Bull & Bear’s

January 2014 VOL. 14 NO. 9

INSIDE...Protect YourAssets in 2014Litigation is America’s fastest growing business because plaintiffs have everything to gain and nothing but a few hours’ time to lose. A leading attorney specializing in asset protection suggests taking these steps immediately to safeguard your assets so you don’t lose everything.

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Investment Newsletter DigestBuy/Sell advice from the world’s top-performing market timers. Investment experts reveal which stocks to buy now for BIG gains in 2014. Top analysts, newsletter editors and portfolio managers give their views on Oil & Gas Stocks, Small-Mid Caps, Utilities, Tech Stocks, Gold & Silver, Market Seasonalities, Domestic and International Stock Markets.

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Year-EndBounce CandidatesEvery year we see certain stocks get pushed down by artificial selling pressure. That pressure is removed after year-end, often causing those stocks to pop up nicely and suddenly become investor darlings – at least for a while. George Putnam, The Turnaround Letter, identifies 10 year-end bounce stocks.

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By Chad FraserInvestingDaily.com

2013 was a strong year for railroad stocks: the iShares Transportation ETF (NYSE: IYT), about the closest you can get to a gauge for the industry (rough-ly 30% of the fund’s portfolio is devoted to railway operators) gained 39% during the year.

That’s miles ahead of the Dow Jones Industrials (up 26%) and the S&P 500 (up 29%).

Railroad Stocks in a Downhill Pull

Railroads currently carry the largest portion of the nation’s freight – about 43% – ahead of trucks, at 31%. According to a recent report from RBC Capital Markets, the industry has another year of full railcars ahead.

RBC’s 2014 Railroad Shipper Survey queried 53 customers of the six North American Class 1 railroads (or those with operating revenues of $433.2 million or

more) to gauge their expectations for the year ahead. The picture that emerged is one of an industry enjoying a period of sustained growth.

The investment bank found that a strong majority of respondents (71%) expect rail-shipping rates to rise in 2014, though the larg-est group (42%) expect moderate increases of between 1% and 3%. Notably, just 28% expect rates to rise 4% or more, down sharply from 65% two years ago, but very few (3%) expected rates to fall.

Overall, most customers expect to ship the same amount as last year or slightly more – 68% expect a 1% to 5% rise in volumes. That’s

Continued on page 12

Railroad StocksRoll Into 2014

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Case StudiesThe following are hypothetical,

but real, situations that can happen to anyone in their every day lives!

• Liability for Personal Injury on Land: A family owns a house on a few acres of land with a pond. The family uses the house as a play area for their minor child and her friends. While the father is hosting other children at the house, another child slips and falls into the pond and drowns. The parents sue the owner. Without Asset Protection, the parents are in a low-bargaining power and certain to lose all of their assets.

• Liability for Teenage Driving Child: Husband and wife own assets in their individual names, even though their state is a Tenancy by the Entirety State “TBE.” Their teenage son gets his license and borrows their car. He negligently drives the car into a fence, allowing a vicious dog to run away and attack a child. The parent’s of the attacked child sue

the parents of the teenage driver for negligence. The moral here is to never allow teenage children to drive your cars, and if you must – at least provide them with their own insurance policy. Teenagers are at a higher risk of liability due to their maturity level and its best to minimize their control over assets that are in your name. Further, if you live in a TBE state – you should title your assets as such to give yourself heightened protection.

• Business Owner and Li-ability Insurance: A business gets sued and the businesses insurance coverage increases to the point where the business owner can’t afford the insurance anymore. Instead of having no insurance and being unprotected from lawsuits, the business own-er decides to use Asset Protection to safeguard its assets. This is a great use of Asset Protection, al-though, it is also great to have an Umbrella Policy (even if small) to cover MSC liabilities.

Editor’s Note: For a Complimentary Prelimi-nary Consultation regarding protecting your assets contact The Presser Law Firm, P.A., 561-953-1050 or visit www.assetprotectionattorneys.com.

Litigation is America’s fastest growing business because plain-tiffs have everything to gain and nothing but a few hours’ time to lose, says Hillel Presser, an asset protection and estate planning attorney and author of “Asset Pro-tection Secrets Revised Edition.)

“Even if a case seems utterly ri-diculous – like the man who struck and killed a teenager with his luxury car and then sued the boy’s family for damage to his bumper – defendants are encouraged to settle. It’s sometimes the only way to avoid potentially astronomical legal fees,” he says.

If you haven’t already taken steps to protect your assets, that’s one New Year’s resolution you’ll be glad you made and followed up on, Presser says. And while it helps to have the assistance of a lawyer who specializes in asset protection, there are many things you can do yourself.

“You shouldn’t have any non-exempt assets in your name,” Presser says. “The goal is to ‘own’ nothing but control everything.”

Presser suggests these resolu-tions for safeguarding your wealth in the event of a lawsuit:

• Inventory your wealth. Fig-ure out how much assets you really have (most people have more than they think). Take stock of valuable domain names, all your passwords, log-ins and user names, ATM pin numbers, telephone numbers, intellectual property, potential inheritances, and other liquid and non-liquid assets. That way you can then work on actions to cost effectively keep them safe.

• Set your goal. Setting your 2014 asset protection goal is your first step to becoming protected in the New Year! For instance, you could plan to execute an estate plan or set up a trust for your children in 2014. Decide what assets you want to protect in the New Year and a realistic timeline for implementation. Then – and most importantly – stick to your plan. Asset protection works only

Protect Your Assets in 2014Specialist Offers Tips for Safeguarding Your Wealth

if you follow through.• Protect your home. Find out

how much of your home is protected by your state’s homestead laws and then encumber the remaining equity. Encumbering a home’s equity can be accomplished by recording a mortgage against it, refinancing a current mortgage or even taking out a line of credit using your home as collateral! Another great strategy to protect your home is to transfer its title to a protective entity such as a limited liability company (LLC), trust, limited partnership, etc.

• Get everything out of your name. The worst thing you can do as far as exposure is to title all of your assets to your personal name. That doesn’t mean you have to lose control of them – the goal of asset protection is to “own nothing,

but control everything.” In 2014, work on moving your assets out of your personal name and into the name of protective entities such as limited liability companies (LLC’s), asset protection trusts, limited partnerships, etc.

• Buy adequate insurance. Protect your loved ones. Make sure you have adequate insurance coverage in the event a job loss, natural disaster, or even a tragic loss of life. Those include – but are not limited to – your car, home, and other valuables.

Editor’s Note: Hillel L. Presser ’s law firm, The Presser Law Firm, P.A., represents individuals and businesses in establishing comprehensive asset protection plans. In his book, Asset Protection Secrets (Revised Edition), Presser reveals the most effective strategies to protect yourself against lawsuits, creditors, divorce, foreclosure and other deadly threats that can financially destroy you. The book is available on Amazon or through www.assetprotectionattorneys.com.

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By Sandra BlockKiplinger’s Money Power

If you’re paying your parents’

bills, don’t overlook these sources of money and tax breaks – Med-icaid. Medicare provides only limited coverage for skilled nurs-ing or rehabilitation services after a hospital stay. It doesn’t cover custodial care, such as help with bathing, dressing and eating, which people with Alzheimer’s and other debilitating illnesses need.

Medicaid covers custodial care in Medicaid-eligible long-term-care facilities. In some states, it will also cover home health care. The catch is that your parents must be practically impoverished to qualify. State laws differ, but in general, your parent can’t have more than $2,000 in countable assets, including investments. A spouse who lives at home can usually keep up to $115,920, along with the home, car and assets in certain kinds of trusts (for more information about eligibility in your state, go to www.medicaid.gov). If your parents want to preserve some assets by giving them to you or your siblings, they usually must do so more than five years before applying for Medicaid.

If your parents have a long-term-care insurance policy that qualifies for a state partnership program, they may be able to protect more of their assets. For example, if your mother has a partnership-eligible policy that covers a total of $200,000 in care, she can qualify for Medicaid after exhausting the policy’s benefits but still keep $200,000 in assets. For more information, go to www.longtermcare.gov.

Help for veterans. Did your parent serve in World War II, the Korean or Vietnam conflicts, or the Persian Gulf War? He or she may be eligible for a little-known U.S. Department of Veterans Affairs program known as the Aid and Attendance benefit. This benefit can provide up to about $2,000 a month toward the cost of home health care, a nursing home or assisted living. Spouses

Get Financial Help for Caring for Parentsof veterans may also qualify.

The program is income-based. In general, an applicant must have less than $80,000 in assets, excluding a home and vehicle. Veterans with more assets may qualify if they have large unreimbursed medical costs, says Debbie Burak, founder of www.veteranaid.org, a website that provides information about the program.

If you believe your parents are eligible, be persistent. Only three VA processing centers handle A&A applications, Burak says,

so it’s important to mail your application to the right place (you can find those locations, and lots of other information, on Burak’s website). Make sure you provide all of the required documents and obtain a return receipt for all correspondence, Burak says. The claims process can take several months, but if you’re approved, benefits are retroactive to the day you filed.

Editor’s Note: Sandra Block is a senior associate editor at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.

By Carolyn BigdaKiplnger’s Personal Finance

One of the cardinal rules of investing is never fall in love with a stock. But for all you incurable romantics, we’ve found four com-panies that may be candidates for a long-term relationship.

• L Brands (LB; $61). You may not be familiar with the com-pany, but you’ve probably heard of two of its sensual subsidiar-ies: Victoria’s Secret and Bath & Body Works. Both retailers garner more than one-fourth of all sales in their markets, and both have room to grow. Analysts see L Brands, which does about $11 billion in sales annually, boosting earnings by 12 percent in the fis-cal year that ends January 2015. At 17 times estimated earnings for that year, the shares are a bit more expensive than the overall market, but the price is fair given L Brands’ growth potential.

• Signet Jewelers (SIG; $79). This Akron company owns the Jar-ed and Kay Jewelers chains. Signet now has more than 1,400 stores in the U.S. and should be able to gen-erate annual sales growth of at least 6 percent for the next few years, says Gregory Herr, co-manager of FPA Perennial Fund. The firm’s aggressive advertising – you’ve no doubt heard that “Every kiss begins with Kay” – will also help. The stock trades at nearly 15 times projected earnings for the year that ends

January 2015.• Tiffany (TIF; $92). U.S.

sales have lagged, so the 176-year-old company has been expanding its lower-priced sterling-silver collection to appeal to a broad customer base. In addition, the New York City company contin-ues to expand overseas. Sales in Asia, excluding Japan, grew by a whopping 22 percent during the quarter that ended October 31. The stock jumped 9 percent on the day the earnings report was released, and now sells for 21 times projected earnings for the year that ends January 2015. That’s not a bargain price, but it’s reasonable given the strength of Tiffany’s iconic blue-box brand.

