5 Earnings Short-Squeeze Plays

DELAFIELD, Wis. (Stockpickr) -- Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally.

This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.

That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.

Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting technically very bullish and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if The Street doesn't like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.

With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

Liquidity Services

My first earnings short-squeeze trade idea is surplus and salvage assets auction marketplace player Liquidity Services (LQDT), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Liquidity Services to report revenue of $124.48 million on earnings of 45 cents per share.

The current short interest as a percentage of the float Liquidity Services is extremely high at 34.7%. That means that out of the 25.21 million shares in the tradable float, 9.12 million shares are sold short by the bears. This is a huge short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of LQDT post-earnings.

From a technical perspective, LQDT is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $24.77 to its recent high of $28.25 a share. During that move, shares of LQDT have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of LQDT within range of triggering a breakout trade post-earnings.

If you're bullish on LQDT, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance at $28.25 a share, and then once it takes out both its 50-day at $29.59 and its 200-day at $31.96 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 414,200 shares. If that breakout hits, then LQDT will set up to re-test or possibly take out its next major overhead resistance levels at $36 to $38 a share.

I would simply avoid LQDT or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support levels at $26 to its 52-week low at $24.77 a share with high volume. If we get that move, then LQDT will set up to enter new 52-week low territory, which is bearish technical price action. Some possible targets if $24.77 gets taken out with volume are $20 to $18 a share.

Sears Holdings

Another potential earnings short-squeeze play is specialty retail store player Sears Holdings (SHLD), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect Sears Holdings to report revenue $8.39 billion on a loss of $3.13 per share.

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The current short interest as a percentage of the float for Sears Holdings is very high at 18.1%. That means that out of the 43.35 million shares in the tradable float, 14 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7%, or by about 915,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of SHLD could experience a large short-squeeze post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, SHLD is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month and change, with shares moving higher from its low of $53.02 to its recent high of $65.70 a share. During that uptrend, shares of SHLD have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SHLD within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SHLD, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $65.70 to its 52-week high at $66 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.16 million shares. If that breakout hits, then SHLD will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that move are $$75 to $80 a share.

I would simply avoid SHLD or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day at $59.20 a share with high volume. If we get that move, then SHLD will set up to re-test or possibly take out its next major support levels at $55.87 to $53.02 a share. Any high-volume move below those levels will then put its 200-day at $50.43 into range for shares of SHLD.

Pandora Media

One potential earnings short-squeeze candidate is Internet radio player Pandora Media (P) which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Pandora Media to report revenue of $174.76 million on earnings of 6 cents per share.

Just recently, Piper Jaffray raised its price target on Pandora Media to $37 from $27, noting improving mobile monetization and a more benign competitive landscape now that all the major players have entered the market Piper reiterated its overweight rating on the stock, saying it remains bullish on the name.

The current short interest as a percentage of the float for Pandora Media is pretty high at 13.4%. That means that out of the 137.07 million shares in the tradable float, 23.51 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, the shares of P could explode sharply higher post-earnings as a solid short-covering rally takes hold.

From a technical perspective, P is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares soaring higher from its low of $13.95 to its recent high of $31.94 a share. During that uptrend, shares of P have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of P within range of triggering a big breakout trade post-earnings.

If you're bullish on P, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its all-time high at $31.94 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 11.57 million shares. If that breakout hits, then P will set up to enter new all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $50 a share.

I would avoid P or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support levels at $28 to $27 a share with high volume. If we get that move, then P will set up to re-test or possibly take out its next major support levels at its 50-day of $26.30 to $25 a share. Any high-volume move below those levels will then put $23 to $22 into range for shares of P.

The Buckle

Another earnings short-squeeze prospect is casual apparel, footwear, and accessories retailer The Buckle (BKE), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect The Buckle to report revenue of $291.14 million on earnings of 90 cents per share.

The current short interest as a percentage of the float for The Buckle is extremely high at 20.7%. That means that out of the 27.40 million shares in the tradable float, 5.83 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13.5%, or by about 692,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of BKE could experience a big short-squeeze post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, BKE is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last month, with shares soaring higher from its low of $46.29 to its intraday high of $53.38 a share. During that uptrend, shares of BKE have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BKE within range of triggering a near-term breakout trade post-earnings.

If you're bullish on BKE, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance at $54.54 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 251,408 shares. If that breakout hits, then BKE will set up to re-test or possibly take out its 52-week high at $57.68 a share. Any high-volume move above that level will then give BKE a chance to trend north of $60 a share.

I would simply avoid BKE or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day at $50.89 to its 200-day at $50.53 a share with high volume. If we get that move, then BKE will set up to re-test or possibly take out its next major support levels at $48 to $46.30 a share.

Stage Stores

My final earnings short-squeeze play is Texas-based department and off-price retailer Stage Stores (SSI), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Stage Stores to report revenue of $375.59 million on a loss of 26 cents per share.

The current short interest as a percentage of the float for Stage Stores is extremely high at 23.7%. That means that out of the 28.93 million shares in the tradable float, 7.31 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.5%, or by about 246,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of SSI could easily rip sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, SSI is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last two months and change, with shares moving higher from its low of $18.41 to its recent high of $22.32 a share. During that uptrend, shares of SSI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SSI within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SSI, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day at $23.24 a share to more past resistance at $25.34 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 418,658 shares. If that breakout hits, then SSI will set up to re-test or possibly take out its 52-week high at $29.59 a share. Any high-volume move above $29.59 will then give SSI a chance to trend north of $30 a share.

I would avoid SSI or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day at $20.30 a share with high volume. If we get that move, then SSI will set up to re-test or possibly take out its next major support levels at $18.81 to its 52-week low at $18.41 a share. Any high-volume move below $18.41 will then push shares of SSI into new 52-week low territory, which is bearish technical price action. Some possible downside targets below $18.41 are $16 to $15 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS: >>4 Stocks Under $10 to Trade for Breakouts >>2 Airline Stocks You Really Should Own in 2014 >>Why You Should Buy Hedge Funds' 5 Favorite Stocks

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Tipped workers face different minimum wages

WASHINGTON — Without tips to supplement her $6-an-hour income, Erin Leidy often has been unable to pay her bills.

Leidy delivers pizza and chicken wings for a restaurant in Ithaca, N.Y., where most of her tips come from students at Cornell University and Ithaca College.

STORY: 13 states raising minimum wages
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"It obviously only works for a certain type of lifestyle — if you don't have kids or a mortgage,'' said Leidy, 35, a Cornell graduate who is single. "We have to pay for gas and insurance before we even start work.''

Advocates for low-wage workers say minimum-wage laws shortchange employees such as Leidy.

The federal minimum wage for tipped workers hasn't increased since 1991.

Tipped workers — who wait on tables in restaurants, serve guests at hotels, cut hair in salons and park cars at garages — also have been overlooked at the state level.

New York Gov. Andrew Cuomo hasn't acted on a recommendation the state Legislature made in the spring to convene a minimum wage board to hold hearings on tipped wages, according to Mark Dunlea, executive director of the Hunger Action Network of New York State.

"They are just stalling on it, and we're not happy,'' Dunlea said.

New York sets different hourly minimums for various types of tipped workers, including $4.90 an hour for workers at resort hotels, $5 for food service workers and $5.65 for service employees.

