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.

Pfizer’s (PFE) current pipeline makes it a more attractive investment option than its peers and rivals. The company has 78 drugs in its pipeline currently. 53 of these drugs are in Phase 1 or Phase 2 trials. Eight, however, are in registration, and another 17 are approaching registration in Phase 3 trials. In just the last three months the company has seen four of its drugs approved for sale by the FDA.

By comparison, Merck (MRK) has 32 drugs in trial stages, and three under review. Johnson & Johnson (JNJ) has a total of 16 drugs in clinical trials with two in registration. Both of these companies have particularly weak pipelines, although Johnson & Johnson does not depend as heavily on its pharmaceutical business as Merck does. Bristol-Myers Squibb (BMY) has seven drugs in the registration phase with an additional 46 drugs in the clinical trials stage. Eli Lilly (LLY) has a healthy 62 drugs in clinical stages. But Eli Lilly is in trouble given that its best-selling drug Cymbalta is on track to lose patent protection in the first half of 2013. Cymbalta provided Lilly 22% of its revenue in 2011 and losing patent protection will see Cymbalta sales decline by two-thirds or more.

Pfizer’s recently approved drugs will go a long way towards making up the $9 billion a year in sales that Lipitor, which has lost patent protection, provided. The rheumatoid arthritis drug Xeljanz is expected to provide more than $2.5 billion in sales a year. Xeljanz is a pill taken twice a day that functions by inhibiting molecules known as “Janus kinases”, crucial to the joint inflammation that characterizes rheumatoid arthritis. To continue reading, click here.

Trends of higher unemployment and lower workforce participation have started to reverse. More hiring benefits companies that engage in staffing and payroll support. In this article, I will discuss six stocks which could benefit from a continuation in this economic trend. The six stocks I will discuss are Monster Worldwide (MWW), LinkedIn (LNKD), ADP (ADP), Paychex (PAYX), Manpower (MAN), and Robert Half (RHI). I chose these six stocks for discussion because I believe they could potentially offer investors the biggest gains from a jobs recovery.

Monster Prepares for Sale

Monster Worldwide’s Executive VP Timothy Yates shared plans to sell the whole company, citing management presentations to several potential buyers. The management team hopes to sell the core business and is willing to sell non-core assets first in order to streamline a takeover.

Monster stock rose 10% after disclosing its plans to restructure by shedding lesser performing businesses and seeking a buyer for its ChinaHR unit. The company wants to tame losses in the developing markets and focus on its core business. Monster has been cutting costs and downsizing its workforce since March due to declining revenues lost to competitors and the economic slowdown in Europe. Monster’s changes are expected to shed costs by another $130 million annually.

The company also wrote down goodwill of $216 million in the third quarter. MKM Partners analyst Eric Handler said, “It looks like they’re trying to make it easier for the company to be sold and sell off pieces to make the company more attractive as a whole”.

The company bought ChinaHR on a “staggered” basis for a total of $243.9 million – a 40% stake for $50 million in 2005, an additional 4.4% for $19.9 million in 2006 and the remaining 55.6% for $174 million in 2008. To continue reading, click here.

People are increasingly putting their money into health and well being, with the focus on living longer through the use of medicines and other artificial means. That means companies like Abbott (ABT) have a really good chance of staying on top of the heap for a long time, since their healthcare products are in high demand.

Companies like Merck (MRK) have some concerns with the development of generic medicines curtailing its sales. It is easy to see the problems with a market where products are in such high demand. Competitors undercut you simply by developing cheaper substitutes. Yet, should this be a lingering concern for big, established companies? No. This is really only a temporary concern. These are generic medicines with no brand loyalty. Even though generics are a setback for now, they shouldn’t cut too far into the earnings of the big pharmaceuticals.

