How to discuss money with an ex

Imagine you are talking to a business associate -- you're less likely to say something you'll regret.

(Money Magazine) If there's anything worse than fighting about money with a spouse, it's fighting about money with an ex-spouse.

Unfortunately, you could find yourself having to discuss dollars and cents with your former flame long after you've said "I don't" -- particularly if you have children together, says Alton Abramowitz, head of the American Academy of Matrimonial Lawyers.

Extracurricular activities and other discretionary expenses, for example, often are not covered in the divorce agreement, and past partners sometimes continue to own a family home together. When you must talk money with a former honey, try these tricks to avoid reliving what caused your breakup in the first place.

The Ground Rules

Strip out the emotions. Distance yourself by imagining you're talking to a business associate, says Kimberly Pryor, creator of the Rebuilding Your Life DVDs and blog. "You're less likely to say something you'd regret."

Beware of blame. "Saying something like 'If you'd done the taxes properly, we wouldn't have this debt,' feels good in the moment, but it won't serve you in the long run," says Pryor.

Instead focus on finding a solution. "Remember, the sooner you solve the problem, the sooner you can break free of your ex."

When You're Face to Face...

1. Opening gambit: "Sally's really getting into soccer, and it's starting to get pricey. I'm hoping we might be able to meet for coffee to discuss her plans."

  Couples sound off on spending

Why it works: Rather than making demands, you're framing the discussion as a joint decision, says Abramowitz. Scheduling a meeting works better than dropping a stress bomb like "I need $500 for Junior's textbooks." And it's best to talk when the kids aren't around, so they don't feel caught in the middle.

2. Make it a question: "She wants to train with a private coach. How do you feel about that?"

Why it works: You're priming your ex to see things from your perspective by letting him know that you're willing to do the same. "Empathy is what drives good outcomes," says Linda Leitz, a certified financial planner and author of We Need to Talk: Mone! y and Kids After Divorce.

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3. Present the facts: "I appreciate the child support, which covers Sally's food, clothing, and medical bills. There's nothing left for coaching, which runs $65 an hour."

Why it works: An ex who already pays alimony or child support is likely to question why he or she needs to pony up more money, says Leitz. Instead of getting defensive, show gratitude. Come ready to illustrate how those funds are used and the exact cost of whatever's at issue.

4. Diffuse tension: "Tell me what you think is fair to contribute. I'm sure we can find a solution that's in Sally's best interest."

Why it works: Your ex may be inclined to argue, because of budget constraints or simply because disagreement has become the status quo between you. With this approach, you preempt friction by letting your past partner spell out his or her preferences first. The answer can give you direction toward finding a compromise.

5. Reflect back: "So we've agreed that you'll cover 25% of the coaching costs, plus any new gear she needs at the start of every season?"

Why it works: "It's not about trapping your ex," says Leitz. "It's about making sure you're on the same page so future disagreements don't arise."

Demystifying Gold Prices - PIMCO

What is it about gold prices? Many people seem to believe they are impossible to predict, or even understand. At her Senate confirmation hearing in November, Janet Yellen said, "I don't think anybody has a very good model of what makes gold prices go up or down." Ben Bernanke also said last year that "nobody really understands gold prices, and I don't pretend to understand them either." While many factors influence the price of gold, PIMCO believes there is one that can explain the majority of changes in gold prices over the past several years: changes in real yields.

To understand how, it helps to start with a simple example. Pretend there was an asset that had no risk of default and a real – that is, inflation-adjusted – value that varied over time but did so around some constant level. In other words, this asset has no credit risk and in the long run maintains its purchasing power. How much would investors pay for it? Whatever the amount is, it would likely vary over time with the level of real yields available in very high quality, nearly "default-free" assets (such as U.S. Treasuries). That is, when real yields on other such assets are high, investors would likely want a bigger discount to the long-run estimated real value of the hypothetical asset. Conversely, when real yields are low, the opportunity cost of owning the asset drops and investors would likely be willing to pay a higher price relative to the asset's long-run estimated real value.

In essence, this guides how PIMCO thinks of gold. And the market seems to view gold this way as well; over the past several years, gold prices have been heavily influenced by the level of 10-year U.S. real yields (see Figure 1).

 

 

Recent history has changed the behavior of gold prices 
With the launch of gold ETFs in 2004, gold has increasingly become a liquid financial asset. But over much of history, the price of gold was either fixed or gold was a relatively illiquid physical asset held by a small minority of investors. Today the marginal price of gold is largely set by financial demand, as over $70 billion of gold is held by ETFs, and investors choose to buy or sell gold ETFs by comparing the expected real return on gold to that of other liquid financial assets. This means that the future behavior of gold is more likely to resemble the past several years rather than the 1970s or some other period.

To quantify the relationship between real gold prices and real yields, we can regress the price of gold from 2006 to 2013 (we used the logarithm of the real price of gold in our model) against the 10-year real yield from the Treasury Inflation-Protected Securities (TIPS) market. (In our view, this regression is appropriate since gold and real yields are co-integrated and there is an economic rationale for believing they should be.) Based on our study, the regression shows that, all else equal, a 100-basis-point (bp) increase in 10-year real yields has historically led to a decline of 26.8% in the inflation-adjusted price of gold. In other words, over the past seven years gold has had a real duration of 26.8 years. (Note that this is solely an empirical duration that describes the way that gold has traded. Since gold has no cash flows, its duration does not need to be constant, and there is nothing magic about the 26.8 number. Just as the correlation between stocks and bonds varies over time depending on changes in macroeconomic variables and investor risk appetite, the real duration of gold may also change in the future.)

Using this framework, consider the 15% price drop in gold in mid-April following talk of Fed tapering. This move predated the sharp move higher in yields in the fixed income market by two weeks. Over the month of May, 10-year real yields rose 57 bps. Even though the markets moved at different times, the size of their moves over this period was remarkably consistent with the historically observed 27-year real duration. In hindsight, we believe the move in gold gave an excellent early warning of both the direction and magnitude of the move in rates.

Another potential use for the empirical duration of gold is to see how gold prices have changed over time after controlling for moves in the level of real yields. By computing a real-yield-adjusted gold price we can look at a gold price that adjusts for the fact that the opportunity cost of owning gold varies over time. The real-yield-adjusted gold price is calculated by adjusting the gold price by a discount factor based on a 26.8 gold duration and the level of real yields (see Figure 2). If real yields explained all the moves in gold prices, we would expect this real-yield-adjusted gold price to be completely static and never move. This would mean that all moves in the inflation adjusted price of gold were fully explained by a change in the discount factor that links today's gold price with the real-yield-adjusted gold price. While the real-yield-adjusted gold price does move around in Figure 2, it does so over a smaller range than the inflation-adjusted price of gold does. This means that although real yields don't explain all the moves in the gold price, they do seem to explain a significant portion of them. In particular, since 2006 the real-yield-adjusted price of gold has fluctuated within a much smaller range than does the price of gold. In other words, most of the changes in gold prices can be explained by viewing gold as a real asset with 27 years of real duration.

Notice the large run-up in gold prices in 2005. The gold ETF "GLD" was launched at the end of 2004, so in 2005, gold had a new source of very large investor demand, and this created a structural break in the real-yield-adjusted gold price. While real yields explain much of the movements in gold prices, large structural changes in the market can have large impacts on the valuation.

The perception of gold as a "safe haven" asset also has some influence on gold prices. During the credit crisis and the bankruptcy of Lehman Brothers, many market participants expected gold to do very well. Yet gold prices actually declined during the second half of 2008 as the credit crisis intensified. Why? During the credit crisis we saw a spike in the level of real yields, which puts downward pressure on gold prices. But the real-yield adjusted gold price actually rose sharply following the Lehman Bankruptcy. This shows us that while there was a flight-to-quality bid that increased the real-yield-adjusted gold price, the impact of higher real yields was larger.

Looking at the value of gold today, we see that, adjusted for real yields, the price of gold is very similar to the pre-crisis value of gold – despite the fact that nominal gold prices have risen over 50%. This suggests that any premium in the gold price following the credit crisis relating to investor risk aversion has now been removed, which seems sensible given the recovery in the equity markets. This real yield-adjusted-gold price, which adjusts for real yields and an investor's opportunity cost of holding gold, is a useful barometer for assessing the valuation of gold across different regimes and relative to other assets.