"The idea then is you are supposed to make tips on top of that to make the minimum wage that everyone else has,'' said Joann Lum with the National Mobilization Against Sweatshops based in Manhattan. "But as every bicycle delivery worker will tell you, you never know how much you are going to make in tips. On top of that, there are some restaurant owners who will take a portion of the tips, which is illegal, and they are left with even less."

“We should be putting more money into enforcement of the law so that any kind of increa! se in the minimum wage is real.”

— Joann Lum, National Mobilization Against Sweatshops

Lum's group and other advocates for low-wage workers say New York should rescind the millions of dollars in tax credits it offers employers for hiring teenagers and use the savings to better enforce existing wage laws.

"We should be putting more money into enforcement of the law so that any kind of increase in the minimum wage is real,'' she said. "We have many delivery workers who make only $3 an hour or $4 an hour, which is under the current minimum wage for delivery workers.''

The news is better for workers who don't depend on tips.

On Jan. 1, 13 states will raise their minimum wage for those workers. New York's increase of 75 cents — to $8 an hour — will be the largest and will benefit an estimated 293,000 workers. Overall, an estimated 1.4 million workers in the 13 states will get a raise, according to the Economic Policy Institute, a liberal-leaning Washington think tank.

Washington state will have the highest minimum wage in the country when its 13-cent increase brings it to $9.32. Oregon won't be far behind, with a 15-cent increase to $9.10 an hour.

After the increases, 21 states and the District of Columbia will have an hourly minimum wage above the federal minimum of $7.25. And more than half the nation's low-wage employees will work in states with a minimum wage above the federal minimum, according to analyst David Cooper of the Economic Policy Institute.

"It shows a very broad and growing recognition that the federal minimum wage is far too low,'' Cooper said, predicting pressure will grow on Congress to increase the federal minimum wage.

Senate Democrats have promised to take up the issue early in 2014 with a bill that would raise the federal minimum wage to $10.10 and gradually raise the minimum wage for tipped workers from $2.13 per hour to 70% of the regular minimum wage. That would mean tipped workers would eventually earn a minimum $7.07 an h! our.

The National Restaurant Association estimates only 5% of restaurant employees earn the minimum wage.

"Those who do are predominantly working part-time jobs and nearly half are teenagers,'' association spokeswoman Christin Fernandez said in an email. "The restaurant industry has been a bright spot during the economic recovery, but drastically higher wages in the past have led to higher prices and job losses in the restaurant industry — and that is a consequence our economy cannot afford right now."

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Brian Tumulty writes for the Gannett Washington Bureau.

Where minimum wage is going up

On Jan. 1, the minimum wage in 13 states will increase to these amounts.

	State	New minimum wage
	Arizona	$7.90
	Colorado	$8.00
	Connecticut	$8.70
	Florida	$7.93
	Missouri	$7.50
	Montana	$7.90
	New Jersey	$8.25
	New York	$8.00
	Ohio	$7.95
	Oregon	$9.10
	Rhode Island	$8.00
	Vermont	$8.73
	Washington	$9.32

Source: Society for Human Resource Management

Entrepreneurs find success in natural products

It might be hard to imagine how a man making a couple hundred burritos a week and selling them to rock climbers in Colorado's mountains goes on to build a business distributing his product in thousands of grocery stores around the nation.

But Evol founder Phil Anson's "classic entrepreneur story" resembles those of many other people starting natural products businesses. They make up a growing breed of entrepreneur driven by passion for making the world a healthier place, starting with the food we eat and the products we use on our bodies or in the home.

Sales of their products are now growing twice as fast as conventional ones, according to New Hope Natural Media. Industry events like last month's Natural Products Expo East in Baltimore, are now as likely to attract private-equity investors, venture capitalists and corporate investment entities as the next probiotic beverage, kale chip brand or mineral make-up line.

"Food is at the nexus of so many issues key to consumers," says Ellen Feeney, a WhiteWave Foods executive and president of the non-profit industry group Naturally Boulder. "This isn't going away, and the big companies and financial institutions realize that."

For aspiring entrepreneurs, natural foods and products are still the next big thing. Despite increased competition in nearly every category in the store, there are more resources out there to make a go of it.

New Hope last month launched the NEXT Accelerator, a subscription-based online resource for start-up natural products companies, offering such tools as: videos and articles by experienced entrepreneurs; tutorials, spreadsheets and documents for legal and regulatory needs; and a directory of manufacturers, distributors and other vendors.

The accelerator was created in response to the large number of new companies attending its expos. In 2013, more than 1,000 new companies launched products there, says Adam Andersen, New Hope's group show director. That's a 10% increase on 2012.

NEXT's start w! as also a recognition that building a natural consumer brand is tough, even though more consumers want the products. There are fewer spots in the grocery aisles that some natural brand hasn't already claimed. More regulations and certifications are either required or encouraged for the newest generation of start-up food companies.

The advice and insights of experienced founders and consultants are priceless, and New Hope could provide that access through NEXT.

On the financial end, major corporations such as Coca-Cola, PepsiCo and General Mills have created investment arms to take a stake in or acquire natural brands. Many more companies are stealthily creating similar funds and initiatives to strategically invest in the category, says Michael Burgmaier, managing director of the Massachusetts investment banking firm Silverwood Partners, which specializes in deal-making in natural product categories.

Among the most notable acquisitions in the last year, Campbell's Soup bought healthy juice and salad dressing maker Bolthouse Farms and the organic baby food brand Plum Organics. Happy Family Brands, another start-up baby and kids organic food line, was sold to Danone in May.

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Post Foods bought natural and organic cereal maker Attune Foods in January.

Another $57.4 million in venture capital went to natural products companies in the first half of 2013, show data from the research firm PitchBook.

Deals this year have been made with companies with as little as $5 million in sales in the prior 12-month period, Burgmaier says. Many strategic investors want in earlier than ever.

"They have to like the brand and the category," Burgmaier says.

The brand itself should show good potential to grow with existing products and encompass others, as well, he says.

That brings us back to Evol's Anson, who sold his first burrito in 2002! . For yea! rs he worked to make Phil's Fresh Foods the national brand for fresh burritos, maxing out all of his credit cards in the pursuit. Then he looked at the gaps in the supermarket, and noticed that no one had created an all-natural burrito option for the frozen foods aisle.

In 2006, he won the first ever Pitch Slam, an event held by Naturally Boulder to help emerging Colorado brands launch. That got him in several hundred grocery stores.

In 2009, he got two important people interested in the company, Brendan Synnott and Tom Spier, the founders of Bear Naked Granola. With a small investment, they rebranded the company as Evol (love spelled backwards), distributed to thousands more stores and expanded beyond burritos. A private-equity investment came in 2012 to further accelerate growth.

Sales of Evol's 35 varieties of frozen burritos, meals, flatbreads and pizzas have grown 70% in 2013, and they're projected to double next year after 14 new products hit shelves in January.

"We've been off to the races and successful beyond my wildest dreams," Anson says.

But crucial to today's success were the many resources Anson tapped along the way.

"Part of being an entrepreneur is being a fighter, and seeking out the people that you know will help you succeed," he says. "When I needed that nurturing, I had so many people to help me. But you need to demand their time."

Laura Baverman is a Raleigh, N.C.-based journalist covering start-ups and entrepreneurship. She previously covered entrepreneurship for the Cincinnati Enquirer, a Gannett newspaper. She is reachable at lbaverman@gmail.com or on Twitter @laurabaverman.

