Don’t be fooled by the attractive price multiples of U.S. and Japanese automaker stocks. Yes, they are often trading at cheap price multiples. However, these discounts come at the cost of higher risk. Ford (F) is highly leveraged and General Motors (GM) is eager to follow suit. Japan’s automakers are suffering setbacks from angry Chinese counterparties and customers. They are also domiciled in a country with an expensive and appreciating currency.

The Bait: Low Valuations

Current financial metrics illustrate how these stocks appear attractive on the basis of price multiples:

Ford has the debt one would expect from a financial services company, because to a large extent it is an auto-loan company that also sells cars.

General Motors is not far behind based on news that it is gaining access to an $11 billion revolving line of credit. This borrowing facility consists of $5.5 billion which will mature in five years and $5.5 billion which will mature in three years. This credit line doubles its $5.5 billion five year facility that was meant to mature in 2015. General Motors’ website said that this new credit line “offers improved pricing and terms, and the ability to borrow in currencies other than U.S. dollars.” This will give its financial business, GM Financial, twice the ability to borrow. More than thirty-five institutions from fourteen countries participated in this gargantuan deal.

This expanded line of credit gives the GM more borrowing power than Ford which has access to $9.3 billion in credit facilities. To continue reading, click here.

The second half of this year has been great for gold. Prices have jumped from a low of $1560 in July to its current $1700. Early in October, prices were knocking on $1800, but failed to get over the milestone. However, gold has seen a pullback since then, and I believe that we could see a resurging gold market after these election results. Understandably, investors have been turning to gold as a hedge against the uncertainties that the market faces such as the U.S. fiscal cliff, Europe’s debt crisis and China’s cooling economy.

When it comes to gold, there are a wide variety of ways to invest. For the purposes of this article, we will talk about gold miners. My favorite play is AngloGold Ashanti (AU). To be fair, AngloGold recently settled a worker strike in South Africa, which was losing the company 32,000 ounces of gold each week. However, the strike is over, and workers will be heading back to work; hopefully, the company can make up a little of that production in the coming weeks.

Lets take a look at the fundamentals to determine the strength of AngloGold Ashanti. To start, the gold miner has a forward price to earnings ratio of 6.86, PEG of 0.96 and has a reasonable debt load, with the debt to equity ratio at 0.45. I like to see a current ratio of 2.72, because that tells me that the company is in strong enough financial position to pay off any unforeseen costs or liabilities. To continue reading, click here.

Austerity trends have arrived for companies in the Code Division Multiple Access (CDMA) business. Weak demand for network equipment and rising competition plagues the sector. The effects of declining demand in North America for network gear that runs on CDMA have been terrible. The entire sector is weak, but some companies are more vulnerable than others.

Recently, Alcatel-Lucent (ALU) reported second quarter results that showed a $312 billion loss. Its sales fell 7.1% from the period a year ago to about $4 billion. Alcatel-Lucent’s revenue from North America, which accounted for 39% of sales, fell 8.3% to $1.7 billion during the quarter. Alcatel-Lucent posted operating margins of 4% at the end of 2011, while its rival, Sweden-based Ericsson (ERIC), managed a margin for underlying earnings of 11.6%. China’s Huawei reported an operating margin of 15.8% in 2010, the last year for which figures are available.

I believe that Alcatel-Lucent is significantly undervalued at its current price of around $1 per share, but I don’t believe it is certain to grow in the next few years. While its rivals such as Cisco (CSCO), Nokia (NOK), Siemens (SI), and Ericsson are coping in a deteriorating macroeconomic environment, Alcatel-Lucent is going through a painful program to accelerate its transformation and reduce costs in order to keep ahead of market pressures.

Alcatel-Lucent may not prosper for several reasons. First, the CDMA business is disappearing. Verizon (VZ), the market leader in the U.S., Second, Alcatel-Lucent is faced with increasing pressure from its telecom vendor rivals and the harsh global economy. is phasing it out. To continue reading, click here.

Investing is all about financing a project with as little capital as possible to receive the most capital back as quickly as possible. Some companies appear better-poised to return capital to investors than others.

Some firms which are selling assets are trading at lower price multiple than firms which are tapping the markets for more capital. The former are attractive buy candidates, while the latter are not.

Companies Selling Debt

According to the Markit iTraxx Crossover Index, the credit ratings of 50 companies have been raised 14 basis points within four consecutive days in the UK. Legal & General Group Head of Credit Strategy Ben Bennett stated during an interview, “We’ve had an amazing run of spread compression and it’s only natural that credit takes a bit of a breather. There is still good demand for new issuance, particularly rare names or deals that provide more yield.”

