Mastercard Inc (MA) Q3 Earnings Preview: What To Expect?

MasterCard Incorporated (NYSE: MA) will release its third-quarter financial results on Oct.31. The company will host a conference call to discuss these results at 9:00 a.m. Eastern Time.

MasterCard is a global payment processing leader and one of the largest global payment solutions companies. The company's payments processing network, connects consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories.

Wall Street expects the payment processing firm to earn $6.94 a share, according to analysts polled by Thomson Reuters. The consensus estimate implies growth of 12.5 percent from $6.17 a share earned last year.

Mastercard has always impressed Street with its consistent upside surprises and its earnings have managed to edge past estimates in all of the past four quarters. The beat margins were in the range of 0.80 percent to 10.5 percent.

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Over the past 90 days, the average earnings estimate has gone up by 2 cents, and six analysts raised their earnings view on the company in the past 30 days. This suggests analysts are expecting a bullish quarter from the company.

Quarterly sales are expected to grow 11.2 percent to $2.13 billion from $1.92 billion in the same quarter last year. In the past four quarters, average revenue growth came in at 9.5 percent.

Mastercard results should benefit from an improving consumer spending environment. Like its peer Visa, Inc. (NYSE:V), Mastercard continue to reap profit as more consumers now prefer electronic payments instead of cash and checks, notwithstanding the uncertain economic conditions that slowed growth.

Earnings of credit card processors are one of the key barometers to gauge consumer spending. During the first two months of the quarter, the consumer sentiment fared well but diminished in the month of Septe! mber due to the government shutdown that curbed spending.

In August, consumer spending in the U.S. rose 0.3 percent in August, according to the Commerce Department while incomes rose 0.4 percent. However, several surveys show that consumers suffered during the later periods of the quarter.

Confidence fell in September as consumers were more likely to anticipate a slower pace of economic growth, fewer job opportunities, and less favorable personal financial prospects, according to a survey by Thomson Reuters/University of Michigan. The index fell to 77.5 in September from 82.1 in August and last September's 78.3.

Meanwhile, investors will be watching for certain performance metrics including payments volume growth, processed transactions and cross-border volume growth, which reflects the company's strength in emerging markets.

For the second quarter, MasterCard reported 13 percent increase in gross dollar volume, on a local currency basis, to just over $1 trillion. Cross-border volumes rose 17 percent and processed transactions increased 11 percent to 9.5 billion. These factors were partially offset by an increase in rebates and incentives.

Worldwide purchase volume during the second quarter grew 12 percent on a local currency basis to $734 billion. As of June 30, 2013, the company's customers had issued 1.9 billion MasterCard and Maestro-branded cards.

The Street and investors will focus on updated guidance, macro view/global commentary and color on volume and transaction growth into July. In addition, they will look at cross-border trends and pricing rebates.

Purchase, New York-based MasterCard is a credit transaction processing company, which means it need not worry about default risk that falls on the banks which lends credit to their consumers. As such, MasterCard needs to concentrate only on increasing market share and expand into new markets (read emerging markets).

Based on comments from MasterCard CFO Martina Hund-Mejean, 85 percent of all transact! ions worl! dwide are still executed using cash, which leaves payment processors with a huge pool of untapped market. As a result, the company's comments over the market share gains in the emerging and developed markets would be a key focus.

For the second quarter, MasterCard reported net income of $848 million or $6.96 a share, compared to $700 million, or $5.55 a share, last year. Net revenues for the quarter grew 15 percent to $2.10 billion.

Shares of MasterCard have gained 20 percent since its second quarter report and 59 percent in the last year and 44 percent year-to-date. MA shares traded between $451.18 and $737.83 during the past 52-weeks.

Analysts, generally, have a positive opinion on MasterCard as 23 out the 33 analysts covering the stock have a "strong buy" or "buy" rating while the remaining 10 rate it as "hold." There are no "sell" ratings on the stock.

How Do I Know I Can Trust My Financial Advisor?

Trust means everything in relationships, whether we're focusing on those in romance, family or finances.

Make that, especially financial matters, which can be as emotionally draining, destructive and costly as anything else that we experience in our lives. An unscrupulous financial advisor can cause an unsuspecting investor to be badly hurt or even tragically wiped out of a lifetime of hard work and savings.

Today, the question of a financial advisor's trustworthiness has taken on a heightened importance. The memory of how the crooked New York investor Bernard Madoff fleeced so many sophisticated and highly accomplished people still burns bright. Plus, there are so many ways today for investors to make – and lose – money. Wall Street seems to invent new financial products on an almost daily basis, each more alluring (and yet potentially confusing) than the next. That's why the public needs people to counsel them. But these investments also carry heavy risks. Individual investors naturally rely on the expertise and involvement of financial advisors.

Remember, not every investor has the same needs and, in the end, timing is everything. For instance, a young person might eschew the highly conservative notion of capital preservation, because he or she will be working and earning money for decades to come. This individual might be much more willing to go into speculative financial instruments than, say, someone nearing retirement age, who has doggedly amassed a healthy nest egg and primarily wants to preserve it without unnecessary aggravation or risk.

One of the keys is to be comfortable with your financial advisor. To raise your personal comfort level, experts suggest checking an advisor's background with the Financial Industry Regulatory Authority's (FINRA) website.

Savvy investors know to ask an advisor questions on these five essential subjects:

1. Core Values
Find out what your advisor's core values are. A person of integrity should be capable of reciting his or her values to you. The way you can determine whether you can trust someone's values is to see if he or she is invariably trying to sell you a financial service, regardless of how well it suits you, that results in a commission for the advisor. An advisor who believes in having a long-term relationship with you – and not merely a series of commission-generating transactions – can be considered trustworthy.

2. Payment Plan
Make sure you understand how the advisor is being compensated for investment advice or transactions, so you aren't automatically forfeiting a chunk of your nest egg to someone who doesn't have your best interests at heart. "Be crystal clear on how much money you are paying for their services," said Joe De Sena, a private wealth advisor with J. De Sena & Associates on Long Island. "Is there an annual fee? Are you paying by check each time for their services? Or will the fee be automatically deducted by the advisor from your assets? Are you paying that person based on the level of their performance? Plus, the clients should receive, for tax purposes, an accounting of exactly how much they paid the advisor.

3. Level of Expertise
Dan Masiello, a financial advisor in Staten Island, N.Y., stresses the importance of an advisor's expertise, training and education. "For your own comfort level as a customer, you will want to look at someone's education, certifications in the business and number of advanced degrees," he pointed out. It is also important to make sure your prospective advisor has not had scrapes with regulatory authorities or negative references in the business media or experienced a history of investigations for misconduct. "A referral gives the client a certain degree of comfort in allowing you to speak with their clients," Masiello said. "The key word here is transparency, which contributes to being able to trust someone. You'd prefer to see a level of stability. Has your advisor been committed to the same organization for some time and been in the profession for a long time?"

4. Service
Do you hear from them on a regular basis?" said Derek Finley, a financial advisor with WJ Interests in Sugar Land, Texas, managing 165 clients and $190 million. A straightforward, excellent question! This point can be as much of a deal-breaker, ultimately, as anything sordid or even criminal. How annoying and frustrating is it for an investor not to be kept apprised of a news development that could affect his or her portfolio, such as a price change in a stock, a shake-up at a prominent company or an acquisition in an industry that has a bearing on stocks in the customer's portfolio? The advisor could cost the client money by not keeping him or her apprised of major occurrences. Of course, that doesn't mean that all phone calls from your broker are a positive sign. Be leery of brokers who badger you with calls that are only made to sell you on products and increase commissions.

5. Patience
Will your advisor take the requisite time to explain, methodically and patiently, his or her recommendations? Notes Trent Porter of Priority Financial Planning in Denver, which manages 27 clients: "One of the biggest red flags is if you don't understand your investments, especially if your advisor isn't able or willing to explain them when asked. Investors need to be very leery of advisors who take custody of their assets, a la Madoff."

You can take measures to help yourself beyond these important points, too.

"Having a third-party custodian directly holding and reporting on your assets helps to guard against fraud," Porter said. "Also, be aware of whether or not they are a fiduciary, which legally requires them to put your interest in front of their own. Shockingly, not all advisors are required to do so. Just because they are a fiduciary doesn't mean you won't get ripped off. But it's a good start." To get a third-party custodian, contact a provider of custodian services, such as Charles Schwab, TDAmeritrade or Fidelity.