The Investor’s Conundrum: Buy What’s Popular or Buy What Lasts?

Are you an investor/speculator who likes to jump aboard a moving train because you believe it will pick up even more speed (and aren't particularly concerned about when or whether it will crash)? Or are you, perhaps, more inclined to do what value investors do: peruse the railroad cars still being loaded in the yards, believing that their value will never be less than that point at which they are earning no return for their owners, but will have increasingly obvious value as soon as they are placed into service once more?

In purely investing terms, represented by the more abstract thoughts above, are you a value investor or a relative momentum buyer? Your answer to this question is crucial. It determines what publications you read, what websites you frequent and your general level of satisfaction with your investing results.

Here's a fine example today. Some of our clients have owned Apple (AAPL, as if I had to tell you!) and enjoyed a fine ride with it. But today we are all out of it. (Though many of us own, with tight trailing stops, the Technology Select Index, XLK, in which AAPL is 21% of the portfolio, and certain S&P ETFs which attribute 15% of their growth in value this quarter to AAPL.)

Apple (AAPL) is now paying a dividend, they are doing a stock buyback and, yes, this premier American growth company only sells at the same market multiple as the S&P 500. The question becomes: Can they continue to wow us all and bring their sales down to the bottom line in the form of forever-growing earnings? Are they the next IBM, a technology firm that has reinvented itself ever since it was formed in 1912? Or are they, as salesmen used to say in the Go-Go 1960s when touting a new concept stock, "The next Xerox!!" The next Polaroid!!" or "The next Kodak!" Polaroid and so many others soared to magnificent heights, then plunged, then when bankrupt.

For the true believers out there shouting, "This time it's different," I agree that AAPL just may be another IBM. AA! PL could, like IBM, have enlightened leadership over the years and be willing to re-invent itself along the way. But then I think about Xerox (XRX), which once had every bit as many analysts, technicians and investors singing its praises as AAPL does now. Fickle fellows, all:

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If you are a long-suffering holder of XRX, it could be worse. What if you had purchased Juniper Networks (JNPR) a year or so after its IPO?

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Or how about Cisco (CSCO) back when it was the "Backbone of the Internet" with no serious competitor in sight?

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Or, more recently, Yahoo! (YHOO)...

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It isn't my intent to disparage any of these companies, living or dead. Unlike, say, Enron or Worldcomm, none of them sought to defraud investors or even allow that level of management hubris. Nor am I denigrating Apple; it's been awfully good to some of us. My point is merely to note that those of us of a certain age have seen it all before; sometimes it ended well and sometimes not so well. Apple may or may not be priced for perfection, but it is certainly well-priced. Forewarned is forearmed and trailing stops are a value investor's best friend.

Apple has been one fast wabbit this quarter. Most holders of the stock will hold tight, expecting a similar run in the next year (or six weeks). They will read the most favorable news items and reviews of the stock to buttress their conviction and eschew looking at charts like those of the Shiller Data below. ! I hope it! works out for them. Apple may be on their side, but history is not.

As my friend and competitor Sy Harding wrote in his free blog on March 31: "[Apple is] so profitable that if its earnings were left out, S&P 500 earnings for the 4th quarter would have been 3.0% instead of 6.1%. That would double the P/E ratio of the S&P 500, which is touted as still being undervalued… It's estimated that the 21% earnings increase for the tech sector over the last 12 months was actually only 5% when Apple's earnings are taken out. The difference is shown in this chart produced by Barclay's Capital, the blue line being tech sector earnings [ex] Apple."

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Ouch. This says less about Apple than it does about the Nasdaq "rally," the tech sector and the market in general. I think we'll be placing more trailing stops, even on our "good stuff."

Disclosure: We are out of AAPL for now. Apres le deluge, we're happy to take a fresh look at it. If we're wrong, there are always new tech stocks to entice, delight and, occasionally, even to profit from.

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: we do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund only to watch it plummet next month.

We encourage you to do your own research on individual issues we recommend for your analysis to see if they might be of value in your own investing. We take our responsibility to proffer intelligent commentary seriously, but it should not be assumed that investing in any securities w! e are inv! esting in will always be profitable. We do our best to get it right, and we "eat our own cooking," but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

Google Gets In on the Waze Craze

First, there was Apple (NASDAQ: AAPL  ) . Then came Facebook (NASDAQ: FB  ) . Now, Google (NASDAQ: GOOG  ) is reportedly getting in on the Waze craze. The rumor that Apple was looking to acquire the crowd-sourced traffic and navigation app was quickly shot down, but the Facebook speculation certainly has some legs to it.

Seeing as how the social network is all about mobile these days, with interests in getting into e-commerce, mapping would play a key role for Facebook. The company also has no in-house mapping service right now.

Bloomberg is reporting that Google is considering a competing bid, which could prevent Facebook from making the purchase. Waze is reportedly looking for over $1 billion, which is the high end of what Facebook is supposedly willing to pay. Bloomberg also notes that Apple's not involved in current bidding rounds.

The Israeli start-up (Bloomberg incorrectly states Waze is based out of Palo Alto, although it has an office there) is now up to 40 million users in its community contributing data. Waze also recently announced a partnership to expand further into Latin America.

Google Maps is already the gold standard in mobile and desktop maps, so the search giant certainly wouldn't need to spend so much on picking up Waze. That's not to say a Waze purchase wouldn't help beef up Google Maps even further, but rather that the move could also easily be construed as a pre-emptive shot at Facebook. Anything that hinders Facebook is worth doing, from Google's perspective. Integrating Waze could also improve Google Maps' social capabilities.

Waze is also one of Apple's data partners for Apple Maps, and Google's hesitation in handing over navigation data was largely why Apple ditched Google in the first place. There's probably a contractual arrangement between Apple and Waze right now, but Google could potentially obtain a bargaining chip for when that contract is up for renewal.

It's also entirely likely that no one will swallow Waze, and that the start-up could continue going it alone privately, potentially raising cash through venture capital firms. No deal is imminent, and Waze could simply walk away from the bids that it's gathered from tech giants.

Waze is starting to look like the prettiest girl at the dance. Will Google or Facebook take it home?

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Updating the Bypass Trust

Is the bypass trust dead? Many people believed when the lifetime estate tax exemption rose to $5 million per person (indexed for inflation), the role of bypass trusts in most estates ended. Far from it. Under the current tax law the bypass trust can be turned from a powerful estate tax saver into a tool for optimizing income tax planning and meeting nontax goals.

Let’s first review how the bypass trust traditionally was used in estate plans and still can be used when the estate is valuable enough to be taxable.

The bypass trust (also called a credit shelter trust or A/B trust) was essential for married couples when the estate tax exemption was lower and most estates were at risk of incurring taxes. The will would direct to the bypass trust an amount of wealth equal to the estate tax exemption, and in the standard will the rest of the estate was given directly to the surviving spouse. The bypass trust stated that the surviving spouse would receive all the income from the trust each year and also could receive any principal necessary to maintain his or her standard of living. After the surviving spouse passed away, the children of the couple became beneficiaries of the trust.

The effect of this strategy was to avoid taxes on an amount of the estate of the first spouse to pass away equal to the estate tax exemption, so it passed to the children without being reduced by any estate taxes. Yet, the surviving spouse was provided for with the assets in the trust, though the value of the trust wasn’t included in the surviving spouse’s estate. The surviving spouse also could pass on an equal amount estate tax free using his or her own lifetime exemption.