Eureka! 
Yes, other factors can and do affect the valuations of gold, such as the launch of new products to access gold (such as gold ETFs), prior gold returns, investor risk appetite, central bank purchases and government policies such as India's efforts to limit gold imports. Global real yields and the value of the U.S. dollar versus other global currencies are others. However, one could argue that real yield differentials between countries also influence relative currency levels, so there could be an offsetting effect between these variables.

Nevertheless, we believe that real yields are the single most important factor. As gold increasingly becomes a financial asset, when real yields rise, gold prices should fall if they are to maintain a given level of financial demand relative to investors' other opportunities. Similarly, when real yields fall, we expect the price of gold to rise. Investors should be aware of the relationship between gold and real yields because it has important implications for how they think about the role of gold in their portfolio in an asset-allocation and risk-factor framework. Additionally, controlling for the level of real yields allows for a purer picture of what we believe the underlying value of gold is, and it can help investors better determine their allocations to gold within their portfolios.

To be sure, it is challenging to predict the future path of real yields. Looking ahead, we expect the Federal Reserve to move very gradually in reducing accommodative policy and for 10-year U.S. real yields over the next several months to be relatively steady around current levels, which would be neutral for nominal gold prices.

Link: www.pimco.com

About the author:Canadian Valuehttp://valueinvestorcanada.blogspot.com/

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Can Google Continue Its Explosive Run?

With shares of Google (NASDAQ:GOOG) trading around $1,117, is GOOG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Google is a global technology company focused on improving the ways people engage with information. The business is based on the following areas: search, advertising, operating systems and platforms, and enterprise. The company generates revenue primarily by delivering online advertising. Google is a search giant with most of the market share, largely because of its execution and delivery. An increasing number of consumers and companies worldwide are coming online, which will surely increase the amount of eyes on the company's ads and, in turn, advertising revenue. At this rate, look for Google to remain on top of the Internet world.

Google and Samsung Electronics (SSNLF.PK) are getting a leg up on the competition by teaming up to unite against their biggest enemy – Apple (NASDAQ:AAPL). On Monday, Google and Samsung announced that they had signed a ten year patent agreement covering all current and future technology patents.

T = Technicals on the Stock Chart Are Strong

Google stock has been exploding to the upside in the past several years. However, the stock is currently trading sideways and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Google is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Google options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Google options	34.69%	93%	90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
February Options	Flat	Average
March Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Google’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Google look like and more importantly, how did the markets like these numbers?

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	21.08%	-5.53%	13.60%	17.06%
Revenue Growth (Y-O-Y)	11.94%	15.52%	31.23%	24.87%
Earnings Reaction	13.79%	-1.55%	4.43%	5.49%

Google has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Google’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Google stock done relative to its peers, Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), Baidu (NASDAQ:BIDU), and sector?

	Google	Yahoo	Microsoft	Baidu	Sector
Year-to-Date Return	-0.53%	-8.58%	-4.22%	-8.05%	-4.34%

Google has been a relative performance leader, year-to-date.

Conclusion

Google is an Internet giant that provides valuable search and advertising services to a growing user base worldwide. On Monday, Google and Samsung announced that they had signed a ten year patent agreement. The stock has been exploding higher in recent years, but is currently trading sideways. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased about recent earnings announcements. Relative to its strong peers and sector, Google has been a year-to-date performance leader. Look for Google to continue to OUTPERFORM.

Tesla and Europe: A Match Made in Heaven?

The Fool's own senior auto analyst, John Rosevear, sits down with Richard Engdahl for an in-depth look at Tesla (NASDAQ: TSLA) and the electric vehicle market, as well as Chrysler's unique situation with Fiat (NASDAQOTH: FIATY).

The economic crisis in Europe has slammed the auto industry as a whole, but luxury vehicles aren't doing so badly. Coupled with governments that tend to smile on green technologies, Tesla has enjoyed a warm reception Europe.

A full transcript follows the video.

Richard Engdahl: You mentioned briefly overseas sales for Tesla. It strikes me that Europe is perhaps a better place to sell electric vehicles. On the other hand, maybe the U.S. is a better place to sell premium vehicles. How does the overseas market look for Tesla?

John Rosevear: Well, on the one hand we look at Europe -- and particularly Western Europe -- there's a recession going on. New car sales in general are at terrible lows right now and the mainstream automakers in Europe are having a lot of trouble.

Enter Tesla that walks in. They're competing with a novel product in the luxury space. Luxury cars haven't actually done that badly. Go to a place like Germany, they're still selling plenty of BMWs and Mercedes and Audis in Germany. Britain is doing well. France is doing reasonably well, and the Scandinavian countries are doing fairly well.

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I understand Tesla's had a really wonderful recession in, I think Norway. They sold a whole bunch as soon as it opened in Norway. It was like, "Whoa, Norway. OK."

With some of these European governments there's more support for electrification. There's more support for infrastructure. There are tax credits and tax breaks and so forth, because they want to move the country more in that direction.

We have some of that here, of course. We have the tax breaks, but we don't have quite the national support for electrification that you could do in a place like Denmark or something like that, because it's a smaller country and it can be done a little more easily, to set up that kind of infrastructure.

Engdahl: Is there any infrastructure -- speaking of -- is there any more government response to electric vehicles in Europe, as far as setting up charging stations and the like?

Rosevear: I'm not current on all of it. Some of the European governments -- the Western European governments -- I know Germany has done some stuff. I know that a couple of the Scandinavian countries have tried to move it forward.

The EU in general, of course, wants to push toward greener outcomes for motor vehicles in general, so there's some support there. The nature and specifics of it, I don't have that in hand.

Barbells and Preferreds

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Income expert Jack Adamo believes it is now time to build positions in preferred stocks; below, he explains why and discusses two of the initial preferreds that he is adding to the model income portfolio at Insiders Plus.

Steve Halpern: We're here today with Jack Adamo, Editor of Insiders Plus. How are you doing, Jack?

Jack Adamo: I'm well, Steve. Thanks.

Steve Halpern: You've long been considered among the advisory world's top experts on income investing. Today, we're going to discuss a specific sector of the income universe, preferred stocks. First, could explain what preferreds are and how they differ from traditional shares?

Jack Adamo: Yeah, the difference between common and preferred stocks is that preferred are higher in the capital structure, which means, in the event of liquidation of the company, preferred shareholders get paid before common shareholders.

Of course, they're kind of between bonds and stocks. They are lower in the capital structure than bonds, higher than stocks, and higher than common stocks. They also typically will pay, there are a few exceptions, but typically, they pay a solid steady dividend that does not vary, unlike a common stock dividend, which may vary.

The preferred is the same every year quarter until, it either is redeemed, in the case of redeemable preferred, or perpetually, in the case of perpetual preferred.

Steve Halpern: You note in your recent research that you've been focused on real estate investment trusts and MLPs as income vehicles that you preferred, but you've recently been shifting your attention to the preferred sector, why the change of heart?

Jack Adamo: Yeah, that's been occurring gradually over the last few years for two reasons. The REITs are getting very overvalued and the MLPs are as well, less so, but their yields are not what they used to be. Two years ago you used to be able to get MLPs with yields of 7% to 9% quite easily and quality MLPs.

MLPs have certain stepped tax structures that makes them a little bit more expensive to handle for your accountant and they're not appropriate for tax-deferred vehicles like IRAs, et cetera, where REITs are.

Preferred now are giving higher current yields. They're less overvalued. They're not overvalued in my view with most of them. They have less tax hassles usually.

Steve Halpern: Now, you recommend an approach called a Barbell Approach, in which you buy both the preferred and the common stock, to get a better balance for both long-term growth and current income. Can you explain this Barbell Approach to preferreds?

Jack Adamo: Sure, Steve, yeah, well, the only problem with preferred stocks, every investment has it's pluses and minuses, the preferreds generally have higher, not always, but generally, have higher dividends than the common stocks; however, as I mentioned before, that dividend remains the same, never grows in 99% of the cases.

Common stocks, the dividend will grow over time, provided that it's a good company and it grows. What I've been doing now, I've been buying some of a good common stock that has had good long-term track record, and a good preferred that goes with it, that have a higher current yield.

Now, the preferreds, nowadays, the preferreds I'm buying, usually the lowest one I'm buying is around 6.5% for the current yield, whereas the common stock, the S&P 500 average common stock yield is 2.66% over the last five years. It's even lower now.

The rate of growth on the dividend is only 5%. In terms of dividends, it would take 32 years for the S&P dividend to grow to the dividend in aggregate, to grow to the dividend in aggregate to common stocks, so there's...to the preferred stocks that I recommend. So, it's better for the current income aspect to have these preferred.