• Southwest Airlines (LUV, $19). It’s hard not to fall for the company with the market’s most heartwarming stock symbol. Like other airlines, Southwest shares have been on a tear; they’ve near-ly doubled over the past year. A rebound in business travel has helped. But perhaps the best thing the industry has going for it is the recent spate of airline mergers, which helps to reduce competition. Moreover, Southwest’s CEO recent-ly suggested that the airline may start charging for checked baggage. Imposition of baggage fees wouldn’t be good news for budget-minded fli-ers, but it would likely endear the company to investors.

Editor’s Note: Carolyn Bigda is a contributing editor to Kiplinger’s Personal Finance magazine, www.Kiplinger.com

Stocks to Love

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THE LANCZ LETTER2400 N Reynolds Rd., Toledo, OH 43615. 1 year, 15-17 issues, $295. www.LanczGlobal.com.

A look into 2014Alan Lancz: “This is the time of year when the

media and investors in general want to know what we expect with the upcoming change in the calendar. Sometimes the best way to take advantage of what’s in store is to reflect, and learn, from the past. Last year at this time investors were writing off Best Buy (BBY) and Deckers Outdoor (DECK) as two “has beens” that were heading out of business. Investors felt that Best Buy’s business model was kaput and all they would ever be was a showroom for Amazon.com. Deckers Outdoors had deteriorating margins due to sheepskin shortages combined with a warm early winter forcing their stock down over 75%. It was easy to assimilate that the sheepskin shortage was temporary and the rest of the winter, or at least this winter, would be more seasonal (sorry Mr. Gore). Despite this, investors saw no hope in either of these companies (or many more we discussed last year like Nokia, Supervalu, etc.) despite their leadership position in their respective fields. In typical stock market fashion, Nokia has more than doubled in price from one year ago, Best Buy has nearly quadrupled and is one of the best performers of the 2013, and just this week a brokerage firm upgraded Deckers to a “buy” after it already has nearly tripled in value. All we can say is where were these brokerage firms one year ago when Deckers had such low expectations that most of the risk was drained out of the stock.

The research team at LanczGlobal sees several parallels this year with many of the high flying stocks that investors currently love. These stocks carry the greatest risk – remember how much Apple was loved at the time of our partial profit taking recommendation as it approached $700. Like last year, investors should focus on out of favor leaders (many of which are featured in this issue) that once again represent the best risk-to-reward in this type of market environment. We expect more volatility into 2014, and would buy into weakness either this month or with any new profit taking into the new tax year.

One example of a stock with exceedingly low expectations that we purchased recently below $13ó a share is Nuance Communications (NUAN). Like Best Buy, it is misunderstood by Wall Street as they convert to a recurring revenue model that will benefit the company over the longer term. Wall Street has written off the company. This has created an exceptional opportunity that, just like with Best Buy, Nokia and Deckers one year ago, will just take time.

Another industry leader that is totally out of favor and may take more than a year to “regain its form” is Weight Watchers International (WTW). Investors

Stocks to Watchshould buy a partial (1/3) size position of their typical holding and accumulate the balance into further weakness. Unlike Nuance, which has Carl Icahn as a catalyst, WTW will take longer (into 2015) before reporting any type of fundamental progress.

Investors may wish to take a look at software developer Compuware Corp. (CPWR). Their stock has declined after not progressing with a takeover offer, but we still believe CPWR’s assets would ideally complement several larger tech firms. Management is spinning off the company’s cloud computing unit called Covisint while focusing on expanding their international operations. All of this will only make CPWR more valuable to a potential suitor, plus investors receive an annual yield of over 4.6% while they wait.

Our final new recommendation, Denbury Resources (DNR: $16.45), is another company trading more than 15% off their recent highs, and should be accumulated on weakness as it approaches its yearly low. Management is spending heavily on their COÇ injection technology to extract additional oil from established fields. These expenditures will begin paying off into the 2015-2016 timeframe. Wall Street, in their typical myopic focus, has written off the company. We feel management is making the proper moves to enhance shareholder value over the long term. A solid dividend should be initiated into 2014, and we expect worthwhile increases over the next 3-5 years in their distributions. Investors should capitalize on recent weakness to accumulate these shares in the mid teens for their total return potential into the mid twenties over the next 2-3 years.

Into 2014, investors should also keep high quality interest sensitive companies on their radar as interest rates rise over the next several months. This area will experience heavy selling that will create select exceptional long-term opportunities. We have added Cisco Systems to our quality “Blue Chip” portfolio subsequent to their stock’s recent sell off. In addition, we have been accumulating chip maker Broadcom, Inc. (BRCM $26.87) in the low to-mid twenties, down from the high 30’s. Their second quarter loss was primarily due to a goodwill write down from a very strategic acquisition last year. At the current depressed valuation, Broadcom offers the kind of 3 or 4 to 1 risk-to-reward that we stride for as part of our continuous risk management strategy.”

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LEEB INCOME PERFORMANCEP.O. Box 383, Williamsport, PA 17703. Monthly, 1 year, $199. www.leebincomeperformance.com.

Dr. Pepper Snapple: Attractive valuation

Genia Turanova added Dr. Pepper Snapple Group (DPS) to the Growth & Income Portfolio.

“We don’t recommend it based merely on this company’s smaller capitalization. We like its fundamentals, such as its valuation, which looks more attractive than its large-cap competitors’ as

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well as the fact that it yields, at 3.2 percent, more than most of them.

A household name, Dr. Pepper Snapple Group is a $9.3 billion market cap company with annual sales of about $6 billion. It is as leading flavored beverage producer in North America and the Caribbean, and owns more than 50 brands including 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott’s, Mr. & Mrs. T mixers, Penafiel, Rose’s Schweppes, Squirt, Sunkist soda, and, of course, the Dr. Pepper and Snapple brands.

Despite its smaller size, Dr. Pepper Snapple Group has a strong market position in its markets. The company owns six of the top 10 non-cola soft drinks; moreover, 13 of its 14 leading brands sit in the top No. 1 or No. 2 spots above all others in their flavor categories. Its business is, on the other hand, concentrated largely in North America, where it derives more than 90 percent of its revenues. This makes the company more vulnerable to the recent consumer shift towards healthier alternatives than its larger rivals Coke and Pepsi (whose exposures to the international market are significantly bigger).

But Dr. Pepper has not stood idly by as its major markets changed. It has addressed the challenge by launching low-calorie variants of its major brands (Core 4, namely its Canada Dry, A&W, Sunkist soda, 7UP and RC brands). Its “Ten” offerings boast just 10 calories per 12 ounces serving and minimal artificial sweetener aftertaste.

Still, some analysts observe that low-calorie sodas also face difficulties due to health concerns associated with artificial sweeteners.

Another important part of any company’s value includes the power of its distribution networks. Here too, DPS gets high marks: it serves consumers throughout North America via a combination of direct store and warehouse delivery capabilities supported

by 21 proprietary manufacturing centers, more than 115 distribution centers and approximately 19,000 employees across North America, as well as the operations of hundreds of third-party bottlers and distributors.

Its efforts in this challenging environment seem to be paying off. In the latest reported quarter, earnings increased 11 percent compared to the same period a year ago on pricing gains, productivity improvements and an accounting benefit, while sales remained soft and volumes, weak.

For the full year, Dr. Pepper has reduced its revenue guidance, expecting sales to be flat – all due to continued carbonated soft drinks consumption headwinds. The full-year EPS is expected to come in from $3.04 to $3.12, an increase from $2.92 reported for 2012. So, the company is meeting challenges – and while there are plenty of those, its share valuation, lower than that of the market and significantly lower than that of peers, reflects those issues. The market could view any outperformance on the goals Dr. Pepper has set for itself favorably, not unlike the positive action of the stock after its third quarter earnings report, despite a decline in 12-month revenues.”

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INVESTMENT QUALITY TRENDS2888 Loker Ave. East, Ste. 116, Carlsbad, CA 92010. 1 year, 24 issues, $310. Online, $265. www.iqtrends.com.

Timely Ten Undervalued Stocks

Kelley Wright: “The Timely Ten is not just another “best of, right now” list. It is our reasoned expectation based on our methodology and experience for what we believe will perform best over the next five years.

Do we believe that all 10 will go up simultaneously or immediately? Of course not. Our four decades of research and experience, however, leads us to believe that these stocks, purchased at current Undervalued levels, are well positioned for both growth of capital and income.

The Timely Ten consists of Undervalued stocks that generally have a S&P Dividend & Earnings Quality rating of A- or better, a “G” designation for exemplary long-term dividend growth, a P/E ratio of 15 or less, a payout ratio of 50% or less (75% for Utilities), debt of 50% or less (75% for Utilities), and technical characteristics on the daily and weekly charts that suggests the potential for imminent capital appreciation.

The current 10 selections and their yields are: CVS Caremark (CVS) yielding 1.3%; Chevron Corp. (CVX) yielding 3.3%; Walgreen Co. (WAG) yielding 2.2%; Baxter International (BAX) yielding 3.0%; Coca-Cola Co. (KO) yielding 2.9%; PepsiCo Inc. (PEP) yielding 2.8%; Occidental Petroleum (OXY) yielding 2.8%; McDonald’s (MCD) yielding 3.4%; Wal-Mart Stores (WMT) yielding 2.4%; ConocoPhillips (COP) yielding 4.0%.”

P.O. Box 917179, Longwood, FL 32791 (407) 682-6170

www.TheBullandBear.com

Publisher: The Bull & Bear Financial Report Editor: David J. Robinson

The Monetary Digest, 1 year, 12 issues, $98.

© Copyright 2014 Monetary Digest. Reproduction in whole or in part without written permission is strictly prohibited. The Monetary Digest publishes investment news and comments of investment advisory newsletters whose thoughts are deemed of interest to subscribers. Neither the information, nor any opinion which may be expressed constitute a solicitation for the purchase or sale of any securities or investment referred herein.

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By George Putnam, IIIThe Turnaround Letter

George Putnam, III: “Most of the time, we recommend taking a long-term view and focusing on underlying business fundamentals when choosing stocks to buy. However, around this time of year it is worth considering a shorter-term strategy based more on the quirks of the calendar – and the tax law – than on business fundamentals.

Every year around this time we see certain stocks get pushed down by artificial selling pressure. That pressure is removed after December 31, often causing those stocks to get a nice bounce right around year-end. The artificial selling pressure comes from two sources: tax loss selling and portfolio window dressing.

Late in the calendar year many investors begin thinking about their tax bills. This causes them to sell losing stock positions to realize capital losses that can be used to offset other gains that they may have. This is especially true in years such as 2013 when a strong stock market has produced significant gains for many investors.