With the exemption at $5.25 million per person for 2013 and $5,340,000 for 2014, only a few families need a bypass trust to help shield their estates from taxes. Families with estates below the exempt amount still should consider using a bypass trust to meet other non-estate tax goals and adapt the trust terms for today’s circumstances.

The primary goal of a bypass trust now probably should be to minimize the family’s income tax burden over the years. Start by giving the trustee more discretion regarding distributions from the trust and by naming the spouse and children and perhaps grandchildren as current beneficiaries instead of only the spouse.

Also, give the trustee more discretion regarding the investment strategy. Typical trust terms these days require the trustee to use modern portfolio theory or some similar form of diversification. The problem with this language is that under today’s tax code the location of assets matters considerably. It can mean the difference between paying ordinary income tax rates, long-term capital gains rates, or no tax.

Trusts reach the highest tax bracket and have surtaxes, such as the 3.8% net investment income tax, imposed at very low income levels. In addition, when assets are put in a trust they retain the tax basis the original owner had, and when distributed from the trust retain the tax basis the trust had. But assets held by the surviving spouse have their bases increased to current market value when they are bequeathed to the next owners, such as the children.

The trustee can take advantage of current income tax planning strategies and minimize income taxes on the family when given broader discretion regarding investments and distributions than is traditionally allowed.

The trustee can be allowed to consider family-wide asset allocation instead of only the trust’s investment portfolio when making investment and distribution decisions. The trustee also can be empowered to consider family-wide and long-term tax considerations as well.

For example, instead of distributing primarily investment income to the surviving spouse, the trust can distribute assets that have appreciated significantly. Removing them from the trust makes it possible for the surviving spouse to hold them for life and allow the heirs to increase the tax basis to their fair market value at the surviving spouse’s death. The heirs then can sell them and pay no capital gains taxes on all the appreciation.

You might want to put limits on this discretion, because when assets leave the trust there is the potential that they won’t find their way to the children. They might be redirected to charity or the family of a subsequent marriage. So, the trust agreement might give the trustee discretion to distribute to the surviving spouse only assets that have appreciated by, say, 20% or more or put a dollar limit on such distributions.

When the trustee has discretion to take income taxes into account in both portfolio decisions and distributions, he or she might be able to increase family after-tax wealth and income by avoiding the top tax bracket and the 3.8% investment income tax on trust income.  

You also should reconsider the powers of appointment clause of the trust. This clause allows a person, usually the surviving spouse, to decide who among the other named beneficiaries, usually the children and perhaps the grandchildren, will benefit from the remaining trust assets. The clause also might allow the spouse to decide if assets should be distributed outright to beneficiaries or retained in the trust for a period of time.

In the past, there was a bias to using a limited power of appointment. That kept trust assets from being included in the estate of the surviving spouse. But, because of the step-up in basis allowed beneficiaries who inherit and the high estate tax exemption, it might be beneficial to give the surviving spouse a general power of appointment over assets that have appreciated significantly. That puts the assets in the surviving spouse’s estate. That, in turn, allows the heirs to increase their basis in the inherited assets to current fair market value and avoid capital gains taxes when they sell the assets.

A final consideration is state taxes. These are a greater component of the overall tax bill than in the past, and in many states are likely to rise further. You might want to give the trustee or some other person the power to relocate the trust’s state of residence, particularly if the surviving spouse moves to a low income tax state but the trust was set up in a higher income tax state. A move would save money and be convenient.

A bypass trust also will continue to provide its traditional benefits. The surviving spouse has support and the remaining assets eventually go to your intended final beneficiaries. It also can provide professional management, creditor protection, and family-wide financial planning. With the recommended modifications, the bypass trust also helps reduce income taxes.

Bypass trusts should remain key elements of many estate plans. Their estate tax reduction benefits are necessary for fewer people, but they provide other valuable benefits when adapted for current law.

The 3 Best Coal Stocks to Buy Now

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It hasn’t been the best couple of years for investors in coal stocks.

Coal stocks have faced the dual threat of falling demand coupled with rising regulation. First, our abundance of natural gas — which has been great for the oil stocks — has pushed prices down for the fuel towards historic lows. That's causing utilities to abandon coal in favor of cheap natural gas for electricity generation.

Exacerbating the plight of coal stocks is rising environmental legislation. New rules created by the EPA have pushed utilities towards natural gas. New plants are essentially being forced to run on the abundant and cleaner burning fuel. That's prompted several coal stocks to close mines and others to like Patriot Coal (PCXCQ) to close up shop and file for bankruptcy protection.

However, all this hatred towards coal stocks could provide tantalizing values for investors who want bargains. Several of the largest and best-run coal stocks are currently trading for peanuts. Meanwhile, coal is still widely used worldwide in steel manufacturing and in many emerging markets to generate electricity.

Simply put, the coal stocks trio of Peabody Energy (BTU), Alpha Natural Resources (ANR) and Cloud Peak Energy (CLD) could be some of the biggest bargains out all energy stocks.

Best Coal Stocks to Buy Now – Peabody Energy (BTU)

When it comes to coal stocks, Peabody Energy (BTU) is definitely king of them all.

BTU stock is appealing because Peabody is one of the largest producers of the mineral. The BTU empire spans 28 different mines across several nations — including the U.S., Australia, Indonesia and China. That global reach has allowed Peabody Energy to profit even when things turned sour for coal stocks here at home. BTU has a much easier time tapping into markets in electricity-hungry Asia than many other domestic coal stocks.

Not to mention that prices for coal are better overseas as well.

For the first nine months of the year, Peabody Energy was able to sell Australian-produced coal at around $112 per ton. Meanwhile, it only cost BTU around $80 per ton to produce. By contrast U.S. mined coal only netted BTU around $18 per ton at a cost of $13.

Meanwhile, Peabody Energy continues to cut costs via prudent CAPEX spending and lowering its debt. BTU stock currently features an industry low debt-to-equity ratio of 130%.

All in all, its global reach and low costs of production have made BTU stock one of the only profitable coal stocks around. Based on 2016 earnings estimates, BTU stock currently can be had for dirt cheap P/E of just 7.

Best Coal Stocks to Buy Now – Cloud Peak Energy (CLD)

For coal stocks, Wyoming's Powder River Basin features some of the best coal reserves on the planet. Aside from the sheer amount of coal, it has some of the lowest sulfur-producing reserves. That makes it ideal for utilities trying to skirt new EPA rules about emissions.

It also happens to be the primary stomping ground for Cloud Peak Energy's (CLD) — one of the top coal stocks out there.

With royalty agreements with the Powder River Basin's Crow Tribe, CLD has unprecedented access to the region’s vast reserves at cheaper costs than its competitor's holdings. CLD stock could get a boost from future exports of PBR coal. The pending Gateway Pacific Terminal — which will be used to send PBR coal directly to Asia — happens to sit in CLD's back yard.

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With that sea-port still in the planning/construction stages, CLD has been cutting costs, conserving cash and idling excess mine supply. That puts coal stocks like CLD in a prime position to benefit when coal prices rebound.

CLD stock can currently be had for P/E of 16.