Conversely, Abbott’s $1.6 billion settlement is definitely something to watch closely. This is even more concerning since the settlement was for the promotion of “off label” usage. This is the second biggest settlement by a healthcare company since Pfizer (PFE) paid $2.3 billion in a settlement way back in 2009. This can be very dangerous for the company’s perception. Yet, this shouldn’t be too much of a problem, as one report indicates. There are still many good reasons to buy Abbott – it has a good dividend policy and stable financials which would allow the company to bounce back.

One should also consider Pfizer’s foray into nutritional supplements for children. To continue reading, click here.

Hewlett-Packard (HPQ) is a well-known brand in the technology industry. Over the years, the company has managed to build a strong reputation in the global market with a diverse portfolio of products and services. In this analysis, I will discuss some of the most recent developments that will affect the company’s competitive advantages. The most prominent among these developments are acquisitions and divestment plans that the business has announced recently, formation of new partnerships, launch of new innovative products and introduction of aggressive market expansion strategies.

Hewlett-Packard has always targeted a greater market share with its diversified portfolio of innovative products and services. It has recently launched the HP 3PAR, a program that allows clients to boost returns on investment in server utilization by effectively doubling the performance of physical server virtual machines. This innovative new technology has tremendous commercial applications in the future as it promises to boost the capacity of virtual servers by two times.

Apart from this, the company remains as dedicated as ever to push for greater share of the business market. For this reason, Hewlett-Packard has recently unveiled its latest fleet of state-of-the-art high-tech business-oriented commercial computers that are specifically engineered to cater to designing, reliability, performance and security needs of businesses and end-users. This will significantly help Hewlett-Packard in widening its competitive moat in the global market for Ultrabooks.

Hewlett-Packard has assembled a temporary moat around its server and cloud computing businesses.To continue reading, click here.

Netflix (NFLX) provides and sells subscription services for TV shows and movies, offering customers the choice of receiving DVDs by mail, or streaming its available content through various smart devices in the home. Formerly a popular, high-flying growth stock, peaking near $300 per share in July of 2011, the company and the stock have fallen on hard times, and it currently trades around $73 per share. As with all technology stocks, the questions for Netflix are trifold. First, how does it compare to peers? Second, when will its current way of doing business be replaced by the next best thing? Third, how will the company adapt to the changing landscape? Let’s attempt to answer each of these questions, in turn.

Competition, a quick recap

The only direct, apples-to-apples, competition to Netflix is the former video store giant, Blockbuster, now owned by DISH Network (DISH). Both DISH Network and Netflix offer not only streaming entertainment content, but also DVDs through the mail. The Blockbuster division of DISH Network offers the extra component of personally exchanging DVDs in the dwindling number of Blockbuster branded storefronts, but I don’t expect that to be a lasting part of its business model due to unsustainably high overhead.

Coinstar (CSTR), the owner of the unmistakable self-serve DVD kiosks branded as Redbox, is a fringe competitor. Not offering streaming content, users of Redbox rent and return DVDs via roadside kiosks for $1 per day.To continue reading, click here.

Google (GOOG) introduced plans for a stock split in its latest earnings report. Ordinarily good news, this split has investors concerned and confused as it would create a new class of non-voting shares that would be listed under a different ticker symbol than existing stock.

Since the three founders of Google retain a majority vote and are in favor of this measure, I expect it to pass, though Google will be hosting a shareholder meeting pursuant to its legal obligations as a corporation. The stock split would give the Google co-founders even greater control over the company’s direction. Google’s stock has been tracking steadily lower since the announcement, falling from around $651 on April 12 to its current price around $608.

Also in its earnings report, Google revealed problems with its ad auctions that are eroding ad revenues. The root cause of the problem has not yet been identified, but though the number of paid clicks increased by 39% quarter over quarter, Google’s ad revenue decreased by 12% by the same measure. In comparison, Microsoft’s (MSFT) advertising revenue through Bing grew by 13%. Microsoft attributes the improved results to an increase in Bing’s market share, now standing at 15.1%. If this continues, it would spell trouble for Google’s stock price and good news for Microsoft’s.

