Friday, October 31, 2014


Bigger Than Radio, TV and PCs Combined

It's the fastest-spreading technological phenomenon in history. It's about to change the world as we know it and create a whole new generation of millionaires and billionaires. Interested?

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Pain-Free Profits

Benjamin Shepherd

If you were an athlete in your school days or an avid golfer or gardener, there's a pretty good chance you've experienced joint pain regardless of your age. As you age, though, the odds of suffering through pain are even higher. About one-third of all Americans over the age of fifty have osteoarthritis (OA) of the knee, a condition in which the cartilage which cushions the joint wears down and leaves bone rubbing on bone.

Nearly two-thirds of those older than 65 will suffer from the condition, with those extra 15 years resulting in a lot of wear and tear on a joint. Overall, with more than 5% of the world's population suffering from OA of the knee, it is the most common joint disease.

While joint replacements are becoming an increasingly common treatment for advance OA of the knee, it is rarely the first line of defense. Rather, treatment typically starts of over-the-counter pain relievers and advances to the injection of substances into the joint which act as a cushion between the bones.

Anika Therapeutics' (NSDQ: ANIK) Orthovisc is based on hyaluronic acid, a gel-like substance found in the human body but which the company makes derives from non-animal sources. It is injected directly into the knee over a three-week period, essentially lubricating the joint and acting as a cushion between the bones, to relieve chronic knee pain and improve movement. It has proven hugely successful, helping to drive 10-year average revenue growth of more than 17% and earnings per share growth of 33%.

While Orthovisc may bring relief to patients in the long run, actually receiving an injection into the knee joint isn't exactly a pleasant experience. In help ease that pain, Anika developed a single-injection version known as Monovisc, which has been marketed internationally since 2008, but was only approved by the US Food and Drug Administration this past February. Within two weeks, Anika and its marketing partner, DePuy Synthes Mitek Sports Medicine, announced the first commercial sale of Monovisc in the US.

Anika has had an uphill struggle with both Orthovisc and Monovisc, with a handful of other multiple-injection products on the market and the introduction of Genzyme's single-injection Synvisc-One in the US in 2009. It has largely prevailed though, largely thanks to the fact that its products aren't derived from animals. It's gone so far as to beat out Sanofi (NYSE: SNY), which acquired Genzyme in 2011, in patent litigation relating to the product.

Not only is Anika gaining market share in the treatment of OA of the knee, it is working to expand the uses of both Orthovisc and Monovisc to other joints. It's also using its hyaluronic acid-based technology to develop other products, including wound care devices which both coverage for the injury similar to a bandage which also encourages healing by providing a structure for new cells to grow around. The company currently holds about 50 patents on its technology.

That therapeutic success has been translating into consistent business success. Total revenue was up 24% year-over-year in the third quarter alone, reaching $22.1 million, with revenue from its orthobiologics (Orthovisc and Monovisc) up 47%. Revenue from its surgical and dermal operations, such as the wound care product I mention above, also showed moderate growth. Product gross margin jumped from 68% to 74% percent year-over-year, while earnings per share were up 21% from $0.33 to $0.40.

That growth is expected to continue, with analysts forecasting that full-year earnings should come in around $2.32 as compared to $1.38 last year. That estimate will likely prove conservative though, with Anika's strong history of upside surprises. Overall, analysts are expecting earnings growth of 30% per annum over the next five years, blowing both the biotech sector and the S&P 500 out of the water.

Like so many other companies, Anika Therapeutics has demographics on its side as the baby boomers age. It also has several promising products in its pipeline and it leverages its expertise to branch out into new treatment areas. On top of that, it has no debt and about $92 million in cash on its balance sheet, with total working capital of $122.2 million, leaving it in the enviable position of being able to self-finance its research and development efforts.

If Anika can successfully execute on its goal of capturing 15% of the orthobiologics market by 18%, launching new productions and pushing further into international markets, it will prove to be a huge growth play that will pay off for years to come.