In addition to this tax-loss selling, we also see selling from professional investors who want to improve the look of their portfolios before they are memorialized in year-end reports to clients. These managers would rather not have their losing stocks show up in those annual reports, and so they sell the offending positions to get them out of the portfolio before the end of the year. This is sometimes called “portfolio window dressing.”

Both of these selling pressures disappear on January 1. The New Year brings a clean slate with respect to both tax and reporting issues. When the artificial selling pressure stops, many of the previous year’s dogs jump up and suddenly become investor darlings – at least for a while. Ultimately, longer-term fundamentals will drive the prices of these stocks,

but you can often make good money from this year-end bounce pattern.

This strategy doesn’t always work, but for the last three years our list of year-end bounce can-didates that we identified in the December issue has significantly outperformed the S&P in the first month or two of the following year. This past year, our year-end bounce stocks not only outper-formed in January, but they kept on outperforming throughout the year. The ten stocks we high-lighted last December are up an average of 64% through the end of November compared to 27% for the S&P 500. It is also worth not-ing that the only two stocks on the list that are down for the year-to-date, Cliffs Natural Resources and J.C. Penny actually had nice gains through the end of January. And, ironically, those same two stocks are back on our year-end bounce list this year.

Given the good performance of our year-end bounce stocks for the last three years, this year we are following the same stock-picking formula. The bounce candidates below represent the worst performers in the S&P 500 over the first 11 months of 2013,

with slight adjustments to assure a well diversified list.

Abercrombie & Fitch’s (ANF: $35.99) once enviable position in youth apparel allowed the company to achieve superior profitability for a long time. But the teen fashion market is difficult to navigate, and Abercrombie has lost its way over the last couple of years. Only time will tell whether management will prove nimble enough to respond effectively going forward, but the stock is nevertheless a good candidate for a year-end bounce.

CenturyLink (CTL: $30.37) reported some potential prob-lems early in 2013 that spooked investors, causing the stock to drop 22.6% in a day. The stock rebounded into late spring but has drifted lower ever since. The company provides telecommuni-cations services in 37 states; it is pursuing a broadband strategy that will allow it to leverage off a slowly declining landline customer base. A new multi-year low for the stock has raised the dividend to the 7% range, providing a paid-to-wait rebound opportunity.

Cliffs Natural Resources (CLF: $25.09) mines iron ore pellets used to make steel, and so the company’s prospects are closely tied to broad macroeconomic activity. The surging Chinese economy of a couple years ago helped boost iron ore prices and push Cliffs’ stock price above $100 in mid-2011. It has been largely downhill for the stock ever since, but renewed growth, particularly in China, could spark a rebound.

Edwards Life Sciences (EW: $65.13) makes products used in treating late-stage heart disease. A management warning in the first-quarter report led to a 22% one-day selloff. The stock took another dive when third-quarter results were reported, despite the fact that Edwards beat both revenue and earnings estimates. The financials are solid – quite sufficient for a strong commitment to R&D.

Continued on page 22

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NATE’S NOTESP.O. Box 667, Healdsburg, CA 95448. Monthly, 1 year, $289. NotWallStreet.com.

Top Picks of the monthNate Pile’s recent Top Picks for the month are

Apple, Illumina and MannKind.“Apple (AAPL). Anecdotal evidence suggests the

company is having a great holiday season so far, and with the momentum now shifting back to the bullish side of the line, you are encouraged to take advantage of any pullbacks below the buy limits that may present themselves. AAPL remains a strong buy under $500 and a buy under $550.

Illumina (ILMN). The company continues to deliver on all fronts, and the strength of the stock recently suggests the trend still has plenty of momentum going for it. ILMN remains a strong buy under $85 and a buy under $100.

Mannkind (MNKD). Unlike most of the other “Top Picks”, MannKind’s stock is not here based on its relative strength; rather, it is here to drive home the point that if the company ends up signing a decent partnership agreement sometime soon… And the next move turns out to be higher rather than lower… you’ll be kicking yourself in 2014 for not adding a bit more to your portfolio while it was still in single digits during tax-loss selling season this year. MNKD is a strong buy under $6 and a buy under $8.”

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THE BOWSER REPORTPO BOX 5156, Williamsburg, VA 23188. Monthly, 1 year, $59. www.thebowserreport.com.

A tailwind is building for XRS Corp.Thomas Rice and Cindy Bowser: “XRS Corpo-

ration (Nasdaq: XRSC) provides hardware and software solutions to the commercial trucking indus-try, through on-board computer systems and mobile applications. XRS’s solutions address the regulatory requirements within the trucking industry. XRS cites a market opportunity of 3.1 million trucks that would most benefit from its solutions, only 115,000 of which are currently subscribed to an XRS solu-tion. In August 2012, the company changed its name from Xat00a Corporation to reflect a change in its business model.

Initially, the trucking industry used large hardware systems to transmit information to dispatchers and fleet owners. These systems were invasive, requiring holes to be drilled, dashboards to be pulled apart and bulky equipment to be installed. These installations cost thousands of dollars.

XRS Corp offers two of these older systems: XataNet and MobileMax. However, the company now focuses on Software as a Solution (SaaS) products, rather than hardware sales. In 2009, XRS acquired Turnpike, providing the company with its first generation mobile solution.

Recently, the company announced XRS, its next generation mobile fleet optimization and compliance

solution. This solution involves a small box that connects to a truck’s engine bus, and then transmits the truck’s data to the driver’s mobile device via a wireless, Bluetooth connection. The data is observable by the driver, dispatchers and fleet owners.

The focus of the new XRS solution is to integrate information, cloud, mobile and social aspects, allowing customers to access anything (information) at anytime (cloud), anywhere (mobile). Customers can also share that information with anyone (social).

Both mobile solutions are monthly subscription options with no up-front costs charged to the customer. XRS has over 1,400 customers including big names, like Sysco with 10,000 trucks. In 2013, XRS added 322 new mobile customers as mobile software sales grew 20% year-over-year.

FinancialsRevenues have been in decline as the result of

the company changing its revenue model. While subscription revenues provide a recurring source of revenue, there are no up-front charges. As a result, revenues will decline until the company acquires enough monthly customers to offset the declining hardware sales. This transition is already underway as software sales accounted for 75% of revenues in 2012 and 81% in 2013, while hardware sales accounted for 22% of revenues in 2012 and 17% in 2013.

Another upside to the change in revenue model is the higher profitability of the subscription revenues. In 2013, gross margins for the software segment were 73%, and just 18% for the hardware segment. As a result of this, the company achieved an $866,000 net income in 2013, compared to a $10 million loss in 2012 and many years of losses before.

The company operates with a solid balance sheet. Its current assets-to-liabilities ratio is 2.3 to 1, with $11.7 million in working capital. XRS also has a book value $3.62, which represents a 45% premium over its share price.

One negative is the company’s 28.8 million diluted shares, leaving about 18 million shares that could increase the number of basic shares in the future.

ManagementJohn J. Coughlan joined XRS Corp in October

2006 as the company’s chairman, president and CEO. Mr. Coughlan has many years of experience in the software industry, bringing his expertise to XRS as it transitions to a software company. Previously, he served as president and CEO of Lawson Software, Minnesota’s largest software company. He owns 540,520 common shares.

Michael W. Weber is the company’s CFO, and has been since October 2012. He is not listed on the company’s insider holdings roster.

James F. DeSocio is executive vice president of field operations for XRS. Prior to joining XRS, in January 2013, he was the executive VP of sales and business development at Antenna Software Inc., a cloud-based mobility software company. Mr. DeSocio is not listed on the company’s insider holdings roster.

The Bottom LineAt the 4th Annual Craig-Callum Alpha Select

Conference President and CEO John Coughlan noted

9

that both a carrot and a stick will drive truckers to its solution. The carrot is the cost savings. Drivers and fleet managers will be able to see where they are most efficient on the road, adjusting to save time and fuel. Savings also stem from the lack of large installation fees related to the older hardware solutions.

The stick is the Moving Ahead for Progress in the 21st Century Act (MAP-21), which passed in July 2012. Part of the bill requires the Federal Motor Carry Safety Administration (FMCSA) to write a rule requiring all drivers meeting certain driving parameters to use electronic logging devices. The FMSCA was required to pass the rule in October 2013.

There is a tailwind building for XRS, who stands to benefit with a simple, inexpensive, effective technology. In the meantime, XRS is financially stable, turning to profits with a solid ratio and book value.

Office: 965 Prairie Center Dr., Eden Prairie, MN 55344, Tel: 952-707-5600, Fax: 952-894-2463, www.xrscorp.com.”

***************

THE KONLIN LETTER5 Water Rd., Rocky Point, NY 11778. Monthly, 1 year, $95. www.konlin.com.

Authentidate Holdings: Well-positioned for future growth and profitability

Konrad Kuhn: “Authentidate Holdings Corp. (Nasdaq: ADAT; $1.17) and its subsidiaries provide secure web-based software applications and tele-health products and services that enable healthcare organizations to increase revenues, improve pro-ductivity, reduce costs, coordinate care for patients and enhance related administrative and clinical workflows and compliance with regulatory require-ments. ADAT’s web-based services are delivered as Software as a Service (SaaS) to customers, interfacing seamlessly with billing and document management systems. These solutions incorporate multiple features and security technologies such as rules-based electronic forms, intelligent routing, transaction management, electronic signatures, identity credentialing, content authentication, au-tomated audit trails and remote patient monitoring capabilities. Both web and fax-based communica-tions are integrated into automated, secure and trusted workflow solutions.

ADAT’s telehealth solutions provide in-home patient vital signs monitoring systems and services to improve care for patients with chronic illness and reduce the cost of care by delivering results to their healthcare providers via the Internet. The telehealth solutions combined ADAT’s Electronic House Call™ (EHC) patient vital signs monitoring appliances, their Interactive Voice Response (IVR) patient vital signs monitoring solution or their tablet based products with a web-based management/monitoring software module based on ADAT’s Inscrybe® Healthcare platform. Both solutions enable unattended measurements of patients’ vital signs and related health information and are designed to

aid wellness and preventative care, delivering better care to specific patient segments that require regular monitoring of medical conditions.

Healthcare providers can easily view each specific patient’s vital statistics and make adjustments to the patient’s care plans securely via the Internet. This service provides a combination of care plan schedule reminders and comprehensive disease management education as well as intelligent routing to alert on-duty caregivers whenever a patient’s vital signs are outside of the practitioner’s pre-set ranges. Healthcare providers and health insurers are also expected to benefit by having additional tools to improve patient care, and reduce overall in-person and emergency room visits.