Google’s overall revenues did increase year over year, from $8.58 billion to $10.65 billion, or 24%. Though this posted as a win in Google’s playbook, uncertainty over the cause and duration of the ad revenue problem, coupled with the upcoming stock split and persistent legal challenges, have pushed the stock into a meandering slide. To continue reading, click here.

PepsiCo (NYSE: PEP) has a strong presence in the world beverage market, but unbeknownst to many is the fact that PepsiCo produces roughly half of its revenue each year through its foods division that owns popular brands such as Doritos, Quaker, Frito-Lay and Tostitos. While PepsiCo competes directly with the beverage behemoth Coca-Cola (NYSE: KO) and the smaller beverage giant of the Dr. Pepper Snapple Group, it also competes with Kraft Foods (NYSE: KFT) and Nestlé in the foods market. The company’s versatility and presence in multiple markets provides it with an economic moat that reduces the risk of investing in the company and secures long term returns for its shareholders.

PepsiCo maintains solid footing in the carbonated beverage industry and has performed well against its main rival, Coca-Cola with its seasonal Mountain Dew offerings that vary each season and its Pepsi Cola product. As consumers have begun to become more health conscious and move away from heavily sugared and carbonated soft drinks, PepsiCo has shifted its focus into its Lipton Tea and Tropicana brands, which provide an assortment of teas and juices. The Dr. Pepper Snapple Group competes with PepsiCo in the tea segment with Coca-Cola pushing back against the Tropicana line with its Minute Maid brand.

A recent probe by the Food and Drug Administration into both Minute Maid and Tropicana may end up hurting both PepsiCo and Coca-Cola, however, after traces of fungicide were found in each brand’s orange juice products. While the initial reports state that the fungicide is nontoxic, the reports themselves will continue to push health conscious consumers away due to the growing trend toward natural foods and beverages with minimal additives. The Dr. Pepper Snapple Group has been taking advantage of this shift by advertising its All Natural line of products.

Where PepsiCo has strength is in its food brands, which compete with Nestlé and Kraft Foods in grocery stores across the globe. Its snack brands also have exposure in convenience stores and gas stations as impulse buys for travelers to snack on over a long drive. PepsiCo plans to make more moves toward providing healthier food as well and already has a footing in the market with its Quaker brand of foods and snacks.

PepsiCo has excelled against its competitors in both the food and beverage markets, showing revenue growth of 13% over the last year which was slightly higher than Kraft Foods’ 11% and well above the 5.2% and 4.9% growth shown by Coca-Cola and the Dr. Pepper Snapple Group, respectively. Its acquisition of the Russian dairy and juice company, Wimm-Bill-Dann has allowed PepsiCo to make a play in Russia and Asia in both the food and beverage markets, widening its economic moat.

The acquisition added $12.6 billion to PepsiCo’s debt load, but its increase in assets has justified its liability. PepsiCo now has $75.3 billion in assets and carries $58.1 billion in liabilities. Its profits have risen over the last three years from $5.1 billion in 2008 to $5.9 billion in 2009 and $6.3 billion in 2010. In the first three quarters of 2011, PepsiCo reported net revenue of $4.9 billion, on track to continue its steady incline.

PepsiCo provides a quarterly dividend of $0.51 per share, for a total of $2.06 per share over the last four quarters. Its quarterly payout provides more opportunity to compound returns for income investors and it is currently paying out at a ratio of 0.52 with a projected yearly yield of 3.2%. I believe that despite its declining carbonated beverage sales, PepsiCo has established enough of a safety net here to protect its dividend and continue to provide returns to its shareholders.

Kraft Foods is the largest threat to PepsiCo in the food market, but I believe that PepsiCo has a broad range of products that allow it to compete and its expansion into the Russian and Asian markets will protect it against any pressure that it receives from Kraft. Nestlé has an extremely strong presence in the Chinese coffee market, which it plans to solidify even further in 2012, but I don’t believe that Nestlé poses a great threat to PepsiCo’s expansion into the Asian market due to PepsiCo’s ability to offer a variety of food products in addition to its beverages.