Best Coal Stocks to Buy Now Alpha Natural Resources (ANR)

With the global economy finally beginning to move forward, Alpha Natural Resources (ANR) is one of a few coals stocks that could be an interesting turnaround play. See, unlike CLD and BTU, ANR mainly produces metallurgical coal — the kind used in steel making.

Currently, metallurgical coal prices are flat due to oversupply. That's hurt the company’s bottom line and ANR stock over the last few quarters. However, with industrial output ramping up in key steel producing nations — namely, Japan, China and South Korea — the medium- to longer-term picture seems to be a bit rosier for ANR stock.

At the same time, ANR has a few aces up its sleeve vs. other coal stocks. First, Alpha Natural Resources plans on selling its ownership stake in a shale gas joint venture for $300 million in cash and shares to Rice Energy. Aside from boosting its near-term liquidity, Rice Energy plans to IPO in early 2014. That will provide a nice exit event for ANR stock.

Secondly, ANR recently issued a series of convertible notes at a cheap 4.875% interest rate. Those notes will be used to retire current liabilities. Overall, the bond issue and shale gas sale boosted ANR stocks liquidity to nearly $2 billion. That should be more than enough to help ANR stock ride out the downturn in metallurgical coal prices until they rebound. That liquidity position is enviable for many other coal stocks.

In view of the better long-term picture, investors may want to give ANR stock a go. And if not, the other coal stocks on this list are solid if you want to bet on the beaten-down sector.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

MetLIfe: Doubling-down annuity sellers lack clarity, risk

MetLife Inc., the insurer reducing variable annuity sales by more than half, said rivals that are expanding are probably retaining less funds to back the retirement products.

“The companies that hold the lowest amount of capital against their VA business are by and large the same companies who are most aggressively selling VAs today,” Bill Wheeler, MetLife's president of the Americas region, said at a conference on Tuesday. The sales expansion is “literally a doubling-down in this industry,” he said.

MetLife, the largest U.S. life insurer, has been scaling back from variable annuities to cut risks tied to market fluctuations. The contracts can guarantee that clients' assets will increase in value even when equities fall. Prudential Plc's Jackson National, the No. 12 seller of variable annuities in 2007, is now the biggest, followed by Lincoln National Corp.

Rivals “clearly have a different view about their risk profile, and the risk profile of the VA business,” Mr. Wheeler said without naming firms.

Mr. Wheeler, who was chief financial officer at New York-based MetLife until 201

General Dynamics: Defensive Gains

Our latest featured stock is an aerospace and defense company that offers a broad portfolio of products and services in aviation, combat vehicles, shipbuilding, and communications, explains Charles Mizrahi, editor of Hidden Values Alert.

General Dynamics (GD) offers segment diversification. Although the US government accounts for nearly two-thirds of the company's revenue, it has four operating segments, with no single division accounting for more than a third of total revenue.

Segment diversification allows the company to weather the effects of recent defense spending cuts. Ultimately, GD's sound fundamentals offer the company a strong long-term outlook.

Its aerospace segment has experienced strong double-digit growth over the past two years (15% and 13% year over year, respectively).

Robust demand for business jets helped offset defense funding cuts. Its line of Gulfstream models caters to the commercial market and offers the company another source of revenue (in addition to its military operations). GD controls nearly 30% of the commercial jet market.

GD has total backlog of more than $48 billion. Strong orders for its recently launched G650 commercial jet account for nearly $13 billion in backlog. The company was also awarded numerous military contracts, which account for the remainder of its backlog ($34 billion).

The company's longstanding relationship with the US government is a strong barrier to entry in the industry. Competition is limited to companies who secure contracts with the DoD and receive the necessary clearance. GD is a member of a duopoly (with Huntington Ingalls (HII)) of companies who manufacture US Navy submarines.

GD has more than $4 billion on its balance sheet, with no short-term debt. It consistently generates close to $3 billion in operating cash flow per year. The company allocates a significant portion of its cash flow to shareholder returns.

The firm has allocated nearly $5 billion to share repurchases in the past five years. This has reduced shares outstanding by more than 8%. The company also distributes a $2.24 annual dividend, which represents a 2.5% dividend yield.

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This Big Pharma's Big Bet Is Paying Off

With the prospect of losing a third of its revenue because of patent expiration in 2014, Eli Lilly has bet big on oncology and diabetes drugs. In this video, David Williamson highlights the success so far, and the possible challenges, for Lilly's diabetes drug, dulaglutide. Type 2 diabetes is a big problem, and David says Lilly seems well positioned to benefit from its growing prevalence, although investors need to remember there will be some patent-expiration bumps along the way. Check out the video for more details.

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Restructuring is Not Always Negative

By eliminating certain less-profitable business units and spinning-off others, one company has totally reinvented itself, writes MoneyShow's Jim Jubak, also of Jubak's Picks, and now looks even more attractive.

E.I. du Pont de Nemours, hereafter DuPont (DD), is a clear case of addition through subtraction.

After selling its performance coatings unit—which makes paints for cars and other industrial uses—for $4.9 billion in February, and after the planned spin-off of its performance chemicals unit—which makes titanium dioxide pigments used in paint, and paper, Teflon, and fluorochemicals—du Pont will look like a totally different company.

By subtracting the coatings and chemicals businesses, du Pont will have increased the percentage of revenues coming from such faster growing units as agriculture, nutrition and health, and industrial bioscience. For example, the agriculture unit, which includes Pioneer Hi-Bred, the world's largest seed company, will go to 37% of revenue, from 24% in 2011.

Acquisitions and divestitures have added faster growth, and subtracted slower growth. For example, the acquisition of enzyme company Danisco, added a business with long-term revenue growth projected at 7% to 9% a year; the spin-off of the performance chemicals unit will subtract a business with a projected revenue growth rate of 3% to 5%.

The resulting stripped-down company looks more like a pure play seed company, with major businesses in nutrition and health, and in industrial bioscience, attached.

What would you rather own? A chemical company that makes paints, or a seed company that developed the AQUAmax line of drought resistant seed corn?

Because investors still think of du Pont as a chemicals company, the shares trade at a substantial discount to those of a stock such as Monsanto (MON), that is thought of as a pure play seed company (despite the drag of its big agricultural chemicals business). Du Pont trades at 16.1 times forward earnings per share, while Monsanto trades at 21.3 times forward earnings per share.

Du Pont also pays a 2.93% dividend yield. (The stock is a member of my long-term Jubak Picks 50 portfolio.)

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of du Pont or Monsanto as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.

American Airlines fined for misleading fliers on fares

Transportation Secretary Anthony Foxx said the DOT expects airlines "to be truthful to their customers when they provide information about their fares."

NEW YORK (CNNMoney) American Airlines was fined by the Department of Transportation on Wednesday after its agents allegedly told customers that some of the airline's fees were government-imposed taxes.

The DOT said it found that American (AAL) agents had offered customers inaccurate information "on a number of occasions" in 2012 and 2013. Pop-up windows on the airline's website also labeled fees, such as fuel surcharges, as taxes, the department said.

DOT spokesman Bill Mosley said regulators saw the issue as "mostly a matter of not training their agents as well as they could, not a deliberate attempt to deceive passengers." American agreed to pay a $60,000 fine and provide additional training to staff members.

"We expect airlines to be truthful to their customers when they provide information about their fares," Transportation Secretary Anthony Foxx said in a statement. "We will continue to take enforcement action when airlines fail to disclose their fares fully and accurately."