During FY’13, ADAT completed the required test-in phase with the Dept. of Veterans Affairs (VA) for its EHC and IVR telehealth solutions; the VA approved the use of these solutions by VA facilities throughout the country. In fact, revenues for FY’13 jumped approx. 51% to $4.8 mil. due to growth from both telehealth products and services and hosted software service, with a loss of (.45) per share. Strength in telehealth sales and the VA rollout saw Q1’14 revenues surge 96% to a record $1.8 mil., with a continued steady narrowing of operating and net losses, or (.09) per share vs. (.11) for the prior year. The strong quarter demonstrates that ADAT is well on its way to realizing its financial objectives for the year and the trends relative to revenue growth and improved operating efficiency are sustainable. As of Sept.’30, ’13, cash, cash equivalents and marketable securities were $2.5 mil. with working capital of $3.2 mil. Of the 35,423,008 shares outstanding, 20% are held by insiders and 5% by institutions. Meanwhile, ADAT, an old favorite, was recommended in Sept. to reenter at .90 and jumped 55% before pulling back to its 50-Day MA with support in the 1.02 area. We would Add/Buy on all weakness at 1.15 and under for a 1st target of 3.00 especially since the VA’s telehealth program has the potential to generate significant revenue while the commercial market continues to adopt telehealth as a cost-effective approach to manage patient care.

Management is encouraged by the growing number of VA locations using their products and services, as well as the sole source award from the VA for a telehealth pilot program for HIV patients. ADAT has started to enroll patients for its VA telehealth pilot program for HIV and announced new customers for their telehealth and referred management solutions. The acceleration in ADAT’s growth rate reflects the results of their efforts to deploy their state-of-the-art telehealth platform with the VA, as well as other customers. ADAT continues to pursue a number of opportunities for their products and services with large healthcare organizations and hospital systems, and believes its experience serving the VA (the largest integrated healthcare system and telehealth consumer in the nation) with their innovative products and services and responsive customer service leaves them well-positioned for future growth and profitability, enhancing shareholder investment. Ultimate target 3.00-3.50.”

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HENDERSHOT INVESTMENTS11321 Trenton Ct., Bristow, VA 20136. 1 year, 4 issues, $50. www.hendershotinvestments.com.

Myriad Genetics: Attractive valuationIngrid Hendershot: “Myriad Genetics (MYGN:

$28.86) is a leading molecular diagnostic company dedicated to making a difference in patients’ lives through the discovery and commercialization of transformative tests to assess a person’s risk of developing disease, guide treatment decisions and assess risk of disease progression and recurrence. Myriad’s molecular diagnostic tests are based on an understanding of the role genes play in human disease.

Double-Digit GrowthFounded in 1991, Myriad Genetics is a pioneer in the

field of molecular diagnostics. The company employs a number of proprietary technologies, including DNA, RNA and protein analysis, that help them to understand the genetic basis of human disease and the role that genes and their related proteins may play in the onset and progression of disease. Myriad then uses that information to develop molecular diagnostic tests that are designed to assess an individual’s risk for developing disease later in life (predictive medicine); identify a patient’s likelihood of responding to drug therapy and guide a patient’s dosing to ensure optimal treatment (personalized medicine); or assess a patient’s risk of disease progression and disease recurrence (prognostic medicine).

Myriad launched their first molecular diagnostic test, BRACAnalysis, a test for hereditary breast and ovarian cancer in 1996. This test gained increased publicity earlier this year when Angelina Jolie went public with her preventive double mastectomy following the results of her BRACAnalysis test. Myriad reported double-digit growth in fiscal 2013 as revenue increased 24% to $613 million and EPS jumped 36% to $1.77. BRACAnalysis test sales accounted for 75% of Myriad’s revenues in fiscal 2013. Double-digit growth accelerated in the first quarter of fiscal 2014 due in part to the Jolie publicity. Revenue rose 52% to $202 million and EPS increased 89% to $.68. Myriad is effectively competing in its core markets, while diversifying its business by expanding internationally with distribution in over 80 countries. At the same time, Myriad is launching innovative products with the deepest product pipeline in the industry. Myriad has launched three new breakthrough molecular diagnostic tests so far in fiscal 2014. In September, the company launched Myriad myRisk Hereditary Cancer, a new multi-gene diagnostic test for eight major hereditary cancers. In October, the company launched Myriad myPlan Lung Cancer, a new prognostic test for patients diagnosed with earlystage lung cancer. In November, the company launched Myriad myPath Melanoma, a new diagnostic test to effectively differentiate malignant melanoma from benign pigmented skin lesions.

Healthy Cash FlowMyriad’s profitable operations generate healthy

free cash flows, which increased 74% to $85 million

in the first quarter of fiscal 2014. During the first quarter, the company repurchased 3.8 million shares of its stock for $102 million at an average price of approximately $26.92 per share. Since 2010, the company has repurchased $700 million of its stock representing approximately 30% of total shares outstanding. The Board recently authorized a new $300 million stock repurchase program.

Myriad has expressed interest in exercising its exclusive option in fiscal 2014 to acquire Crescendo Bioscience, a molecular diagnostics firm dedicated to developing quantitative blood tests and disease information services for rheumatoid arthritis and other autoimmune diseases. If the option is exercised, Myriad expects to finance the purchase from the $516 million in cash on its debt-free balance sheet as of 9/30/13. While the acquisition could consume a material amount of the cash, Myriad believes that it should still have sufficient cash for its current share repurchase program.

Attractive ValuationMyriad’s shares currently appear attractively

valued, trading at 14 times earnings and with a 9% free cash flow yield. The stock price pulled back sharply following a Supreme Court ruling in June against one of Myriad’s 234 patents, which has opened the door to intensified competition. However, management appears confident of future growth as the global market opportunity expands for their products. Myriad expects fiscal 2014 revenues in the range of $700-$715 million, representing 14%-17% growth, and EPS in the range of $1.92-$1.97, representing 9%-12% growth. Long-term investors with risk-tolerance in their DNA should consider Myriad Genetics, a HI-quality firm generating double-digit growth and healthy cash flows while trading at an attractive valuation. Buy.”

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BI RESEARCHP.O. Box 133, Redding, CT 068751 year, every 6 weeks, $120.

Ubiquiti Networks: 2014 Stock of the Year

Thomas Bishop: “This disruptive wireless networking company is a gem. I thought of all kinds of ways to start off this recommendation, but let me go with this one- On October 28th Ubiquiti Networks Inc. (UBNT: $40) announced a realignment of its Board of Directors and added to its considerably talented Board – Steven Altman… no less than the Vice Chairman of Qualcomm. He promptly disclosed that he already owned 32,500 shares. In short order (as soon as the window was opened after earnings were released) he plunked down $403,000 for another 10,000 shares at $40.30. And when the shares dipped to $36.85 recently he opportunistically pounced again hefting another $737,000 onto the counter to acquire an additional 20,000 shares, bringing his total to 62,050, worth $2.5 million. Now if you think you’re smarter than the Vice Chairman of Qualcomm, hey put this report on the circular file (and let me know

11

what you’re buying). For the rest of you, read on.Ubiquiti is an R&D driven company that leverages

innovative proprietary technologies to deliver networking solutions to start-up and established enterprises, network operators and service providers in underserved markets. It offers an attractive alternative to the more complex, high-cost competition.

Ubiquiti offers a broad (and expanding) portfolio of networking products and solutions. Its Wireless Service Provider product platforms (73% of Q1 sales) provide carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing. Here the Company’s biggest product is its airMAX platform which delivers carrier class wireless networking performance for video, voice and data applications and is able to support an indoor and outdoor wireless network that can scale to hundreds of clients per base station over long distances (unlike most systems using 802.11 standard protocols which are primarily designed for indoor networks). Other product offerings include its disruptively priced EdgeRouter Lite, the world’s first sub $100 router capable of 1 million packets per second processing performance and airFiber which combines an integrated split antenna and a global positioning system to provide microwave backhaul, a compelling alternative to wire backhaul.

Its enterprise products platforms provide wireless LAN infrastructure, video surveillance products and machine-to-machine communications components. Key products here include its UniFi Enterprise Wi-Fi System; its AirCam video surveillance camera and airVision management controller systems (which Ubiquiti believes will become an important product for the company); and its mFi line-up of machine-to-machine communications products which allow users to remotely monitor and control (via WiFi) machines and systems such as building temperature and power consumption.

To me more important than the nitty gritty of what they make is the Company’s strategy. Let me first note that Ubiquiti is almost totally R&D focused- 65% of its employees are engineers that are hands on and actually make things, and the Company pays them 25% to 50% more than the competition to get the very best, “the top 1 or 2%” because that is the value they put on engineering. And it has R&D offices around the globe, in 9 countries. A whopping 52% of operating expenses go to R&D. So Ubiquiti’s strategy is to identify a market where it believes it can engineer a better product with better technology and sell it at a disruptively lower price… and then go in and wipe out the competition. Let me first talk about the “better product” aspect. Have you ever noticed if you use MS Office, or a camera, or perhaps even a smartphone that its capabilities far exceed what you (and most uses) utilize? Yeah, Ubiquiti noticed this also. So they design a product focused on the features 85% of users actually use and then give them 105% on that, including proprietary technology improvements. And as to the better price aspect- instead of coming in 15-20% below the market they might set a price as low as 80% below. So let’s see… the gear has everything and more that you’ll actually use and cost as little as

20% of what the (bloated) competition charges (with their 10 levels of management, overdesigned products and mega sales forces). Uhhh… let me think… that’s a no-brainer. In fact, the Company’s products are so disruptively designed and priced that… they don’t have a sale force. Instead they have been able to sail along on word of mouth/post in their user community which spreads like wild fire around the world. The Ubiquiti Networks Forum has well over 100,000 members, with hundreds often on line at any time. Indeed in the last couple years they’ve shipped over 10 million devices equating to over a billion dollars of sales, which are rapidly expanding. The Company does use about 100 distributors located all over the world. Only 29% of sales are in the U.S. As a result of the above Ubiquiti is the top company on Nasdaq on a revenue per employee basis.

So how’s this working for them? Well sales in fiscal Q1 ending September advanced 111% to $129.7 million, also representing the fourth straight quarter of double digit sequential revenue growth over the immediately preceding quarter. There aren’t too many companies out there whose 1st quarter can beat their 4th quarter… by 29%. And the Company posted net income of $40.5 million, triple last year’s $13.2 million. This translated into GAAP diluted EPS of $.45, and adjusted diluted EPS of $.46, again triple last year without a long list of adjustments (I always prefer to see it that way). In terms of cash flow, while many companies don’t have any free cash flow, in Q1 alone Ubiquiti hauled $52 million of it to the bank. As a result the Company has a cash stash of $280 million… and growing. And it’s not juicing results by handing out extended payment terms. DSO’s were only 25 days! Looking ahead the Company offered guidance of $130 – $136 million in revenues, and adjusted EPS of $0.42 - $0.46. On that I should note Ubiquiti has beaten estimates by between 9% and 22% in each of the past 4 quarters (at least). For FY6/14 the consensus is $1.83 vs. $0.91 last year. UBNT’s IBD rating of 97 is the highest in the Telecom Infrastructure group of 35, and it is ranked 1 by Zacks and 10.5 by the BI Ranking System. Accordingly UBNT is rated a Strong Buy near the same price at which the Vice Chairman of Qualcomm recently forked over $1,000,000 in the open market. This is a great company with a great story and will likely be my 2014 Stock of the Year. www.ubnt.com.”

