Thursday, October 2, 2014


Why Invest in Australia?

Australians are the richest people on the planet – with 43,274 new millionaires last year alone. Their median wealth is $219,505. That's 5 times higher than the U.S. and growing 13% a year. What's their secret? Here are 5 opportunities Australians are using to get rich.

Details here.

Mattel Stays on Track

Thomas Scarlett

It's October, and we know what that means for retailers: Christmas is less than three months away. At this time last year, there was still considerable doubt about the state of the U.S. economic recovery. But there have been a plethora of positive economic indicators in recent months, which means that this may be the first Christmas season in several years in which American consumers truly resume their free-spending ways.

What are the best plays for investors on this trend? A perennial winner is toymaker Mattel (NASDAQ: MAT). There's been a lot of attention paid to the latest developments in smartphones and other electronic devices. Mattel is demonstrating that traditional toys---with a few modern twists---still have a lot of appeal to kids and parents.

Mattel's stock price has declined significantly in the last six months, due to a disappointing second-quarter earnings report. While we don't deny that Mattel's 2Q report left a lot to be desired, it seems the market has overreacted and the stock is now undervalued.

Another bit of negative news was that the toymaker will lose the rights to Hasbro to develop dolls based on Disney's Princess and "Frozen" characters in 2016. "Frozen" has been one of the biggest hits in the history of kids' movies, so this news got a lot of attention in the media.

But Mattel will still have the "Frozen" rights for another two years, at which point the fickle taste of children may have moved on to something else anyway. And even without "Frozen," Mattel still controls some of the most well-known brands in the industry.

The company operates through three divisions: Mattel Girls & Boys brands (including Barbie, Hot Wheels and Monster High), Fisher-Price and American Girl.

Mattel's American Girl doll lineup has continued to perform well, with sales surging 17% from a year earlier, in part because the Saige doll, which is American Girl's Girl of the Year, has been a hit. (The company annually rolls out a new Girl of the Year doll, along with associated books, a DVD and accessories).

Sales rose 6% at the Mattel Girls & Boys segment. Barbie sales gained 3%, reversing several straight quarters of declines.

"In the second quarter, we made significant progress across a number of initiatives to better position Mattelin the second half of the year and beyond," saidBryan G. Stockton,MattelChairman and Chief Executive Officer.

"For example, we completed the acquisition ofMEGA Brands, reduced inventories, strengthened our management team, shifted marketing spend to the back half of the year, and exercised strong controls on SG&A expenses. And while results for the quarter did not meet our expectations, we did see improving POS trends. As we move into the second half of the year and the all-important holiday season, we need to drive POS higher by bringing innovative products to market, making additional advertising investments and optimizing the effectiveness of our marketing spend."

The company has added a number of brands mainly aimed at preschool boys---including Barney, Bob the Builder and Thomas & Friends---when it bought HIT Entertainment for $680 million in February 2012. At the time, Thomas accounted for about three-quarters of HIT's revenue.

"An established brand like Thomas helps Mattel, which has historically been stronger with girls than boys, in the extraordinarily competitive preschool market," Marty Brochstein, senior vice president for industry relations and information at the International Licensing Industry Merchandisers' Association,toldtheNew York Times.

The company's latest earnings report bears that out. In contrast to the strong performance of its doll lines, the Wheels segment, which consists of Hot Wheels, Matchbox and Tyco R/C products---all products mainly aimed at boys---saw its sales decline year-over-year. Sales were flat at the preschool-oriented Fisher-Price.

According to theTimes, the Thomas brand has about $1 billion of sales worldwide. It appeals to both boys and girls between one and three years of age, when girls tend to move into dolls. Boys continue to follow the adventures of the little locomotive until they're about five.

The company's strong brands, worldwide presence and leading market share put it in a good position to gain as the global economy continues to recover. The decline of the stock price has left Mattel with a price-earnings ratio of just 13 -- quite low for such a well-established company in an industry that seems likely to see increased sales over the next few quarters. A purchase of the now-undervalued Mattel stock could be your Christmas gift to yourself.

Tom Scarlett is an investment analyst at Personal Finance.


4 Obamacare Profit Opportunities

Obamacare mandates that all health records go digital by 2015. This unleashes a powerful technology demand that companies are racing to fill. Four companies are leading the pack.

Our stellar pick is hands down the world leader in electronic health records. Clients include doctors, nurses, lab techs and pharmacists. Their software allows for instant access to patient records.

Here's the thing: Revenue in the first quarter jumped 15.4%, and that's just the beginning as Obamacare gains steam. Even if it's repealed, electronic records are here to stay. We have 3 more health powerhouses to share.

Read more here.

The Great Natural Gas Grab

Richard Stavros

Any power utility executive will tell you that the industry has been burned by unexpected natural gas price spikes a number of times over the past 10 years.

