Indices Remain Mixed; Merck Beats Expectations

Related BZSUM Herbalife Falls On Downbeat Results; Windstream Shares Spike Higher Markets Open Higher; Merck Posts Upbeat Profit

A few minutes into the final trading hour Tuesday, the Dow traded down 0.17 percent to 16,954.16 while the NASDAQ gained 0.16 percent to 4,452.17. The S&P fell 0.29 percent to 1,974.78.

Leading and Lagging Sectors

In trading on Tuesday, telecommunications services shares were relative leaders, up on the day by about 0.88 percent. Meanwhile, top gainers in the sector included Frontier Communications (NASDAQ: FTR), up 14.81 percent, and Consolidated Communications Holdings (NASDAQ: CNSL), up 7.6 percent.

Utilities shares dropped by 0.53 percent in today’s trading. Top decliners in the sector included Companhia Energética de Minas Gerais (NYSE: CIG), down 3.0 percent, and Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS), off 3.07 percent.

Top Headline

Merck & Co (NYSE: MRK) reported better-than-expected second-quarter profit.

The Whitehouse Station, New Jersey-based company posted a quarterly profit of $2 billion, or $0.68 per share, compared to $906 million, or $0.30 per share, in the year-ago period. Excluding non-recurring items, it earned $0.85 per share.

Its total sales fell 1% to $10.93 billion. However, analysts were expecting earnings of $0.81 per share on revenue of $10.59 billion.

Equities Trading UP

Windstream Holdings (NASDAQ: WIN) shares shot up 11.30 percent to $11.72 after the company announced its plans to spin off assets into publicly traded REIT.

Shares of Cognex (NASDAQ: CGNX) got a boost, shooting up 14.94 percent to $43.45 after the company reported better-than-expected quarterly results and issued a strong Q3 revenue outlook.

MiMedx Group (NASDAQ: MDXG) shares were also up, gaining 12.10 percent to $7.04 after the company reported Q2 earnings of $0.00 per share on revenue of $25.60 million and raised its FY14 sales outlook.

Equities Trading DOWN

Shares of Impax Laboratories (NASDAQ: IPXL) were down 12.81 percent to $24.44 after the FDA issued a Form 483 with 10 inspectional observations for Impax Taiwan plant.

Herbalife (NYSE: HLF) shares tumbled 12.15 percent to $59.28 after the company reported downbeat second-quarter results and issued a weak forecast for the third quarter. However, the company lifted its profit outlook for the year.

Corning (NYSE: GLW) was down, falling 9.55 percent to $19.94 after the company reported weaker-than-expected second-quarter earnings.

Commodities

In commodity news, oil traded down 0.75 percent to $100.91, while gold traded down 0.28 percent to $1,299.60.

Silver traded up 0.28 percent Tuesday to $20362, while copper fell 0.76 percent to $3.22.

Eurozone

European shares were higher today. The eurozone’s STOXX 600 surged 0.27 percent, the Spanish IBEX Index gained 0.20 percent, while Italy’s FTSE MIB Index climbed 0.70 percent. Meanwhile, the German DAX jumped 0.58 percent and the French CAC 40 gained 0.48 percent while UK shares rose 0.29 percent.

Economics

The ICSC-Goldman same store sales index gained 0.2% in the week ended Saturday versus the earlier week.

The Johnson Redbook same-store sales index declined 0.6% in the first three weeks of July versus June.

US house prices increased 1.1% in May, according to the Case-Shiller index. On a seasonally adjusted basis, house prices slipped 0.3%. However, house prices increased 9.3% y/y in May, versus a 10.8% rise in April.

The Conference Board's consumer confidence index rose to 90.90 in July, versus a prior reading of 85.20. However, economists were expecting a reading of 85.40.

The FOMC begins its two-day policy meeting today.

Posted-In: Earnings News Guidance Eurozone Futures Commodities M&A Hot

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Most Popular IPO Lookout: Busy Week Brings The Biggest IPO Since Facebook Earnings Expectations For The Week Of July 28: Exxon, Pfizer, Twitter And Much More Telecom Sector Shoots Higher On Unprecedented Windstream Announcement 5 Big Companies Seriously Investing In 3D Printing 3D Printing Stocks In Play After Amazon Announces Store Launch Earnings Scheduled For July 29, 2014 Related Articles (CGNX + BZSUM) Indices Remain Mixed; Merck Beats Expectations Herbalife Falls On Downbeat Results; Windstream Shares Spike Higher Cognex Up 14%, Sees Q3 Revenue Up 50% Sequentially On 'Major Customer' Markets Open Higher; Merck Posts Upbeat Profit Benzinga's Volume Movers

Despite Massive Setbacks in China, Qualcomm Still Benefits

Qualcomm (NASDAQ: QCOM  ) isn't a stranger to China. But while the company's done business in the region for decades, lately China hasn't been too kind to Qualcomm. The country is already in the middle of investigating the company for monopoly practices and, to make matters worse, Qualcomm recently said Chinese businesses aren't paying device royalties owed to the company.

Same country, new problems
In addition to selling mobile processors, the company makes much of its revenue from baseband chips that connect mobile devices to cellular networks. Qualcomm is a leader in the mobile chip space, typically being several generations ahead with its chip technology than other companies. The Chinese government's investigation into Qualcomm's business practices isn't anything new, but last week a state-run newspaper said the company indeed does have a monopoly on wireless communication standards.