Over the last three years, PepsiCo stock has grown in value from $47 per share to $63 and I believe that its wide economic moat will protect it against the incursions it will undoubtedly face from the Dr. Pepper Snapple Group in the natural tea and juice market and the opposition it will meet against Nestlé when it expands into China. PepsiCo shows itself to me as a lower risk buy with long term growth potential and consistent dividend gains that can be reinvested for a stronger position in the company.

Automatic Data Processing (NASDAQ: ADP), with a market capitalization of about $26.6 billion, is the largest global provider of payroll, human resources, tax filing, data processing, and benefits outsourcing services. The company has a commanding position in the large company segment of the payroll processing industry but also counts small and medium sized business among its more than 570,000 clients.  The company’s principal competition comes from Paychex (NASDAQ: PAYX), with a market capitalization of about $11.4 billion, which operates in the small and medium-sized business payroll processing space.  Ultimate Software (NASDAQ: ULTI), and Insperity (NYSE: NSP) are much smaller players focused on human resources outsourcing and software with relatively less exposure to direct payroll processing services. Ultimate Software has a market capitalization of about $1.8 billion while Insperity’s market capitalization is about $800 million.

By capturing the large company part of the payroll processing market, ADP has created competitive advantages that have led to robust cash flow growth of around 10%, solid operating margins north of 31%, and strong returns on invested capital just under 22% since 2007.  The company’s primary competitive advantages are high barriers to entry because a large infrastructure is needed to process a large number of employees; economies of scale once the infrastructure is in place because of its ability to add incremental recurring revenue without material capital expenditures and which leverages fixed infrastructure costs over an ever increasing customer base; high customer switching costs due to the company’s long-term contracts and the difficulty in switching human resources processes to another outsourced provider- average client retention is estimated to be longer than 10 years and revenue is highly recurring in nature; pricing power with customers due to the high switching costs; and a brand image that gives ADP an advantage as it competes for new customers and retains existing ones because clients must trust the entity that conducts its critical payroll and human resource functions.

ADP is fundamentally a play on the U.S. economy and with recent signs of a turnaround in the job market, revenue and earnings growth are poised to improve, taking the share price beyond the estimated current intrinsic value of about $70 per share on a discounted cash flow basis. This estimated value is about 30% above the recent share price of about $54 and reflects assumed growth in free cash flow of about 6% annually which is a sizeable reduction from the approximately 10% annual growth rate in free cash flow since 2007.  However, free cash flow has grown by only about 2% since 2002 so a 6% growth assumption is aggressive but warranted given the expected economic recovery and concurrent job growth that ADP can exploit with its competitive advantages.

ADP trades at a multiple to future growth above its smallest peers but well below that of its largest peer.  Analysts estimate that ADP’s earnings growth will be about 9.8% which is better than Paychex at about 7.2%, and with a forward price to earnings ratio of about 18x compared to about 19x for Paychex, ADP has a more attractive price to earnings to growth multiple of about 1.8x compared to about 2.6x for Paychex.  Insperity has the lowest price to earnings to growth multiple at about 0.81x while Ultimate Software’s price to earnings to growth multiple is about 1.2x.  Both of these companies have much higher growth rates as they are growing off much smaller revenue and earnings bases than either ADP or Paychex.  I believe that the projected earnings growth rate for ADP at about 9.8% is reasonable given that earnings grew by about 5% for the year ended June 2011 even with the significant drag of weak employment all throughout the year.  Furthermore, the company’s competitive advantages will be more fully exploited as the jobs market recovers thus growing the customer base, expanding operating margins, and growing cash flow.  Operating margin was only about 31.7% last year compared to a five year average of about 38.5%, leaving significant room for improvement as customers and services offered are added.  Operating cash flow, which was only about 17.3% of revenue last compared to an average of about 18.1% since 2007, grew by only about 1.7% last year.  This rate of growth is much less than the approximately 7.1% annual rate for the past five years which I anticipate will be closer to the rate going forward.  The $70 per share intrinsic value estimate pegs cash flow growth at 6%.