Given the rapid growth expected from the company, Anika Therapeutics is a terrific buy under $47.


Living Paycheck to Paycheck?

Two-thirds of Americans are, according to the American Payroll Association. That's not hard to believe when you know 46 million people still rely on food programs to eat. And that the labor participation is at a 36-year low. All these things are sad and scary. Especially when you know what's at stake.

Whether you're in the market and looking for protection or have been sitting the rally out, I want to show you a way to shed the fear and make some money.

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When Is Returning Cash to Shareholders a Bad Thing?

Ari Charney

Last July, Reserve Bank of Australia Governor Glenn Stevens famously lamented the subdued "animal spirits" in both Australia and the global economy. In using that term, the central bank chief was referring to the sort of risk-taking that leads to the deployment of capital in pursuit of growth.

This lack of entrepreneurialism is most evident in the fact that in recent years Australian companies have increasingly chosen to return capital to shareholders rather than reinvest it in their own companies.

While fat dividends are certainly one of the main enticements of investing in Australian stocks, in the medium to long term they become less compelling if they're impinging on a company's ability to fund its own growth, the lack of which could undermine the dividend itself and ultimately the share price.

As income investors, we don't just want a substantial payout, we want a substantial payout that grows over time. And that can't happen without organic growth.

According to estimates by the Australian government, total private capital spending is expected to fall by 10 percent, to AUD145.2 billion, over the 12-month period ending in June 2015.

Although Australia's central bank would like the non-mining sectors to taker over leadership of the economy, they've yet to start spending on the growth that will get them there.

When excluding the contribution from mining, Australia's private sector spent about AUD68 billion on organic growth over the trailing year that ended last June. As Bloomberg noted, that was the lowest level of spending since prior to the Global Financial Crisis, even though the economy is now 20 percent larger than it was then.

In fact, if current trends among companies listed on the S&P/ASX 200 are sustained over the next two years, total dividend payouts will outpace capital spending by fiscal-year 2016, according to analyst estimates compiled by Bloomberg.

Of course, real life doesn't adhere to financial models. And while the so-called animal spirits have yet to be revived, there are signs of cautious optimism among businesses.

Even though Australia's domestic economy was relatively unscathed by the Global Financial Crisis (GFC)--despite recent sluggishness, it's been over 23 years since the country last experienced a recession--that doesn't mean the experience wasn't psychologically damaging.

After all, Australian companies don't operate in a vacuum, they do business all over the world. And while the country's economy held together during that tumultuous period, its stock market dropped just as hard as its developed-world peers.

But enough time has passed that wounded psyches are finally starting to heal.

As a new report from Boston Consulting Group observes, "Five years on from the GFC, many Australian companies are rethinking their strategies, shifting from restructuring and consolidation to growth. Improvements in asset productivity, aggressive cost reduction and smarter sourcing have helped companies improve their profits to pre-crisis levels, providing them with excess cash."

Finally flush with cash, management teams must renew their attention to how they allocate capital. And according to a new survey conducted by the Commonwealth Bank of Australia, businesses are indeed starting to contemplate investing for growth again.

The bank's latest Future Business Index, which is based on a survey of 424 public and private firms with annual sales ranging from AUD10 million to AUD100 million, shows that one in two businesses plan to prioritize growth over cost cuts over the next six months. The bank says that's the first time the survey has showed such a result in the three years since it began.

Now, we'll have to see whether such intentions lead to actual investment.

This article originally appeared in the Down Under Digest column. Never miss an issue. Sign up to receive Down Under Digest by email.


My #1 Rule: Don't Buy Options!

Option buyers lose money on 7 of every 10 trades. They place high-risk trades, hoping for a big payout. But they lose – a LOT! But I don't buy options. Instead, I flip them on their head and do this with them. When I do, I make money 82% of the time. I turned $50,000 into $5 million trading options this way. To know my little option secret, you must

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The Fed Tightens Amid Weak Global Growth

The Federal Reserve this week announced the end of its quantitative-easing, bond-buying program. The Fed also said it will keep its target range for the federal funds rate at zero-0.25%, where it's been since December 2008, "for a considerable time." Both moves were expected.