Receiving a monopoly ruling against Qualcomm doesn't necessarily mean it broke any Chinese antimonopoly laws, but the investigation is hurting the company's revenue. The company said last week in an SEC statement that the monopoly probe made it harder to collect licensing fees for its technology.

As The Wall Street Journal recently said, Qualcomm makes about 29% of its revenue from licensing its 3G and 4G patent technology, but makes about 77% of its pretax profits from those fees. As China clamps down on the company, those important royalty fees are being squeezed.

Though the company hasn't specified just how much its royalties are suffering, Qualcomm said in a statement:

We also believe that certain licensees in China currently are not fully complying with their contractual obligations to report their sales of licensed products to us (which includes certain licensees underreporting a portion of their 3G/4G device sales and a dispute with a licensee) and that unlicensed companies may seek to delay execution of new licenses while the NDRC investigation is ongoing.

So not only is the monopoly probe hurting current licensing negotiations, but some companies in China are underreporting the amount royalty fees they owe to Qualcomm.

Qualcomm just ended its fiscal third third quarter 2014 and beat most analysts' expectations. The company posted revenue of $6.81 billion, up 9% year over year. But the uncertainty from China leaves the company in a difficult position in one of it's most lucrative markets.

Still lots of potential
Despite the setbacks, there's no way Qualcomm can back off of its China ambitions. The country is in the middle of a major 4G LTE rollout, which will bring both chip and baseband revenue for the company, as well as additional licensing royalties.

China Mobile  (NYSE: CHL  ) -- the world's largest mobile network by subscribers -- has already launched part of its TD-LTE network, increasing its number of 4G subscribers from 1.3 million in February to 14 million at the of June. By the end of 2014, China Mobile says it will have 50 million 4G subscribers.

China Mobile was the first network carrier in China to receive government licenses to sell 4G LTE connectivity to consumers. China Telecom and China Unicom just received LTE test licenses last month and are limited to just 16 cities. But these licenses are step in the right direction in boosting the country's 4G connections and creating better competition between the three major carriers. China Mobile has 790 million subscribers alone, and less than 2% of those customers are currently connected to a 4G network.

China is one of Qualcomm's largest markets right now and accounted for nearly half of all the company's revenue in fiscal year 2013. Despite the investigation into Qualcomm and its impact on licensing revenue, as China Mobile and other telecoms expands their 4G coverage, the huge increase in those network connections will help push the company's royalty revenues even higher, and open up new avenues for the company to sell its baseband chips to smartphone makers.

More from The Motley Fool: Warren Buffett Tells You How to Turn $40 into $10 Million

Schwab, Morningstar Partner to Integrate Custodial Data in Morningstar Office

Schwab Intelligent Technologies announced on Tuesday that it was partnering with Morningstar to provide RIA custody data through its OpenView Gateway platform.

Schwab Intelligent Integration is a multi-year initiative that aims to increase integration among the different systems advisors use. OpenView Gateway is one of the products of that initiative, and already integrates data from Junxure, Microsoft, Salentica, salesforce.com, Tamarac, Advicent and MoneyGuidePro.

Morningstar’s participation will allow the platform to integrate Schwab’s real-time custodial data in Morningstar Office, which allows advisors to perform advanced research, performance reporting and secure client communications.

“Morningstar Office is a popular solution among the advisors we serve, and we currently have more than 1,000 shared clients who could benefit from our new working relationship,” Neesha Hathi, senior vice president of advisor technology solutions for Schwab Advisor Services, said in a statement. “Working with Morningstar underscores our continued commitment to a flexible, open-architecture technology platform for better business outcomes.”

“Our agreement allows Morningstar to deliver more value to independent RIAs,” Tricia Rothschild, head of global advisor solutions for Morningstar, added. “This integration helps make advisors’ practices more efficient by enabling custodial data to flow seamlessly into Morningstar Office.”

Schwab’s RIA clients already have access to research and data from Morningstar through Office and Advisor Workstation, but now they’ll be able to integrate custodial data from Schwab.

Also on Tuesday, Schwab announced updates on the status of other integrations to the OpenView Gateway platform.

The platform is now fully integrated with MoneyGuidePro’s financial planning software and the Naviplan tool by Advicent, which helps cut down on data entry by linking profiles and account information.

Schwab is in the second phase of integration with Salentica’s CRM Advisor Edition. When it’s completed, advisors will have access to Schwab Advisor Center’s move money and cost basis information. Advisors should be able to access it by late July.

Integration with Junxure and Tamarac are in pilot stages, according to Schwab. When completed, the integration with Tamarac’s Advisor Rebalancing system will allow advisors to file trades directly to Schwab instead of importing and exporting. The Advisor View and Advisor CRM systems are already integrated.

Strong U.S. Data Squashes Euro

Related EWI EU Sanctions Against Russia Likely On The Way Euro Steady Above $1.35 With Markets Subdued

Following the release of strong US data, the euro took a hit as investors saw the direction of the eurozone economy diverging from that of the US.

The common currency traded at $1.3466 at 8:20 GMT on Wednesday, near an eight month low reached on Tuesday.

On Tuesday, the U.S. Labor Department released data which showed that the nation’s inflation is on the rise this year, with the consumer price index up 0.3 percent in June from a month earlier.

The index was 2.1 percent higher than last year’s figure, indicating healthy inflation throughout the US.  However, the personal consumption expenditures price index was not quite as strong, up only 1.8 percent annually in May.  By comparison, eurozone consumer prices have only increased 0.5 percent on the year.

Related Link: Halliburton Benefits From Consumption, Cost Cutting & Political Warmth To Fracking

Both the European Central Bank and the Federal Reserve have set a two percent goal for inflation, but so far, eurozone inflation has been moving in the opposite direction.

Tuesday’s data showed that the US economy was nearly ready to stand on its own, sparking renewed speculation about whether or not the Fed will raise its interest rates sooner than expected. Meanwhile, the ECB is expected to ease further in the months to come as the region’s recovery continues to sputter and stall.

Also weighing on the common currency has been the ongoing tension between the West and Russia. The European Union will likely increase their sanctions against Russia in the wake of a downed Malaysian Airlines passenger jet.

However, with Russia being a main business partner for EU companies, there will likely be a significant economic effect on the region. According to Reuters, between geopolitical tension and a strengthening dollar, some analysts see the euro falling as low as $1.32 this year.

Posted-In: European Central BankNews Eurozone Forex Global Federal Reserve Pre-Market Outlook Markets Best of Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Most Popular Analysts Comment On Apple Before Q3 Earnings UPDATE: UBS Raises Price Target On Apple Earnings Scheduled For July 22, 2014 Morgan Stanley Needs Better Entry Point For General Electric Microsoft Cloud Results, Nokia Key To Fiscal Q4 And Outlook Microsoft Misses FQ4 Bottom Line On 17% Revenue Growth Related Articles (EWI + BROAD) Strong U.S. Data Squashes Euro EU Sanctions Against Russia Likely On The Way Brent Near $108 Ahead Of Inventory Data Euro Steady Above $1.35 With Markets Subdued Brent Steady With Geopolitical Tension In Focus Euro Steady At $1.35 Amid Global Tensions

RCS, Schorsch Jump Into Crowdfunding

RCS Capital (RCAP) said Monday that it was setting up a crowdfunding investment platform with the assets — and management — it is acquiring from Trupoly, an investor relations portal.

RCS, led by Executive Chairman Nicolaus Schorsch and known for nontraded REITs and other products, plans to launch the new alternative investment program — We R Crowdfunding — in September.  

Is this a savvy move for RCAP?

“This acquisition is a logical diversification for RCS, which is already involved in alternatives, especially real estate,” said Mark Elzweig, an executive search specialist and financial services expert, in an interview. “In our social media era, crowdfunding investments are considered by many to be cutting edge.”

Plus, notes Elzweig, many advisors — especially those with a strong base of high-net-worth clients — are hungry for new products. “Advisors are always looking for unique and worthwhile alternative investments to attract the attention of HNW investors,” said the president of Mark Elzweig Co., in New York. “If Trupoly's offerings are solid ones, they will be a welcome addition to the RCS platform.”

Crowdsourced investing got off the ground as part of the 2012 Jumpstart Our Business Startups (JOBS) Act, which gave the SEC the ability to relax rules prohibiting the general solicitation of investments.

The JOBS Act of 2012 included two provisions for crowdfunding. Title II, which came into effect in 2013, governs entrepreneurs and lets companies publicly share and advertise that they are looking for investments. Title III would allow companies to raise capital from non-accredited investors and has been mired in an SEC review of more than 500 proposed rules related to Regulation A since last October.

Earlier this year, SEC Chairwoman Mary Jo White said this was one of the agency’s priorities. “I expect that the commission, after thorough consideration of all comments, will move expeditiously to finalize these rules,” White noted at the time.

According to RCAP, a 2013 World Bank study estimated that crowdfunding investments could become a $300 billion annual market in the U.S. over the next decade.

“We expect We R Crowdfunding to provide investors [with] direct access to public and private offerings, including Regulation A and Regulation D offerings, mutual funds and closed-end fund offerings, in a variety of industries and sectors,” said RCAP President Michael Weil, in a press release. 

As part of the deal, Trupoly founder and President Ryan Smith, head of sales Charles Crnoevich and client-relationship manager Melanie Eitel will be joining RCAP.

“We are pleased to be joining the RCAP team and look forward to creating the market leader in direct-to-consumer investment offerings,” said Smith, in a statement.

RCAP wrapped up its purchase of the alternative-fund group Hatteras Funds (which has some $2.7 billion in assets under management) on July 1 and its acquisition of Investor’s Capital (which includes about 450 independent advisors) on July 11.

In mid-May, RCS Capital said it planned to buy Validus Strategic Capital Partners, which owns SC Distributors, an alternative investment group, and Strategic Capital Advisory Services, a provider of advisory and operational services to non-exchange traded alternative investment products.

(American Realty Capital (ARCP), a sister company of RCAP, said in June that Schorsch will step down as its CEO in October, though he will remain on the board.) 

Advisor Allocation

Interest in other types of alternative investments continues to grow.

A recent survey conducted by Morningstar and Barron’s says that investors and institutions have some $300 billion invested in alternative mutual funds as of May. The level of assets in alternative exchange-traded funds is under $120 billion.

“Mutual funds continue to grow as the vehicle of choice for accessing alternative strategies. 2013 marked the strongest asset flows into alternative funds and the largest number of fund launches on record,” Josh Charlson, director of manager research, alternative strategies, at Morningstar said in a statement.

The report found that 20% of institutions and 24% of advisors had alternative allocations of between 6% and 10% of a typical portfolio in 2013. Most institutional respondents said they had an allocation over 25%, although the percentage has fallen from 34% in 2010 to 28% in 2013.

By comparison, just 9% of advisors had such a large allocation to alternatives in 2013, down from 11% in 2011. The percentage of advisors with an 11%-15% allocation has steadily increased from 20% in 2011 to 23% last year.

Thirty-one percent of institutions reported that they would increase their allocation to over 25% in the next five years. Almost half of advisors anticipated growth of between only 1% and 10% during the same period.

For both institutions and advisors, fees were the top reason for hesitating to invest in alternatives, although institutions were equally split between fees and lack of liquidity (40%). Half of advisors said fees were the main reason they didn’t invest in alternatives.

---

Check out SEC Investor Advisory Committee Mulls ‘Accredited Investor’ Criteria on ThinkAdvisor.

With Tips From Pfizer, AbbVie Lands the Biggest Pharma Deal of the Year: StockTwits

NEW YORK (TheStreet) --Orchestrated by many of the deal wizards who led Pfizer's (PFE) bidding for AstraZeneca (AZN), AbbVie (ABBV) has gained verbal confirmation from Shire PLC (SHPG) to move forward with the largest non-U.S. drug merger of the year.

After five sequential bids, AbbVie's $53.7 billion offer for the Dublin-based company was approved late Monday. Led by Chief Executive Rick Gonzalez, the Chicago-based drugmaker will take the reins as long as it proves the deal logistics aren't just fancy words.

$ABBV accretive deal. hep c soon to be on the market. $70 stock. — Swingman24 (@Swingman24) Jul. 14 at 01:51 PM

Offering a 50.5% premium to Shire's market price before takeover speculation erupted four weeks ago, the deal is now only a 12% premium to Shire's closing price on Tuesday. AbbVie proposes to pay $44.71 in cash per share and swap each of the remaining Shire shares with 0.896 of an AbbVie share. $ABBV getting destroyed. Overpaying for $shpg. $53 billion is way too much. Max pain coming — Ari Gold (@AriGold) Jul. 14 at 08:54 AM $ABBV overpaying for $SHPG. This will not end good for Abbvie as debt load is simply astronomical on future revenues. — Ari Gold (@AriGold) Jul. 14 at 09:11 AM With the premium in place, it is hard to believe the company isn't overpaying for the freedom to move its tax domicile, but there are a few less explicit factors adding to the deal as well. An analyst from British banking group Berenberg commented, "The company has to be of a certain size, because around 20% of the shareholders post-deal must be shareholders in the target company." The requirement ruled out quite a few of the options AbbVie could have executed on, smaller companies that cost much less, making Shire an even more lucrative target. On the value front, according to an analyst from Bank of America Merrill Lynch, pending completion the deal will create $38 dollars per share in additional value to a combined company, which suggests AbbVie will be keeping upwards of 20% of that deal value to itself, discounting the purchase price significantly, and staying a lot of the complaining regarding the hefty premium. The lessons taken from Pfizer extended further than just the deal team, AbbVie offered a 5% larger premium to Shire than Pfizer was willing to for AstraZenica, and also inserted "soft bids" to assure takeover discussion could be timeless. The latter may have been even more important, considering Pfizer's final bid deadlines expired on May 18 without any likely deal on the horizon. Indeed, the contrasting success and failure of AbbVie and Pfizer will be an important case for future deal talk, assuring open-ended discussions may supercede hard deadlines. At the time of publication the author had no position in any of the stocks mentioned. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Harmonic Drops On Weak Forecast; URS Shares Surge

Related BZSUM Mid-Morning Market Update: Markets Open Higher; Citigroup Profit Beats Street View #PreMarket Primer: Monday, July 14: Germany Wins World Cup 1-0

Midway through trading Monday, the Dow traded up 0.80 percent to 17,078.60 while the NASDAQ gained 0.80 percent to 4,450.90. The S&P also rose, gaining 0.61 percent to 1,979.62.

Leading and Lagging Sectors

Telecommunications services shares jumped around 1.19 percent in today’s trading. Top gainers in the sector included NQ Mobile (NYSE: NQ), China Unicom (Hong Kong) (NYSE: CHU), and Partner Communications Company (NASDAQ: PTNR).

In trading on Monday, utilities shares fell by 0.31 percent. Top losers in the sector included Exelon (NYSE: EXC), down 2.3 percent, and NRG Energy (NYSE: NRG), off 1.6 percent.

Top Headline

Citigroup (NYSE: C) reported better-than-expected second-quarter results.

Citigroup’s quarterly net profit fell to $181 million, or $0.03 per share, versus a year-ago profit of $4.18 billion, or $1.34 per share. Its adjusted net profit came in at $3.9 billion, or $1.24 per share. Its revenue slipped 6% to $19.3 billion from $20.48 billion. Excluding CVA/DVA, revenue fell 3% to $19.4 billion. However, analysts were estimating earnings of $1.06 per share on revenue of $18.92 billion.

The bank also announced its plans to pay $7 billion to settle the ongoing investigation of the Residential Mortgage-Backed Securities Working Group.

Equities Trading UP

Exelixis (NASDAQ: EXEL) shares shot up 4.96 percent to $3.49 after the company announced positive phase 3 data for coBRIM.

Shares of Kandi Technolgies Group (NASDAQ: KNDI) got a boost, shooting up 10.45 percent to $16.26 on report of a 238% rise in EV sales.

URS (NYSE: URS) shares were also up, gaining 9.60 percent to $57.01 after Aecom Technology (NYSE: ACM) announced its plans to buy URS for $4 billion in cash and stock.

Equities Trading DOWN

Shares of Harmonic (NASDAQ: HLIT) were down 8.91 percent to $6.50 after the company lowered its Q2 forecast and issued a weak Q3 guidance.

Riverbed Technology (NASDAQ: RVBD) shares tumbled 5.85 percent to $19.16 after the company lowered its Q2 revenue forecast.

GT Advanced Technologies (NASDAQ: GTAT) was down, falling 4.14 percent to $15.39 after cautious comments by CLSA.

Commodities

In commodity news, oil traded down 0.38 percent to $100.45, while gold traded down 2.10 percent to $1,309.30.

Silver traded down 2.15 percent Monday to $21.00, while copper fell 0.23 percent to $3.26.

Eurozone

European shares were higher today.

The eurozone’s STOXX 600 rose 0.94 percent, the Spanish Ibex Index surged 0.76 percent, while Italy’s FTSE MIB Index climbed 0.56 percent.

Meanwhile, the German DAX rose 1.14 percent and the French CAC 40 climbed 0.78 percent while UK shares gained 0.99 percent.

Economics

The Treasury is set to auction 3-and 6-month bills.

Posted-In: Earnings News Guidance Eurozone Futures Commodities FDA Legal

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Most Popular Earnings Expectations For The Week Of July 14: Big Banks, Tech Giants And More UPDATE: Barclays Upgrades Apple, Has High Expectations For Near Term Phone Arena Reports Apple's 5.5-inch iPhone 6 Could be Delayed Until 2015 Stocks To Watch For July 14, 2014 GT Advanced Technologies Down Sharply On iPhone Production Concerns #PreMarket Primer: Monday, July 14: Germany Wins World Cup 1-0 Related Articles (ACM + BZSUM) Harmonic Drops On Weak Forecast; URS Shares Surge Top Performing Industries For July 14, 2014 Benzinga's Volume Movers Mid-Morning Market Update: Markets Open Higher; Citigroup Profit Beats Street View Morning Market Movers Benzinga's Top #PreMarket Gainers Around the Web, We're Loving... We're Now Hiring Real-Time

Act on This Massive Profit "Spark" Ahead of the Big Boys

It's easy to see why investors pile into a company's stock on the heels of highly successful products, technologies, or services.

Investors rewarded Apple shares after their steady flow of innovative product launches, while Google shares have been on an almost uninterrupted rise since its 2004 IPO.

Even Facebook has recovered nicely after its initial IPO debacle.

In each of those examples it's tempting to focus on the products the company offers, to draw a direct line to their success. iPhones and the introduction of stylish touchscreen interfaces in the case of Apple, the aggregation and accessibility of all things data-related in the case of Google, or just mere self-indulgence in the case of Facebook.

What's important to notice, though, is that in each case we likely wouldn't be talking about them had it not been for shrewd leadership at the top.

For small caps, finding the right leader can prove a more critical "spark" to major profits...

These Leaders' Decisions Are Critical, and Can Ramp Up or Kill Profits

Some current or former big-cap company leaders we're all familiar with: the late Steve Jobs of Apple, Jeff Bezos of Amazon, Warren Buffett of Berkshire Hathaway, and Bill Gates of Microsoft. They're all synonymous with outsized corporate success.

Would Apple have ever set the world on its ear without Jobs? Would Amazon even still be in business (after years of almost zero profit margins) if it weren't for Bezos? Would investors fill arenas for Berkshire Hathaway meetings without Buffett? And would Tesla be dominating the headlines without Elon Musk behind the wheel?

While those are all well-known examples, the small-cap space has its share of equally visionary (but less famous) CEOs leading some of the most exciting companies in the some of the most in-demand industries. In fact, I think quality CEOs are vastly more important in small-cap companies because they don't have the luxury of surrounding themselves with cherry-picked superstars from competitors.

Sometimes, though, a company can have all the right products and services in place and ready to go to market but the CEO bungles critical parts of the company's strategy, such as marketing, production, forecasting demand or managing leverage, just to name a few.

Fortunately, if the company has a competent board, directors (along with institutional investors) won't stand by idly while the company fritters away opportunity.

That means a new CEO - and the chance to profit hugely from one of my favorite catalysts...one that's already proven successful for us...well ahead of the crowd.

The Path to This Catalyst and Profits

My catalyst is the Management Change Spark, and here's what makes it so powerful...

The majority of huge stock appreciation is driven by institutional investors - not by you and me.  So it only makes sense that we want to establish our positions ahead of the big boys. If we can get in before a wave of institutional money we can simply sit back and let them do all our heavy lifting by driving up the price.

Many institutional investors, especially mutual funds, are limited (by way of the fund's prospectus) in what they can and cannot invest in. Often times they are limited by factors including price, market cap, liquidity, or profitability. In some cases fund managers simply cannot, by law, invest in exciting companies (no matter how much they want to do so) until the stock, or the company, achieves certain benchmarks.

We're not hamstrung by these same limitations.

When a board of directors gives an inept CEO the boot we can quickly take action, long before the company achieves benchmarks such as profitability, price, or market cap.  That is our upper hand over the big players.

If you're like me, I love having even a small edge against the big boys, especially in the era of dark pools and high frequency trading, where they clearly have the edge.

Here's our way to take advantage of a Management Change Spark and set the stage for our move ahead of the crowd...

Profit Step 1: If you've identified a company that has all the right pieces in place (groundbreaking technology, an in-demand market, favorable macro-economics, etc...) yet the stock is languishing, keep an eye on the news flow and see if the board removes the CEO.

Boards aren't typically keen on firing the CEO unless they are committed to turning things around so you can view the removal as a very positive sign. This is the first catalyst.

Consider establishing a 1/3 position when the board announces the removal of the CEO in question.

This will get you into the position with limited risk until the announcement of the permanent CEO.

Profit Step 2: The second catalyst is when the company actually announces the permanent CEO. Take a moment to read the press release associated with the announcement of the new CEO.

Don't worry; the company will make this step easy. They want to get investors excited so the press release will likely have a concise list of the new CEO qualifications.

Ask yourself a few questions as you read the press release. Does the new CEO understand the industry as a whole? Does the new CEO understand what differentiates the company's products/service? Does the new CEO have any experience turning around companies?

Basically, you want to make sure they understand the business. It would be a red flag if the new CEO for an enterprise-scale software company came from a retail background and has no experience turning around a company. 

If you're comfortable with the new CEO's credentials; consider establishing the second 1/3 portion of your entire position.

By adding to your total position in thirds you strategically increase your upside exposure while still maintaining prudent risk management. This is a critical because reams of historical data demonstrate that risk management is a key factor in achieving and maintaining long-term profits.

Profit Step 3: Keep an eye on the company's news flow. At some point in the not-too-distant future, the company will likely issue a press release with a basic outline of the new CEO's plans on how to right the ship, so to speak.

Once again, you're going to have to do a little reading, but don't worry, companies try to make these turnaround outlines pretty straightforward and easy to understand. You shouldn't have to be a rocket scientist to make heads or tails of the company's plan.

 If you're left scratching your head, chances are you're not alone - and that's not a good sign.

On the other hand...

If the company's turnaround plan makes sense; consider adding the final 1/3 portion of your overall position.

Now it's time to relax, sit back, and wait and see how the company delivers on its plan. If it hits the mark you should be off to the races long before the "wait-and-see" crowd starts piling in.

We recently targeted a similar opportunity in Small Cap Rocket Alert and the Management Change Spark is once again proving a winner.

Gilead Sciences: The Senate Just Wrote Me a Letter

The Box Tops hit”the Letter” was about rushing to get home to a girlfriend who can’t live without the singer anymore. Gilead Sciences (GILD) received a letter a letter, too, but I’m guessing it could live without this one.

Special to The Chronicle

Reuters has the details on the letter sent to Gilead by two Senators:

Two members of the U.S. Senate Finance Committee, including Chairman Ron Wyden, on Friday asked Gilead Sciences Inc to defend the more than $80,000 cost of its  breakthrough treatment for hepatitis C, citing the expense to federal healthcare programs.

“Given the impact Sovaldi’s cost will have on Medicare, Medicaid and other federal spending, we need a better understanding of how your company arrived at the price for this drug,” the lawmakers said in a release. “It is unclear how Gilead set the price for Sovaldi.”

RBC Capital Markets’ Michael J. Yee and team and team aren’t particularly concerned:

In our view, the bottom line is 1) it’s not clear how much jurisdiction if any, the Committee will have on enforcing timely and complete information exchange, 2) it’s a significant uphill battle for anything to actually change because it’s Congressional law that Medicare cannot negotiate drug pricing and this would require new legislation and an overhaul in part of the CMS pricing system (extremely unlikely for anything to get done or to start during an election year….?), 3) this is not surprising anyways as one should expect the “headline” pricing of Sovaldi to generate lobbying and pressure to get Gilead Sciences to reduce Sovaldi price just like this all happened years ago during the HIV days for Viread, 4) it’s not clear if hearings could even happen …and for anything to actually result out of it (public complaints by the Committee but can’t do anything in reality), and 5) rational free markets have lots of justification for why Sovaldi pricing is what it is based on drug development R&D risk, significant risk in the acquisition of VRUS, and significant breakthrough in treatment (a cure).

Investors don’t appear to agree. Shares of Gilead Sciences have dropped 0.4% to $88.56 at 3:01 p.m. on a day when other biotech stocks are rising. Celgene (CELG) has gained 1.5% to $89.13, Regeneron (REGN) has advanced 1.1% to $317.96 and Biogen Idec (BIIB) has risen 1.1% to $322.62. The iShares Nasdaq Biotechnology ETF (IBB) is up 0.6% at $257.10.

Refiners: Been Down So Long It Looks Like Up to Citi

Shares of refining stocks have had a tough week–so tough that Citigroup picked today to become more bullish on the group and upgrading HollyFrontier (HFC) and Marathon Petroleum (MPC).

The Washington Post/Getty Images

How bad has this week been? Marathon Petroleum has fallen 4.3% through yesterday’s close, while HollyFrontier has dropped 2.5%, Valero Energy (VLO) has declined 3.5% and Alon USA Partners (ALDW) has slipped 5.7%. Western Refining (WNR) has weathered the selling and has ticked down just 0.3%.

Citigroup’s Faisel Khan and Mohit Bhardwaj explain why they’re feeling more bullish in the face of those loses:

Expectations appear low for US refiners. 2Q’14 EPS revisions, uncertainty on what 3Q’14 will bring, a slower pace of refining closures in the Atlantic basin, new product exports out of the Middle East and Russia, low distillate margins and the specter of US oil exports all seem to be weighing on the sector. Despite these headwinds, we are moving to a more bullish view, although we admit August and September tend to be “sloppy” months for US refining stocks.

Our optimism is based on a few key factors: 1) US and Canadian oil production continue to grow with volumes predominantly targeted for the US Gulf Coast; 2) Oil prices appear sticky with the continued volatility in the Middle East; 3) Oil price differentials in the US appear somewhat contained ($5-$10 per barrel) for now with the release of certain processed condensate and increased volumes of US crude to Canada. We view the current balance between producer net backs and refining feedstock discounts at a constructive level. 4) Lastly, we believe it is only a matter of time before we make more headway on refining closures in the Atlantic basin.

As a result, Khan and Bhardwaj upgraded Marathon Petroleum to Buy from Neutral–noting that “the market underappreciates Marathon Petroleum’s earnings power following a number of acquisitions, new initiatives in the midstream and pipeline business, and >$3.0bn in share repurchases over the last 2 years.”

Khan and Bhardwaj also upgraded Holly Frontier to Neutral from Sell on valuation, though they lowered its price target to $40 from $42 and noted that they “believe the stock could continue to have downside at current levels.” They downgraded Alon USA Partners to Neutral as they “believe Midland-Cushing differentials have peaked.”

Their favorite stocks–Valero Energy and Western Refining–remain unchanged. They like Valero because they see “crude-on-crude competition on the US Gulf Coast resulting in greater feedstock discounts at Valero’s high conversion refineries…” Western Refining gets the nod for “its restructuring potential.”

Shares of Valero Energy have gained 0.2% to $49.33 at 9:41 a.m. today, while Marathon Petroleum has risen 1.3% to $78.41, Western Refining has ticked up 0.1% to $39.70, HollyFrontier has advanced 0.2% to $43.19 and Alon USA Partners has dropped 2.4% to $16.61.

Morning Movers: Lorillard Leaps on Reynolds American Merger Speculation; The Gap Falls on Weak Sales

Stocks look set to open higher a day after concerns surrounding a Portuguese bank caused stocks to fall.

AA

S&P 500 futures have risen 0.2%, while Dow Jones Industrial Average futures have gained 0.2%. Nasdaq Composite futures have advanced 0.3%.

Lorillard (LO) has jumped 5.5% to $66.55 after reports that the tobacco company was set to merge–finally–with Reynolds American (RAI). Reynolds American has gained 2.9% to $62.26.

The Gap (GPS) has fallen 1.3% to $40.44 after it said sales at stores open for at least 12 months had dropped 2% in June.

Fastenal (FAST) has fallen 3% to $46.71 after the industrial company reported earnings that met analyst forecasts but light revenue.

Marathon Petroleum (MPC) has risen 1.1% to $78.29 after getting upgraded to Buy from Neutral at Citigroup.

Jobs Data Helps U.S. Equity Markets Reach New Highs

U.S. equity markets continued to gain during the first week of July. On July 3, the last trading day of the week, the Dow Jones Industrial Average reached 17,000 in intraday trading and closed at 17,068.26 for the day. The DJIA was up 0.54% for the day and gained 1.28% for the week.

On July 3 the S&P 500 also reached a new high ending the day at 1,985.44. The S&P 500 was up 0.55% for the day and 1.25% for the week.

Increased valuations were fueled by strong U.S. employment data on the upside of economists' consensus estimates. The June ADP National Employment Report released on July 2 stated an increase of 281,000 nonfarm payroll jobs in the private sector. This was far above the consensus range by economists of 190,000 to 240,000.

Strong June employment growth in the private sector was further supported by a strong Bureau of Labor employment report released on Thursday, July 3. The Bureau of Labor Statistics reported a June increase of 288,000 U.S. nonfarm payroll jobs. The report also stated a decrease of 0.2% in the unemployment rate which is now at 6.1%. The June data release was on the high-end of economists' consensus range estimate of 199,000 to 290,000 and exceeded economists' expectations for the unemployment rate which was estimated at 6.2% to 6.3%.

As predicted, summer weather has helped improve productivity and the overall outlook on hiring. Government hiring in June also contributed to the topline gain adding 26,000 jobs.

Strengthening valuations in the DJIA continued to show in Industrials as Caterpillar (CAT) gained 1.53% on July 3. Exxon Mobil (XOM), Goldman Sachs (GS) and United Health (UNH) also led the DJIA higher on Thursday, July 3 with daily returns of greater than 1%.

In the S&P 500 top performing sectors included Consumer Discretionary, Industrial and Financial. In July 3 trading the Consumer Discretionary sector gained 1.27% followed by the Industrial sector which was up 0.83%. The Financial sector also showed a strong return in the final trading day of the week up 0.74%.