On the other hand, if you have a superior common stock, like the ones I'm buying, you're going to get some boost on the growth side too, even ten years out, when the total return on a good stock would normally be catching up with the total return on a preferred, this way you're getting some of both.

You've got that solid reliable income for ten years and the growing income from the common in the interim that will eventually surpass it. It's a really good, as I said, Barbell Approach that will give you really good current income and good long-term growth.

Steve Halpern: Let's look at your strategy in terms of some specific issues. One of your new recommendations for your high yield portfolio is Annaly Mortgage Management 7.875% Accumulative Series A Preferred (NLY-PA). Could you tell us about Annaly and this preferred in particular?

Jack Adamo: Yeah, the preferred, as I've said, as you mentioned, has about a 7.92%, their current yield, it's set up from a mortgage investment trust. A mortgage real estate investment trust called Annaly Mortgage Management (NLY).

It's been around for a long time. It's done well for a long time. It's up about, not quite, triple in the last ten years. It was doing better than that, but the real investment trusts that are mortgaged back are getting beaten up pretty much lately. It's down quite a bit. It's always been a volatile stock.

As I said, you can pretty much rely on that to triple every ten years. There's a lot of attention to this group now. It might be a little bit lower going forward. As I said, with all the ups and downs, that's what it's done over the last ten years.

It actually, and this is a rare instance where the common stock here, in this case, it's actually a common real estate investment trust, actually has a higher dividend than the preferred. That's not normally the case. This is very unusual, but mortgage backed REITs do have higher yields.

In this case, you're looking at somewhere in a 10% to 12% range on the Annaly common, NLY is the symbol.

Whereas, the preferred gets a little closer to 8%, but I like the paired trade of the barbell trade here anyway, because the preferred is much more stable. It's much more stable. You can rely on that every year. I think it's good. There're a lot of dividends to go around and, as I say, this is a stable aggregate.

Steve Halpern: Another new recommendation is Cullen/Frost Bankers (CFR). There you've been recommending the 5.375% Perpetual Preferred Series A (CFR-PA). Now, you call Cullen/Frost one of the best little banks in Texas. What makes this such an attractive issue?

Jack Adamo: Well, again we have a company with a really great growth rate. It's about in the two-and-one-half fold in the last ten years. That growth rate has accelerated quite a bit over the last two years.

It's one of the most highly recommended stocks by R. Christopher Whalen, who is the best bank analyst anywhere.

He's held a number of government positions related to regulation, et cetera. He's now a principle in three different investment firms.

He's a regular guest on Bloomberg's and simply, without a doubt, the most knowledgeable banking analyst. This is one of his favorites. The common stock has got a decent yield on its own. It's yielding about 3%, a hair under 3%.

The preferred they have, its current yield is about 6.46%. If it gets redeemed, this one is redeemable, it's redeemable in 2018, if it gets redeemed, the annualized rate of return will be 9.4%. It probably won't get redeemed. If it does, that's an extra boost, which that again is 6.5%; you're getting about 9.4%.

Steve Halpern: Is that a situation where you would also look at a Barbell Approach buying both perpetual preferred along with the common?

Jack Adamo: Yeah, that's why I said the common has a decent yield, about 3%. It's got good growth. The perpetual preferred is about 6.5%, so you're doing really well there.

Steve Halpern: Finally, you point out that both of the preferred that we've discussed here today are eligible for a specific tax break. Could you explain to us nerds what you mean by that?

Jack Adamo: Now only one of them, Steve, may be, I don't know if I mentioned that in my original write up, but because Annaly is a real estate investment trust, it is NOT eligible for the lower dividend tax rate that is part of the tax structure nowadays.

REITs already get a tax break at the corporate level. They're not taxed at the corporate level, so all real estate investment trusts, not just this one and not just preferred, are taxed as ordinary income.

They do better in an IRA or 401(k), or Keogh, et cetera. You get the better tax rate. On the other hand, the Cullen/Frost, both the preferred and the common, they are eligible for the reduced dividend rate.

Steve Halpern: Thank you very much for joining us today. We really appreciate your insights.

Jack Adamo: Steve, it's always a pleasure talking to you. Thank you.

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The expert featured in this column, Jack Adamo, may or may not own positions in any investment vehicle mentioned here. The views and opinions expressed are his or her own.

Foxtons Gain in London Debut Marks U.K. Broker’s Turnaround

Foxtons Group Plc gained 16 percent on the first day of trading in London, marking a turnaround for the property broker three years after it was rescued by lenders when the housing market collapsed.

The shares closed at 267 pence, giving Foxtons a market value of 753 million pounds ($1.2 billion). The London-based broker and its investors sold 390 million pounds of shares at 230 pence each, according to a statement today.

Foxtons, known for the fleet of Mini Coopers used by employees to show homes to clients, is benefiting from London's booming property market, where the average price of a home climbed 9.7 percent in July from a year earlier, according to the U.K.'s Office for National Statistics. BC Partners Ltd., which bought Foxtons in 2007, also sold shares in the IPO.

"House prices are above pre-2007 levels," said Anthony Codling, an analyst at Jefferies Group LLC. "In a market with such strong fundamentals, people have got limited ways to access the U.K. housing market recovery."

Investors committed to buying all Foxtons shares on offer on the first day that investors were allowed to buy into it, people with knowledge of the matter said on Sept. 10.

Zoopla IPO?

Zoopla Ltd, which operates a property website, is considering an IPO that could value the company at more than 1 billion pounds, the Sunday Times reported earlier this month. It would be "a logical move" for housing-market companies to accelerate listing plans, Codling said.

BC Partners bought Foxtons, founded by Jon Hunt in 1981, for about 390 million pounds before losing control in 2010 after creditors reorganized the broker's debt. Last year BC Partners bought back a majority stake, the Daily Telegraph reported.

All but two of Foxtons's 42 branches are in London. Most of the homes it sells are priced at 200,000 pounds to 1.4 million pounds, the company said on Aug. 27.

The share sale comprised a primary offering of 55 million pounds and 335 million pounds of secondary sales by shareholders, directors and employees.

Credit Suisse Group AG (CSGN) and Numis Securities Ltd. managed the sale, along with Canaccord Genuity Ltd. Rothschild acted as financial adviser.

Volumes of IPOs in Europe, the Middle East and Africa have nearly tripled to about $15 billion this year, according to data compiled by Bloomberg. Deutsche Bank AG is ranked first in managing the sales.

Southern Company: Time to Ask Some Tough Questions

In the late 1990s, Southern Company’s (NYSE: SO) executives were fond of saying, “that if Thomas Edison were to walk into the utility’s lobby and look around, he’d remark that nothing had changed.”

This statement has often been emblematic of the firm’s early resistance to electric deregulation, emission regulation, new renewable technologies, and various other changes that have occurred in the industry over the last few decades. But this has not necessarily been a negative. Southern Company’s fidelity to the status quo has often preserved value, in contrast to other firms that rushed into new, untested business initiatives that proved unwise and caused significant value destruction.

In fact, Southern Company has been a stellar income investment for generations, which makes its recent financial troubles all the more disturbing.

Southern Company’s total return is down 6.4 percent over the last year versus the S&P 500′s gain of 17.7 percent. But even against its sector peers, the utility has been a laggard: Over that same period, Duke Energy Corp (NYSE: DUK) is up 5.8 percent, and American Electric Power Co (NYSE: AEP) has returned 2.1 percent.

The action in Southern Company’s stock has mirrored the performance at the underlying company. Income from continuing operations has fallen 21.4 percent over the last year, with earnings declines on flat power demand at various utility subsidiaries, as well as cost overruns at its nuclear and clean-coal build-out. Revenues are slightly up, by 2.2 percent, while net income has declined 13.2 percent, and operating margin has compressed 18.8 percent. Beyond that, debt levels have increased 8.7 percent in the last year.

Chart A: Southern Company’s Earnings Hurt by Flat Electricity Demand

Created with YCharts

In its most recent quarterly earnings report in late July, the utility took a $278 million after-tax charge on cost overruns at subsidiary Mississippi Power’s clean-coal project and abandoned its attempt to increase its budget for a nuclear plant in Georgia. The former helped cause Southern Company’s second-quarter earnings to slump by 52 percent to $297 million, or 34 cents per share, down from $623 million, or 71 cents per share, a year ago. Absent these one-time items, earnings would have risen to 66 cents per share.