This was the third round of QE since 2008. It's likely to be the last, given the improving growth and employment situation in the U.S. now.

The end of the Fed's bond purchases represents a tightening of a monetary policy that still remains easy by any measure. After all, the Fed isn't unwinding its bond purchases yet. As the securities it owns mature, the Fed will roll over the proceeds into new ones. What's more, investors generally don't expect the Fed to start raising short-term interest rates until mid-2015.

The Fed this week noted "solid job gains" and said that labor-market slack is "gradually diminishing." At long last, job growth is running at its fastest rate in eight years, and new unemployment claims are at their lowest level in 14 years. The unemployment rate has tumbled to 5.9%, although this is partly because many people have left the work force.

Also this week, the Commerce Dept. said the U.S. economy expanded at a solid 3.5% annual rate in the third quarter. Also, the economy grew at a 4.6% pace in the second quarter after contracting 2.1% during the first quarter.

Despite the improving economy, though, inflation remains well below the Fed's target 2% rate, just as it has been for the last 28 months. And global factors are likely to dampen the need to raise rates here.

In sharp contrast to our improving economy, growth is slowing in the rest of the world. The 18-nation euro zone is struggling to avoid its third recession since the 2008-09 financial crisis. China, the second-biggest economy after ours, now is expected to grow this year at its smallest rate since 1991. Japan's economy, the third largest, currently is at a five-year low pace. Economies also have slowed in many emerging markets. Europe, Japan, Russia and others face significant deflation risks.

Commodity prices, which reflect the global economy, have fallen sharply over the last several months. This has happened despite drought, geopolitical tensions and easy monetary policies, including zero interest-rate policies in most of the world's developed economies.

While the Fed has ended QE, Europe and Japan are fully engaged in their own developing or fully developed QE2 programs, which effectively lower interest rates and currency values.

This morning, Japan's central bank, the Bank of Japan, unleashed yet another attack on deflation and weak growth. The BOJ's campaign already was even more aggressive than the Fed's ever was. Now the central bank will further expand its yearly asset purchases to 80 trillion ($730 billion) from the previous 60 trillion-70 trillion range.

The European Central Bank may be the next to move. Like the BOJ, the ECB has three related core goals: boost economic growth, increase inflation and weaken the currency.

No wonder the long-undervalued U.S. dollar has embarked on an overdue rally. Not only is our economy relatively strong, but yields of our government bonds, while historically low, are much higher than those of other major developed nations. With 10-year Treasury issues currently paying 2.3%, other government 10-year yields range from 0.45% (Japan) to 0.85% (Germany) to 2.2% (United Kingdom).

The Federal Reserve's bond-buying campaign has helped to fuel one of the longest bull markets in American history. Opinions vary widely on the effectiveness of QE for the real economy. But the Fed's bond purchases were critical in stabilizing the financial system and aiding the economy in moving through the financial crisis. The U.S. has since economy has outperformed those of other developed nations.

U.S. stocks account for 50% of the MSCI All Country World Index, a world stock benchmark. Many pundits contend that U.S. investors should be widely diversified to take advantage of global trends while reducing the risk of overinvesting in the U.S. market.

Broad diversification and low correlation among asset classes (stocks, bonds and alternative assets) historically has paid off over extended time periods. But as John Maynard Keynes, both an excellent investor and leading economist, famously stated: "In the long run, we are all dead."

His point wasn't that the long term is unimportant, but that what happens along the way makes a big difference. It's not enough to say that everything will work out in the end.

As you may know, I have long favored U.S. equities as the world's best investment asset. I still do. But foreign developed and emerging markets, after a long period of underperformance relative to the U.S., now deserve increased scrutiny.

This article originally appeared in the Mind Over Markets column. Never miss an issue. Sign up to receive Mind Over Markets by email.


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