Editor’s Note: BI Research has been published continuously since 1981. Their niche is rapidly growing small to mid-cap stocks, whose PE’s are reasonable relative to their growth rates. BI Research has frequently been ranked among the top stock picking investment newsletters for its performance. For more information visit www.biresearch.com.

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Railroad StocksRoll Into 2014Continued from page 1

about the same as last year, but crucially, RBC found that 26% expected shipments to rise 5% or more, up from 15% in 2013.

“A distinct element of our conver-sations with respondents this year is that economic concerns did not permeate discussions on volume expectations for 2014. Accordingly, we believe shippers have greater conviction in their near-term vol-ume forecasts compared to prior years,” wrote RBC’s analysts.

Oil Trains Keep Getting Longer …

One area primed for continued growth is shipments of crude oil by rail, as producers grapple with a shortage of pipelines in Canada’s oil sands and U.S. shale regions.

According to a recent estimate from the Railway Association of Canada, about 140,000 carloads of oil sands crude and bitumen were shipped by train in 2013, up from just 500 in 2009.

In the U.S., shipments will likely total around 400,000 carloads in 2013. Railways are also benefiting by hauling in supplies, such as sand for hydraulic fracturing, as shale production rises.

By the end of 2014, about 2 million barrels of crude per day will be riding the rails around North America, according to pipeline operator TransCanada Corp. (NYSE: TRP). That will continue to help railways offset declining shipments of coal, a long-time mainstay.

Shipping oil by rail costs about $5 to $10 more per barrel compared to pipelines that are already built, but the oil trains are helped by the spread between crude prices. If that spread narrows too much, rail becomes less viable compared to pipelines.

Right now, for example, the dif-ferential between international Brent crude and West Texas Inter-mediate (WTI) stands at around $12, while Western Canada Select is sitting at a roughly $21 discount to WTI.

However, the safety of shipping oil by rail has been called into question in the wake of the July 6 tragedy at Lac-Mégantic, Quebec, in which an oil train operated by the Montreal, Maine and Atlantic Railway rolled away after it was left unattended for the night. It then sped downhill, derailed and exploded in Lac-Mégantic, killing 47 people.

Governments on both sides of the border are now re-examining safety regulations. In Canada, new rules have already been introduced with regard to parked trains and the labeling of volatile cargo. Additional changes would further increase the cost of shipping crude.

… But Intermodal Is an Underappreciated

Growth AreaAccording to the 2013 U.S.

Freight Transportation Forecast, prepared by the American Trucking Association, intermodal shipping – or moving freight in containers that can be loaded onto ships, trucks and trains – will continue to be the fastest-growing freight mode, increasing by an average of 5.1% a year until 2018. Intermodal is about 300% more fuel efficient than shipping by truck, according to a January 2013 report from Zacks.com.

As we wrote in a December 18 Investing Daily article, one way to play intermodal’s growth is through trucking stocks: J.B. Hunt Transport Services (NasdaqGS: JBHT) was one of the first to enter the intermodal game and has developed considerable expertise. In 2012, intermodal freight supplied 61% of J.B. Hunt’s revenue.

Railroad stocks are the other angle: Norfolk Southern (NYSE: NSC), for example, has been focusing on boosting its intermo-dal traffic. In 2012, it generated $2.24 billion, or about 20% of its revenue, by shipping the versatile containers, up 5% from 2011.

It’s a similar story at Canadian National Railway (NYSE: CNI), the largest operator north of the border, where intermodal revenue totaled C$1.99 billion in 2012, up 11% from 2011 and accounting for 22% of the total.

Union Pacific: All Aboard!One railway with exposure to

both rising intermodal and crude shipments is Union Pacific (NYSE: UNP), a stock we cover in our Personal Finance newsletter.

The company is America’s largest freight railroad, with a track network spanning 32,000 route miles across 23 states. Its revenue is well diversified across six different categories of freight: intermodal (20.1% of 2012 revenue), coal (19.9%), industrial (17.7%), agricultural (16.7%), chemicals, including oil (16.4%) and automotive (9.2%).

Revenue from each of the above sectors can fluctuate greatly due to their cyclical nature. To help mitigate some of this risk, Union Pacific tries to lock in long-term freight contracts.

Focus on Costs Keeps Earnings RisingA key metric of a railroad’s

health is its operating ratio, which measures operating costs against revenue. In the third quarter, Union Pacific once again showed that it’s among the most efficient railroads in the U.S., posting a best-ever quarterly operating ratio of 64.8%, down 1.8 points from a year ago and 0.9 from the record it set in the second quarter.

In the third quarter, Union Pacific’s earnings rose 10% from a year earlier, to $1.15 billion, or $2.48 a share. Revenue gained 4%, to $5.57 billion. That fell just short of the consensus forecast of $5.58 billion, but earnings beat the Street’s expectation by a penny. Union Pacific saw higher revenues across all its segments except intermodal, which was flat.

The stock gained 32% in 2013. It also pays a $3.16 dividend (1.9% yield). It trades at 15.4 times its forecast 2014 earnings, which puts it roughly in the middle of the railway pack: Canadian National, for example, boasts a forward p/e ratio of 16.1, while Norfolk Southern stands at 14.4.

Editor’s Note: Chad Fraser is a contributor to InvestingDaily.com, an online service of KCI Investing. To sign up for free reports and E-mail alerts visit www.InvestingDaily.com.

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Demographic trends favor The Fresh Market

Douglas Gerlach: “The Fresh Market (Nasdaq: TFM; $39.63) is a small, growing chain of premium grocery stores. Like its better-known competitor Whole Foods, The Fresh Market focuses on premium products that carry higher prices and better margins. We’ve never been comfortable with the company’s rich valuation in the past, but a soft Fiscal Q3 recently took a big bite out of the share price, and we think now is a good time to introduce the stock to readers.

Grocery stores are a crowded industry. The saving grace is that everybody has to eat, so business tends to be pretty steady. The trick is to find a niche. The Fresh Market’s particular niche combines smaller stores – 21,000 square feet on average, compared with 40,000 to 60,000 for conventional supermarkets – with an emphasis on perishable foods, which comprise about two-thirds of overall sales. Growth comes mainly by opening new stores, which the company added at a rate of 9%, 12%, 14%, and 17% (planned) from Fiscal 2010-13. The company currently operates 146 stores in 26 states and expects to finish the year with about 151 total stores. Management thinks it can eventually expand to 500 stores in the U.S. New stores come online at a run rate of about 85% of the company average. After a few years of growth, stores reach maturity and grow at a lower rate approximating growth in overall consumer spending. All told, The Fresh Market has increased sales by 13.6% on average over the past four years, with Fiscal 2013 running just slightly below that trend.

While The Fresh Market ’s store base is currently concentrated in the Southeast, especially in the Atlantic coastal states, the company’s recent expansion strategy has sent out some tendrils into Texas and California, without back-filling into existing markets. As a result, the company’s footprint now looks awfully far-flung for such a small chain. Perhaps the best word to describe the new, nationwide strategy would be “colonial.”

Whether management feels it has to race to establish footholds in an increasingly competitive industry before it’s consigned to a merely regional presence, or whether management is simply “testing the waters” outside its comfort zone, subpar execution is a big risk to investors. After Q3 and Q4 guidance missed expectations, management told a story of a soft consumer economy combined with below-plan sales at new stores in Sacramento and Houston. Oops.

We still like the stock, but investors need to pay attention to the productivity at new stores. If execution in new markets doesn’t bounce back, then maybe the opportunities just aren’t out there. That is, maybe The Fresh Market can’t really be the 500 store chain management wants it to be. Maybe it’s only a 250 store chain when it reaches a point

of market saturation, in which case the current P/E doesn’t leave much room for upside. We don’t think this will actually turn out to be the case, but we get paid to worry, and we can’t see the future.

On the contrary, a retail model that works in one place usually – although not always – translates to other areas reasonably well. Meanwhile, demographic trends favor The Fresh Market because older consumers tend to make more grocery trips per week and to spend more money on better food. Even if business takes a little while to reaccelerate, this company can win the long game just by opening more stores for an increasingly receptive American shopper.

Many of the companies we follow buy back shares on a regular basis, but aggressive expansion doesn’t leave much cash leftover for such purposes right now. Management has done a good job of keeping the share count flat as the company has grown, so at least investors aren’t running on a treadmill.

We model 12% sales growth with 15% EPS growth, the difference coming from operating leverage. If last quarter’s disappointment turns out to be just a blip, the company could see a return of its premium valuations of the recent past. While the P/E has generally been above 30 historically, we have imposed a cap of 32 on the future high P/E. That times EPS of $2.89 could generate a high price of 93. Our low price of 26 is the product of trailing twelve-month earnings and a low P/E that we’ve capped at 18.”

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THE COMPLETE INVESTORP.O. Box 248, Williamsport, PA 17703.Monthly, year, $199. www.completeinvestor.com.

Raytheon: Low-risk defense standout CACI Int’l: Speculative defense play

Raytheon (RTN) remains Stephen Leeb’s favorite low-risk defense play.

“The company stands out from other major defense contractors for several reasons. Its revenues are almost evenly split among four segments: space systems, missile systems, information systems, and integrated defense systems. Thus as the most diversified of the major contractors, Raytheon is well protected if a particular program is singled out for cutting.

More important, virtually all the company’s divisions require high-level information and electronic capabilities, giving Raytheon a leg up in today’s world of electronic warfare. The company’s stakes in cyber security and warfare, secure and wide bandwidth communication systems, and surveillance are fare more extensive than those of its competitors. Through its space division the company provides a wide variety of unmanned imaging and targeting systems for both offensive and defensive purposes. These programs not only are the last likely to suffer cuts, they could gain additional funding in coming years.

Raytheon also gets high marks for having the largest proportion for foreign customers, who accounted for more than 25 percent of its business

15

by the end of 2012. Foreign business is likely to grow even if, contrary to our expectations, U.S. defense spending suffers overall cuts. With virtually all Middle Eastern countries nearly certain to increase military spending sharply in the years ahead, international growth in sales will likely outstrip domestic growth.

Currently Wall Street expects Raytheon’s earnings to grow in the mid to high single digits. We think the low double digits is more likely, which suggests a rising P/E. But whatever its growth rate, this critical franchise, whose projected 2014 free cash flow yield is above 8 percent, is a fundamental powerhouse. In the past decade the company has repurchased nearly 40 percent of its shares, and over the past five years it has been aggressively raising its dividend. With a current yield of 2.6 percent, a superb balance sheet, and a business that is immune to most macroeconomic considerations – other than to defense budgets, which in an economically stressed world are more likely to rise than fall – this is a compelling total return hedge that now receives our highest allocation.