The project to build Plant Ratcliffe, a coal-gasification plant in Mississippi, has cost Southern Company $611 million in after-tax charges so far this year, and there could be more write-offs in future quarters. During the company’s earnings call, CEO Thomas Fanning said the latest charges represent the company’s best estimate, and he couldn’t guarantee there won’t be further losses in the future.

As noted earlier, the firm has also increased its debt to dangerously high levels that haven’t been seen since the early 2000s–a 130.9 percent debt-to-equity level. And the aforementioned cost overruns caused Moody’s Investors Service to downgrade its rating on preferred stock issued by one of the firm’s subsidiaries to Baa3, just one notch above junk status.

This transpired even as Southern Company announced the need for additional debt and equity issuances over the next two years to pay for its new power infrastructure. That’s a potentially problematic move given the prospect of a rising interest rate environment, and the company’s higher cost of capital as a result of its subsidiary’s downgrade. These are all negative indicators that we’ll address in more detail below.

Fortunately, Southern Company clearly sees the risks inherent in maintaining the status quo. The utility seems to be quickly changing its business model to survive, planning natural gas plants to replace its coal plants (a seemingly tacit acknowledgement of the inevitability of carbon regulation and change in natural gas market fundamentals), while also increasing its involvement in renewable energy and energy efficiency (another tacit acknowledgement of this technology’s disruptive potential).

Further, its move to build an integrated-gasification plant with carbon-capture technology in Mississippi, and new nuclear plants at its Vogtle nuclear facility in Georgia, are also clear signals the firm is focusing on the challenges at hand and trying to change with the times. Other Southern project highlights include the nation’s largest biomass generation plant in Texas, a massive wind-data study to determine the feasibility of wind farms across Alabama and Georgia, and a leading fleet of hydroelectric power generation.

But is this all too little too late? Perhaps due to no fault of its own, the firm undertook a massive build-out, which necessitated gargantuan amounts of debt just as its earnings stream went negative on declining power demand as a result of the downturn in the economy (and cost overruns), new competing technologies, and cheaper natural gas.

Southern Company also faces significant future costs to swap out its overall fleet to cleaner power plants, with 15,648 megawatts of coal-based power plants set to retire in the next decade. While not all of these coal plant wills be replaced, in a recent statement, the firm said, “By 2020, we anticipate being able to generate approximately 35 percent to 55 percent of our electricity from natural gas and 25 percent to 45 percent from coal–enabling our company to minimize costs to customers by utilizing the lowest-cost fuel source.”

While some may regard this as future upside potential, the question is how can the utility accomplish this at current debt levels? The last time Southern Company had a similar debt burden was in the early 2000s, during the merchant-energy collapse and the general downturn that followed the bursting of the Internet bubble. Fortunately, the succeeding economic boom (2003 to 2008) helped the firm repair its balance sheet.

Today, Southern Company faces different obstacles:

1) The continuing recovery from the deepest financial and economic crisis since the Great Depression means US gross domestic product (GDP) and power-demand levels are unlikely to grow as quickly as in the early 2000s, which means Southern Company will get no mercy on paying its debt.

2) The Federal Reserve’s intent to curtail its extraordinary stimulus could mean higher rates are just around the corner. And rising GDP could entail inflation. While inflation will help Southern Company pay down debt, higher rates will make it that much more difficult for the firm to find financing to build the new power plants it needs. And given the regulated nature of the utility, it may encounter difficulty passing along higher commodity costs to customers during an inflationary period.

Additionally, as a rising-rate environment makes fixed-income securities more competitive with dividend stocks, retail investors could turn away from highly indebted companies such as Southern Company in favor of those that offer safer payouts. For instance, the firm’s trailing 12-month payout ratio now stands at 99 percent. That means Southern Company could lose some of its investor base at a time when it needs diverse sources of funding, such as secondary equity issuances. Over the last 12 months, in fact, diluted earnings per share (EPS) have been on the decline at various utilities, including Southern Company, whose diluted EPS has fallen by 22.1 percent.

Chart B: Southern Company’s Visible Slide in Earnings Per Share

Created with YCharts

To get a better sense of Southern Company’s growth prospects, Utility Forecaster developed a proprietary Discount Cash Flow Model to discern how those few Wall Street analysts with “buy” ratings were modeling the company. Most of the growth embedded in their models seems to rely on the utility’s past performance, as well as the management team’s optimistic guidance.

While it’s perfectly natural to extrapolate some elements of past performance to make forecasts about future growth, Wall Street analysts seem to have ignored the firm’s current earnings problems and future power plant development costs. Notwithstanding, the mix of analyst sentiment is essentially neutral, with three “buys,” 15 “holds,” and two “sells.”

High Debt Levels, Lower Income: A Threat to the Dividend

Southern Company has been paying a dividend since 1948, but today its 4.9 percent yield seems at risk. Given its 99 percent payout ratio, there is little room to increase the dividend. And certainly, if the firm incurs larger declines in its earnings, such as more write-downs due to cost overruns, the firm could eventually be forced to cut its dividend.

As many income investors know, the common payout ratio considers dividends as a percentage of net income. That metric usually works when evaluating healthy companies because they tend to use earnings to generate cash for dividend payments. But it can be a misleading ratio when some troubled companies borrow to finance their payout. And companies can’t indefinitely pay dividends that exceed free cash flow.

When firms are in the midst of transforming their business model, as Southern Company is presently doing, the cash dividend payout ratio offers a much more useful tool for evaluating the sustainability of the dividend. This alternative ratio shows the portion of cash flow, after capital expenditures and preferred dividends payments, that a company uses to make its common stock dividend payments. In this case, Southern Company actually has a negative cash dividend payout ratio.

Chart C: The Cash Dividend Payout Ratio

Created with YCharts

And the ratings agencies have been watching. In early August, Moody’s Investors Service downgraded subsidiary Mississippi Power Company’s senior unsecured rating to Baa1 from A3 and its preferred stock rating to Baa3 from Baa2. The rating outlook is stable. The credit rating agency did, however, affirm the parent company’s Baa1 senior unsecured rating, with a stable outlook.

“The downgrade of Mississippi Power’s ratings reflects the higher costs and ongoing difficulties being experienced by the company in completing the large and complex Kemper County integrated gasification combined cycle (IGCC) plant,” said Michael G. Haggarty, senior vice president.

“The utility has exhibited a considerable decline in financial metrics over the course of the construction period, which are unlikely to return to historical levels because of the planned issuance of approximately $700 million of securitized bonds after the plant becomes operational,” added Haggarty.

“The company’s cash flow pre-working capital to debt ratio has fallen from the 20 percent-plus range prior to the plant’s construction to 12.2 percent in 2011 and 13.5 percent in 2012. This compares to financial ratio guidelines of 13 percent to 22 percent for ‘Baa’-rated utilities outlined in Moody’s Regulated Electric and Gas ratings methodology. Although the most recent cost increases are being funded almost solely by equity issuances at the Southern parent company, the higher debt being incurred by Mississippi Power as a result of the plant will result in lower credit metrics going forward, including CFO pre-working capital to debt in the high teens, well below the parameters for a single ‘A’ rating.”

“We believe that issues associated with the plant may have also adversely affected the regulatory environment in which the company operates, with two of the three commissioners on the Mississippi Public Service Commission (MPSC) expressing serious concerns not only about the recent cost increases, but also the level of communication and transparency exhibited by the company during the construction process. Despite a $2.88 billion cap on project costs that largely insulates Mississippi ratepayers from additional cost increases, the historically credit supportive Mississippi regulatory environment has been strained by these developments and may not fully recover over the near term, especially if the plant continues to experience problems with the remaining construction, as well as the testing and start-up phase,” according to Moody’s.

Clearly, a downgrade alone would be an issue for concern. But even more concerning are the firm’s high debt levels and the fact that the regulatory environment (historically extremely supportive) is turning negative, not to mention the firm’s ability to carry out successful future power plant development in response to changing market fundamentals and emissions regulation.

On a Wing and a Prayer: Will the Regulator Gods Help Them?

Historically, Southern Company’s saving grace has been the fact that it operates in a very supportive regulatory environment. Certainly, that’s what investors have always counted on. But as per Moody’s report on the firm’s clean-coal plant in Mississippi, regulators are now taking issue with Southern Company’s handling of the project. And that’s putting into question how prudent the utility has been, a clear sign the winds have changed as to what support the firm can expect from regulators, at least in Mississippi.