American did not immediately respond to requests for comment. The company recently merged with US Airways to create the world's largest airline, resolving an antitrust lawsuit from the Department of Justice.

Facebook Vs. Intel: A Market Of Stocks

Recently, well-known Wharton Professor Jeremy Siegel (he of Stocks for the Long Run fame) spoke on the topic of valuation in the broad market, and made a strong case as to why the S&P 500 is still quite undervalued with respect to the current interest rate environment.

Additionally, he asserted that the technology sector is at "one of the cheapest levels it's ever been relative to the rest of the market." A bold claim indeed, and one worth exploring to give merit to the argument that, despite the record highs of late, there are still pockets of value within the market.

While historical data on individual sectors is not easy to come by and the late-1990s Dot.com Boom and Bust as well as the 2008 Collapse of Lehman Brothers and subsequent financial crisis definitely skew the respective averages for technology and financial stocks, we have crunched simple year-end numbers for the 10 S&P sectors (as well as the broad S&P 500 Index) going back to 2002. Interestingly, the current P/E ratio on the broad-based S&P 500 is 16.8, right in line with the average over the past 11 years, suggesting that stocks in general are not significantly overvalued, especially when one considers the incredibly low interest rate climate that exists today.

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(Click to enlarge)

That said, it is fascinating to see the relative attractiveness of tech stocks, which have often traded at a premium to the overall market due to their historically better-than-average growth potential. In fact, while the S&P 500 Information Technology Index trades at 17.1 times trailing-12-month earnings, that figure is just 72% of the 11-year average P/E, the largest current discount of any of the S&P sectors.

It is a similar story for the tech-centric NASDAQ 100, which presently trades at 21.1 times earnings, a multiple that is just 79% of the 11-year average of 26.8 for this growth-stock dominated index. Of course, the beauty of active portfolio management is that we do not have to buy the entire index as we can separate the undervalued wheat from the overvalued chaff.

High-Risk OIl and Natural Gas Transportation Should Focus Investor Spotlight on Iron Mountain

The transportation of our essential oil and natural gas supplies has always been a risky business; with that risk underscored whenever there's a major accident -- like the massive gas pipeline explosion last week in western Missouri.

But it's events like the Missouri accident that should focus industry and investor attention on Iron Mountain (NYSE: IRM).

Operating in the business software and services sector, along with other firms like Microsoft (NASDAQ: MSFT), CA Inc (NASDAQ: CA) and Citrix Systems (NASDAQ: CTXS), Iron Mountain is the premier company in pipeline record management. Iron Mountain plays a critical role in preventing pipeline disasters, maintaining the infrastructure and in overall risk control. The position that Iron Mountain has in the energy network will increase in scale and importance as the use of natural gas increases.

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Due to advances in fracking technology, natural gas has become much cheaper.

As a result, it is becoming more widely used: no surprise there, with basic economics at work for when any commodity falls in price. But natural gas requires a network of three pipelines to take the fuel from the ground to the business or the home. It is not like coal, which can be scraped up by a shovel and carried to its end use in a sack.

Pipelines for transporting natural gas and oil are very sophisticated, high-technology operations. The networks are thoroughly regulated at every level of government. The private sector also enforces the harsh regime of rules and regulation, with no mercy in the form of lawsuits.

To protect valuable pipeline operations, therefore, requires professional records management.

Due to the nature of the oil and natural gas industry, that is generally the farthest thing from the mind of the operators -- who prefer to emphasize exploration and production.

As detailed in a recent Benzinga article, recent reports by the United States Energy Information Agency and the International Energy Agency both projected a huge increase in the global demand for oil and natural gas. Much of that will be transported by pipeline networks across the United States and Canada, as North America is now the world's largest producer of fossil fuels.

The demand for Iron Mountain's management services should increase greatly around the planet, and especially in North America. Should the Keystone Pipeline finally be created, there will be a huge need in just Canada alone for what Iron Mountain has to offer. The Keystone Pipeline will run from the oil-rich province of Alberta to the Gulf of Mexico; and the best in pipeline management will be needed for every inch of the projected 2151 miles at every phase of its operations, from construction to carrying the fuel.

Wall Street certainly expects big things for Iron Mountain -- with analysts predicting its earnings per share will increase by 13.50 percent annually over the next five years. That is almost twice the projections for Microsoft. It is also higher than what is expected from the performance of Citrix Systems.

Iron Mountain stock has been strong recently, up more than six percent for the last month of trading.

Companies that want protection for all the entities  impacted by pipeline operations, from the local communities to shareholders, should increase the demand for the products and services of Iron Mountain. While waiting, there is a very generous dividend of 3.83 percent. Now trading around $28 a share, the mean analyst target price for Iron Mountain over the next year of market action is $33.58.

Posted-In: coal energy Fracking Natural Gas Oil oil pipeline oil pipeline accidentsLong Ideas News Dividends Dividends Commodities Politics Events Global Economics Markets Media Trading Ideas General

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Morgan Stanley tweaks compensation plan

Morgan Stanley joined two of its competitors this week and tweaked its compensation plan to give brokers more incentive to improve performance.

Morgan Stanley, which employs the country's largest network of advisers, will reduce payouts to low-performing experienced brokers, expand awards for hitting performance targets and enhance bonuses for increasing lending, according to details of the plan confirmed by InvestmentNews.

In compensation plans announced internally this week, Morgan Stanley, Merrill Lynch Wealth management and UBS Wealth Management Americas all took a variety of steps to encourage all of their 40,000 advisers to emulate the industry's top revenue producers and cultivate the U.S.'s wealthiest clients. Wells Fargo & Co., owner of the country's third largest brokerage, has not yet announced its compensation plans for next year.

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Morgan Stanley next year will require brokers who generate less than $2.5 million in commissions and fees to increase their revenue by 10% to maintain the same payout.

As it stands now, brokers earn between 28% and 47%, depending on their total annual revenue, according to the formula that determines broker pay. Advisers in the top bracket produce $5 million or more. Advisers with nine or more years of experience who produce less than $300,000 get just 20%.

But the firm will temporarily allow brokers to be paid for smaller accounts for up to two years, “allowing advisers time to bring additional assets to the firm and gain better visibility to clients' investments,” according to language from the plan con

Brian Rogers' T. Rowe Price Equity Income Fund Semi-Annual Report 2013

Fellow Shareholders The first half of 2013 was rewarding for equity investors, lackluster for money market investors, and troubling for fixed income investors. U.S. stock prices rose despite weakness in June, as corporate earnings advanced, sentiment improved, and investors slowly reallocated assets to the equity market. Money market fund returns hovered in barely positive territory, while fixed income securities sold off as concerns mounted about changes in Federal Reserve policy, resulting in sharp losses for bond investors.

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As shown in the Performance Comparison table, your fund generated a return of 14.12% for the past six months compared with 13.82% and 13.39% for the S&P 500 Index and the Lipper Equity Income Funds Index of similarly managed funds, respectively. (Returns for the Advisor and R Class shares were lower, reflecting their different fee structure).

DIVIDEND DISTRIBUTION

On June 25, 2013, your Board of Trustees declared a second-quarter dividend of $0.13 per share, which was paid on June 27. You should have received your check or statement reflecting this distribution. The second-quarter dividend brings the total for the year to date to $0.26 per share. (Second-quarter dividends were $0.11 and $0.10 for the Advisor and R Class shares, respectively.)