Although the economic outlook and the job market in particular are forecast to be improved in the next two years, their impact will be moderated by low interest rates through 2013 which hurts ADP’s interest income from holding client funds, which has declined to about 6.9% of revenue last year from about 10.4% of revenue in 2007.  Declining income from interest on client funds will be a headwind for the company for the foreseeable future but investors should gladly accept this drag on earnings because I firmly believe the company will not be tempted to reach for yield by placing customers’ funds in high risk investments.  Such a move might be advantageous to income in the short term but would expose the company to real and permanent value destruction if losses in risky accounts caused harm to a client(s) operations or financial position.  The company has never shown an inclination toward such behavior and I doubt it ever would.

ADP has a high current payout ratio of about 55%, which is well above its long term average of about 40%.  Paychex’s current payout ratio of about 84% is much higher than its historic average of about 65% but I believe that in both cases it is temporary until earnings growth moves back toward the historical averages for a sustained period of time.  ADP should increase dividends annually going forward as it has in the past, but at a slower rate than earnings growth to allow the payout ratio to revert to its mean.

ADP ‘s focus on the large business market allows the company to dominate the niche and enjoy its many competitive advantages, but this strategy does limit ADP’s exposure to the higher growth rates and greater volatility of small and medium sized businesses.  Overall, ADP is well positioned to take advantage of the recovery in the jobs market and at its current price of about $54, the shares are a strong buy.  Even if cash flow projections do not materialize to the assumed 6% growth rate going forward or are delayed by a downturn in the economy, the shares are fairly valued at the current price and investors can collect a sustainable 2.9% dividend.

It is earnings season.  For the world’s largest gold producers, profits continue to flow due to the sustained and historically high price for gold.  A primary risk for all of these firms is a downturn in gold prices. Regardless of whether gold prices remains high or falls, equity investors should focus their attention on whether producers are efficient.  Three of the largest players are Barrick Gold Corporation (ABX), Goldcorp Inc. (GG), and Newmont Mining Corporation (NEM). This article will demonstrate why investing in only the most efficient will shine true over the long-term.

First, I will focus on Barrick Gold Corporation (NYSE: ABX), the world’s largest gold producer. The company opened up its most recent mine in the Cortez Hills of Nevada in mid-2012. The company’s newest mines have significantly lower cash costs than older existing mines. Reducing production costs is a highly desirable strategy should gold prices fall.  According to posted financials for 3^rd Quarter 2011,  Barrick’s revenue for the 9 months ending September 30^th, 2011 grew by $2,533 million, an increase of 31.7% over the same period in 2010, while production costs grew by 12.34%. Although revenue growth outpaced production cost, gold volume sold over the period actually dropped by -3.34%.

Barrick will be required to replace gold ore reserves at low cost or face margin compression on any pullback in the price of gold.  The company is actively looking to do so, but whether declining volumes can actually be replaced while maintaining high returns on equity, currently at 19.14%, remains an open question.  Net earnings attributable to shareholders improved for the nine month period and earnings per share grew from $2.66 in 2010 to $3.53 in 2011.  Barrick is currently trading at around $47, near the bottom quartile of its 52 weeks range ($42.50-$55.95) and trades at a lower PE multiple, 11.37, than the industry average of 16.8 times earnings. Barrick is likely the best value of the three large miners, but investors should remain cautious. Gold prices remain historically high and although Barrick is pro-actively working to lower costs there are no guarantees it will be successful.

Next, we have Goldcorp Inc. (NYSE: GG) one of the world’s fastest growing gold producers with 17 properties and several precious mineral sites under development in Canada, Mexico, Guatemala, the Dominican Republic, Argentina and Chile. Over the next five years, Goldcorp expects to grow gold production by 60%.  For the 9 months ending September 30^th, 2011, Goldcorp’s revenues grew by $1,429 million, an increase of 59%. According to the 3^rd Qtr MD&A Report more than half of this increase of $770 million was due to a 30% increase in gold prices and a 7% increase in gold sales volume.

Contrary to its name, Goldcorp also produces other non-ferrous metals such as silver, zinc and copper. The company saw silver post a 214% increase in silver sales volume along with volumes increases for zinc and copper. Production costs rose during the same period leading to lower net earnings attributable to shareholders and lower earnings per share. The company reported earnings of $1.84 per share for the nine months ending September 30, 2011, versus $2.03 per share for the same period in 2010.

Goldcorp’s management announced an aggressive growth strategy through 2015, but already faces lower returns on equity than either Barrick or Newmont. The company’s current ROE is 9.36% versus 19.14% for Barrick and 19.57% for Newmont.  Goldcorp is currently trading at around $47, near the bottom half of its 52 weeks range ($41.91-$56.31) and trades at a higher PE multiple, 23, than its industry peers. Goldcorp is increasing volume faster than its peers, but at a significant cost. To attract investors, the company needs to stabilize or lower production costs. Investors should avoid the stock until the company has shown this ability.

Last but not least we have Newmont Mining Corporation (NYSE: NEM), the world’s second largest gold producer with operations in the United States, Canada, Mexico, Peru, Indonesia, Ghana, Australia and New Zealand. According to posted financials for the 3^rd Quarter 2011, Newmont’s revenues for the nine months ending September 30^th, 2011 grew by $600 million, an increase of 8.6% over the same period in 2010. Costs attributable to sales production costs grew by 9.85%.

The company reported that they achieved record net cash provided from operations for the 9 month period of $2,666 million; however there are some additional areas to consider when assessing the company’s performance. Net attributable costs applicable to sales of gold also increased for the nine month period, from $366 to $497 per once, a 35.8% increase. Gold production dropped for the period by -8.8% and gold volume sold also dropped by -9.28%, while proceeds from the sale of gold grew by 17%. Investors should infer that Newmont essentially saw operating performance worsen, but rising commodity prices masked the overall impact. Income per share attributable to shareholders decreased for the nine month period to $2.82 per share in 2011 from $2.98 per share during the same period in 2010.  Excluding a 28 cents decline due to discontinued operations earnings per share rose to $3.10.

Management has set production targets to increase by 35% over the next 5 years, but this likely predicated on high commodity prices to justify high cost operations. Newmont’s lowest cost mine Yanacocha, which is in Peru, is also one of its oldest and well past its prime. During the 3^rd quarter Yanacocha faced a 45% increase in the cost per ounce. Newmont’s 52 week price range is currently $50.50 – $72.42.  Current share price is close to $59.50. The stocks’ price to earnings ratio is 13.58 times, which is lower than industry peers, but likely, incorporates the company’s higher cost operations. The company seems fairly valued and does not likely offer much long term value for investors.

Europe may be getting its act together to impose austerity, but there are no concrete proposals to promote growth. After all, eurozone unemployment stands at 10.4%, in Spain, it is 22.9%, and in Greece, it is 19.2%. Additionally, the US personal saving rate in December climbed to 4.0% from 3.5% in November, signaling a risk-averse mood by American consumers. The US Q4 GDP report was disappointing as well, with growth in inventories leading the way, instead of showing some other organic form of growth. As such, consumer sentiment fell unexpectedly to 61.1 in January, according to the Conference Board. You may want to build a nuclear fallout shelter, but good dividend yields may help your portfolio survive in the future.

It may be time to consider adding more fixed-income instruments to your portfolio. More particularly, I like preferred stocks because you can smooth out the bumps and erratic moves of the market through consistent dividend payments. Also, these instruments do not ebb and flow like common shares and equities. Keep in mind that companies aim to make the dividend payments to avoid credit rating downgrades. With dividend paying consumer staples stocks running up and reaching overvalued levels, preferred stocks offer reasonable alternatives.

I ran a stock screen to focus on the energy sector, which tends to be speculative, and thus have higher yielding securities.To continue reading, click here.