Our new purchase for the Growth Portfolio is the far smaller and more speculative defense contractor CACI International Inc. (CACI), a provider of critical information services to the Defense Department that span the gamut from cyber security to intelligence gathering to health care. These services are in large part critical to U.S. security while amounting, in terms of cost, to little more than a rounding error in the overall defense budget. CACI has been serving the Defense Department for more than 50 years, suggesting an intertwining with many critical legacy programs. Thus much of its business has an ironclad barrier to entry.

There is not much transparency in many of its highly classified projects, which is one reason we rate the company as speculative. Another is its relatively small size, which could make it vulnerable to a rogue employee.

The fundamentals are compelling. Free cash flow yield is a stunning 12 percent. Earnings have dipped only twice, and then slightly, in the past 15 years, suggesting CACI is immune not only to macroeconomic vicissitudes but also to changing defense budgets. The company does not pay a dividend, allowing its enormous amount of excess cash to go toward strategic acquisitions and share repurchases. This is a speculative stock whose potential upside far exceeds the risks.”

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KAPITALL WIRE, a division of Kapitall, Inc. 241 Centre St., New York, NY 10013.

8 winter weather stocks that heat up when it gets cold

James Dennin: “Make no doubt about it. It’s winter. Public school students throughout the East and Midwest are enjoying an early weekend courtesy of Jack Frost – and mayors are breaking out the snow shovels for that winter photo-op. And while today’s storm may not have been as catastrophic as some

people predicted, it is time to brace ourselves for at least three more months of cold, wind, and snow.

With that in mind we decided to build a list of winter weather stocks that profit when the snow gets bad. Now, for a lot of reasons this wasn’t particularly easy to do. For one, the world’s largest maker of snow plows, Meyer, is a privately held company. No matter, we trudged on.

Thinking outside of the box, it wasn’t too hard to come up with some stocks who might see a spike during a particularly rough winter. For instance, if you think the slopes are going to be particularly inviting this year, there’s a publicly traded ski-resort, Vail (MTN). If you’re looking for something a little less seasonal, you could check out Compass Minerals (CMP) – the raw materials supplier which provides much of the country’s rock salt.

If you’re looking for something a little less seasonal, there’s always Johnson & Johnson (JNJ). When people get sick they need more pain killers and moisturizer – but the largest pharmaceutical company in America also has some leverage in the other seasons as well. And generators are useful year-round, although manufacturers like Generac (GNRC) could see a spike when the weather gets particularly bad.

And, finally, for the winter-or-bust crowd, there are a number of publicly traded companies that sell winter-specific recreational goods. These range from the practical and reliable: like winter coats from Columbia Sportswear (COLM), to the more high end, like Arctic Cat Inc. (ACAT), which makes snowmobiles.

Do you see any investing opportunities in these cold weather stocks? Use the list below to begin your own analysis.

1. Generac Holdings Inc. (GNRC; $56.75). Designs, manufactures, and markets a range of generators and other engine powered products for the residential, light commercial, industrial, and construction markets in the United States Canada, and Mexico. Market cap at $3.89B.

2. Briggs & Stratton Corp. (BGG; $21.78). Designs, manufactures, markets, and services air cooled gasoline engines for outdoor power equipment worldwide. Sales of portable generators and snow throwers are higher during the first and second fiscal quarters and could spike during weather related power outage events. Market cap at $1.03B.

3. Compass Minerals International Inc. (CMP; $79.28). Produces finished salt products at four locations in Canada. Its rock salt mine in Ontario serves the highway deicing markets in Canada and the Great Lakes region of the U.S. The company’s U.K. highway deicing customer base is served by the Winsford rock salt mine in Northwest England. Products also include sulfate of potash specialty fertilizer, and magnesium chloride, primarily in North America and the United Kingdom. Market cap at $2.65B.

4. Columbia Sportswear Company (COLM; $78.48). Engages in the design, development, sourcing, marketing, and distribution of outdoor

Continued on page 16

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apparel, footwear, accessories, and equipment in the United States, Latin America, the Asia Pacific, Europe, the Middle East, Africa, and Canada. Market cap at $2.71B.

5. Vail Resorts Inc. (MTN; $74.77). Engages in the operation of resorts principally in the United States. The company operates through three business segments: Mountain, Lodging, and Real Estate. The Mountain segment operates eight ski resort properties and two urban ski areas. Market cap at $2.70B.

6. Douglas Dynamics, Inc. (PLOW; $16.67): Designs, manufactures, and sells snow and ice control equipment for light trucks in North America. The company offers snowplows, sand and salt spreaders, and related parts and accessories. Market cap at $369.68M.

7. Johnson & Johnson (JNJ; $91.85): Engages in the research and development, manufacture, and sale of various products in the health care field worldwide. Market cap at $259.45B.

8. Arctic Cat Inc. (ACAT; $57.77): Designs, engineers, manufactures, and markets a full line of snowmobiles consisting of 57 models and all-terrain vehicles (ATVs) in 31 models under the Arctic Cat brand name in the United States and internationally. Market cap at $776.91M.”

Editor’s Note: Kapitall Wire offers free cutting edge investing ideas, lively commentary and timely analysis of companies enhanced by interactive tools. Kapitall Wire is a division of Kapitall Inc. For more information visit www.kapitall.com.

Resource Stocks

THE MAJOR TRENDS, published for clients of Sadoff Investment Management LLC, 250 West Coventry Ct., Ste. 109, Milwaukee, 53217. www.sadoffinvestments.com.

Commodities still softRonald Sadoff: “Most surprising commodity prices

have been locked in a 3 year downtrend. This decline has softened inflation pressures – below 2%. Similarly the advance/decline line for this commodity index is declining. This means that most commodities (not just a few) are declining.

Normally flat or falling commodities correlate with a slow or contracting economy. Similarly declining commodity prices correlate with flat or declining interest rates. The direction for commodity prices tells a big story.

This continual commodity price decline will confirm a less than exuberant economy, a very bullish

monetary policy, a low inflation rate and steady or level interest rates.

An upside breakout for commodity prices will signal the economy will gain momentum, corporate earnings will increase at a faster pace, inflation pressures will somewhat escalate and interest rates will rise as the Fed takes its foot off the monetary gas pedal.”

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DELIBERATIONS on World Markets, P.O. Box 182, Adelaide St. Station, Toronto, ON M5C 2J1. 1 year, 18 issues, $225. Introductory Trial, 4 issues, $49.

ABX is the poster child that has so damaged the industry credibility

Ian McAvity: “It’s possible gold has put in a double bottom with the $1200 level resisting a break recently with such extreme sentiment readings. For some time I’ve labeled the behavior as “bottoming” but that condition still needs something beyond one higher low… it needs to show some ‘oomph’ on the bounces too.

The Miners Shares ratio to the Metal price has been devastated. It is at historically low levels but will need to show some basing.

Watch for those miners resisting lower lows this year and relative to their 2008 lows as emerging prospective relative strength leaders.

The industry has a lot of repair work to do, and likely will need $1500+ gold prices to bring investors back. Deferring or canceling projects, eliminating exploration and likely high grading may show lower cost/oz near term but may potentially be a negative for longer-term evaluation.

ABX is a major weight in all gold stock indices and seems bent on self destruction when talking about resuming hedging and diversifying to other metals again after blowing countless billions doing and undoing the same thing in the past 20 years.

It boggles the mind that a company could financially transact itself into being the largest gold miner on the planet and destroy so much market cap while gold ran from $250 to $1900 before the fall back to $1200.. still 5x the level of 2001, when their share price was previously at current price levels, with 377 mil shs out vs. 1.0 bil shs and a mkt cap of $16 bil today down from a peak above $50 bil in 2011.

Before the acquisitions of LAC Minerals, Homestake, Place Dome et al, 20 years ago they had a market cap of $8 bil with 285 mil shs O/S, trading at $28 in 1993 when the gold price averaged $360. Talk of changes in management strikes me as strange when 3 of the last 4 CEO’s came out of the financial side and the current CEO used to be the price defender and chief obfuscator about hedging program losses. The founder/Chairman, Peter Munk, stepped down to be replaced by the $12 mil former Goldman exec with the pay package that sparked a recent shareholder rebellion.

When I accuse the investment bankers of harvesting the gold mining industry over the last 20 years, ABX is the poster child that has so damaged the industry credibility.”

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THE COMPLETE INVESTORP.O. Box 248, Williamsport, PA 17703. Monthly, year, $199. www.completeinvestor.com.

Spectra Energy Corp: Strong growth, nice yield

Genia Turanova added a new energy-related position in the Income/Value Portfolio – Spectra Energy Corp. (SE; $34.18).

Spectra Energy’s 3.6 percent yield combined with strong growth prospects from continued gains in U.S. natural gas production make the company an attractive buy. It already is more than halfway to its stated goal of achieving $25 billion in growth prospects by the end of the decade. Among other successful purchases, its $1.5 billion acquisition of Express-Platte, announced nearly a year ago, is now fully integrated into Spectra. Express-Platte is a 1,717-mile pipeline system that starts in Alberta, Canada and ends in Illinois, delivering crude oil to U.S. refining markets.

Spectra Energy focuses on the gathering, processing, storage, and distribution of natural gas. It also holds interests in two MLPs via its approximately 65 percent interest in Spectra Energy Partners and a 50 percent stake in DCP Midstream LLC, the largest producer of natural gas liquids (NGL) in the U.S. and one of the country’s largest natural gas gatherers and processors. What makes Spectra especially attractive is that it owns critically important pipelines and related infrastructure connecting supply sources to premium markets.

The company reported strong results for the most recent (third) quarter. Earnings rose to $0.42 per share from last year’s $0.27, and Spectra expects to meet its full-year target of $1.50 per share. Recently it updated its projected dividend growth to 9 percent through 2015.”

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THE ADEN FORECASTP.O. Box 790260, St. Louis, MO 63179. Monthly, 1 year, $250. Introductory Trial Offer, 3 Months, $65. Includes Weekly Updates. www.adenforecast.com.

Winners and losers in 2013Mary Anne and Pamela Aden writing in their Jan.

2nd Update: “The stock market has been amazing, closing out a winning year with nearly a 30% gain. For the Dow Industrials and S&P500, it was their best gain in 16-18 years and it looks like there’s more to come. The market is extremely bullish, it’s not overbought, and another Dow Theory bull market confirmation was triggered on New Year’s eve when most of the stock market indexes again hit new record highs. The market is poised to rise further but it could stall in the weeks ahead, which would be normal following its strong upmove. For new positions, we’d buy Nasdaq (QQQ), Russell 2000 (IWM), the Dow Industrials (DIA) and the Dow Transportations (IYT).