PORTFOLIO REVIEW

Several portfolio holdings performed very well in the first half of the year, while a smaller number were disappointing. Technology positions, including Microsoft, Cisco Systems, and Hewlett-Packard, were particular bright spots. Consumer holdings such as Time Warner, Walt Disney, Ford Motor, and Avon also performed well, as did our handful of holdings in the retail sector. Pharmaceutical stocks, including Pfizer, were strong, and we were pleased with the results from several of our larger holdings in the financial services sector, such as American Express, Wells Fargo, JPMorgan Chase, and SLM. ! (Please refer to the fund's portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)

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A few weaker sectors lagged the broad market advance. The energy, telecommunication services, and utilities groups gained ground but at a slower pace than most other S&P 500 sectors. Hess was a welcome exception in energy. Most of our investments in the lagging sectors moved higher but trailed the broad market. Our most disappointing energy holdings shared a common theme: exposure to the mining industry. As concerns about the pace of global economic growth intensified, particularly in emerging markets like China, our positions in Cliffs Natural Resources, Newmont Mining, and Joy Global were negatively affected. Fortunately, these composed relatively small positions in the portfolio. The Major Portfolio Changes table on page 8 shows the stocks in which we were active buyers and sellers during the first half of the year. We initiated positions in Apple (AAPL), Joy Global (JOY), Hospira (HSP), and Western Union (WU), all of which had stumbled in the eyes of investors, resulting in sharply falling share prices before we decided to invest in them. Consequently, the companies' stock valuations became more attractive to us. We normally favor companies whose share prices have declined because of cyclical worries, sector concerns, or company-specific issues. When a stock falls in value, its price/earnings ratio usually declines while its dividend yield increases, characteristics we look for as value investors. The strategy can be rewarding as long as the company's fundamentals are still sound.

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When we decide to sell a position, it is usually for the opposite reason: A company's rising stock price makes its relative valuation less compelling. The companies we eliminated or red! uced posi! tions in have appreciated. They included Thermo Fisher Scientific, Whirlpool, SLM, Ingersoll-Rand, ConAgra, Energizer, and Amgen. The valuations of those stocks became extended, and we took advantage of the opportunity to sell shares and invest in companies with more attractive relative valuations. Our sales were based on share price valuations and did not reflect our views of the quality of the companies mentioned.

OUTLOOK

In our annual report at the end of 2012, we commented on the likelihood of moderate economic growth in 2013, reasonable stock valuations, and the potential for investors to allocate more assets to the equity market as sentiment improved. Through the first half of 2013, we experienced the moderate growth we anticipated, as well as a reallocation of funds from low-yielding fixed income markets into reasonably valued equities. As we look forward to the second half of the year, we expect a somewhat more challenging investment environment as ongoing moderate economic growth dampens the pace of earnings growth.

Stock prices have advanced sharply over the last four years. Investor sentiment is likely to be affected by the rhetoric coming out of Washington, with increasing focus this fall on the debate over a continuing budget resolution and an increase in the federal debt ceiling. Investors will also be following news emanating from Europe and from the larger emerging markets, such as China and India, for indications of the level of economic growth in those regions.

We will continue to seek out promising investments with attractive dividend yields and appealing valuations, but there are fewer opportunities available now than there were six months ago. Therefore, we anticipate more modest returns over the balance of the year as we apply our investment strategy to achieve attractive long-term results for our shareholders.

As always, we appreciate your continued confidence and support.

Respectfully submitted,

Brian C. Rogers President of the fund and! chairman! of its Investment Advisory Committee

July 18, 2013

The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund's investment program.

Risks of Investing in the Fund

Value investors seek to invest in companies whose stock prices are low in relation to their real worth or future prospects. By identifying companies whose stocks are currently out of favor or misunderstood, value investors hope to realize significant appreciation as other investors recognize the stock's intrinsic value and the price rises accordingly. The value approach carries the risk that the market will not recognize a security's intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced.

Glossary Beta: A measure of the market risk of a stock showing how responsive it is to a given market index, such as the S&P 500 Index. By definition, the beta of the benchmark index is 1.00. A fund with a 1.10 beta is expected to perform 10% better than the index in up markets and 10% worse in down markets. Usually, higher betas represent riskier investments. Dividend yield: The annual dividend of a stock divided by the stock's price. EBITDA: A measure of earnings before interest, taxes, depreciation, and amortization that is used to focus on a company's liquid cash flow. Earnings growth rate—current fiscal year: Measures the annualized percent change in earnings per share from the prior fiscal year to the current fiscal year. free cash flow: The excess cash a company is generating from its operations that can be taken out of the business for the benefit of shareholders, such as dividends, share repurchases, investments, and acquisitions. Lipper indexes: Fund benchmarks that consist of a small number (10 to 30) of the largest mutual funds in a particular category as tracked by Lipper Inc. Price/book ratio: A valuation measure that compares a stock's market price with its book valu! e; i.e., ! the company's net worth divided by the number of outstanding shares. Price-to-earnings (P/E) ratio—current fiscal year: A valuation measure calculated by dividing the price of a stock by its reported earnings per share from the latest fiscal year. The ratio is a measure of how much investors are willing to pay for the company's earnings. The higher the P/E, the more investors are paying for a company's current earnings. Price-to-earnings (P/E) ratio—next fiscal year: A valuation measure calculated by dividing the price of a stock by its estimated earnings for the next fiscal year. The ratio is a measure of how much investors are willing to pay for the company's future earnings. The higher the P/E, the more investors are paying for the company's expected earnings growth in the next fiscal year .

Price-to-earnings (P/E) ratio—12 months forward: A valuation measure calculated by dividing the price of a stock by the analysts' forecast of the next 12 months' expected earnings. The ratio is a measure of how much investors are willing to pay for the company's future earnings. The higher the P/E, the more investors are paying for a company's earnings growth in the next 12 months. Projected earnings growth rate: A company's expected earnings per share growth rate for a given time period based on the forecast from the Institutional Brokers' Estimate System, which is commonly referred to as IBES. Return on equity (ROE)—current fiscal year: A valuation measure calculated by dividing the company's current fiscal year net income by shareholders' equity (i.e., the company's book value). ROE measures how much a company earns on each dollar that common stock investors have put into the company. It indicates how effectively and efficiently a company and its management are using stockholder investments. S&P 500 Index: An unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies

The views and opinions in this report were current as of June 30, 2013. They are not guarantees of perf! ormance o! r investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a fore - cast of the fund's future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects

Also check out: Brian Rogers Undervalued Stocks Brian Rogers Top Growth Companies Brian Rogers High Yield stocks, and Stocks that Brian Rogers keeps buying

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Mexican shoppers head to Texas to avoid higher tax

SAN MARCOS, Texas — Texas retailers are getting an early Christmas gift this year from their southern neighbor: swarms of eager Mexican shoppers.

A recent sales tax hike in Mexico's northern region has been sending Mexican citizens north of the border — in cars, planes and tour buses — for their Christmas shopping. The shoppers — looking to save money and score on the latest brand names of TVs, toys and clothing — are arriving by the busload from as far away as Mexico City and Jalisco to outlet centers and malls across Texas, said Pete Garcia, executive director of the South Texas chapter of the United States-Mexico Chamber of Commerce.