Two of the world’s biggest companies, Nokia (NOK) and Pepsico (PEP) are selling bonds in Europe. Nokia, which is facing deteriorating sales and market share, has planned to bolster funds by selling convertible bonds in the new European market and thus prevent debt maturity failure. Many other local and international companies are also inclined to sell bonds in Euros to secure their respective financial positions. The increasing stock ratings of high-yield credit companies entice investments in the European market from many multinational businesses.

This sale will provide about $978 million for Nokia with debt maturities in 2017. To continue reading, click here.

While telecoms are struggling through a capital-intensive period, Verizon (VZ) is enjoying expanding profit margins. The telecom jumped ahead of the pack in the buildout of its long-term evolution (LTE) network. It is now focused on maintaining market share as an onslaught of competition approaches. With an estimated 140 million subscribers expected to jump onto LTE networks in the U.S. by 2015 (DigiWorld), global telecoms players are moving in.

The question being kicked about by analysts is, how will the entry of Japan’s Softbank (SFTBF.PK) into the U.S. LTE market affect the competitive dynamics of the LTE market. By buying a 70 percent stake in Sprint Nextel (S), Softbank has fortified a weak competitor in the LTE market with cash and experience deploying LTE in Japan. It is now Sprint – in addition to number one carrier AT&T (T) – Verizon must watch in its rearview mirror.

Having executed brilliantly as the first mover in LTE networks, however, Verizon will not be easily unseated. By the end of 2011, Verizon had 3.5 million LTE subscribers, or 66 percent of the U.S. market among the major LTE operators, according to DigiWorld. Subscriber growth has been impressive in 2012. In the third quarter alone, Verizon signed up 1.5 million new subscribers, 10 times more than AT&T, which has reached about half of Verizon’s U.S. LTE coverage of 260 million.

After investing heavily to blanket 80 percent of the U.S. population with LTE coverage, Verizon’s return on its investment now depends on pricing and cool devices – the bells and whistles it uses to retain customers. LG (LG) and Nokia (NOK) are rolling our LTE phones. The feature-packed LG Spectrum 2 and Nokia Lumia will be sold exclusively by Verizon. 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.

Yahoo (YHOO) CEO Marissa Mayer certainly has a lot on her plate. Being the new CEO of a company that has had five in the past year is certainly a challenge, and she can hardly afford to sit still. But one item that Mayer might want to consider adding to her agenda could spell the difference between success or failure during her tenure at Yahoo: she needs to either tell or ask the Board of Directors what Yahoo wants to be when it grows up.

Everything will flow from the answer to that question.

1. Is Yahoo a tech company or a media company?
2. Should it focus on growth?
3. Should it focus on wringing maximum value out of its current platform?
4. Are transformative acquisitions the answer (the killing of Flickr notwithstanding)?
5. Is it time to sell?

Absent a firm understanding of what the goal is, Yahoo management has little hope of reversing the company’s slide into irrelevance.

The trouble with technology companies that fall on hard times, and the industry more broadly, is that there is a tendency to reach for the next dose of innovation or deal making to return to growth. But trees don’t grow to the sky and growth stories do not continue forever. Oracle (ORCL) CEO Larry Ellison was vilified when he began pursuit of competitor PeopleSoft nearly 10 years ago. Ellison maintained that consolidation was necessary in the industry, and he was right. Though Yahoo is in a different business than Oracle, the very same tech mindset that recoiled at Ellison’s suggestion that the era of limitless (but not really) growth was over seems to be at work in the Yahoo boardroom. To continue reading, click here.

Mobile computing devices, such as smartphones and tablets, are displacing laptop and desktop computer sales in developed economies. This structural shift in the technology sector has sent shares of many personal computer companies down in price. Are their valuations low enough at today’s market prices to justify the risk of investing in a losing sector?

The End of An Era

After being number one in market share for six straight years, Hewlett-Packard Co. (HPQ) has dropped to second place behind Lenovo Group (LNVGY.PK). Surely this change was no surprise for HP CEO Meg Whitman, since it was widely anticipated by analysts and did not happen overnight.

Market research firm Gartner cited Lenovo’s acquisition of IBM‘s (IBM) personal computer unit seven years ago as a crucial source of its success. Lenovo captured 15.7% of sales in the last quarter, as compared to Hewlett-Packard’s 15.5%, according to a Gartner’s report.