Interest rates also hit another over two year

high on New Year’s eve. The 10 year yield pushed above 3% and rates could still head higher. This isn’t good news for the bond market, which experienced its worst yearly loss in 19 years. And while we don’t expect to see interest rates rise sharply, it’s best to continue avoiding bonds for the time being.

The U.S. dollar is being boosted by the higher interest rates. It remains weak and bearish as long as the U.S. dollar index stays below 81.70. The euro was the strongest currency this year and we recommend buying and holding it, along with the British pound. These two currencies will remain strong by staying above 1.3550 and 1.61.

Gold and the metals sector were the big disappointments in 2013. After suffering its worst decline in decades, today. Gold has held above its important $1180 support level and the metals look set to rise in the weeks ahead. Plus, the XAU gold share index is at a six week high and it often leads. Nevertheless, watch the market, keep your positions, but do not buy new ones yet.

Based on gold patterns since 1967, gold is likely to bottom in 2015 and it’s likely to reach a mega bull market top in 2019. We believe the next bull market leg up will be gang busters.

Gold shares have been getting hit right and left, and until gold stabilizes, we’ll most likely see more of the same.”

18

INVESTOR’S DIGEST of Canada133 Richmond St. W., Toronto, ON M5H 3M8. 1 year, 24 issues, $137.

Big-cap oil play still a favorite with analystas

Phil Fine: “Despite cost overruns at a new refinery, analysts Tyler Reardon and Jeff Martin, Peters & Co. in Calgary, rate Canadian Natural Resources Inc. (TSX: CNQ; 34.58 a Buy.

And they view Canadian Natural’s cash flow as one of the best among the big oil and gas plays.

They also site the company’s strong overall growth profile, as well as its good valuation relative to its peers.

So enamored of Canadian Natural are Messrs. Martin and Reardon that they’re continuing to peg it at “sector outperform, with a 12-month price target of $40 a share.

But they’re worried, they write, about the company’s ability to control the costs of large-scale projects in Western Canada.

Their concern follows the recent announcement of a hike in construction costs for a bitumen refinery 45 kilometres northeast of Edmonton for which Canadian Natural will supply feedstock.

Because of additional engineering work, the 50,000-barrel-a-day refinery, originally priced at $5.7 billion, will now cost 49.1 per cent, or $2.8 billion more.

In addition, the completion date, originally set for mid-2016, has now been pushed back to September 2017.

As a result of the cost increase, Canadian Natural’s share of the project will rise by $600 million.

Messrs. Martin and Reardon admit the increase will result in only a minimal change in their valuation for the company.

But it will do nothing, they suggest, to mollify investors. They also say the overrun shows why they still use more conservative cost assumptions when making long-term forecasts for mega projects in the oilpatch.

The refinery itself is billed as the world’s first such facility that combines gasification technology, storage and integrated carbon capture.

The refinery will also be the first to sell its carbon dioxide for the purposes of enhanced oil recovery.

In the meantime, Canadian Natural says the expansion to its Horizons tar sands project remains on budget.

Our analysts were largely on-side with Messrs. Martin and Reardon in their take on Canadian Natural Resources.

Of the 13 other folks we surveyed, two rated the company a “hold,” but 11 rated it a “buy,” lofting it into first place in our list of top-10 buys.

And Canadian Natural, as Messrs. Martin and Reardon seem to say, makes investment sense.

Although its yield, at 2.3 per cent, is small, the company continues to raise its dividend, having boosted it 60 percent as recently as November. Such increases suggest Canadian Natural is confident in its cash flow.

Headquartered in Calgary, Canadian Natural Resources is one of the world’s biggest independent producers of crude oil and natural gas.

Not only is it the second-biggest producer of gas in Canada, it’s also the biggest producer of heavy oil. Indeed, its Horizons project in the Alberta tar sands boasts a reserve of six billion barrels.

In addition to North America, Canadian Natural Resources has operations in the North Sea, as well as off the coast of Africa.

For the third quarter of 2013, the company’s net income zoomed to $1.2 billion, or $1.07 a share, from $476 million, or $0.44 a share, for the similar period in 2012.

Revenue was also higher, rising 32.5 percent to $5.3 billion while net earnings from operations climbed 186 per cent to $1.1 billion, or $0.93 a share.

Operating cash flow, not surprisingly, was strong as well, rising 78.6 per cent to $2.5 billion, or $2.26 a share.

For the nine months ended Sept. 30, Canadian Natural’s net income rose to $1.9 billion, or $1.70 a share, from $1.5 billion or $1.40 a share, for the similar period in 2012.

Revenue, too came in strongly, growing 12.4 per cent to $13.6 billion, while net earnings from operations rose 26.7 percent to $1.9 billion, or $1.72 a share.

Operating cash flow, meanwhile, increased to $5.7 billion, or $5.23 a share, from $4.5 billion, or $4.07 a share for the similar period in 2012.”

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S. A. ADVISORY, 4700 S Holladay Blvd, Salt Lake City Utah 84117. 1 year, 8-12 issues, $250. Phone Service, 1 year, $2500, (801) 272-4761.

Stock Pick 2014: Marquee EnergyWilliam Velmer: “Marquee Energy (CVE: MQL).

A small and rapidly growing light oil and gas E&P drilling in southern Alberta, Canada. The company recently purchased additional acreage and production within their core “Michichi” holdings. The current exit estimates for 2013 are 4500 BOE/D and early estimates for 2014 exit rate is a round 5100 BOE/D. After the recent asset purchase and “Flow Thru” there are 84 million shares fully diluted and outstanding. Management has issued cash flow estimates of .46/share or 1.6x CF/Share for 2014 (very cheap valuation).

At present P1+P2 (NPV 10%) equals around $254 million and exit debt for 2013 or around $64 million. At present MQL trades @ only 1/3 NAV (very cheap metric). MQL for it’s size has a huge stable of drill sites with very seasoned management. The core acreage has over drill 160 sites!

We believe that management will engage the investment community during early 2014 in order to expand market awareness in all of North America,, which in our opinion, will dramatically enhance the share price!

Another cheap metric based on Marquee’s exit rate of 4500 BOE/D id the “price/flowing barrel of only $28K/barrel. This value when compared to its peers indicate another example of just how cheap Marquee Energy shares are trading and just how undervalued it is!

We believe that Marquee Energy (www.marquee-energy.com) could easily double or triple from current levels just based upon greater awareness because of the company’s very cheap metrics. The company could be a candidate for a “Big Fish” looking for cheap assets and production. If you are looking for a super cheap junior oil with huge upside potential and limited downside risk you came to the right place.”

Editor’s Note: This service is for the serious investor. Sign up for free email alerts at www.saadvisory.com. Subscription information, (949) 922-9986.

19

U.S. Silver & Gold: Low Risk, Low Capital Needs, High GrowthU.S. Silver and Gold Inc. is the second largest primary silver producer in the United States. With a current expected annual rate of silver production of 2.1-2.2 million ounces, the company expects to grow to 5 million ounces by end of 2015. The company owns and operates two key assets: the Galena Mine Complex, which is located in the historic Silver Valley of North Idaho; and the

Drumlummon mine, currently on care and maintenance, is situated 25 miles from Helena, Montana, has an historic production of 1 million gold-equivalent ounces. In the near term, increased production is expected from development of assets within the Galena Complex. Over the long term, accretive growth is expected through a targeted acquisition strategy. Excess hoisting and milling capacity allows US Silver & Gold to easily increase future production as reserves are discovered and developed. Third quarter production totaled 529,860 silver equivalent ounces1 including 464,850 silver ounces at a lower cash cost.

US SILVER & GOLD INCTSX: USA • OTCQX: USGIF

Investor Relations–Canada: Nicole Richard

Tel: 416-848-9503Corporate Office:

2870-145 King Street West Toronto, ON M5H 1J8 Tel: 416-848-9503

Galena Mine Complex: P.O. Box 440, 1041 Lake Gulch Road

Wallace, ID 83873 Tel: 208-752-1116info@us-silver.comwww.us-silver.com

DTS8 Coffee Co. Ltd. Licensed to Roast and Sell “Don Manuel” Brand Premium Colombian Coffee in China Market

DTS8 Coffee Company Ltd is a growing purveyor of superior quality, fresh artisan roasted, gourmet coffee that it markets and sells in China. China is considered to be one of the world’s fastest growing coffee markets. DTS8 is well positioned to participate in the growth of the Chinese coffee market. Significant growth opportunities exist for DTS8 in the distribution channels in China,

Southeast Asian and U.S. markets. The combination of DTS8’s own brands – “DTS8 Premium”, “Single Origin Premium”, “Don Manuel”, and “Private Label” brands of roasted coffees in Shanghai and others parts of China provides a differentiated coffee positioning based on superior quality. DTS8 expects a significant portion of future revenue will be derived from increasing distribution channels and expansions of existing customers. The company continues to pursue new retailers, specialty gourmet food stores, online, hotel, office and restaurant accounts.

DTS8 COFFEE COMPANY, LTD.

OTC BB: BKCTContact: Sean Tan, President, CEOBuilding B, #439, Jinyuan Ba Lu, Jiangqiao Town, Jiading District,

Shanghai, 201812, ChinaPhone: 011-86-15021337898E-Mail: sean@dts8coffee.com

USA Sales Office: 1685 H Street, Suite 405 Blaine, WA, 98230-5110

775-360-3031sales@dts8coffee.com

Investors: 775-360-3031Investors@dts8coffee.com

www.dts8coffee.com

Batero Gold Proving Potential, Advancing ExplorationBatero Gold Corp. is focused on the advancement of its La Cumbre oxide deposit and pursuing opportunities to acquire prospective high-grade, production focused mineral properties in Colombia's emerging and prolific Mid Cauca gold and copper belt. The La Cumbre deposit is located within its 100% owned Batero-Quinchia Gold Project. A recently completed Preliminary Economic

Assessment, predicated on a base case gold price of US$1,400/oz and projected a mine life of seven years at 3.5 million tonnes per annum production steady state (10,000 tonnes per day), estimated Life-of-Mine gold production of 390,000 ounces of gold and 817,000 ounces of silver recovered with annual average production of 56,000 ounces of gold and 117,000 ounces of silver. Approximately 86% of open pit production tonnage is classified as Measured or Indicated Mineral Resources. The initial capital cost was set at $97.3 million, which includes $16.2 million in contingency costs. After-tax payback is expected within 30 months, a net after-tax cash flow of $76.9 million, and an after-tax IRR of 21%. The after-tax NPV is projected at a 5% discount rate of $47.3 million.

BATERO GOLD CORP.