"It will be a huge benefit for all of South Texas, from the border of El Paso to McAllen all the way up to San Antonio, San Marcos and Houston," he said. "You're going to see a significant jump in those shoppers."

Mexican lawmakers in October raised the sales tax in the country's northern region from 11% to 16% — or twice the rate in most Texas municipalities, said Tom Fullerton, professor of economics and finance at the University of Texas-El Paso. Mexico's northern region had enjoyed a lower rate for decades to compete with U.S. retailers across the border, but the tax was raised to equal the rest of the country as part of nationwide tax reforms, he said. Texas' statewide sales tax is 6.25%, but municipalities can raise that another 2 percentage points.

Mexican residents typically account for around $4.5 billion in retail sales in Texas counties along the Mexican border, Fullerton said. That number is expected to jump by $225 million due to the new tax hike, with retailers as far inland as Houston and San Antonio reaping the benefits, he said.

Even though the tax increase doesn't go into effect until January, the bad publicity the measure received in Mexico is driving shoppers across the border early for their Christmas shopping, Fullerton said.

"This was a very controversial bill in Mexico," he said. "There will be a lot ! of customers who will be shopping across the border even before the actual tax occurs."

At the Tanger Outlets in San Marcos on Saturday, white passenger buses with Mexican plates pulled up to the curb and dislodged clusters of Spanish-speaking passengers who headed straight to Old Navy, Calvin Klein, Banana Republic and other stores. The parking lot resembled a lot in Guadalajara or Monterrey, crowded with cars with license plates from Coahula, Nuevo Leon, Jalisco, Tamaulipas and Ciudad Mexico.

Ernesto Rangel, 45, drove the 14 hours from Mexico City to San Marcos to get the latest models in electronics and clothing, do some Christmas shopping — and avoid the higher sales tax.

"It's cheaper, and we find things you can't find in Mexico," he said as he positioned a new Phillips surround sound system in the trunk of his car. "I can do all my Christmas shopping here."

Mexican residents make up such a significant part of the outlet center's sales that management recently printed off promotional posters and brochures in Spanish and plastered them around the sprawling center, said John Lairsen, the outlet center's general manager. "I'll assume we'll continue to see that increase" with the new tax hike, he said.

Outside, one of the large white passenger vans contained the family of Carlos Gomez, 54, of Jalisco, Mexico. Gomez was leading his extended family — 28 people from five families — on a shopping and sightseeing tour that included stops in San Antonio, Houston and San Marcos. The caravan drove from Jalisco, past the malls in northern Mexico and straight to the outlet center in San Marcos, where they hoped to stock up on designer clothes, electronic toys and TVs.

Having so many shops in one place makes it worth the trip, he said.

"We do it for the convenience and for the sales," Gomez said. "Plus, we make a vacation out of it."

What age is best to start taking Social Security?

USA TODAY personal finance reporter John Waggoner answers a different reader question every week on retirement. To submit a question, e-mail John at jwaggoner@usatoday.com.

Q: I was born in 1951. What's the best age to start taking Social Security?

A: You're 62, so you could start taking your Social Security benefits now.

But you'd be better off waiting. If you retire now, a $1,000 monthly benefit would be cut to $750, according to the Social Security Administration. You won't be able to collect your full benefit until you hit age 66.

NEW: USA TODAY Retirement Section

You receive your maximum benefit at age 70, and you won't get a larger benefit if you wait until after 70 to collect. By and large, you'll get about the same amount of money from Social Security whether you retire early or not.

If you retire now, you'll get smaller payments over a longer time. But if the level of income you get is important, your best bet is to wait.

SOCIAL SECURITY: What you don't know about it can hurt you

3 Big Stocks on Traders' Radars

BALTIMORE (Stockpickr) -- Put down the 10-K filings and the stock screeners. It's time to take a break from the traditional methods of generating investment ideas. Instead, let the crowd do it for you.

>>5 Stocks Under $10 Set to Soar

From hedge funds to individual investors, scores of market participants are turning to social media to figure out which stocks are worth watching. It's a concept that's known as "crowdsourcing," and it uses the masses to identify emerging trends in the market.

Crowdsourcing has long been a popular tool for the advertising industry, but it also makes a lot of sense as an investment tool. After all, the market is completely driven by the supply and demand, so it can be valuable to see what names are trending among the crowd.

While some fund managers are already trying to leverage social media resources like Twitter to find algorithmic trading opportunities, for most investors, crowdsourcing works best as a starting point for investors who want a starting point in their analysis. Today, we'll leverage the power of the crowd to take a look at some of the most active stocks on the market today.

>>5 Big Stocks to Trade for Big Gains

These "most active" names are the most heavily-traded names on the market -- and often, uber-active names have some sort of a technical or fundamental catalyst driving investors' attention on shares. That's especially true now that earnings season is officially underway. And when there's a big catalyst, there's often a trading opportunity.

Without further ado, here's a look at today's stocks.

Alpha Natural Resources

Nearest Resistance: $7.50

Nearest Support: $6.75

Catalyst: Earnings, Outlook

>>5 Stocks Insiders Love Right Now

Statistically speaking, materials stocks have been the biggest price winners on the heels of earnings surprise this quarter, and Alpha Natural Resources (ANR) is providing the perfect case in point today. Alpha reported a 61-cent per share loss for the third quarter, less than the 77 cents in the red that Wall Street expected. Better, the firm expects to see better numbers in the coming year thanks to lower coal production costs.

Even though ANR has been hammered lower for most of 2013, the downtrend in shares broke back in the middle of October, pointing to a reprieve for shareholders. Resistance at $7.50 could still be a stumbling block in the near-term, though; risk averse investors should wait to see if ANR can catch a bid above $7.50 before buying.

JDS Uniphase

Nearest Resistance: $14.50

Nearest Support: $13

Catalyst: Guidance

>>Hack Earnings Season With These Serial Surprisers

Communications specialist JDS Uniphase (JDSU) is getting hammered down 9% this afternoon after posting its fiscal first-quarter earnings after the bell yesterday. It's not that earnings were bad for JDSU -- the firm actually beat expectations for the period, and swung to a profit -- but guidance doesn't look pretty. Shareholders are unloading this stock on worries over weaker revenues than expected for the year ahead.

Intraday, JDSU looks likely to hit the brakes by support at $13, but that doesn't mean that the longer-term selling is over. Shares have been in an uptrend (if a wobbly one) since the summer, and $13 is make-or-break mode for those higher lows. If support gets violated, look out below.

Barrick Gold

Nearest Resistance: $21

Nearest Support: $17

Catalyst: Earnings

>>4 Stocks Triggering Big Breakout Trades

Gold mining giant Barrick Gold (ABX) is down close to 4% this afternoon following the firm's third quarter earnings call this morning. I've said before that I think lower prices are in store for gold -- and even more so for gold miners like Barrick. High gold production costs and falling gold prices have hampered profitability at ABX in the last quarter, and investors are selling shares after the 43% haircut they've taken in 2013.

From a technical standpoint, Barrick's chart still looks broken. Resistance at $21 has swatted back buying pressure on four attempts since April, and while today's selling isn't abnormally large, it's just more distribution on the way down.

To see these stocks in action, check out the at Most-Active Stocks portfolio on Stockpickr.



-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

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>>Own Gold? Here's Why It's Time to Sell

>>4 Stocks Under $10 Moving Higher

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji