In the first week of December, Chevron (CVX) announced that it will spend almost $37 billion in 2013 across the world. The increased capital budget spending will be used for oil exploration and building huge capital projects. The figure is a 12% increase from 2012 spending budget and an astonishing 70% increase since 2010. Based on my research, Chevron is taking the right steps to increase its profitability in the coming years. The increased capital spending will help Chevron to consolidate its existing assets and to discover profitable avenues which will increase the company’s revenue in the long run.

Of the $36.7 billion that is slated to be spent in 2013, $33 billion will be spent in exploration and production of oil and gas. Of the $33 billion, $7.5 billion will be spent in the U.S., $3.4 billion in West Africa and shale regions across the world, $2.7 billion for refining and other downstream operations and another $3.3 billion for expenditures of Chevron’s affiliates. Chevron will concentrate on Gulf of Mexico projects, operations in West Africa and the Gorgon LNG project in Australia, all of which are located in stable countries that do not have major risks.

The money that Chevron has decided to spend in 2013 will likely be used to build infrastructure and facilities that will help the company to transport what it drills. It is also important to note that Chevron wants to increase its worldwide oil and gas production to 3.3 million barrels per day by 2017. If Chevron wants to grow further, it will have to discover newer oil fields and consolidate existing oil fields, infrastructure and drilling facilities. To continue reading, click here.

There are few things quite so profitable as a government sanctioned monopoly. And when that monopoly is granted in a market with growing demand (the result of irresistible demographic forces), the stage is set for considerable value creation.

Yes, the pharmaceutical industry is a profitable one. But that river of profits comes with a dark side. Regardless of the size of these companies, they and their shareholders have learned, to the dismay of both groups, that research and development efforts do not necessarily scale. That is, it is difficult to forecast the payoff of an incremental $1 billion spent in R&D. With a need to constantly replenish their roster of patent-protected drugs, many pharmaceutical companies have aggressively used their financial heft to buy the innovation that they are increasingly hard-pressed to deliver internally. Great deal for biotechnology companies, questionable deal for pharma shareholders.

Here I will analyze five of the giants, and see how they stack up. In this analysis, I will focus on measures suggestive of management’s ability to operate with financial discipline, rather than digging into the pipeline of drugs in development for each of these behemoths.

Pfizer (PFE)

SG&A: Over the past three years, SG&A as a % of sales has jumped to 32.5% from 30.5%.

Research & Development: While this expense increased 16.5% between FY09 and FY11, when viewed as a % of sales, it appears that management has managed to wring some efficiencies out of their massive R&D program. The amount has dropped more than two percentage points, to 13.5% from 15.9%.

Cash and Short-Term Investments: $3.5 billion in cash and $23.3 billion in short-term investments sat on the balance sheet as of FY11.

Debt: Net Debt is $42.3 billion, down considerably from $55.7 billion in FY09. Leverage has dropped to 1.4x, from 2.2x. To continue reading, click here.

Don’t be distracted by a recent legal win in the U.S. for tobacco companies: governments around the world are proposing and passing tobacco regulations. In light of this, tobacco companies face global regulatory risks. Unfortunately, their high valuations fail to compensate investors for these risks.

A Tobacco Win in the U.S.

A Washington-based U.S. Court of Appeals upheld a decision that frees tobacco companies from putting pictorial health warnings on cigarette packets provided by the Food and Drug Administration. The court’s 2-1 decision stated that the lower court ruling violated the freedom of speech of tobacco companies as per the First Amendment of U.S. Constitution.

The U.S. FDA has asked for a full review against the decision given by three-judge panel in the favor of tobacco companies to block the mandate for showing the dangers of smoking. The government failed to give enough data that how these warnings would cut the smoking rates.

According to FDA “The First Amendment does not need statistical proof of the extent to which the decline in smoking rates resulted ‘directly’ from the new health warnings.”

In 2011, R.J. Reynolds (RAI), Liggett Group, Commonwealth Brands and other tobacco players in the country filed a suit against FDA for violation of First Amendment, by the mandate passed under the Family Smoking Prevention and Control Act for cigarette packages.

Tobacco Crackdown: From Russia with Love

This U.S. decision in favor of cigarette companies is the exception, not the norm. To continue reading, click here.

Understanding the value of a bank is beyond human comprehension. There is too much uncertainty from legal risks, the implementation of new regulations, and danger lurking in opaque accounting. Even if the economics of banking is somehow certain (it isn’t) or if banks could be accurately valued without error (they can’t because they are extremely levered), external shocks make them highly speculative.

Investors should either stay away from banks, or pick up the cheapest ones as small, low cost, speculative bets.