Hewlett Packard’s sales slump is widely attributed to the decline in the demand of PC units after the sudden emergence of smartphones and other mobile devices like the iPad. Reigning since 2006, Hewlett-Packard has been unable to compete against Lenovo in developing markets.

Lenovo gained mostly in the less-developed countries – its planned acquisitions and high penetration in the emerging markets are outpacing the developed ones. Pacific Crest Securities analyst Brent Bracelin said, “It’s a whole new bigger trend coming, not just Lenovo.”

Don’t Pay Premiums in Troubled Sectors

Many firms in the personal computer ecosystem are seriously threatened by the evolution of consumer computing. Stock investors must demand a discount in the form of low valuations before even considering investing in these firms. To continue reading, click here.

Today many industries in the tech sector are in value territory. This fall from grace is apparent in how the firms of the SPDR Technology Selector Fund (XLK) trade at an average 15 price-to-earnings ratio which is only slightly higher than the 14 price-to-earnings ratio of the S&P 500 (SPY) fund companies. Many familiar semiconductor names trade at even lower valuations. Apparently, tech is no longer the darling of investors and the sector has nearly the same valuations as the broader stock market.

Investors can seize the opportunity offered by the market today by reviewing the challenges faced by different semiconductor stocks that are priced as value investments. In particular, semiconductor manufacturers and their suppliers are frequently trading at attractive multiples in today’s markets. Are they value investments or value traps?

PC Sales Slide

The tech sector is recoiling from the third quarter’s blow to personal computer sales. PC sales worldwide declined 8.3% compared with the last year’s third-quarter sales, according to Gartner Inc. market research.

Gartner head analyst Mikako Kitagawa said, “The overall PC market decline was triggered by a continuing slowdown in PC shipments,” and that the outlook for the launch of Microsoft Windows 8 is tenuous because “shipments were less vigorous as vendors and their channel partners liquidated inventory in the third quarter.”

Retailers resisted placing orders because of the weak back-to-school sales. These firms had cleared out their entire inventory before the launch of Windows 8. In contrast, the professional market remained unaffected. To continue reading, click here.

The market is set up for fuel prices to relax from their highs. This is good news for travel-related stocks. We will review online travel search as a business model and consider which of these stocks is most attractive.

Clicks Vs. Bricks

Hotels and airline companies compete against their peers on price. Online search companies compete against each other based on the attractiveness of their platforms. The platform with the most vendors and traffic provides the best environment for search. Online search sites do not compete for vendors, banner ads, or users primarily based on the prices they charge participants. Hotel and airline vendors are more concerned about making sure their prices are seen and purchased by a large number of potential consumers.

In addition to sidestepping head-on price competition, the online search business model requires less capital expenditure. This is great news for investors, who should vehemently hate cash outflows. Since this newer business model is more attractive, investors should be willing to pay higher valuations for online search stocks.

The Case for Travel Stocks: Oil Price Decline and Economic Recovery

Gas prices might be at their 2012 peak in the U.S., but according to analyst estimates they could drop to their yearly lows by the end of 2012. This price drop would rest on dormant oil refineries starting production again. The onset of winter will also decrease miles driven, leading to lower demand.

Prices at oil service stations could fall by as much as 6.3% per gallon, which translates to a final price of about $3.54. To continue reading, click here.

Investors seeking bargain stocks have to learn to analyze turnaround stories. These are businesses that have to change their strategies and products to survive.

The following companies were screened to find companies which are producing net losses but have histories of yielding dividends. These turnaround stocks can prove attractive if they are discounted to compensate investors for the risks of a shifting strategy and if management has a long-standing commitment to dividend payments.

In addition to net losses over the past 12 months, there are news stories which have helped drop the valuations of these companies to make them cheap. Some of these companies are compelling bargains while others might be cheap for a reason.

Japanese or Global Firms?

Panasonic and Sony are Japanese stocks. The Japanese investing public has grown fearful of stock market crashes and refuses to chase stock prices. This behavior results in chronically low price multiples for Japanese stocks. Oddly, this may be an opportunity for global investors. Yes, demographics and government debt/GDP ratios are terrible for Japan. These stocks derive revenues (and hopefully in the future, earnings) across the globe, not just Japan. Foreign investors interested in these stocks can buy a global multinational on the cheap simply because its headquarters is located in Japan. The components and supplies for these companies are sourced from around the world, and their customers hail from around the world. Outside of legal or property right issues, Japan’s macroeconomic outlook does not preclude investment in Japanese-domiciled stocks any more than it would for General Motors (GM) or Apple (AAPL). To continue reading, click here.