to monitor risks and address them.

A close ally of Bernanke, Yellen ! is expect! ed to follow his approach of maintaining low short-term rates while gradually scaling back the bond purchases designed to keep long-term rates low.

Yellen made no comments during the ceremony Monday in which the oath of office was administered by Fed Governor Daniel Tarullo, the senior member of the Fed's seven-member board.

She was sworn in before a fireplace in the Fed's stately board room. Her husband, George Akerlof, a Nobel-winning economist, was present, as were Fed board members and staff.

Yellen's four-year term as Fed chair will end on Feb. 3, 2018. But Fed chairs generally serve more than one term.

In the meantime, a blog posting from Brookings said Bernanke would work on a book about his years at the Fed. In the past, Bernanke has said he looked forward to writing and giving speeches once he stepped down.