Industry Wide Legal Threats

The latest tremor to shock financial companies came in the form of a class action lawsuit filed against twelve different banks which allegedly profited by colluding to fix LIBOR. Plaintiffs include the following banks from the United States, Canada, and Europe: JPMorgan Chase (JPM), UBS (UBS), Bank of America (BAC), Citigroup (C), Barclays Bank (BCS), Royal Bank of Scotland (RBS), HSBC Holdings (HBC), Lloyds Banking Group (LYG), Rabobank, Credit Suisse , Deutsche Bank (DB), and Royal Bank of Canada (RY).

LIBOR is the London interbank offered rate, which is widely used as a benchmark for variable rate lending rates such as variable rate mortgages. Substantial increases from a market value could have increased interest payments due on over $300 trillion of LIBOR-based debt securities like adjustable rate mortgages.

That’s right: the often pitied American homeowner is a defendant. A case like this is a lawyer’s dream: the defendants are lovable and down-on-their-luck home owners while the plaintiffs appear to laypeople as cold, unfeeling financial goliaths who supposedly exploit the little guy. This case almost wins itself!

More importantly for lawyers, these plaintiffs are loaded. To continue reading, click here.

Fitch Ratings has recently reaffirmed Goldcorp’s (GG) ratings at BBB. This is because the company has “substantial reserves with impressive mine lives.” This means that Goldcorp has a lot of mines that are doing well and tend to produce at high rates for a long period of time. This is exactly what many investors are looking for in a mining stock. In addition, the Goldcorp reserves are located in areas that have a very low geopolitical risk, making them appear even more attractive. There is a low chance that mining activities will be disrupted for political reasons at any point. For the sake of Goldcorp investors and stockholders, this is hopefully a state of affairs that will be maintained for a long time to come.

I feel that Goldcorp is bound to be successful for a few basic reasons. In addition to the reasons I have already mentioned, this is a company that is one of the lowest-cost senior producers of gold in the world. It also has a strategy that is focused on growth, and this will allow the company to deliver a good value for shareholders over a longer period of time. The company also has a good amount of liquidity, and this will allow it to “pursue its large capital spending program”. Company expansion, exploration projects, and the increasing price of gold will allow the company to reach its goal of increasing production by at least 70% by 2017.To continue reading, click here.

Anybody that follows the mortgage REIT sector has probably seen the scare stories about the high level of volatility associated with these stocks in the financial press. So how much truth is there to these stories? How vulnerable are mortgage REITs, and are some of them safer than others?

The biggest potential threat to mortgage REITs identified by the doomsayers is rising interest rates. The standard argument runs something like this: mortgage REITs need low interest rates to keep the spread they need to make money. Any rise in interest rates will kill their ability to make money and send the stocks into a nosedive.

This scenario is not likely to pass anytime soon, because the Federal Reserve has a policy of keeping interest rates under 2%. The Fed does this in order to stave off inflation, which most of the economists that run it think is the worst economic evil of all. The inflation hawks at the Fed have been keeping the interest rate as low as possible since 2008 in an attempt to stave off inflation.

News articles also indicate that the Fed expects interest rates to stay low through 2014. That means the lending environment that mortgage REITs profit from should stick around for at least two more years. That’s very good news, especially to smaller fast-growing mortgage REITs, such as Chimera (CIM) and Two Harbors (TWO). They should continue to see their business grow as long as the economy remains relatively good and interest rates remain low.To continue reading, click here.

BHP Billiton, Rio Tinto, Freeport-McMoRan, Goldcorp and New Gold have their work cut out for them, and are scrambling to adjust for potentially lower margins as metals prices drift lower.

The rumor mill has it that BHP Billiton (BHP) is planning on another major acquisition. The British newspaper the Telegraph is reporting that BHP is plotting an acquisition of Walter Energy (WLT), a coal producer based in Birmingham, Alabama.

Walter produces metallurgical, steam, and industrial coal. It also owns a subsidiary that harvests natural gas from coal fields. BHP has been trying to buy into the U.S. natural gas business for some time. British newspapers claimed that BHP may have lost as much as $5 billion in its efforts to move into gas.

Few details about the acquisition plans are available. Although media speculation indicates that BHP is planning a multibillion dollar bid for Walter, British reporters are citing the usual stock market rumors and inside sources, so these stories may not be credible. Walter operates coal mines in the U.S., Canada, and the United Kingdom.

These acquisition rumors may not be true because BHP seems to be slowing its operations in other areas. Some media reports indicate that BHP could be planning to scale back on its ambitious expansion plans. This could include scrapping some projects or delaying them until conditions improve.

Such acquisition rumors are likely to hurt BHP’s stock value. The company has already lost $5 billion in forays into the gas business.To continue reading, click here.

There are dozens of ideas being bandied about dealing with how Netflix (NFLX) should address increasing competition and rebuild a loyal following. That includes partnering with cable providers, which could bode well for the entertainment video giant that has long been seen as overvalued by investors.