Hurricane Sandy, One Year Later: Assessing the Economic Cost

AP, Mark LennihanA worker walks the roof line of a house under construction in the Breezy Point community of New York's Queens borough on Wednesday, July 24, 2013. It is the first house to be rebuilt in the beachfront community where more than 110 homes burned to the ground during Superstorm Sandy in October 2012. The intersection of hurricanes and economics is a heartless, insensitive place. If it can be avoided, you shouldn't go there. We're referring specifically here to Hurricane Sandy. For the Country as a Whole, Just a Blip on the Economic Radar As we approach the one-year anniversary of the second most destructive storm in American history, thousands of people are still displaced from their homes, businesses continue to struggle, and municipalities are squeaking by on a fraction of the revenue that their now-devastated property tax rolls once generated. Yet, from a macroeconomic standpoint, it's almost as if Sandy was nothing more than a figment of our imagination. According to the Bureau of Economic Analysis, the domestic economy grew by a "very sluggish" 0.4 percent in the final quarter of last year -- the same period in which Sandy wrought havoc up and down the Eastern seaboard. It followed a 3.1 percent rate of growth in the third quarter. While it's tempting to conclude that the storm had at least something to do with the sharp deceleration, the reality is that it didn't. "Any effect superstorm Sandy may have had on aggregate economic activity in the fourth quarter of 2012 was well within the bands of the normal amount of 'noise' in quarterly GDP growth rates," concluded a handful of economists at the Federal Reserve Bank of New York earlier this year. How Is This Possible? This was a storm that caused almost 150 deaths. A storm that damaged or destroyed an estimated 650,000 homes. A storm that swept away $75 billion in physical capital, second only to Hurricane Katrina in 2005. What's the disconnect here? The answer is that destruction sows the seeds of growth, however paradoxical that may sound. There's no better example of this than Home Depot (HD), which makes a living from selling supplies to homebuilders and renovators. Comparable sales at Home Depot locations open at least 13 months shot higher by 7.1 percent in the three months following the storm. "New York and New Jersey were our best-performing regions, driven principally by Hurricane Sandy-related repair activity," said CEO Frank Blake. Home Depot's chief financial officer told analysts that the chain generated $242 million in fiscal fourth-quarter revenue from "storm sales" alone -- far exceeding the $130 million that it earned in the aftermath of 2011's Hurricane Irene. But -- and this is an important point -- the fact that some businesses and institutions profited from the storm, does not make up for the losses suffered by its hardest hit victims. Building Foundations on Quicksand As the one-year anniversary approaches, the media is shining an increasingly bright light on the slow rate of progress in places like Long Beach Island, N.J., and Breezy Point in Queens, N.Y. A family profiled by The New York Times this week still owes $370,000 on a mortgage for their "gutted one-story bungalow... that engineers and FEMA inspectors agreed was damaged beyond repair in the storm." Yet, their flood insurance company concluded that they were due only $93,000, a fraction of what it will cost to rebuild. And stories like this are legion. On top of this, countless municipalities throughout the region have been forced to cut programs and services that were once funded by property tax rolls. Two New Jersey counties alone have seen property values fall by $5 billion thanks to storm damage. The net result has been to rob the local governments and schools of an estimated $77 million in revenue. Assessing Sandy's Economic Legacy At the end of the day, questions surrounding Hurricane Sandy's economic legacy aren't subject to easy answers. Some businesses benefited. Some people remain deeply affected. And if the macroeconomic scars were minimal, at ground level in the towns most affected, the storm is still far from over.

The devastation wrought by Hurricane Sandy is a good reminder that the strength of a storm is less important than where it makes landfall. Despite its enormous size, it was classified as only a Category 2 storm at its peak, and by the time it made landfall in the Northeast, it had been reclassified as a "post-tropical storm" (a designation that will force insurers to pay more in claims than they would have for a storm classified as a hurricane). Hurricane or not, though, Sandy's landfall near New York City and other major population centers in the region immediately vaulted it onto the list of the most expensive storms in the nation's history. While the first wave of cleanup and recovery continues throughout the region, there's little doubt that the massive flooding and wind damage associated with Sandy will ultimately cost tens of billions of dollars, to say nothing of the human toll. Click through our gallery to find out how Sandy stacks up to other devastating Atlantic storms. * - Costs adjusted to 2010 dollars on basis of U.S. Dept. of Commerce Implicit Price Deflator for Construction. The storms from 2011 and later are not adjusted. The National Climatic Data Center (NCDC) rates Hurricane Katrina's damage at $133.8 billion 2007 dollars.

Landfall Category: 1 U.S. Damage: 11.7 Billion Date of storm: June 18-23, 1972 U.S. areas affected: Florida(Panhandle), Georgia, Carolinas, Northeastern U.S. This June 23, 1972, photo shows people in  Harrisburg, Pa., being rescued by boat from their homes after Hurricane Agnes caused the Susquehanna River to overflow its banks, leading to heavy flooding.

Source: Weather Underground

11. Hurricane Agnes (1972)

Landfall Category: 4 U.S. Damage: $9.7 billion Date of storm: Sept. 17-22, 1989 U.S. areas affected: Georgia, North Carolina, Puerto Rico, South Carolina, Virginia, U.S. Virgin Islands A South Carolina man displays a photograph of his house taken before Hurricane Hugo destroyed it in September 1989.

Source: Weather Underground

10. Hurricane Hugo (1989)

Landfall Category: 3 U.S. Damage: $11.8 billion Date of storm: Sept. 20-26, 2004 U.S. areas affected: Alabama, Arkansas, Florida, Louisiana, Mississippi, Tennessee, Texas Rosa Machado (center) of Lafite, La., walks through waist-deep flood water as a neighbor's trailer burns following Hurricane Rita's late September passage through the area.

Source: Weather Underground

9. Hurricane Rita (2005)

Landfall Category: 1 U.S. Damage: $15.8 Billion Date of storm: Aug. 26-28, 2011 U.S. areas affected: Connecticut, Delaware, Massachusetts, Maine, Maryland, North Carolina, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Virginia, Vermont, Washington DC

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Hurricane Irene crippled 10 states during its slow climb up the Eastern Seaboard, causing massive flooding and power outages. The brutal storm made landfall in North Carolina and traveled to Maine.

Billy Stinson (C), his wife Sandra Stinson and daughter Erin Stinson (R) comfort each other as they sit on the steps where their cottage once stood before it was destroyed by Hurricane Irene on Aug. 28, 2011 in Nags Head, N.C.

The cottage, built in 1903 was one of the first vacation cottages built on Roanoke Sound in Nags Head. Stinson had owned the home, which is listed in the National Register of Historic Places, since 1963. "We were pretending, just for a moment, that the cottage was still behind us and we were just sitting there watching the sunset," said Erin afterward.

Source: Weather Underground

8. Hurricane Irene (2011)

Landfall Category: 4 U.S. Damage: $15.8 Billion Date of storm: Aug. 13-14, 2004 U.S. areas affected: Florida, North Carolina, South Carolina At least 13 people were killed when Hurricane Charley left a path of destruction across Florida then continued north and struck the Carolinas. Pictured: Debris from homes destroyed by Hurricane Charley litters the waterways that surround much of Punta Gorda, Fla.

Source: Weather Underground

7. Hurricane Charley (2004)

Landfall Category: 3 U.S. Damage: $19.8 Billion Date of storm: Sept. 15-21, 2004 U.S. areas affected: Alabama, Delaware, Florida, Georgia, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia Residents of Pensacola Beach, Fla., pass by an SUV half buried in sand as they walk back to their homes on Sept. 22, 2004, to inspect the damage caused by Hurricane Ivan.

Source: Weather Underground

6. Hurricane Ivan (2004)

Landfall Category: 3 U.S. Damage: $20.6 Billion Date of storm: Oct. 24, 2005 U.S. areas affected: Florida After striking Mexico from the Caribbean Sea, Wilma turned northeast, strengthened over the Gulf or Mexico, and made landfall near Cape Romano, Fla., on Oct. 24 as a Category 3 hurricane. The eye crossed the Florida Peninsula in less than five hours, and it moved into the Atlantic just north of Palm Beach as a still forceful Category 2 hurricane. Pictured: A public phone is surrounded by flood waters near a block of hotels as Hurricane Wilma lashes Cancun, Mexico, on Oct. 21, 2005.

Source: Weather Underground

5. Hurricane Wilma (2005)

Landfall Category: 2 U.S. Damage: $27.8 Billion Date of storm: Sept. 12-14, 2008 U.S. areas affected: Arkansas, Illiniois, Indiana, Kentucky, Louisiana, Missouri, Ohio, Pennsylvania, Texas Flood waters from Hurricane Ike were reportedly as high as eight feet in some areas, causing widespread damage across the coast of Texas in September 2008. Pictured: A home in Gilchrist, Texas, is left standing among debris left by Hurricane Ike.

Source: Weather Underground

4. Hurricane Ike (2008)

Landfall Category: 5 U.S. Damage: $45.5 Billion Date of storm: Aug. 24-26, 1992 U.S. areas affected: Florida, Louisiana Andrew came ashore in Florida near high tide, pushing a 16.9 foot storm tide (the sum of the storm surge and astronomical tide) into Biscayne Bay, a record for the southeast Florida peninsula.

Source: Weather Underground

3. Hurricane Andrew (1992)

Landfall Category: Post-Tropical Storm U.S. Damage: Early estimates indicate damage and economic losses as high as $50 billion Date of Storm: October 29-31, 2012 U.S. Areas Affected:  Connecticut, D.C., Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New York, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, West Virginia, Vermont, and Virginia.

Asia stocks higher after recent declines

Asian stocks moved higher on Monday, with Australia hitting a fresh-five year high, as shares bounced back from recent falls.

Regional markets started the week in recovery mode, following a series of declines last week that hit Japan and China especially hard. A pickup in interbank lending rates in China spooked investors and yanked the Shanghai Composite down 2.8% last week, while a strong yen helped the Nikkei Average sink 3.3% over the same period.

Reuters Enlarge Image

A positive lead from Wall Street, where the S&P 500 (SPX)  hit a record high on Friday, and the absence of fresh negative catalysts allowed Asian stocks to bounce back.

The coming week promises to be a busy period in terms of earnings news for the region, while the U.S. Federal Reserve's policy meeting later on in the week will be a focus as investors look for clues on the central bank's stimulus plans.

Looking ahead to November, markets are anticipating an important Communist Party meeting in China, where there are expectations that the country's new government will unveil economic reforms.

The yen (USDJPY)  weakened slightly early in Asia, with the dollar trading at ¥97.51, compared with ¥97.40 late Friday in New York.

The softer yen allowed the Nikkei Average (JP:NIK)  to climb 1.1%, coming back from a hefty 2.8% fall on Friday.

Australia's S&P/ASX 200 (AU:XJO)  rose 1.2%, and South Korea's Kospi (KR:SEU)  was flat.

Gains in China were moderate, with Hong Kong's Hang Seng Index (HK:HSI)  up 0.4% and the Shanghai Composite (CN:SHCOMP)  0.3% higher.

China Construction Bank (HK:939)   (CICHF)  rose 1.1% in Hong Kong after China's second-largest bank by profits posted third-quarter net profit that came out slightly below market expectations.

China Life Insurance Co. (HK:2628)   (LFC)  rose 2.7% after China's largest life insurer by premiums reported that it had made a 7.5 billion yuan ($1.2 billion) profit in the third quarter, reversing a 2.2 billion yuan loss in the same period last year.

Also in Hong Kong, Chong Hing Bank (HK:1111)  sank 6.7% after Chinese conglomerate Yuexiu Enterprises said on Friday it will acquire a majority stake in the Hong Kong lender for $1.5 billion — the first local-bank sale in several years.

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A Chinese court rejects an appeal by Bo Xilai, the former Communist Party boss in Chongqing who was convicted of bribery, embezzlement and abuse of power. What more can we expect from the Bo Xilai case? (Photo: Central Television/Reuters)

In Tokyo, telecoms firm KDDI Corp. (JP:9433)   (KDDIF)  rose 2% after a Nikkei report said that the firm will likely report a record first-half group operating profit, with a 50% on-year increase. TDK Corp. (JP:6762)   (TTDKF) , however, dropped 0.2% after a separate Nikkei report said that the electronics-component producer will report an 8% increase in operating profit over the same period.

Also in Japan, Mizuho Financial Group (JP:8411)   (MFG)  rose 0.5%, underperforming the broader market, after weekend media reports said that its Mizuho Bank unit will reprimand 54 current and former staff for failing to take responsibility for loans to borrowers associated with organized crime.

Bank layoffs rise as mortgage refinances fall

Banks are laying off thousands of people, but it's because the economy is actually getting a little better.

Bank of America's announcement that it is laying off 1,200 people who work on mortgage refinancings was only the latest salvo. The company also said it will cut another 3,000 people who work on restructuring problem loans before the end of the year. Banks from Citibank to Wells Fargo to SunTrust are also laying off hundreds or more than a thousand workers each.

The reason: With the economy improving, not nearly as many old loans are going bad, and not nearly as many new ones are being made. Because home values have been rising in many areas fewer fewer homes underwater, so there are far fewer requests for loan modifications and extensions.

MORTGAGE RATES: Average 30-year mortgage rate falls to 4.13%

And with interest rates having risen over the spring and summer — reacting to the bond market's guess that an improving economy would lead to tighter monetary policy — fewer people are refinancing their homes.

"It's good news for the country,'' Bank of America spokesman Terry Francisco said. "The number of people who need loan modifications or short sales is smaller, and with rates higher it has significantly impacted our refi volume. As the market shrinks, we need to reduce costs.''

At Bank of America, only 398,000 mortgages are now 60 days or more past due, Francisco said, down from 1.5 million at the worst of the housing bust. Third-quarter profits from mortgage banking income dropped by $1.4 billion on lower refinancing volume, the bank said.

Citigroup has announced 1,200 mortgage-related layoffs, spokesman Mark Rodgers said. At Wells Fargo, now the nation's biggest mortgage lender, 6,400 mortgage-related layoffs have been announced since summer. Atlanta-based SunTrust said it would cut 800 workers.

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"Like many financial institutions, we are adjusting our staffing to current market conditions,'' SunTrust spokesman Michael McCoy said. The cuts reflect "not only the reduced volume of mortgage loan refinancing but also our efforts to reduce delinquent loan servicing given the improving housing recovery.''

In August, about 939,000 homes in the U.S. were in some stage of the foreclosure process, 33% fewer than 1.4 million in August 2012, according to CoreLogic. That represented 2.4% of all homes with a mortgage this August, compared to 3.3% last year.

Americans took out $1.25 trillion of mortgage-refinancing loans in 2012, according to the Mortgage Bankers Association. That's expected to fall to $989 billion this year and $388 billion next year.

Competition From Generics, Currency Movements Continue To Plague Merck

Merck (MRK) will release its Q3 2013 earnings on October 28, and the results will reflect the impact of growing competition and adverse currency movements. On a broader level, the company is facing similar problems as the rest of the pharmaceutical industry. The R&D (research and development) productivity has declined over the years, and the strategy of developing drugs for major diseases is not working. The landscape of the global pharmaceutical industry is shifting toward more niche, innovative and genetically targeted medicines. In addition, Merck is suffering from the loss of patent exclusivity for some of its major drugs and may look for acquisitions of some promising medicines to offset the failure of some of its research projects. Let's take a more detailed look at what to expect from the company's upcoming earnings.

Generic Competition Will Continue To Weigh On Revenue Growth

Merck is facing tremendous competition from low priced generics due to patent expiry of its several major drugs including Singulair, Propecia, Clarinex, Maxalt, Cozaar and Hyzaar. Out of these, asthma drug Singulair has had the biggest impact and has continually weighed on Merck's growth for the past few quarters. Worldwide sales of Singulair, a once-a-day oral medicine for chronic treatment of asthma and relief of symptoms of allergic rhinitis, stood at $5.5 billion for 2011. [1] However, this figure declined to $3.85 billion in 2012 following its patent expiry in August same year. [1] Merck expects that within two years following the patent expiration, it will lose substantially all U.S. sales of Singulair, with most of those declines coming in the first year. In the first half of 2013, the drug's sales dropped by a whopping 78%. [1]

In addition, Merck's cardiovascular division has also been hurt by the patent cliff as its drugs Cozaar/Hyzaar, which garnered over $2 billion in revenue in 2010, lost patent exclusivity in large markets including the U.S. and Europe in late 2010. ! As a result, sales fell by roughly 35% to $1.3 billion in 2012. In the first half of 2013, the drug's revenues further came down by about 23%. Additionally, Propecia, Clarinex and Maxalt together accounted for roughly $1.5 billion in revenues in 2012. Due to patent expiries, we expect combined sales to go down to about $1-1.1 billion in 2013.

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While the big drugs are losing sales, there is little chance for new blockbusters replacing them. The R&D productivity has significantly declined over the last decade. Although the industry's R&D spend has increased, the number of new drugs approved by the FDA has come down. In fact, Merck is planning to terminate certain drugs in late stage development and intends to focus on acquiring experimental drugs.

Merck's Overall Diabetes Drug Performance Is Looking Good, But Januvia Raises Concerns For The Third Quarter

Merck's type 2 diabetes treatment drugs Januvia and Janumet saw strong volume growth in international markets and retained their market leadership with 70% share in the second quarter. [2] Excluding the impact of currency movements, Januvia saw its sales jump by 7% while Janumet's revenues surged 17%. [1] In addition, the company is working with Pfizer to develop and commercialize its investigational SGLT2 inhibitor, Ertugliflozin, for the treatment of type 2 diabetes. With obesity on the rise, diabetes is affecting more people globally. In the U.S. alone, roughly 26 million people suffer from the condition. [3] Owing to these factors, the global diabetes drug market has seen rapid growth in the last couple of years.

However, Merck's progress in diabetes treatment warrants a closer look given the recent prescription data that suggested that its blockbuster drug Januvia is losing sales in the U.S. According to BMO Capital Markets, the three week prescription data for the third quart! er indica! ted that Januvia franchise's prescriptions had declined by 1.7%. [4] The drug's sales seem to have suffered following Invokana's launch by Johnson & Johnson (JNJ) in April, and the research firm expects the prescription volume to continue declining in the second half of 2013. It appears that Invokana is taking away some volume from Januvia, which is one of Merck's biggest drugs with over $4 billion in sales in 2012.

We currently account Januvia's revenues under the Alimentary and Metabolism drugs division, which constitutes roughly 15% to our price estimate for Merck. Januvia's importance can be gauged from the fact that the exclusion of the drug's sales from Merck's revenue forecast leads to downside of about 5-10% to our price estimate. That's a lot of value for a single drug in a diversified company like Merck.

Our price estimate for Merck stands at $51.60, implying a premium of about 10% to the market price.

Disclosure: No positions.

Source: Competition From Generics, Currency Movements Continue To Plague Merck

The Art Of Accidental Networking

By Marisa Torrieri

Russell Henry, 35, dreamed of a career in IT, but he didn't have a college degree or the appropriate job experience. By day he worked as a manager at a local theater, and, in his free time, he spent hours tinkering with computers as a hobby.

"I enjoyed the technical and problem-solving aspects of working with computers and thought I might excel in IT, but I had no training, education or contacts," recalls Henry, who lives in Hyattsville, Maryland. "I really had no idea of how to break into the industry."

Little did Henry know, he had one thing going for him that would eventually open the door to his dream career: his love of alt-rock. Through a music listserv, Henry, a keytar player, met a bass player named J.*, and the two of them, along with one of Henry's high school friends, decided to start a band.

"J. was working at the Democratic National Committee at the time and knew that I had an interest in IT," says Henry. "When an entry-level computer tech job opened up, he put in a good word for me and facilitated me getting an interview. The IT director decided to give me a chance."

That was 13 years ago. Henry is now an IT coordinator at the University of Maryland, College Park.

Call it accidental networking: the auspicious run-ins, surprise connections and unlikely relationships that lead to big payoffs in a career. It's the chance encounter on the street that brings on a "So where are you working these days?" which then leads to an interview and, ultimately, an offer. Or the passing conversation at a dinner party that ends with a choice gig.

Life is filled with lucky breaks, and sometimes the best employment opportunities come in the most unexpected ways. After all, networking isn't just something that happens at so-called networking events and business mixers. The true spirit of networking is a connection that happens naturally.

Stacey Hawley, a professional development coach with The Credo Company, says getting a job through less-direct connections (a friend of a friend of a friend) may be more common than you think.

"My guess is 70 percent to 80 percent of professional jobs are secured through [this kind of] networking," says Hawley. "It is all about working your connections. A friend might not be able to help you link with someone at a desired firm, but your friend's friend might be able to help make the connection."

So when those unlikely connections occur, how do you make the most of them? Henry, and other people who had serendipitous job experiences, share how they leveraged their unexpected opportunities and a few of the principles that helped them get lucky in the first place.

Principle #1: Know What You Want

When it comes to accidental networking, knowing exactly what kind of job you want is the first step in the right direction — even if you don't have the experience in a particular line of work.

Related: Confessions of Job Hoppers

Take Ashley Poisella. Five years ago, Poisella, 29, already had an inkling that her job as an advertising executive wasn't giving her everything she wanted out of life. The longer she spent in the role, the more she realized it really didn't fulfill her need for something with depth, something that helped serve other people. Then Poisella got a true wake-up call telling her it was time to take a big leap and find more meaningful work.

Today’s After-Hours Earnings: AvalonBay Communities Inc, CMS Energy Corporation, More (AVB, CMS, EVR, More)

After the closing bell on Wednesday, a number of big-name dividend-paying companies announced their quarterly earnings. Below, look at each earnings report and break down the important information for dividend investors.

AvalonBay Announces Quarterly Net Loss, Higher Revenues

The Arlington, VA-based REIT, AvalonBay Communities (AVB), reported a quarterly net loss attributable to common shareholders of $10.715 million, or 8 cents per share. This marks a 109% decrease from last year’s Q3 EPS of 89 cents. The company chalked up the quarterly loss to “non-recurring charges, including amounts related to the Archstone acquisition.”

Diluted funds from operations (FFO) for the quarter came in at $1.18, an 18.1% decrease from the $1.44 reported in last year’s comparable period. The company reported revenue for the quarter of $4 billion, a $128.4 million rise from last year’s Q3 figure. AVB missed analysts’ estimates of $1.20 FFO, but beat revenue estimates of $396.7 million. Looking forward, AVB projects the Q4 EPS will be in the range of $1.96-$2.02 and FY2013 EPS to be in the range of $2.79-$2.85.

CMS Energy Posts Lower Revenue and Earnings; Misses Analyst Views

CMS Energy (

4 Better Bets Than the Twitter IPO

Here's our advice for Twitter's initial public offering, summed up in less than 140 characters: Don't invest in the Twitter IPO. It's not that Twitter's stock won't turn out to be a good investment. Maybe it will. Or maybe it won't. Time will tell. But our advice for any IPO is to wait at least 90 days before buying in. That allows enough time for the hype to die down and rational analysis of a company's business prospects to take over.

See Also: The 7 Deadly Sins of Investing

This approach paid off handsomely with the Facebook (FB) IPO. The stock debuted on May 18, 2012, at $38. By session's end its price had gained just 23 cents, defying widespread predictions of a massive first-day pop. Three months after the IPO, Facebook was down to $20. Opportunistic investors who bought at that point have since enjoyed a 160% return (all prices as of October 17).

IPO expert Josef Schuster says the risk for individual investors is getting caught up in the buzz about hot IPOs that later crash while overlooking less attractive "cold deals."

"Our great performers are the boring IPOs that the individual investor may have neglected --, like HCA Holdings (HCA), which didn't do anything for a long time and is now trading at all-time highs," says Schuster, who runs a Chicago-based IPO research firm, IPOX Schuster LLC. "Dollar General (DG) — it wasn't a 'hot IPO.' It didn't do anything on the first day. But it went up over the long run."

Schuster created an index of stocks that come onto the market as IPOs or corporate spinoffs. The index is the basis for an exchange-traded fund, First Trust US IPO Index (FPX). Schuster's rules for his index specify that an IPO will be added no sooner than six trading days after it debuts to avoid the volatility of the first few sessions.

Consider investing in the ETF for broad exposure to the IPO market. The fund is up 38% year to date — better than the 24% return of Standard & Poor's 500-stock index.

Looking for individual stocks? A number of IPOs that have turned cold since their debuts within the past couple of years may intrigue investors with an appetite for out-of-favor shares. Here are four worth considering:

SeaWorld Entertainment (SEAS) went public in April with a first-day splash befitting Shamu's owner. Ahead of the IPO it posted 2012 sales growth of more than 7%, better than Cedar Fair (FUN) and Six Flags Entertainment (SIX). In its first report as a public company, however, SeaWorld's earnings came in below analysts' forecasts. Investors were spooked at the news of a 9.5% decline in attendance in the second quarter of 2013. The shares, at $29.57 now trade below their first-day close and are priced at 22 times estimated 2014 earnings. SeaWorld's stock yields 2.7%.

Top 10 Low Price Stocks To Own For 2014

Poor weather in the second quarter hurt attendance at nearly all SeaWorld parks. But the visitors who did attend spent more to get in, says Barclays Capital analyst Felicia Hendrix, and spent more on concessions once they were inside, boosting revenue per attendee by 6.7%. Hendrix says the company's second-half performance will influence the share price in the short term. In the long run the company's strong brands, including Busch Gardens and the namesake SeaWorld parks, will keep its coffers brimming.

TRI Pointe Homes (TPH) and Ply Gem Holdings (PGEM) went public earlier this year as the U.S. housing market showed signs of life post-recession. Each stock gained more than 10% on the first day of trading. More recently, though, they've both been caught up in fears that rising mortgage rates will stop the housing rebound in its tracks.

TRI Pointe is a homebuilder operating exclusively in Colorado and its home state of California. Analyst Steve Stelmach, of FBR Capital Markets, who has a "buy" rating on the stock, says the company has a strong portfolio of land and is generating orders at a better-than-expected pace. At $13.92, shares are well below Stelmach's $24 price target.

Ply Gem sells construction products to builders, including siding, windows and doors. Expectations of a slowing recovery in homebuilding recently prompted analyst Daniel Oppenheim, of Credit Suisse, to lower the target price that accompanies his "buy" rating to $21 — 43% above today's levels of $14.68.

Millennial Media (MM) was a hot IPO, jumping 92% on its first day of trading in March 2012. But investors soured quickly as the provider of mobile advertising fell short of some analysts' financial forecasts in its first report as a public company. Today, at $6.88, it trades at one-fourth its all-time high.

Millennial Media has big competition — Apple (AAPL) and Google (GOOG) — but it claims to be the largest company that isn't affiliated with a single operating system or set of mobile devices. It's bulking up, buying privately held competitor Jumptap in a stock-and-cash deal initially valued at about $200 million.

The risk of the large acquisition, coupled with recent financial results that missed management's forecast, has led a number of analysts to assign "hold" ratings. But analysts also say there's plenty of potential in a company that reported a 45% gain in sales in the second quarter. "The stock's current valuation likely does not give enough credit for expected growth," says Michael Graham, of Canaccord Genuity, whose 12-month target price of $10 represents a gain of 45% from today's levels.

J.P. Morgan adds advisers managing more than $3.9B

J.P. Morgan Securities LLC has hired eight advisers around the country who previously managed a total of more than $3.9 billion in assets, the wealth management firm said.

In the Northeast, Gerry Aroneo and Ray McLean left Deutsche Bank to join J.P. Morgan in Florham Park, N.J., while Ron Wall was hired from Morgan Stanley Wealth Management in the Philadelphia area.

Barry Snyder joined the firm's Palm Beach, Fla., office after working for four years at Credit Suisse Asset Management. Tom Ferrero and Everett Puri joined the Atlanta office from Barclays Wealth Americas and UBS Wealth Management Americas, respectively.

In the Midwest, a team led by Rick Konecny joined J.P. Morgan from UBS in Chicago, while on the West Coast, J.P. Morgan hired Melissa Whitney in San Francisco from Deutsche Bank, where she spent six years.

Those firms could not immediately be reached for comment.

JPMorgan Chase & Co., the nation's largest bank, has a relatively small but growing corps of financial advisers in the U.S. Their asset management division employed 2,995 financial advisers in the three-month period ended Sept. 30, up 191 from the prior quarter, according to the bank's latest earnings statement.

This is the first set of adviser hires reported by J.P. Morgan this year,

Take Your Money off the Table

Neil George, editor of By George, discusses oil trains, oil pipelines, railway risk and liability, and offers two safer ways for you to play oil.

SPEAKER 1:  Hi, I’m talking trains with Neil George today.  Hi Neil and thanks for coming by.

NEIL:  Nancy, thanks very much for having me.

SPEAKER 1:  We’ve been having some problems with trains carrying oil around the country, haven’t we?

NEIL:  Yes we started to see this bit of a problem.  It has really been in response to some developments in the oil industry.  You’ve seen a lot of oil being pumped out of the ground, fracking, and some other technologies.

SPEAKER 1:  Don’t have enough pipelines.

NEIL: We’ve had limited pipelines; and more importantly, the way our pipeline network is structured, much of the oil goes into the major hub which is in Cushing, Oklahoma.  As a result there has been this huge glut and that’s sort of been locked there.  The refineries that are using it really don’t have enough capacity and as a result prices for a while had basically plummeted.  There was trading at a significant discount to what the international price for oil was.  As a result, a lot of producers were saying rather than piping it down and getting a lower price for it, let’s get some old tanker cars, put them on the rail, and we can then put those trains to the refineries in the east coast that would normally be using the more expensive oil coming off of the ships from the middle east, north sea etc.

SPEAKER 1: Sounds good in theory.

NEIL:  It sounds good in theory.  That’s really what started to turn some of the train companies around because they were having a tough time.  The container ships from the east weren’t coming as much with the recession and coal really came out of favor, so the coal trains were kind of put out of business; and then on top of that automobile manufacturers with their other customers were shipping a lot of cars.  Trains were not where you wanted to be.

SPEAKER 1: Right.

NEIL:  Therefore, more recently because of the dusting off these old tanker cars and putting them on the rail, there was a little bit of a resurgence; but Nancy, I really want to warn people the time is now to take your money off the table as quickly as you can.  There are a couple key reasons for why that is.  The first is that terrible accident we had in Quebec, and _____, small town in rural Quebec, in which a series of rail cars carrying oil from North Dakota to Canada port in New Brunswick where there are some big refineries.  This train was parked overnight.  There were a lot of problems this train company was running.  It’s a U. S. based company called Rail World.  It’s a private company that will be no more very shortly.  The train basically was parked.  The conductor left.  The train started moving.  The brakes didn’t work.  It just careened down the hill and it basically leveled the town in an inferno that lasted for a few days and 47 people were dead and most of the city went up into a cinder.

SPEAKER 1:  Right.

NEIL:  The idea – this was not the only example.  In fact, if you look at the U. S. Department of Transportation there has been a surge of accidents in these new tanker cars.  Moreover, Nancy, because of the tanker cars that make up the fleet of the U. S. and the Canadians has this old DOT standard, the Department of Transportation says 80% of these tanker cars are single hulled and they were made to an old standard which is still in effect.  The DOT says once these things leave the track they are pretty much guaranteed to burst and when the oil bursts one little spark, which you know think metal…

SPEAKER 1:  Right.

NEIL:  On metal leaving, sparks pretty easy, they’re going to catch fire and they’re going to explode.

SPEAKER 1:  That’s frightening.

NEIL:  Therefore, that’s a bad idea.  The idea that there is now the huge liability risk which is now being sort of placed on this.  Rail companies should be very frightened and should be rethinking how they’re doing it.

SPEAKER 1:  What’s the alternative then?

NEIL:  The alternative, Nancy, is what has started to happen down in Cushing, Oklahoma.  The idea that there was this big discount and therefore that discount was making the more expensive transportation by train more viable, but now we basically have seen that the price of Texas crude is now up to matching what we’re getting from the international standard, otherwise known as Brent crude.  What made that happen was the idea that we were able to unlock all the spoil that was there.  Because most of the pipelines were going into Cushing and not out, because before we would be pumping it into from the fields in the U. S. and from the tankers coming up from the Gulf.  Well, Nancy, there are two companies that decided there was a better way.  Two of them I would very strongly recommend for investors.  Both are dividend payers.  One is Enterprise Product Partners, which many people I think already own.  It pays about 5%, maybe 4.5, depends on where you’re buying it on a particular day.  It’s good.  It has been a long time good performer.  They have a partner in Enbridge, which is another big pipeline company, EEP.  That one pays about 7.5%.  It’s had a little more of a struggle from a pricing standpoint.

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SPEAKER 1: Sure.

NEIL:  Again, I think a lot is going to be changing because the two of these companies have a 50/50 ownership in the so-called Seaway pipeline, which goes from Cushing down to the Gulf.  Traditionally that pipeline would take it from the Gulf and send it to Cushing.  They got approval and they figured out how they could switch the thing around.

SPEAKER 1:  Go the other way.

NEIL:  And now the oil is just running down to the Gulf; and therefore, while we can’t export it by law yet – that might change –

SPEAKER 1:  Right.

NEIL:  What we can do is we can store it down on the Gulf with Enterprise’s storage facilities and now they are connecting that to the refineries over in Port Arthur, Texas.  That’s really why we’ve seen west Texas intermediate pricing start to match up and come up.  Now, the producers are saying it costs us so much more to put it on a train to send it to the east.  Instead, we can hook it up in the pipes, send it down to Cushing like we used to and get paid almost double where it was about a year or so ago.  Therefore, the idea that Enterprise and Enbridge now, I think are basically going to put the trains out of business and for the investors that want a little income, they want to be able to cash in on this continued oil boom.  Those are the companies that are the safe way to play the transportation of oil. 

SPEAKER 1:  Great.  That sounds like two good recommendations, Neil. 

NEIL:   Thanks, Nancy.

SPEAKER 1:  Thanks for being with us on the moneyshow.com video network.

Lessons of the 1987 Stock Market Crash, On Its 26th Anniversary

October 19, 1987, does not seem that long ago to many middle-aged and older investors, but that is now amazingly 26 years ago. This was the single largest one-day stock market crash of the last century or more. Even with the last recession being the worst financially for the markets and the public, it is the 1987 crash that still garners the most attention when it comes to one identifiable day of stock market crashes. That day even trumped the immediate aftermath of the terrorist attacks of September 11, 2001.

The 1987 stock market crash was so bad they named it Black Monday as the Dow Jones Industrial Average lost some 22.6% of its value just on that day. One thing that history teaches its students who will listen is that history repeats itself, and it dooms those who refuse to learn the lessons of history. There have been market crashes and bear markets before and there will be market crashes and bear markets in the future. Quite simply, it is just the cycle of things.

The reality is that the 1987 crash was a crash that took place in the midst of a larger selloff that year, but it was very short-lived. The snap back rally was 10%. What the 1987 crash confirmed was an end of a five-year bull market. It also solidified the mantra to “buy the dips” (or the crashes) for a generation because of the money that was made on that snap back rally. Unlike many other crashes, the fallout was extremely limited beyond a few short months.

What makes the 1987 crash unique is that even after twenty-six years of analysis there was not a single smoking gun as the only attributable cause. Index options and derivatives helped, as did program trading, but high valuations of nearly 20-times earnings at the time after big market gains along met other structural market issues. Another reason that was floated after the fact was anti-takeover legislation that had been proposed prior to the crash, but ultimately this was not turned into law.

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One huge contribution to the one-day loss of so much wealth in 1987 was complete order illiquidity adding fuel to a large fire. It was widely reported at the time that many investors could simply not reach their brokers over the phone to execute trades to sell nor to buy stocks. Then there was the issue that once brokers received orders they often could not get through to traders on the floor or on emerging electronic trading systems of the time. Modern day investors have to understand that there were no retail electronic trading firms to speak of as they exist today. NYSE floor specialists also had a hard time opening and pricing stocks on the downside due to a limited number of buyers.

The lessons of a one-day crash are many, but valuations and either a lack of intervention or too much intervention have to be lessons learned as well. Another key lesson is that markets must have deep liquidity of able and willing buyers and sellers. Circuit breakers and individual stock halt triggers have now been put in place to act as a curb to prevent one-day crashes from turning into a 1929 situation. Unfortunately, or just a part of life in the markets, all the trading curbs and liquidity issues in the world cannot prevent future bear markets. And future bear markets will come.

Since 1987, the markets have endured many shocks. There was the Asian Contagion of 1997, followed by the tech bubble burst of 2000 after valuations reach nosebleed levels. Then there was the September 11, 2001 terrorist attacks. Then we had the Great Recession where the DJIA peaked at almost 14,200 in October 2007 only to fall to just under 6,500 by early March 2009 for a drop of close to 54% from peak to trough.

And now the DJIA is close to 15,400 and challenging new all-time highs. Meanwhile, the broader S&P 500 Index is at new all-time highs of almost 1,745 as it is not constrained by being a price-weighted index.

24/7 Wall St. would like to leave our readers with a few key considerations that should be reminders never to become too complacent. This is even as the stock market is effectively trading at or near all-time highs.

The U.S. Federal Reserve’s balance sheet is nearing $4 trillion. Trust us that this is unprecedented, and is extreme intervention. On a longer-term basis, here are ten things that could cause the next market crash or even a depression. Hedge funds know how to brace for a market crash, and retail investors can use many of these same tools. The markets are now at risk even to a fake Twitter stock market crash. Trading glitches can halt major parts of the market and ETFs as we have recently seen. More than 400 “old Amex” names were halted on the NYSE MKT trading. Doomsday market seer Marc Faber even recently predicted that another 1987-style crash is coming soon.

Had the politicians in Washington D.C. not come together, this article could have been talking about the amazing repeats in history of October stock market crashes. Here are some post-1987 crash levels of existing DJIA components then versus now on a split-adjusted and dividend-adjusted trading basis.

American Express Co. (NYSE: AXP) was $3.48 then versus $80.52 now. The Coca-Cola Company (NYSE: KO) was $1.12 versus $38.78 now. DuPont (NYSE: DD) was $5.50 then versus $59.62 now. General Electric Co. (NYSE: GE) $1.69 then versus $25.55 now. International Business Machines Corp. (NYSE: IBM) $15.67 then versus $173.78 now. 3M Co. (NYSE: MMM) was $6.63 then versus $122.84 now. McDonald’s Corp. (NYSE: MCD) was $3.00 then versus $95.20 now.

Again, future bear markets and market crashes will come. They always do. Until then, enjoy this raging bull market we have in stocks.

No, Verizon Doesn't Want to Ditch Contracts

There were recent reports that Verizon  (NYSE: VZ  ) CEO Lowell McAdam would be interested in ditching service contracts. However, this isn't likely to be the case, since the major carriers -- Verizon, AT&T  (NYSE: T  ) , and Sprint Nextel  (NYSE: S  ) -- have spent years building fortresses around subsidies and contracts to reduce the risk of becoming commoditized service providers. Big Red is certainly watching how T-Mobile's big move away from contracts works out, and could adapt if need be.

In the following video, Fool contributor Evan Niu, CFA, explains why Verizon definitely doesn't want to get rid of contracts.

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Verizon: Apple has an iPhone supply problem

Verizon posts strong third quarter numbers, but it wasn't able to sell as many new iPhones as it could have.

NEW YORK (CNNMoney) Verizon said Thursday it wasn't able to meet customer demand for new iPhones because of supply contraints.

Chief Financial Officer Fran Shammo told analysts on a conference call that Apple couldn't provide Verizon (VZ, Fortune 500) with enough iPhone 5S smartphones in the first weeks following its release, resulting in a backlog of orders.

That might not bode well for Apple's fourth-quarter financial report, which is due out on Oct. 28. While the company reported a record 9 million iPhone 5S and 5C model sales during the first weekend, this was, after all, the first time Apple (AAPL, Fortune 500) released its latest iPhone in the west and China simultaneously.

With the iPhone backlog, Verizon's 3.9 million iPhone activations in the third quarter were unchanged from the second quarter. The good news for Apple and Verizon: iPhone activations were up 26% from the same quarter a year ago. And whatever new iPhones Verizon customers couldn't buy in September simply got pushed over to the current quarter, Shammo said.

IPhone activations made up 51% of the 7.6 million smartphones Verizon customers activated between July and September.

Related story: Verizon bets big on U.S. wireless market

By the numbers: Overall, Verizon posted a strong third quarter. Shares traded 2% higher Thursday after the company beat analysts' expectations. Quarterly profit rose by 30%, while sales increased 4.4%.

At this pace, the telecommunications giant is on track to make 2013 nearly twice as profitable as 2012.

The good news about the lower-than-expected iPhone activations was that Verizon's closely watched wireless service profit margin improved to 51.1% -- well above analysts' forecasts. Verizon's wireless service margin typically sinks when Apple unveils a new iPhone, as the wireless company pays Apple hefty upfront costs to purchase the devices.

Verizon said it added 1.1 million customers, most of whom were on wireless accounts. The consumer shift to the latest mobile devices is ongoing, with smartphones making up 33% of phone purchases.

Shammo said the company continues to be affected by the government sequester's automatic spending cuts. Verizon's government contract business suffered a 3% decline compared to last year's third quarter, and the company expects that to keep being a drag. ! However, the drop in federal revenue was partially offset by an increase in some of the services Verizon provides to the U.S. government, such as storing highly-guarded information in its data centers.

This is the first financial report Verizon issued since the launch of its record-breaking $49 billion corporate bond sale. The funds will be used to help Verizon buy out Vodafone's 45% stake in Verizon Wireless for $130 billion. Shammo said the company expects to close the deal during the first three months of 2014.

Fed Beige Book sees ‘modest’ growth in economy

The nation's economy expanded at a modest to moderate pace the past six weeks, but job growth was subdued and business uncertainty mounted over the federal government shutdown and debt ceiling standoff, a Federal Reserve report said Wednesday.

The Fed's "Beige Book," named for the color of its cover, is likely to be particularly scrutinized because the government shutdown has halted the usual releases of economic reports on September activity.

The Fed's portrayal of a "modest to moderate" expansion was similar to its early September report, showing slow but steady growth in most of the country. But the pace slowed a bit in the Philadelphia; Richmond, Va.; Chicago and Kansas City Fed bank districts.

The housing and auto recovery continued to support the economy as consumer spending and manufacturing picked up modestly and business investment grew, the report said.

But job growth "remained modest in September,' with several regions citing uncertainty about the budget battles in Washington, D.C., and the partial implementation in early October of the new health care law. In Cleveland and Dallas, retail hiring was largely limited to new stores. Job growth slowed in New York. And manufacturers in Chicago cut back on overtime.

Those reports appear consistent with private payroll processor ADP's survey, which showed businesses added a disappointing 166,000 jobs last month. The Bureau of Labor Statistics did not release its closely watched employment report for September because of the shutdown. Monthly job gains have slowed in recent months after averaging about 200,000 earlier this year.

Consumer spending increased modestly in most areas, with auto sales especially strong in New York region. Retail sales generally were "steady" but accelerated some in the Cleveland and Richmond areas and slowed in Chicago, Kansas City and Dallas. In Chicago and Atlanta, back-to-school spending was not as strong as a year ago, though retailers were "generally optimistic about the holiday shop! ping season."

Tourism, meanwhile, picked up in Atlanta, Boston and New York. But in Boston concerns grew about the impact of the shutdown. And in Richmond, the shutdown closed some tourist attractions.

Although manufacturing activity generally increased modestly, Cleveland, St. Louis and Minneapolis saw faster growth. The pace slowed in New York, Richmond and Chicago. Steel demand rose in Cleveland, Chicago, St. Louis and San Francisco. And sales of construction materials was strong in Philadelphia, Cleveland and San Francisco, but flat to down in Dallas and Chicago.

"While there was little immediate disruption from the federal government shutdown, contacts or worried about the potential impact if the closing became prolonged," the Fed report said.

Business investment also increased modestly. In Philadelphia,investment in information technology equipment rose. But in Cleveland, "low natural gas prices and regulatory uncertainty" slowed the construction of equipment to support the shale gas boom.

Several areas, however, expected capital spending — which has weakened the past year — to increase in the months ahead.

Housing construction, meanwhile, continued to pick up steam, picking up robustly in Minneapolis and Dallas but modestly in Richmond and Philadelphia. Strong home sales in New York and Dallas were partly offset by the Jersey Shore, "which is still recovering from Hurricane Sandy."

And while some areas reported mounting concerns about rising mortgage rates, the prospect boosted sales in Boston as homebuyers rushed in, anticipating future interest rate hikes.

In some areas, mortgage lending weakend because of the higher rates. But new mortgages continued to climb in Philadelphia, Richmond and Dallas.

Is It Time For Low Volatility Funds?

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With the recent government shut-down and debt ceiling limit quickly approaching, the market has once again begun it's up and down movements. Adding in slowing growth in key emerging markets like China and debt problems in Europe once again beginning to resurface and it's no wonder why volatility has returned with a vengeance. Funds that attempt to track this "fear" - such as the iPath S&P 500 VIX ST Futures ETN (NYSE:VXX) –have spiked in recent weeks, while the broad market indexes have gone down.

Given the recent volatility of the market, investors could be getting a little seasick. Luckily, there are a variety of new ways for the average retail investor to "smooth out" their ride over the short term.

Minimizing The Roller Coaster Ride

The term volatility gets used a lot by financial journalists and bloggers, but many investors don't really understand the basic concepts behind it. Essentially, volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. In other words, the price of the security can change dramatically over a short time period in either direction. It's the difference between riding a roller coaster and driving across the plains of Kansas. While there is nothing inherently wrong with high volatility stocks, these movements can create panic selling and many restless nights.

And it seems that investors have been having more restless nights as of late.

Over the past two weeks -as the shutdown has commenced and other pieces of global economic data have struggled. The CBOE S&P 500 Volatility Index has surged almost 25%. Meanwhile, the broad market Vanguard S&P 500 ETF (NYSE:VOO) has dropped around 1.76% in only five days. That's certainly creating some very restless nights for those approaching retirement. Enter low volatility funds.

These funds esse! ntially use screens to kick out high volatility stocks and capture the upside of the market while limiting the downside as well as the "bounciness" associated with markets movements. They also can produce better returns as well. According to index provider MSCI (NASDAQ:MSCI), replacing its standard indexes in a balanced portfolio of U.S., Developed market international and emerging markets with its low volatility versions will produce an extra 1.8% in returns. Meanwhile volatility was cut nearly in half.

A Low Volatility Portfolio

Historically, funds like the Utilities Select Sector SPDR (NYSE:XLU) have been low beta options for investors. However, Wall Street has begun rolling out new products that target this sector of market place. Here are a few portfolio ideas.

With nearly $4.28 billion in assets, the PowerShares S&P 500 Low Volatility (NASDAQ:SPLV) is the king in the space. The fund tracks 100 stocks in the benchmark S&P 500 that have exhibited the lowest volatility over the last 12 months. Top holdings include Kellogg's (NYSE:K) and utility Dominion Resources (NYSE:D). That focus on limiting the markets bumps has worked well. Since the fund's inception in 2011, SPLV has managed to outperform the S&P 500 by 1.25%. Not to be out done, the iShares MSCI USA Minimum Volatility (NASDAQ:USMV) similar index and is heavily weighted in consumer staples, healthcare and information technology companies. The SPDR Russell 2000 Low Volatility ETF (NASDAQ:SMLV) can be used to cut volatility in the small-cap portion of a portfolio.

Some of the largest bouts of volatility have come from the international space. Already, higher "risk" stocks, these two market segments tend to move around much more than their U.S. counterparts. The iShares MSCI EAFE Minimum Volatility (NASDAQ:EFAV) can be used as a broad developed market proxy, while emerging market investors have an interesting choice in the EGShares Low Volatility Emerging Markets Dividend ETF (NASDAQ:HILO). The fund is composed of 30 low volatility stocks from various emerging markets and is designed to provide a high yield, but with a lower volatility than the MSCI Emerging Markets Index. The ETF currently yields a juicy 4.87%.

The Bottom Line

The recent government shutdown, potential debt ceiling breach as well as dour global economic news has once again caused volatility to rear its ugly head. Those market swings can cause for some rough nights of sleep for investors. However, a new crop of low volatility! funds could be the best ways to smooth out the market's bumpy ride.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Bankers: Still No Cure for Hypocrisy

Banking is a funny industry.

During the boom, when profits are flowing, bank executives are rock stars -- geniuses of finance taking command over the plumbing of global economies with skill and precision, soaked in adulation and paid accordingly.

But when the tide goes out, the same excuse pops up over and over again. They throw up their hands, claim ignorance, and say they had no idea what was going on. Not only was someone else doing the dirty work, but at times they claim to have no idea how their businesses even worked.

Take Robert Rubin, former chairman of the executive committee at Citigroup (NYSE: C  ) . Paid $126 million to keep an eye on the bank, Rubin was one of the highest paid bankers in the country during the early 2000s. Yet when Citigroup began choking on pools of toxic CDOs, he admitted sheer ignorance. "Myself, at that point, I had no familiarity at all with CDOs," he told CNNMoney in 2007.

When Citi faced devastating losses on a type of derivative called liquidity puts, Rubin shrugged again. "Rubin says he had never heard of liquidity puts until they started harassing Citi last summer," wrote CNNMoney.

I can't think of another industry where a company can be sunk by a product its highly paid chairman has never heard of. Imagine Apple nearing bankruptcy after reporting losses on a device Tim Cook had never heard of. It is literally unthinkable.

Next, Tom Maheras, a former Citigroup's executive in charge of what became the bank's most toxic assets, was asked by a Congressional committee three years ago what led him to take such enormous risks. "Based in part on a careful study from outside consultants ..." he explained, "I continued to believe, based upon what I understood from the experts in the business, that the bank's [CDO] holdings were safe."

Now, Maheras was paid nearly $100 million in the three years before Citigroup's downfall. You'd think such compensation would require a sense of responsibility. Yet when the tide went out, Maheras's excuse was effectively that he was just following orders from the experts. (Makes you wonder how much money those experts made.)

It's nearly five years after the Wall Street crash. So, why I am still talking about this? Because there's no evidence that the attitude of "Heads I'm paid a fortune, tails it was someone else's fault" has changed one bit.

Former Barclays CEO Robert Diamond lost his job last summer after the bank was caught in a ring to rig global interest rates known as LIBOR. Asked about the incident, here's what Diamond told Andrew Ross Sorkin this week:

"Do you want the truth?" he said. "Up until all of this, I didn't even know the mechanics of how LIBOR was set. If you asked me who at Barclays submitted the rate every day, I wouldn't be able to tell you. I bet you if you asked any chief executive of any bank on the street, they would give you the same answer."

Diamond was paid roughly $1 million per month during his tenure at Barclays. And his explanation for the crisis that cost him his job was not only that he didn't know what was going on with LIBOR, but that he didn't even know how LIBOR -- an underpin of the banking system -- worked.

That is fascinating to me.

It is true that no CEO can keep a watch on all its employees, and that there will always be bad apples.

But with banking, we see something much different: Executives proclaiming that they really had no idea how their businesses worked in the first place.

To me, that raises one big question: If they are too complex to manage, why are megabanks so weary of breaking themselves up into simpler and more manageable units?

There's actually an easy answer to the question. As Sorkin writes, Diamond "still has more money than his grandchildren's grandchildren will ever need."

Heads, I win, get rich, and take the credit. Tails, I win, get rich, and proclaim ignorance. What a game! 

Yum! Brands (YUM) Exec's $1.3M Vote of Confidence

NEW YORK (TheStreet) -- In a well-timed display of confidence, Yum! Brands (YUM) director Robert Walter has purchased 20,000 shares of the company at $66.09 a share according to a Thursday SEC filing.

Yum! Brands' share price took a dive earlier in the week after reporting lower-than-expected third-quarter earnings for the period ended Sept. 7. Of particular concern were same-stores sales in China dropping 11%. Management says it is unlikely sales in China will improve in the fourth quarter.

Yum! Brands shares are up 1.3% to $66.79 as of 11:50 a.m. New York time. Shares have tumbled 6.9% since reporting after the bell Tuesday.

TheStreet Ratings team rates Yum! Brands Inc as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation: "We rate Yum! Brands Inc (YUM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income." You can view the full analysis from the report here: YUM Ratings Report Written by Keris Alison Lahiff.

These U.S. Airlines Have a Promising Future

Airlines have always had a hard time staying in business, be it due to rising costs, strong competition, or economic cycles. Yet United Continental Holdings Inc. (UAL) and Southwest Airlines Co. (LUV) are two companies that have been in the air for decades. As of late, rising fuel costs, salary increases and recession-weary passengers have presented themselves as challenges that both airlines seem to be overcoming.

Catering to the Wealthy

Operating nearly 5,500 daily flights for over 375 domestic and international destinations, United Continental Holdings is the largest U.S. airline. Following its $3 billion merger with Continental, the firm increased sales to approximately $37 billion annually, and currently employs around 88,000 workers. Despite the Continental merger, the company is facing rising fuel costs and strong competition.

In order to make ends meet, add-on charges are seen as a possible strategy to increase revenue. By generating ancillary revenues, through the sale of frequent flier miles, or the introduction of baggage fees, United has been able to balance its finances. Baggage fees alone could generate around $1 billion in high-margin revenue for the airline.

By focusing on customers who are willing to pay more for luxuries such as additional legroom and early boarding, the firm already has improved revenues. Additional services, such as flat-bed seats and personal on-demand entertainment systems, cater to premium customers, who are willing to pay higher fares for a better flying experience, have meat with an underserved market. In light of this strategy, the acquisition of a large portion of shares by George Soros of Soros Fund Management makes perfect sense.

Inflation has not worked in the airline's favor, because volatile fuel prices and wage disputes have given way to rising costs in an industry with very small margins. Despite demonstrating a weak financial position, United is expanding its international route network and fleet. Airbus is set to de! liver 35 new jets as part of the redesigning of the firm's fleet structure. Although the firm is facing some troubles ahead, I believe the add-on charges, along with focusing on premium paying customer, will balance the equation. Like George Soros, I too feel optimistic about this stock's future.

Focusing on Leisure

Following the acquisition of AirTran, Southwest Airlines now operates a fleet of approximately 700 Boeing aircraft. With its point-to-point network, the firm specializes in short-haul routes, offering flights to 97 destinations. Based primarily in the U.S., the company employs around 46,000 workers and generates $17 billion of annual revenue. Unlike United, Southwest's focus lies in stimulating leisure passenger demand through cheap fare offerings.

By making use of point-to-point routes, the airline has been able to reduce flight delays. In addition, Southwest makes use of second-tier airports with lower landing fees, in order to minimize costs. Through its low cost structure, the company can offer consumers low fares while generating profits, making it the envy of this bankruptcy-ridden industry.

Through its acquisition of AirTran the firm gained access to 37 new markets, including the Hartsfield-Jackson Atlanta International Airport, the world's busiest airport by passenger traffic. Additionally, the merger is expected to produce $500 million in revenue synergies, helping Southwest keep a lid on fares. This is important since leisure travellers are very price sensitive and customers are still coping with a recovering economy. The company faces further pressure from its unionized workforce as they push for higher salaries.

Looking to the future, Southwest expanded to New York (La Guardia) and Boston (Logan) airports and is now seeking to acquire larger aircraft for international destinations. The growth possibilities are evident, and James Barrow of Barrow, Hanley, Mewhinney & Strauss has noticed them. He recently purchased a large amount of shares, in! dicating ! his confidence in the firm's future. George Soros seems to agree with him, as he recently bought in to Southwest. The company's growing revenue and strong financial position, along with its growth prospects, make me feel bullish regarding this stock.

Cheap Fares for a Recovering Economy

Both airlines seem to be on the right path, with growth opportunities and sound business strategies. However, Southwest shares have almost reached 2008 levels and are expected to continue growing, assuring shareholders value increments. By concentrating on the recovering domestic market, I believe Southwest has a slight advantage over the pricier United. Additionally, the domestic airline's financial position is stronger, thanks to comparable better cash to debt ratio, free cash flow and rising revenue. Hence, although I feel bullish about both stocks, Southwest seems to be the wiser investment option.

Hot Warren Buffett Stocks To Own Right Now

Disclosure: Pablo Erbar holds no position in any stocks mentioned.

No Jewish items at Hobby Lobby bias or business…

MARLBORO, N.J. -- It can be a fine line between business and bias.

The latest example of that fragile boundary is occurring here, where one of the town's newest merchants, Hobby Lobby, found itself embroiled in a public clash over religious expression and its place in commerce.

The Oklahoma City-based behemoth of bric-a-brac carries just about everything, from burlap lamp shades to mustache stamp sets, but Marlboro residents learned late last week that the retailer, founded by devout Christian David Green, does not sell anything related to the Jewish faith.

In Marlboro, where roughly a quarter of the population is Jewish, this omission of merchandise amounts to some as religious bias.

But is it?

Experts say businesses are well within their legal rights to choose what merchandise they do and do not want on their shelves. That doesn't mean it's good business, however.

"To not offer what your customer wants is problematic from a purely business perspective," said Ann Buchholtz, professor of leadership and ethics at Rutgers Business School.

Segregation questions

But from a social perspective, it raises more troubling questions that hark back to the era of racial segregation, said John Pawlikowski, the director of the Catholic-Jewish studies program at the Catholic Theological Union in Illinois.

"Well, did Woolworth's have the right to say, 'No, blacks can't sit at our counter?'" Pawlikowski said. He added, "This one, it seems to be kind of a discrimination based on a theological outlook and history's cultural anti-Semitism."

Christmas-themed decorations for sale in the Hobby Lobby store in South Plainfield, N.J., in this 2012 photo.(Photo: Kathy Johnson, The Bridgewater, N.J., Courier-News)

Some in ! the area's large Jewish community have seen it that way since a viral blog post last Friday by resident Ken Berwitz revealed that the store does not offer Jewish-themed items. Online comments have lit up with vows to boycott the store and a fierce debate over the responsibility of a store to offer varied religious items.

Berwitz, 67, who is Jewish, said he was told over the phone by an employee that the store does not stock Jewish-themed items for Passover or Hanukkah because of Green's Christian values.

Berwitz translates it as "a national decision: We don't sell Jewish stuff to Jews."

But walk through certain communities on a Saturday, the Jewish sabbath, and try finding an open shop, let alone a Christmas card. So what's the difference between that and Hobby Lobby's decision not to stock dreidels and "Happy Hanukkah" banners?

The market.

Marlboro is a diverse area with a sizable Jewish population, so it would make sense to carry Jewish-themed items, Buchholtz said.

In a statement on Thursday, Hobby Lobby President Steve Green said the chain "previously carried merchandise in our stores related to Jewish holidays. We select the items we sell in our stores based on customer demand."

Customer research

Basic market research would show customer demand in the Marlboro area for Jewish-themed items, but Buchholtz said it wouldn't be surprising to learn that a company did not cover that basic step of learning the demographic of a new store location.

"My definition of marketing is 'Find out what people want, and give it to them,'" Daniel M. Ladik, associate professor of marketing at Seton Hall University, said in an email.

Hobby Lobby purports to operate on a different business model. All of the company's 561 locations nationwide are closed on Sunday "to allow employees time for family and worship," according to a sign posted on the Marlboro store's entrance. Its founder, Green, has proudly voiced and written about his company's Christian principles, ! including! "to focus on people more than money." Last year, Hobby Lobby sued the federal government over its mandate that employers provide coverage for contraceptives.

In 2012, Forbes ranked Hobby Lobby No.147 on its list of largest privately held companies, with revenue of $3 billion.

Hobby Lobby is the latest in the marketplace to wade into the choppy current of social issues. Chick-Fil-A, also closed on Sundays, has become a lightning rod twice: Last year, when its president, Dan Cathy, said he supported a "traditional family," and then this past June when he tweeted that it was a "sad day" when the U.S. Supreme Court ruled in favor of same-sex marriage.

And just last week, the local Italian market Joe Leone's waged a boycott against Barilla, the world's largest pasta producer, after Barilla's president said he would "never" show gay families in company advertisements.

Hobby Lobby declined a telephone interview with the Asbury Park Press and did not respond to questions via email.

However, it did deposit apologies all over its Facebook page to commenters who expressed concern over its policy of excluding Jewish items from its stores — and, allegedly, an intolerant comment by a store employee in Marlboro last week, also reported by Berwitz on his blog, Hopelessly Partisan.

At Temple Rodeph Torah, Rabbi Donald A. Weber is stressing to congregants to recognize the distinction between discrimination and business practice, he said, because "freedom is messy."

"If I walk into a Honda dealership and they don't have Ford parts, OK," Weber said.

But, he added, once a company makes its personal beliefs known, it is susceptible to being held to those beliefs, for good or bad.

Low Interest Rates May Remain In Place For Decades

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Despite investors pulling out around $30 billion from his flagship Total Return Fund (NASDAQ:BOND), PIMCO's Bill Gross is still a pretty smart guy when it comes to interest rates and the bond market. Managing a staggering $1.97 trillion in mutual fund and ETF assets, when Bill Gross speaks about the global markets, investors tend to listen. Aside from his recent bullish bets on mortgage backed securities, the PIMCO head honcho's latest missive can be seen as pretty depressing.

Investors should expect low interest rates for a very long time.

While the statement is simple, the effects on a portfolio can be dire if investors aren't careful. Luckily, there are ways to position yourself, to counteract the effects of a prolonged low interest rate environment.

Economy Not Ready

In his latest investment commentary, Bill Gross painted a world where investors should get used to low interest rates for a long time.

The Federal Reserve has been holding its benchmark interest rate between zero and 0.25% since December 2008. According to official statements from the central bank, it plans to keep rates that low until the unemployment rate falls to around 6.5%. Today, unemployment still stands at 7.3%. Current Fed forecasts show that the jobless rate will hit that 6.5% next year and expect they'll keep interest rates near zero until 2015. By the end of that year, the Fed expects to have raised interest rates to 2%.

According to Gross, there's a snowball's chance in hell of that happening.

The investment guru estimates that economy is still not ready for higher rates- with housing being a prime example. As investor expectations of the Fed ending or tapering its massive $85 billion in monthly bond purchase program, yields on the 10-year Treasury yield spiked from 1.6% to 3%. That pushed up mortgage rates. New home constr! uction faltered as did mortgage refinancing activity. Given how important housing is to the economy, Gross sees this as just one major issue to overcome.

Secondly, Gross estimates that poor policy moves in Washington, such as the partial shutdown of the U.S. government as well as issues relating to the debt ceiling will put a huge dent in the country's third-quarter GDP. Analysts estimate that if the shutdown lasts about two weeks it would probably cut about 0.3 of a percentage point from GDP.

Overall, Gross's message can be summed up in the idea that the last time the U.S. economy was this highly levered- back in the 1940s- it took over 25 years of 10-year Treasury rates averaging 3% less than nominal GDP to accomplish the "beautiful deleveraging." Overall, investors should get ready for low interest rates for decades to come.

Following Gross's Advice

Given the potential for an extended period of low interest rates, investors should plan accordingly. However, with tapering still on the docket according to Gross, investors should shun longer dated bonds and funds such as the Vanguard Extended Duration Treasury Index ETF (NYSE:EDV) or the iShares Barclays 20+ Year Treasury Bond (NYSE:TLT). Instead, Gross suggests a portfolio comprised of Treasury debt with shorter maturities as well as Treasury Inflation Protected Securities (TIPS). That should produce a 4% annual return. Albeit low, that return maybe the best one investors can get in the new environment.

On the TIPS side, the PIMCO 1-5 Year US TIPS Index ETF (NASDAQ:STPZ) bets on inflation protected securities with shorter timelines. The ETF tracks 14 different TIPs bonds with an effective duration of 2.7 years. That will help provide inflation fighting, while protecting against any "Taper Tantrum" shocks. Likewise, the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ:VTIP) can also be used.

On the shorter duration Treasury side, investors have a multitude of choices to add exposure. The iShares Barclays 1-3 Year Treasury Bond (NYSE:SHY) tracks 49 different notes with a duration of just 1.88 years, while the SPDR Barclays 1-3 Month T-Bill (NYSE:BIL) shortens that duration down to just 1.92 months.

Strangely, absent from Gross's message of low interest rates was equities. Yet, as we've seen over the last years, stocks have done quite well in the face of low rates. Adding a swath of a broad fund like the Vanguard Total World Stock Index ETF (NYSE:VT) may be not such a bad idea.
The Bottom Line

According to Bond King Bill Gross, investors may be in for a low interest rate environment for a very very long time. Point blank, the economy just isn't ready for higher rates. That has wide sweeping implications for portfolios and investors. The previous picks of TIPs peppered with shorter duration bonds, should help get investors through the next few years according to Gross.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Goldman Sachs (GS): Bankruptcy For J.C. Penney Company, Inc. (JCP) After 57% Decline In 2013?

Investors love to buy beaten down stocks. That's because stocks that have seen huge losses frequently rebound and produce big returns when management or a hedge-fund activist successfully agitates for change.

We've seen that process unfold numerous times this year, with Netflix, Inc. (NFLX), Chesapeake Corp. (CHK) and Herbalife Ltd (HLF) all posting huge gains as some of the best rebound stories of the year.

But while these companies successfully executed compelling reversals, there is another that continues to fail miserably at it. And that means investors looking for the next big rebound or turnaround story need to stay far away from this stock.

I'm talking about JC Penney Co. (JCP). After attempting to execute a big turnaround strategy in the last few years, shares have been pummeled in 2013, now down 57% on the year after a 14% beat down today. Take a look at the sharp contraction below.

Those losses were also fueled by the very public failure of hedge-fund billionaire Bill Ackman to agitate for a big turnaround. Although JC Penney did launch a strong campaign, hiring the architect of the hugely successful Apple stores, after three long years of waiting for the reversal, Ackman finally threw the towel in in late August, selling his entire stake of 39 million shares for an eye-popping $500 million loss.

But looking forward, another huge player on the Street just warned investors to stay very far away from this flailing company and stock. In spite of lending the beaten-down retailer $2 billion early in 2013, Goldman Sachs just released a dire prognosis on JCP, warning that the company's serious liquidity issues could push it into bankruptcy. As it stands, JCP expects to close the year with $1.5 billion in cash. But with a burn rate of about $1.1 billion per quarter, Goldman suggests that the end game is very near from JCP with new lenders unwilling to step in and support the company as it continues to bleed cash.

The carnage also shows up in estimates, with analy! sts calling for a loss of $5.78 in 2013 and $2.53 in 2014, down from $2.02 just 90 days ago. Clearly that is a trend moving in the wrong direction. And another big warning to investors that this is a company and stock that is beyond the point of no return.

The Takeaway

Failing companies can frequently produce big returns for investors when management or hedge-fund activists push for changes. But in the case of JCP Penney, the company looks beyond the point of no return. That led hedge-fund billionaire Bill Ackman to dump 39 million shares and absorb a $500 million loss less than a month ago. It also led leading-investment bank Goldman Sachs to suggest the company would be forced into bankruptcy. That means investors looking for the next big turnaround story should stay far away from JC Penney, as this old-line retailer looks to be going to way of the Dodo bird and VCR.

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