In some cases, regulators refused to allow the utility to pass on the fuel cost to ratepayers, and investors took the hit in the form of lower earnings.

While this does not happen often, when there is widespread consumer outcry over high electric bills as a result of natural gas price spikes, known in the industry as the "French Revolution effect," the relationship with regulators can become so contentious as to materially undermine the utility's earnings profile over a period of years.

That's why recent moves by various utilities to develop shale gas pipelines, buy production assets, or even lock in long-term, low-priced natural gas with producers should put those firms in a more favorable light among investors. These physical risk-management strategies will keep costs low, protect profit margins, and allow for incremental increases in capital projects.

In fact, federal regulators are encouraging better coordination between electric and natural gas assets. In hearings at the Federal Energy Regulatory Commission in early July, natural gas price spikes during last winter's polar vortex were blamed on a lack of coordination between natural gas pipelines and electric grid operators.

Though federal regulators are not advocating mergers and acquisitions by any means, many in the industry see a potential second electric-natural gas convergence wave that may lead to mergers between natural gas and power entities.

NextEra Energy Inc's (NYSE: NEE) subsidiary, Florida Power & Light (FPL), offers one recent example of such a move. In June, the utility announced a partnership with PetroQuest Energy Inc to jointly develop up to 38 gas wells in the Woodford Shale region of Oklahoma.

In the accompanying filing, the company said the wells would provide 30 years of physical gas and save the firm $107 million over the well's lifetime, since the firm will acquire the gas at the cost of production plus transport charges (as opposed to paying market prices).

In conjunction with its shale project, NextEra has proposed a 330-mile natural gas pipeline that would serve the Mid- and South Atlantic region.

In an interview with Energy Risk magazine, Sam Forrest, vice president of energy marketing and trading at FPL, said a similar long-term hedge with derivatives would be impossible. He explained that while FPL hedges its near- to medium-term exposure to natural gas prices, typically over a 12-month to 24-month period, hedging many years into the future would incur significant capital and credit costs.

Similarly, Dominion Resources Inc (NYSE: DOM) and Duke Energy Corp (NYSE: DUK) announced a partnership in early September to build a 550-mile pipeline that would transport natural gas from the Marcellus and Utica shale regions to fuel new power plants in the utilities' home states of Virginia and North Carolina, respectively.

These deals as just the beginning of the beginning: As utilities add more natural gas power plants, they will need greater access to natural gas resources to hedge their commodity risk.

Natural Gas Power Generation Will Surpass Coal by 2040

2014-09-26-U&I-Chart A

Source: Energy Information Administration

The Writing on the Wall

These strategic moves couldn't come at a better time.

At last year's Edison Electric Institute Financial Conference, one of the most poignant questions was posed by IHS CERA consultant Dr. Lawrence J. Makovich. He asked a CEO panel whether utilities were protected from a rise in natural gas prices, given how wrong so-called experts had been in the past about natural gas abundance.

After all, no one can know for sure how natural gas prices will react to increasing resource competition between a growing number of gas-fired power plants, manufacturing plants, and eventual exporters of the commodity.

For now, we believe utilities still have a few more years to secure long-term natural gas resources for their gas-fired plant expansions.

In early September, research firm Raymond James revised its natural gas price forecasts downward. According to the analysts, "The near-term consequences of this huge gas supply growth is that the US should be able to grow supply faster than demand at gas prices of $4.25 or lower throughout the end of the decade."

That being said, the expansion of the technologies that use natural gas will be tremendous.

According to a recent Energy Information Administration report, growth in natural gas-fired generation in the power sector will account for 78 percent of the overall increase in use of that fuel through 2040, with manufacturing accounting for the balance. Indeed, natural gas-fired generation is projected to surpass coal-fired generation by 2040.

Although this trend is still in its early stages, we believe those utilities that are able to diversify their fuel mix and manage their exposure to commodities prices will be best positioned to produce higher future earnings.

This article originally appeared in the Utility & Income column. Never miss an issue. Sign up to receive Utility & Income by email.


Like Going Back in Time – in the Bakken

Remember the early Bakken? When shale champions like Continental and EOG Resources made investors feel like they'd won the lottery? Well, guess what? Phase 2 of the Bakken phenomenon is about to create a new generation of shale-oil millionaires. The U.S. Geological Service has DOUBLED its projections for Bakken oil recoveries. Now, there's a new operator in Bakken delivering very impressive production rates. The rates are so strong, they suggest this aggressive outfit's 85,000 acres are undervalued, perhaps dramatically. Production jumped 80% last year. It was forecast to double this year, but management just raised that expectation on the strength of positive recent trends. Get in now for a terrific small-cap, early-Bakken-Phase 2 opportunity.

Start here.

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