In Georgia, the firm has experienced similar cost overruns at its nuclear power plant project. Under a proposed deal with regulators, Southern Company would withdraw its request to increase its budget to build two more nuclear reactors at Plant Vogtle. The company had previously asked to increase its budget by $737 million to $6.85 billion.

Instead, the discussion over whether to formally raise the construction budget would not happen until the first of the two reactors comes online, forecasted around January 2018 at the earliest, as per the latest timelines from a state monitor.

According to one press report, “The deal shifts financial risk onto Southern Company. If the utility exceeds its budget, then the burden would be on Georgia Power to persuade regulators that the excess spending should be passed along to its customers. But if the Public Service Commission votes to raise the project budget, then the law would assume Georgia Power was entitled to collect all of its budgeted costs from customers, so long as regulators couldn’t prove the spending was imprudent, reckless or somehow criminal.”

The preliminary agreement would also help the firm avoid a politically charged battle over project spending while it deals with a separate rate case in Georgia and the aforementioned over-budget coal gasification plant in Mississippi. Georgia regulators are set to vote on the deal Sept. 10.

But given the uncertainty surrounding future cost overruns combined with declining credit and earnings metrics, as well as what appears to be tepid support from regulators, Southern Company warrants additional scrutiny as a long-term investment.

Starbucks' profit beats Street, misses on sales

After markets closed Thursday, Starbucks reported a fiscal first-quarter profit of 71 cents a share, $540.7 million. It was 25% higher than in the same period a year ago, when it reported a profit if 57 cents a share, or $432.2 million.

Starbucks said benefited from lower coffee costs and stronger sales around the world.

Analysts had expected the Seattle-based company would earn 69 cents a share on revenue of $4.3 billion.

Shares rose $1.10, 1.5%, to $74.60 in after-hours trading. During the regular trading session, the stock fell 21 cents, 0.3%, to close at $73.39. In the past 52 weeks, the stock is up about 35%.

The coffee retailer posted revenue for the quarter ended Dec. 29 of $4.24 billion, 12% higher than the $3.79 billion in sales in the same period a year ago but missing Wall Street's estimates.

Same-store sales growth was up 5% globally and also in the Americas, the company said. In the China and Asia Pacific region, sales were up 8% year over year for the quarter. Operating margins expanded to 19.2% from 16.6% in the same quarter a year ago.

"Starbucks is likely to continue to outpace run-of-the mill retail," says Glen Petraglia, senior vice president and portfolio manager at Standard Life Investments U.S. office in Boston. "The transformation from a one-trick pony a decade ago to a multi-pronged consumer company is impressive."

Troy Alstead, the company's chief financial officer, said in a phone interview with the Associated Press that the slower growth for the last three months of the year was the result of the growing number of people who are choosing to shop online from the convenience of their homes, instead of heading out to stores.

"The impact to us is that there are fewer people out and about in the weeks leading up to Christmas," Alstead told the AP.

But he downplayed the impact that trend would have on sales growth going forward, saying that the advantage of Starbucks is that its offerings can't be replicated online and that its lo! yalty card business is growing.

The company has about 20,000 locations around the world.

Contributing: USA TODAY's Beth Belton and The Associated Press

Morning Market Movers

Luna Innovations (NASDAQ: LUNA) jumped 95.45% to $2.58 as the company announced its plans to sell its shape-sensing technology to Intuitive Surgical (NASDAQ: ISRG).

VisionChina Media (NASDAQ: VISN) rose 33.40% to $32.27 after the company announced an exclusive strategic cooperation with Baidu Games.

ThermoGenesis (NASDAQ: KOOL) moved up 29.81% to $2.9857. ThermoGenesis' trailing-twelve-month revenue is $17.49 million.

Infosonics (NASDAQ: IFON) shares jumped 22.64% to $2.06. Infosonics shares have jumped 170.97% over the past 52 weeks, while the S&P 500 index has gained 23.35% in the same period.

Posted-In: market moversNews Intraday Update Markets Movers

(c) 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Most Popular 14 Cannabis Stocks To Watch In 2014 Tuesday Rumor Roundup: Apple Netflix Earnings Preview: Two Million New Subscribers? 6 Of Google's Acquisitions Over $1 Billion - And How They Worked Earnings Scheduled For January 21, 2014 Weekly Highlights: Tesla's Cheap Car, Apple Pays Settlement And More Related Articles (IFON + ISRG) Morning Market Movers UPDATE: Luna Announces Sale of Shape-Sensing Technology for Medical Applications Benzinga's Top Initiations Intuitive Surgical Recommends Stockholders Reject "Mini-Tender" Offer by TRC Capital Corporation Benzinga Weekly Preview: Earnings Season Continues Mid-Day Market Update: Stratasys Drops On Downbeat Profit Outlook; Google Shares Surge Around the Web, We're Loving... Lightspeed Trading Presents: Thunder and Tubleweeds: Trading Techniques for the New Market Enviroment Pope Francis Rips 'Trickle-Down' Economics Come See How the Pro's Trade in this Exclusive Webinar Wynn, MGM, Other Casino Giants Vying For U.S. Turf What Should You Know About AMZN? View the discussion thread. Partner Ne

At the Close: Market’s Big Gain Dissipates on Fed, Syria Uncertainty; Monster Beverage Falls 6%

So much hope. So much optimism. And so little to show for it.

Getty Images

After trading up as much as 1.1% this morning, the S&P 500 gained just 0.4% to 1,639.77 today, while the Dow Jones Industrials rose 0.2% to 14,833.96. The Nasdaq Composite advanced 0.6% to 3,612.61.

What made a positive day feel like we’re waiting for the next shoe to drop? Well, first there was good economic data. The Institute for Supply Management's August manufacturing index rose to 55.7 from 55.4 in July and beat economist forecasts. That caused Treasury yields to rise as speculation continued to build that the Fed would start tapering come its September meeting. Capital Economics’ Amna Asaf explains:

Another monthly increase in the US ISM manufacturing index to a 28-month high of 55.7 in August, after surging to 55.4 in July, suggests that the improvement in overseas activity appears to be benefiting US producers…

Overall, at 55.7, the headline index points to a further acceleration in GDP growth to around 3% annualised in the third quarter, up from 2.5% in the second. We doubt growth will be quite that strong, but clearly this is the sort of the news that could prompt the Fed to begin tapering its monthly asset purchases later this month.

Then there’s Syria, where Republicans and Democrats found that they actually can agree on something–blowing stuff up. Wells Fargo’s Sameer Samana discusses the implications for investors:

A potential attack on Syria has increased geopolitical uncertainty and dampened prospects for international equity and commodity markets over the coming months. Along with the Federal Reserve's stated intention to start tapering bond purchases in the near future, this additional headwind may lead markets to tread water in the near-term. Long-term investors should focus on our constructive outlook for the remainder of this year and beyond, and look for opportunities that may present themselves.

Merrill Lynch’s Savita Subramanian and team recommend buying energy stocks and selling consumer discretionary to protect portfolios from a spike in oil prices:

Brickwork accredits BWR BB ratings for ARPL's NCD

Hot Penny Stocks To Buy Right Now

BWR has relied on the audited financial results of Adarsh Developers for FY 2011,  audited financial statements of ARPL for FY 2011 and quarter ending September 2011, projected financial figures of ARPL, information and legal opinion about the ownership of the  land on which the project is to come up and other data/information provided  by ARPL and the promoters.

As per unaudited results of ARPL for September ending 2011, borrowings stood at ` 100 Crore. The company�s Advances recoverable in cash increased to ` 81.95 Crore in H1 FY2012 from ` 71.77 Crore in H1 FY11. Expenses stood at ` 5.97 Crore in H1 FY12 as compared to ` 2.47 Crore in H1 FY11.

As per latest available audited results of Adarsh Developers, in FY11 income from sale of properties has marginally decreased to ` 312.21 Crore as compared to ` 319.53 Crore in FY10. PBT has marginally decreased to ` 59.06 Crore in FY11 from ` 59.65 Crore in FY10. 

Borrowings, including secured loan and unsecured loan decreased to ` 714.33 Crore in FY11 from ` 739.24 Crore in FY10. Total Debt to Equity ratio has gone down to 2.20 in FY11 as compared to 2.60 in FY10 mainly due to increase in capital and reserves to ` 324.02 Crore in FY11 from ` 284.61 Crore in FY10.

Click here to know more on investing in Fixed Income products

Last Year's Winners Could Keep Winning

Should you wait to see if the winners from 2013 continue to thrive in 2014, or should you take the profits and invest somewhere else? MoneyShow's Jim Jubak thinks a bit of both might be the right answer.

In the video below, Jim Jubak discusses some of the top stocks that MoneyShow's experts have picked for the upcoming year.

These stock picks, which outperformed in 2013, may do just the same this year. For instance, Canadian stock expert Gordon Pape, editor of Internet Wealth Builder, has his eye on the following stock:

No one is even remotely close to the 59.8% operating ratio of CN Rail (CNI), the most accomplished railroad in Canada and the United States. From oil and grains, to cars and trucks, it seems like this company ships just about everything. Perhaps that is precisely why Jim Jubak agrees with Gordon Pape's 2014 Top Stock Pick and predicts that ongoing productivity in 2014 might propel CN Rail stock up another 20%.

Another expert who believes that Canadian National Railway is poised for a great 2014 fiscal year is Microsoft founder (and billionaire) Bill Gates, who owns a $5 billion block of this business.

10 Best Oil Stocks To Watch For 2014

For the second stock that looks interesting, Jim Jubak agrees with Jim Oberweis, Jr., editor of The Oberweis Report. Oberweis thinks that the healthcare sector, in particular, Ligand (LGND), is set to boom in the coming year.

This San Diego-based biotech company is the 2014 Top Stock Pick of Oberweis. And, according to Jubak, it has further to go in 2014, even though Ligand shares have already gone from $20 to nearly $60 in just last year alone.

"In some way (Ligand) is a kind of fund in itself," Jubak says. "They've got about 90 fully-funded partnerships and the biggest chunk (about 40%) of that is in oncology, but you get a piece of everything."

Some critics might argue that Ligand is a stock that's down 40% over the past ten years (having slumped from $120 in 2004), but Oberweis and Jubak see upside for Ligand, due to, as Jubak states, "an already huge pipeline" that's still growing.

For his final pick in today's video, Jubak turns to Nate Pile, editor of Nate's Notes. He also chose a stock in the healthcare sector, even though, as Jubak admits, it is a bit of a gamble.

For his 2014 Top Stock Pick, Nate Pile picked Mannkind (MNKD), a company that already benefited from the completion of two successful Phase III trials in 2013.

However, an April 1 announcement by the FDA, regarding Mannkind's first inhalable insulin treatment, could also allow this stock to enjoy a favorable 2014.

"This has been a six year process with the FDA, not all of it good," says Jubak. "This is a gamble."

Given the unpredictability of FDA panels, as well as the fact that this is a stock that has already more than doubled in the past year, apparently, it's a gamble that many investors are unwilling to take.

That being said, "What I really like to do is find momentum in value plays and vice versa," says Jubak.

For More 2014 Top Stock Picks

[video] Gold Hits Highest Level in a Month, Searches for Direction

The video this transcript is based on appeared on January 14.

New York (TheStreet) -- Gold (GLD) is searching for direction in midday trading after touching its highest level in a month. Gold has been on the rise as equities have fallen following Friday's disappointing non-farm payrolls report that showed U.S. employers added jobs at much slower pace than expected in December.

VIDEO TRANSCRIPT:

Gold is searching for direction in midday trading after touching its highest level in a month.

Gold has been on the rise as equities have fallen following Friday's disappointing non-farm payrolls report that showed U.S. employers added jobs at much slower pace than expected in December. The precious metal hit its highest level since December 12 at $1,255 an ounce.  At last check, spot gold was slipping 0.2% to $1,251 an ounce while U.S. gold futures for February delivery were gaining 0.2% to $1,253 an ounce.

Meanwhile, Goldcorp (GG) announced that it has begun its formal offer to acquire Osisko Mining for $2.4 billion.  The move will give the company control of Osisko's Malartic gold mine in Quebec.  At last check, shares of Goldcorp were falling about 2.5% to $22.48.

In New York, I'm Brittany Umar for TheStreet.

Written by Brittany Umar in New York.

5 Best Bank Stocks To Watch For 2014

Stock quotes in this article: GLD, GG 

Target CEO 'Still Shaken' by Breach, Vows to 'Make It Right'

Joe Raedle/Getty ImagesA customer uses the credit card scanner at a Target store. For Target Chairman and CEO Gregg Steinhafel, Dec. 15 started out as a normal Sunday. He was at home, having coffee with his wife. That's when he got the first call about the cyber security breach at the retailer, which would to date put the personal information of as many as 110 million customers at risk. "My heart sunk," Steinhafel reflected, describing his initial reaction to word of the attack, which had hit Target at the worst time with the busy holiday shopping season in full-swing and Christmas just 10 days away. "It's hard for me to describe the feeling that came over me," he revealed in a CNBC interview -- his first since Target acknowledged the attack -- four days after Steinhafel was initially informed. While it's been about a month since Steinhafel learned of the breach, he said he's "still shaken by it." He said he's had many "sleepless nights" already, but expects many more because "we are not going to sleep until we get it right and we regain the trust of our guest. And we're gonna be better as a result of this." He knows his customers are still frustrated, and said that "they have every right to be." On Dec. 19, Target (TGT) first disclosed that as many 40 million credit and debit cards were compromised between Nov. 27 and Dec. 15 by malware installed on the company's point of sale registers. Steinhafel said Target's first priority was to remove the malware, which was accomplished by that Sunday evening. "We were very confident that coming into Monday [Dec. 16], guests could come to Target and shop with confidence with no risk." But this past Friday, Target said its investigation found that at least 70 million customers' personal information was stolen from its database -- including names, mailing addresses, telephone numbers, and email addresses. Some victims didn't shop at Target during the time of the breach, said the retailer, which expects some overlap in the two data sets but doesn't have the exact numbers yet. Steinhafel said he's aware of the anger felt by his customers because he's been getting an unvarnished view of the outcry. "No one screens my email. So I have read every single email that has come to me." He said the emails "run the gamut of emotions" from support of the way the retailer has handled the situation, to what he described as some "fairly poorly chosen words to describe Target and myself." Target also announced Friday that it lowered its fourth-quarter profit forecast, in part due to weaker-than-expected sales since reports of the cyber-attack emerged. Steinhafel said that shopping trends as of Friday were nearly back to normal.

5 Best China Stocks For 2014

Chinese growth stocks stormed higher last week.

Baidu (NASDAQ: BIDU  ) busted through with a 15% pop on the week, fueled by its proposed $1.9 billion deal for China's leading mobile apps marketplace operator. Through its two leading exchanges, 91 Wireless has dished out 10 billion downloads for smartphones and tablets.

Baidu is the undisputed champ when it comes to desktop search in the world's most populous nation, but the former dot-com darling has been struggling to position itself as a growth play in the mobile boom that's taking place worldwide.

Baidu is still growing nicely -- and investors should see that when the search leader reports quarterly results on Wednesday -- but investors applauded the company's bold move to become a bigger player in mobile.

Are investors finally ready to buy back into China? Are the high growth rates and often reasonable valuations enough to outweigh the geopolitical risks of buying into Chinese growth stocks?

5 Best China Stocks For 2014: China Automotive Systems Inc.(CAAS)

China Automotive Systems, Inc., through its interests in Sino-foreign joint ventures, engages in the manufacture and sale of power steering systems and other component parts for the automotive industry in the People?s Republic of China. It offers a range of steering system parts for passenger automobiles and commercial vehicles. The company provides 4 separate series, 307 models of power steering, including rack and pinion power steering, integral power steering, electronic power steering and manual steering, steering columns, steering oil pumps, and steering hoses. China Automotive Systems, Inc. was founded in 2003 and is headquartered in Jing Zhou City, the People?s Republic of China.

Advisors' Opinion:

• [By Richard Schmidt]

  China Automotive Systems (CAAS), which makes auto systems and components, reported record-high net sales for the third quarter. The report excited investors, who bid the stock up about 30% for the month.

5 Best China Stocks For 2014: China Valves Technology Inc.(CVVT)

China Valves Technology, Inc., through its subsidiaries, engages in developing, manufacturing, and selling low, medium, and high-pressure metal valves for customers in the electricity, petroleum, chemical, water, gas, nuclear power station, and metal industries in China. The company?s product categories include high pressure and high temperature valves for power station units; valves for long distance petroleum and gas pipelines, and sewage; special valves for chemical lines; and large valves for water supply pipe networks. Its products comprise gate, globe, check, throttle, butterfly, ball, safety, water pressure test, vacuum, and extraction check valves. The company markets its products through regional agents and distributors. China Valves Technology, Inc. has a strategic cooperation frame agreement with Dongfang Electric Corporation for the development of high-end valves. The company was founded in 2007 and is headquartered in Kaifeng, the People's Republic of China.

Top 10 Low Price Companies For 2014: Perfect World Co. Ltd.(PWRD)

Perfect World Co., Ltd., through its subsidiaries, engages in the research, development, operation, and licensing of online games primarily in the People?s Republic of China, the United States, and the Rest of Asia. It develops online games based on its game engines and game development platforms. The company?s 3D massively multiplayer online role playing games (MMORPGs) include Perfect World, an adventure and fantasy game with traditional Chinese settings; Legend of Martial Arts, an adventure story of Chinese swordsmen set in an ancient kingdom; and Perfect World II, which is set in a similar content and graphic background as Perfect World. It also offers Zhu Xian that is based on martial arts focused adventure set in a fantasy world; Chi Bi, a war story developed based on ancient Chinese history known as the Three Kingdoms; Hot Dance Party, a 3D online casual game; Pocketpet Journey West, a 3D MMORPG based on the classical novel of Chinese literature, Journey to the West ; Battle of the Immortals, a mysterious adventure, which enables game players to travel between eastern and western cultures, and adventures in historic sites and turf wars; and Fantasy Zhu Xian, a 2D turn-based MMORPG based on the Internet fantasy novel Zhu Xian. It also involves in the production and distribution of films, as well as television advertising activities. The company was founded in 2004 and is based in Beijing, the People?s Republic of China.

Advisors' Opinion:

• [By Paul Ausick]

  Before markets open Tuesday morning we are scheduled to hear results from Perfect World Co. Ltd. (NASDAQ: PWRD), Urban Outfitters Inc. (NASDAQ: URBN), Barnes & Noble Inc. (NYSE: BKS) which announced a new video app today, Best Buy Co. Inc (NYSE: BBY) which is included in our preview of this week�� results from retailers, Dick�� Sporting Goods Inc. (NYSE: DKS), Home Depot Inc. (NYSE: HD), J.C. Penney Co. Inc. (NYSE: JCP), and Trina Solar Ltd. (NYSE: TSL).

• [By Eric Volkman]

  Perfect World's (NASDAQ: PWRD  ) fortunes might just be improved with a freshly announced new title. The company has revealed that its latest game, Fortuna, will be available starting on July 18. Set in Europe during the Age of Discovery, the browser-based title is a strategy/war game in which players vie to develop modest settlements into global empires. Fortuna features the usual cutthroat conventions of the strategy and combat genres, including the ability to throw armies into battle, and to form opportunistic alliances with other players.

• [By Rick Munarriz]

  Tuesday
  Perfect World (NASDAQ: PWRD  ) logs in with its quarterly results on Tuesday.

  Online gaming is hot in China, but Perfect World has seen better days. Analysts see revenue sliding 15% for the quarter, with earnings taking an even bigger 46% hit. Despite the uninspiring fundamentals, shares of Perfect World did hit a fresh 52-week high this past week. There are some potentially promising games in the pipeline, so clearly the market thinks Perfect World will turn things around.

5 Best China Stocks For 2014: Yanzhou Coal Mining Company Limited(YZC)

Yanzhou Coal Mining Company Limited engages in the underground mining, preparation, and sale of coal. It involves in manufacturing, washing, processing, and selling steam coal used in the electricity power sector; and metallurgical coal used with coking coal in the process of pulverized coal injection, as well as operates six coal mines. The company also engages in the provision of railway transportation services; production and sale of coal chemicals, primarily methanol; and generation of electricity and heat. In addition, it involves in the manufacture and sale of mining machinery and engine products; and development of integrated coal technology. Further, the company engages in the transportation via rivers and lakes; sale of construction materials; and trading and processing of mining machinery. It has operations primarily in China, Japan, South Korea, and Australia. The company was founded in 1973 and is based in Zoucheng, the People's Republic of China. Yanzhou Coal Mining Company Limited is a subsidiary of Yankuang Group Corporation Limited.

Advisors' Opinion:

• [By Roberto Pedone]

  Yanzhou Coal Mining (YZC) engages in the underground coal mining, as well as preparation, processing, sale and railway transportation of coal. This stock closed up 7.6% to $7.31 in Thursday's trading session.

  Thursday's Range: $7.14-$7.31
  
  52-Week Range: $6.68-$18.57
  
  Thursday's Volume: 391,000
  
  Three-Month Average Volume: 370,383

  From a technical perspective, YZC bounced sharply higher here right off some near-term support at $6.77 with above-average volume. This stock has been downtrending badly for the last six months, with shares plunging from its high of over $14 to its recent low of $6.68. During that move, shares of YZC have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of YZC have recently formed a double bottom chart pattern at $6.68 to $6.77. This stock now looks ready to reverse that downtrend and possibly trigger a near-term breakout trade. That trade will hit if YZC manages to take out some near-term overhead resistance levels at $7.76 to $8 with high volume.

  Traders should now look for long-biased trades in YZC as long as it's trending above its recent low of $6.77 and then once it sustains a move or close above those breakout levels with volume that hits near or above 370,383 shares. If that breakout triggers soon, then YZC will set up to re-test or possibly take out its next major overhead resistance levels at $9 to $10. Any high-volume move above those levels will then give YZC a chance to tag its next major overhead resistance levels at $10.67 to $11.11.

• [By Belinda Cao]

  Yanzhou Coal Mining Co. (YZC), China�� fourth-largest coal producer, lost 3.6 percent last week to $10.33. The company posted its eighth weekly slump, the longest stretch of declines since August 1998. Bank of America Corp. cut the stock to the equivalent of sell from neutral May 3.

• [By MarketWatch]

  Treasurer Joe Hockey said Yanzhou Coal Mining Co. (YZC) no longer needed to meet a Dec. 31 deadline for reducing its stake in Yancoal Australia Ltd. (YAL.AU) below 70%, citing the downturn in global coal prices. Yanzhou, which owns 78% of Yancoal Australia, had made the commitment in 2009 to complete its 3.5 billion Australian dollar (US$3.2 billion) takeover of Felix Resources Ltd.

5 Best China Stocks For 2014: Ctrip.com International Ltd.(CTRP)

Ctrip.com International, Ltd., together with its subsidiaries, provides travel services for hotel accommodations, airline tickets, and packaged tours in the People?s Republic of China. It also sells independent leisure travelers bundled package-tour products, which include transportation and accommodation, as well as guided tours covering various domestic and international destinations. In addition, the company offers Internet-related advertising, aviation casualty insurance, and air-ticket delivery services. Further, it sells Property Management System, a hotel information software; travel guidebooks, which provide information for independent travelers; and VIP membership cards that allow cardholders to receive discounts from various restaurants, clubs, and bars. The company was founded in 1999 and is headquartered in Shanghai, the People?s Republic of China.

Advisors' Opinion:

• [By Brian Pacampara]

  What: Shares of Chinese travel website Ctrip.com International (NASDAQ: CTRP  ) surged 19% today after its quarterly results and outlook topped Wall Street expectations. �

• [By Yiannis Mostrous]

  Ctrip.com International (CTRP)

  With a 48% market share, Ctrip.com holds the crown as China's leading online travel agency, offering a one-stop shop for booking hotels, flights, and packaged tours.

Boom in Demand for 401(k) Advisors

The 401(k) market is roaring ahead for qualified plan advisors, but advisors who specialize in group retirement plans are few and far between.

Working with 401(k) plans is time-consuming and “it is hard to find someone willing to learn the business. You have to get someone early on in their career,” said Jania Stout, practice leader and vice president of the Fiduciary Consulting Group at PSA Financial Services Inc., based in Hunt Valley, Md.

Because of that, Stout says she is always looking for skilled advisors to hire. If five skilled 401(k) advisors applied for a job with PSA today, she said she would hire them on the spot.

“It is a big market. There is a huge shift going on. It used to be that brokers or advisors would have a couple of plans in their whole entire career. Now most of the plans are moving to 401(k) specialists,” she said. “Because of that, our team is growing. A lot of plan sponsors are looking for someone really qualified at this; someone who knows compliance and provider landscapes.”

Top 10 Warren Buffett Companies To Watch In Right Now

The fact that plan sponsors are actively searching out skilled 401(k) advisors is a recent trend, she said.

In the past, plan sponsors could practically ignore their plans. The 401(k) was a relatively small employee benefit that was overshadowed by time spent working with health care benefits. Now, because of litigation and regulatory scrutiny of plan fiduciaries, chief financial officers are realizing they can’t just turn to their golf buddy as a plan advisor.

There is a big gap between the advisors who are real experts in qualified plans and newer advisors who are on the learning curve while trying to amass clients, said Jason Grantz, an institutional consultant with Lexington, Ky.-based Unified Trust Retirement Plan Consulting Group.

To address that, some advisors are beginning to partner with those who have the expertise. “They are splitting accounts instead of competing against each other,” Grantz said.

That trend will continue as greater regulatory attention is paid to qualified retirement plans.

The industry has evolved much in the past 15 years. The 401(k) plan, designed as a supplemental retirement vehicle to Social Security and pension plans, is now expected to shoulder most of the retirement load. This evolution has led to more regulation to make sure participants are treated fairly, are offered the best benefit and that conflicts of interest are vetted and corrected as soon as possible, Grantz said.

A lot of new regulations have been adopted in the past few years and more are coming including changes to the Securities and Exchange Commission’s and Department of Labor’s fiduciary standards.

That will have the dual effect of keeping many out of the business and boosting demand for those with the right skills.

Linda Leitz, chair of the National Association of Personal Financial Advisors, or NAPFA, said her organization hasn’t seen a lot of certified financial planners jumping in to work in the 401(k) space, and a big reason for that is the regulatory environment.

“ERISA said that anyone advising on a plan is a fiduciary and needs to take a fiduciary stand in dealing with people,” she said. “I don’t see CFPs leaving because of that. Many are saying they are not going to have that relationship with 100 different participants in a plan.”

Stout, for one, nowadays looks at junior brokers at wire houses who want to transition to a fee-based or fiduciary advisory model. It also has looked at professions that have the necessary skills to be an effective plan advisor, people like teachers and military veterans.

“So much of our job is educating plan sponsors on regulations or how fees and revenue-sharing works. Being a good communicator is really important,” Stout said. “We look at industries people haven’t thought of before.”

NVIDIA Drops Shield Price to $299: Desperate or Brilliant?

Last month, NVIDIA (NASDAQ: NVDA  ) started taking pre-orders at $349 for its first handheld gaming device, NVIDIA Shield.

Naturally, that number upset more than a few people and drew skeptical reactions. Remember, Sony  (NYSE: SNE  ) , for one, long struggled to sell its own Playstation Vita handheld until it finally dropped the price by $100 to $249.

Besides, the mobile gaming market is also currently being upended by smartphones and tablets, which are arguably the biggest reason Sony had such a hard time selling its Vita in the first place. (Incidentally, that's something at least one fellow Fool saw coming long before he Vita was even released.)

Of course, unlike Sony, NVIDIA doesn't exactly have the widely favored Playstation 4 to fall back on, so many couldn't help but wonder why NVIDIA even entered the crowded handheld space to begin with.

Sure, the Tegra 4-powered Shield runs on Android, and its specs are impressive in their own right. What's more, hardcore gamers love the that fact Shield not only includes a comfortable gaming controller built in, but also enables them to stream high-powered games from their PCs via Wi-Fi, and even to their big-screen TVs.

In fact, that's why Shield has already raked in dozens of awards, including "Best of Show" at this year's CES, Computex, and E3.

Image source: NVIDIA

One final touch
Even so, many folks still couldn't seem to get past the sticker shock. In an official company blog post published on Thursday, NVIDIA's Jason Paul acknowledged, "We've heard from thousands of gamers that if the price was $299, we'd have a home run."

"So," Hall went on, "we're changing the price of Shield to $299."

As it stands, Shield won't actually be available for another week but, for those who've already pre-ordered the system, they'll be charged the new, lower price when it ships. 

Finally, Hall summed up the post by saying NVIDIA simply wants "to get Shield into the hands of as many gamers as possible [...] because we think they'll have the same reaction to it as thousands of gamers already have: joy."

The elephant in the room
Unfortunately, this absolutely begs one awkward question: With a week to go until Shield's official release, is this a sign of desperation from NVIDIA?

After all, so far the company has remained mum on actual sales numbers for Shield, so you can't help but wonder whether this move was a reaction to less-than-satisfactory pre-order results.

Then again, while I wasn't going to complain if the product actually sold well, last month I did warn we shouldn't expect Shield to move NVIDIA's revenue needle in the near future -- especially since it's a relatively niche product, anyway. What's more, as fellow Fool Evan Niu also recently suggested, one saving grace for NVIDIA if it all hits the fan is that Shield "only required relatively small incremental investments and amounts to a cheap experiment."

Bigger and better things
Still, I'd like to reiterate placing undue focus on Shield's sales numbers may be missing the point entirely.

Remember, as I also wrote last month, I think NVIDIA is using Shield "as an avenue through which it can raise awareness for its platform-independent, cloud-based GRID gaming solution."

And while NVIDIA's happy to continue extending its innovation to traditional console-based game platforms, its increasing focus on cloud-based solutions has made its long-term vision more clear by the day. Thanks to GRID, NVIDIA claims:

You'll soon be able to stream video games from the web just like any other streaming media. GRID renders 3D games in cloud servers, encodes each frame instantly and streams the result to any device with a wired or wireless broadband connection.

The page goes on to highlight users will be able to use GRID to experience "high-quality, low-latency, multi-device gaming on any PC, Mac, tablet, smartphone, or TV."

With that in mind, do you really think NVIDIA is all that concerned if Shield doesn't immediately take the world by storm? I certainly don't, because it looks like the folks at NVIDIA have their minds set on much bigger and better things for the gaming industry.

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Advisers brave polar vortex's brutal cold

Having a hard time getting up for work after your holiday? Try waking to brutal subzero temperatures like financial adviser Paul Jarvis.

For the Fargo, N.D.-based United Capital Financial Advisors employee, a normally breezy two-block commute turned painful today as the -45 degrees Fahrenheit wind-chill scorched his flesh.

“It feels like your face is going to freeze off,” said Mr. Jarvis, who was born and raised in North Dakota. “The raw temperature has been negative so long. I've had worse weather as far as blizzards and snow, but the consistency of negative temperatures – I haven't seen it this cold.”

Advisers and their clients in more than a half-dozen states are braving a polar vortex this week as an arctic air mass swept over the nation's midsection, sending temperatures in the U.S. plummeting to their lowest point in years in cities and towns from the Western Plains states to the Midwest and even to the South.

In Indianapolis, offices for Merrill Lynch Wealth Management closed and telephones were forwarded to other offices as the city's mayor, Greg Ballard, temporarily restricted driving to emergencies only. Charles Schwab Corp. closed its Indiana service center, suggesting on Twitter that clients who call may have to endure longer hold times. And advisers in other cities were forced to reschedule appointments as parents stayed with children excused from school for a snow day.

But for scores of advisers flung across the West and Midwest, the precipitous drop in temperatures over the weekend meant no respite from work.

For Matthew W. Hatfield, an Edward Jones broker in Ashland, Wis., -17 degrees was far from enough to deter him from what he described as unusually heavy business at the beginning of the year.

“I did have one person not come in because their vehicle couldn't start, but that's it,” said Mr. Hatfield. “Worst-case scenario, I take a snowmobile.”

That is no joke. When Mr. Hatfield showed up to his gym early Monday morning, several snowmobiles were parked outside. Most of Mr. Hatfield's neighbors own the vehicles for exactly this kind of weather.

“That's called winter for us,” he said. And the chilly weather means better ice fishing, he added.

But public officials warn caution, saying the frosty temperatures can easily kill people who are not properly clothed.

Kevin R. Miller, president and CEO of Fringe Benefits Design Inc. in Bloomington, Minn., braved a wind-chill of -25 degrees. He offered practical advice: “Always travel with a lot of winter gear in your vehicle. Wear a good coat and make sure you pay your utility bills.&! #8221;

Clinton Struthers, owner of Struthers Financial Services, in Midland, Mich., said he made it in to work today, which is a half-mile from his home, despite the fact that it is only 13 degrees and has been snowing for the past three days.

“My God, they've closed everything around here, yet all the kids will still be able to make it to the mall,” Mr. Struthers said. “I've had one client cancel today, but she is 85 years old, so that probably makes sense.”

Joyce Hanson and Jeff Benjamin contributed to this story. Like what you've read?