Few major economic releases are scheduled for the week beginning July 7. The most significant report for the week will be the FOMC Minutes released on Wednesday, July 9. The FOMC Minutes will provide greater insight from the FOMC on the U.S.'s economic situation.

About the author:JulieYoung789Julie Young is a Chicago-based financial journalist with nine years of experience in the financial services industry. She primarily writes article publications on financial market news and economic trends. Julie holds a Master of Science degree in Finance from Boston College and a Bachelor of Science degree in Finance from the University of Arkansas.

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Planning for Digital Assets

We moved rapidly from a paper to a digital business and financial world. Digital assets and transactions probably are a bigger part of your life than you realize, even when you think you don't use much technology. The digital world needs to be in your estate plan, otherwise the cost and time involved in settling your estate could increase significantly. Assets could be lost; bills could go unpaid; and your estate and loved ones could incur additional and unnecessary costs.

Digital assets fall into several categories. First, there is the hardware, such as computers, smartphones, and tablet computers. Then, there are personal accounts such as email, text messaging, social media (Facebook, Twitter, Google+), and sites where you might store or post photos, videos, and similar items. You might have sub-scribed to or registered at other types of web sites.

Investment and bank accounts of course are important to your estate plan. Related to them are automatic payment transactions that you've authorized. These could be drafts from one of your accounts or charges to a credit or debit card.

Financial accounts and transactions present the most problems for estate executors. Many people no longer receive paper account statements or bills, making it difficult for an executor to know what a person owns and owes. They're surprised when something appears in regular mail or an email revealing a new financial account or transaction.

You also could own digital assets with value, such as a blog or web site that generates revenue from advertising or other means. You should treat this the same way as any other asset. Include it in your will, decide who will acquire ownership rights to it, and give any specific directions about how it should be managed.

Here's a surprise to many. You might have purchased books, software, songs, or other items online, through sites such as Amazon.com and iTunes. These sites! usually allow you to download the products to different devices for an extended or unlimited period. But under most of the agreements, or terms of service, you don't own anything. You purchased a license to use the item. But you don't own assets that you legally can transfer through your will the way you can with a physical book or recording. The license to use the item expires with you.

The first thing you have to do is make an inventory of your digital life. For many people this will take some time, because there are transactions that occur as seldom as once a year and assets or accounts you use infrequently.

Your inventory should have full information about each item. Include any web site addresses, instructions for how to login or access your account, usernames, passwords, and any security questions and answers. If there's an account number, include that.

Most important: Once you create the inventory, keep it updated.

Many estate planners recommend first creating the inventory in an electronic file, such as in a word processing or spreadsheet file. Keep the file encrypted. Periodically transfer the file to a flash drive or similar device and keep it in a secure, fireproof safe or a safe deposit box. Alternatives are to post the file online to a service such as DropBox or in a secure part of your own web site, though security isn't optimum. Some people go old school, recording their digital access information on paper or in a spiral notebook.

Some web sites offer online storage of passwords, such as LastPass.com and KeePass.com. A problem is that these sites could close or change their terms at any time.

After the inventory, turn to your estate plan.

Your will should include a clause that allows your executor to access any online accounts or other assets you have and holds harmless any online service provider who allows or doesn't prevent the access.

Another step is to create a digital power of attorney. This empowers someone to receive your ! access in! formation from online account hosts. That's especially helpful if you overlook a site when compiling your inventory or neglect to note new access information. It isn't assured that each web site will honor the power of attorney or will, but it helps to have the authorization in place.

Also, leave your executor advice and instructions on how to deal with the various digital assets, accounts, and transactions you have. This would be separate from your will, perhaps as part of a letter of instructions.

Unfortunately, the law is way behind the real world in this area, as are most terms of service agreements. It's a crime under federal law to gain unauthorized access to an online account. Only seven states have laws permitting executors or other fiduciaries to access online accounts, and some of them are very limited. Under many terms of service agreements, any access by someone other than the original account owner isn't authorized, even with your written permission. You might not realize that, but you agreed to it when you clicked that you agree with the terms of service.

Google has an option it calls Inactive Account Manager. You direct Google to contact an individual and provide access to your account if you haven't accessed it for a stated period. You click through about four screens on the Google web site to find the feature. Twitter says it will work with a person authorized to act for the estate to close or manage the account. Facebook prohibits access to a page once it learns someone is deceased. It will either close or memorialize the account (freezing it but allowing posting of messages by others).

This summer the Uniform Law Commission is expected to propose a bill that would give fiduciaries, such as executors and trustees, broad powers to deal with digital assets. After the ULC publishes the proposed bill, legislators in many states probably will propose it and perhaps enact it within the next few years. After your state enacts such a law, it will increase the ! power of ! your digital inventory, will language, and digital power of attorney.

In the meantime, your executor might be in something of a no man's land. He or she is obligated to manage your affairs and wind down the estate, but accessing some of the accounts could violate the terms of service agreements or local law. You should make the job as easy as possible.

Most estate planners now have stories of extreme and expensive steps heirs and executors had to go through to obtain access to email and other accounts. They had to hire computer experts to sift through a computer's hard drive for access information or hack into an account. Everyone is better off if you create and maintain a list of your digital accounts and transactions, and how to access them.