When Netflix came onto the scene in 1997, it was a darling in the eyes of consumers and investors alike. It was rewarded with a fast-growing subscriber base, as also eager investors, that drove the stock above $300. However, as quickly as it rose, it fell, and now it is trying to redefine its self to its customers and to investors. To help it with these goals, Netflix should consider partnering with cable companies, according to a report released this week by Moody’s Investors Service.

As Moody’s correctly points out, such a partnership could open another sales channel that could lead to an increase in subscribers. I believe that Netflix is in dire need of having as many avenues as possible to deliver its service so a partnership can help it tap into a market of potential customers that it had not previously been able to access. This is imperative if it wants to increase its membership numbers. Netflix’s huge misstep last year with regards to running up its charges on subscribers resulted in a significant loss of customers.

The company increased subscription rates by as much as 60%, and simultaneously set the stage for the exodus of almost 1 million customers. To continue reading, click here.

I’ve been seeing a lot of smaller, niche banks and financial companies that interest me lately. Many of these stocks have been hit hard over the last few years in the wake of the sub-prime scandal and ensuing recession. The smaller regional financials have always been a good place to look for dividends and now is the right time to get in.

Many banks, like Fifth Third Bancorp (FITB) had limited exposure to the mortgage crisis and were able to maintain ample liquidity through the crisis. Others have been steadily strengthening their balance sheets, divesting bad debts and preparing for future growth. Large cap banks are still not out of the woods in terms of the mortgage crisis. Their corporate images have been damaged, making local and regional banks more attractive to consumers.

Fifth Third and US Bancorp (USB) reported increased deposits and account levels. The larger banks, like Citigroup (C) and Bank of America, have had to use creative accounting in order to post profits. Most of the revenue reported by Bank of America in 2011 is actually from sales of its stake in a Chinese bank and was offset by billions in charges relating to the mortgage crisis. Who is to say there won’t be any further damages?

The large banks are also facing increased challenges from the global economy. The International Monetary Fund has downgraded its 2012 estimates and is predicting a larger than expected impact from the European recession. American based regional banks are insulated, at least somewhat, from international slowing.To continue reading, click here.

This articles continues my focus on biotechnology stocks. I have included a table for each stock to aid us in staying on point. These biotech have an upside catalyst, making them great candidates for further diligence.

Gilead Sciences Inc. (GILD), trading at about $45.00 per share, is a large cap ($33.72 billion) focused on discovering, developing, and commercializing drugs to treat life-threatening infectious diseases. It has 4 products on the market for the treatment of HIV infection in adults. It also markets Hepsera, an oral formulation for the treatment of chronic hepatitis B, and AmBisome, amphotericin B liposome injection to treat serious invasive fungal infections, to name a few.

It is also close to completing the acquisition of Pharmasset, Inc. (VRUS), which is researching nucleoside/tide analogs for the treatment of chronic hepatitis C virus (HCV) infection, an obvious parallel to GILD’s work on the hepatitis B virus. Gilead has no fewer than 20 therapies in its pipeline, with 5 of these in Phase III. The company is adequately capitalized and has a manageable debt load. It has experienced no significant roadblocks and has an excellent management team on both the business and scientific fronts.

Onyx Pharmaceuticals, Inc. (ONXX) is a mid cap ($2.81 billion) and trading at around $44.00 per share. To continue reading, click here.

Abbott Laboratories (ABT) stock has been on a roll, just off 52-week highs and now approaching all-time highs. I decided to take a closer look in the stock and see if it is worth pursuing at these prices. Here are the 6 points I looked at:

Valuation: Abbott’s five-year trailing valuation metrics suggest that the stock is slightly undervalued. Abbott’s current P/B ratio is 3.5 and it has averaged 4.1 over the past five years with a high of 6.0 and a low of 3.1. Abbott’s P/S ratio is 2.3 and it has averaged 2.7 over the past five years with a high of 3.6 and a low of 2.1. Abbott’s current P/E ratio is 19.3 and it has averaged 21.7 over the past five years with a high of 55.3 and a low of 13.4.

Price Target: The consensus price target for the analysts who follow Abbott is $58. That is upside of 2% from ABT’s current stock price. That is very limited upside.

Forward Valuation: Analysts forecast that Abbott will earn $5.03 per share next year. With a current stock price of $55.86, that is a forward P/E multiple of 11.1. Although there are no direct comps because of patents and proprietary products involved, it makes sense to look at what other large drug stocks are trading at. Eli Lilly (LLY) is trading 11.7 times next year’s earnings. Merck (MRK) is trading 10.0 times next year’s earnings. Pfizer (PFE) is trading 9.3 times next year’s earnings. Abbott is trading just above the mean forward P/E for the four large-cap drug stocks.

Earnings Estimates: Abbott beat EPS estimates the last four quarters, each time by one penny.To continue reading, click here.