TSX.V: BATContact: Michael Mills Corporate Development

#1305 1090 West Georgia St. Vancouver, BC Canada V6E 3V7

Phone: 604-568-6378 Fax: 604-568-6834

info@baterogold.com

www.baterogold.com

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Market Outlook

THE DINES LETTERP.O. Box 22, Belvedere, CA 949201 year, 14 issues, $295. www.dinesletter.com.

TDL’s Seasonalities: JanuarysJames Dines: “In the 64 January since 1950 the

Dow-Jones Industrial Average (DJI) has risen 41 times and declined 23 times, bullish seven out of eleven times (64%).

Action in the first trading week of January, and the month as a whole, both appear to have some predic-tive value for the overall market.

S&P 500: There is correlation between the rise of the S&P 500 in the first 5 trading days of the year and its rise for the whole year. In the last 40 Janu-arys when the S&P 500 rose in its first five days, the S&P 500 index rose for the year 34 times, for an 85% consistency. In the six times it did not work, mean-ing when the S&P 500 closed lower for the year, it is interesting to note that 4 of those years were extraor-dinarily bearish: 1966 and 1973 were Vietnam War years, 1990 was the year of “Desert Storm,” and 2002 was the aftermath of 9/11. However, unexpectedly, when the first five days of the S&P 500 resulted in a decline, as they did 23 times since 1950, the year-end results were split almost 50:50, hence no correlation. So a rising first week is the action to watch for: the dates are 2 Jan to 8 Jan in 2014. Those are the odds.

Dow-Jones Industrial Average: Our Research Department found that in the 27 times in the last 36 Januarys that the first 5 days were up, it led to Dow up years 75% of the time, less impressive than the S&P 500’s 85%, but nonetheless meaningful. Similar to the S&P 500, when the Dow’s first five days ended lower (a total of 14 times since 1961), there was no correlation to its year-end result, thus not useful as a guide. Conclu-sion: only rising first weeks show a bullish correlation.

Popularily known as the “January Barometer,” the entire month of January has gained prominence as one of the market’s foremost bellwethers. Briefly, whichever direction markets go, the entire month of January often points to the direction of the entire year. For example the S&P 500 shows an almost-perfect match between its January performance and its end-of-year performance in every odd-numbered year, 31 straight from 1939 to 1999! (This correlation was broken in 2001, 2005 and 2009, still a 92% ac-curacy rate.) On even-numbered years only, with 11 errors out of 32 years it was 66% predictive.

Turning to the DJI, there was a match between its January and end-of-year performance in 27 of 31 odd-numbered years (87% of the time). In even-numbered years, 24 out of 32 (75%) moved together, also an accurate Indicator. Adding another dimension to our comparisons, records show that of the Dow’s 22 declining Januarys, 14 likewise ended in declines (64% of the time). For the S&P 500’s record, of 24 down Januarys, 13 were followed by down years (54%

KITCO NEWSMarket Nuggets, a daily column providing up to the minute coverage on the precious metals sector at www.kitco.com.

Silver price forecasts from major Banks range from $19-$23

Debbie Carlson: “Banks on average are forecasting slightly higher average silver prices for 2014, with the market expected to get some strength from industrial demand, particularly if the U.S. economic outlook improves.

Investment demand is also expected to return to support silver. Yet analysts are keeping their upside forecasts muted for silver gains as the metal is traditionally influenced by gold’s direction. With gold seen struggling next year, silver may also have a cap on prices.

Bank of America Merrill Lynch: Silver is seen averaging $23.13 in 2014, with a first-quarter average of $20 an ounce giving way to $25 by the third and fourth quarters. Subdued investor buying weighed on silver prices in the latter half of 2013, but the firm does not see much further downside under $20, and it sees “scope for a limited rally.” There’s little reason for investor to come back to the market, which could keep a lid on prices. “At the same time, we believe that a complete collapse in quotations is unlikely, partially because non-commercial market participants may retain some silver in their portfolios, for instance on the view that EMs (emerging markets) should continue to increase their silver purchases structurally in the medium term, despite the current headwinds. We also note that macroeconomics concerns, including liquidity-driven inflationary pressures, make silver an attractive tail-risk hedge,” they said.

CIBC: Silver prices could trade to $19 by the end of 2014, as growth from catalytic and electronics demand supports the metal.

Citi: Citi said it looks for silver to average $20.30 an ounce in 2014. The bank cited “largely inelastic mine supply growth” and mixed fabrication demand. Likewise, silver would also be hurt by expected tapering of U.S. quantitative easing, the bank added.

Commerzbank: Silver prices should average $21.50 in 2014, as the bank sees stronger industrial demand supporting prices, as the global economic recovery should spur use. Investment demand is also forecast to be strong, too, supported by low prices in both U.S. dollars and relative to gold. The bank is upbeat on gold prices and thinks the yellow metal will pull along silver.

Standard Chartered: Standard Chartered looks for silver to average $23 in 2016, with prices mostly range-bound. Higher real interest rates will hurt silver due to the rising opportunity cost.

UBS: The Swiss bank lowered their 2014 silver-price forecast by 18% to $20.50 an ounce, following a reduction in their gold price outlook. In addition to lowering their 2014 silver forecast, UBS downgraded their 2015 price outlook to $21, a 13% reduction, but left 2016 at $25 and 2017 at $24.20.

Editor’s Note: If you want to keep up with metals news and features, then follow Debbie Carlson on Twitter @dcarlsonkitco or www.kitco.com.

21

of the time), less meaningful.In conclusion, an up January would be bullish for

the market, especially if the first 5 trading days were up also. As to January’s predictive ability, the S&P 500 has proven especially dependable in odd years but for even years the DJI has the better odds. If both the DJI and the S&P 500 decline this January, the DJI would be more likely to end lower for all of 2014.

As for the Dines Gold Stock Average (DIGSA), 46 Januarys since 1968 included 27 rises, 18 declines, and one neutral, for a 60% bullish record, confirming the validity of Dinesism #9 (DIRGS), the Dines Rule of Gold Seasonality. Interestingly, the Dines Silver Stock Average’s (DISSA) down Januarys show a remarkable accuracy ratio in terms of having predicted DISSA’s direction for the rest of the year. Specifically, of the 13 Januarys in which DISSA was a downer, no fewer than 10 of them (77%) resulted in down years for DISSA. On the other hand, the rising Januarys for DISSA resulted in up years 61% of the time, with 19 up years out of the 31 up Januarys – not as helpful statistically.

In conclusion, January is usually a bullish month for gold and silver shares, but if DISSA declines in January that would be a serious negative factor for silver-mining shares for all of 2014. As always, note that there are no stock-market guarantees, only the percentages used in our “educated guesses.”

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Harloff’s THE INTELLIGENT FUND INVESTOR. 26106 Tallwood Dr., N Olmsted, OH 44070. Monthly, 1 year, $279. www.harloffcapital.com.

Gold prices to increase 20% in 2014Dr. Gary Harloff: “We are bullish on the S&P 500

and Nasdaq indexes. We are short bonds at this time. We have a new buy on gold. Now that the ecomony is growing and workers get wage increases, infla-tion will rise and so will go. We expect gold prices to increase by 20% in 2014.

In our portfolios we like Internet, semiconductors, wireless, Japan and technology.”

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The Peter Dag PORTFOLIO STRATEGY & MAN-AGEMENT, 65 Lakefront Dr., Akron, OH 44319. 1 year, 24 issues, $389. www.peterdag.com.

Commodities not yet confirming improving economy

George Dagnino: “Our long-term outlook (next 12 months), based on our indicators, is bullish.

Our short-term indicators are bullish. Longer-term indicators, however, are saying the market is overbought.

We closely follow commodities because they are sensitive to demand. They are excellent indicators to confirm the direction of the economy.

While it is true the economy is gaining traction, commodities are not yet confirming this development. Lumber, meanwhile, is at a resistance level. Its recent action suggests the housing market is not as robust as realtors would like.”

MONEYLETTER.com, 479 Washington St., P.O. Box 6020, Holliston, MA 01746. Monthly, 1 year, $180.

Two areas to watch Oil and China

Brian Kelly and Walter Frank: “While the con-sumer, the Fed, and political wrangling are the most commonly mentioned factors in the fortunes of domestic equities, there are two underlying develop-ments which will also have a hand in future returns.

Oil PricesThe average U.S. household consumes about 1,200

gallons of gasoline per year. If gas prices hold at 20-30 cents below recent years, that translates to a $300 or more savings per year for the average American family. That money acts just like a tax cut, and most of it will go right back into the economy.

How likely are sustainable low prices? There are two things currently at work which we be-lieve will hold prices in check for the foreseeable future. First, U.S. oil production has increased by approximately 40 percent over the last four years, which means an additional 2.5 million barrels per day. With the acceleration of “fracking” in areas like North Dakota (where production has gone from 10,000 barrels per day in 2003 to almost one million now), American could essentially be self-sufficient by 2017.

In addition to increased domestic production, political turmoil in the Middle East has subsided for now. If Iran gets back to its full exporting capabili-ties – which have been severely hampered by Western sanctions – that would add another million or so bar-rels per day. This will take a while to develop, but it is a distinct possibility for the first half of 2014.

ChinaUnder President Xi Jinping, China is on the verge

of an economic shift. Coming out of the Third Plenum, a twice-a-decade economic policy meeting, China will be focusing more on generating activity from its own 1.3 billion consumers and less on producing exports for rich overseas customers. To that end, the govern-ment seems committed to changing Chinese families from fearful savers to active consumers.

A switch in economic focus in China would address several economic imbalances there. China now has excess manufacturing capacity; it subsidizes banks and penalizes savers; and their currency is tightly controlled to support exports. By encouraging do-mestic consumption and opening its economy even more to market forces, these imbalances should be reduced significantly.

This movement toward a consumer society in China appears to be an extraordinary opportunity for U.S. companies. An awakened Chinese consumer could be the biggest source of growth the world will see in the 21st century. But it will take a change in American thinking after years of looking at China as simply a source of cheap goods.”

Editors Note: Brian Kelly contributed to this article. Brian has been the publisher of Moneyletter for 15 years, and associ-ated with the newsletter since 1984. Walter Frank is the Chief Investment Officer.

22

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VOL 14-09

Continued from page 6

FirstEnergy’s (FE: $32.53) electricity distribution operations span six states from Ohio to New York. The company has had a tough 2013, including poor operating results due to low natural-gas prices, and a nuclear plant shutdown. A sharp drop in November took the shares to a new ten-year low. This sets the stage for a further selloff in December and a possible January rebound.

Intuitive Surgical (ISRG: $372.81) pioneered the market for robotic surgery systems. After nearly a decade of strong performance, the stock has stumbled in 2013. Concerns about possible marketing irregu-larities and an FDA safety examination have pushed the stock down 36% from its high in February. Should the safety concerns prove unfounded, the stock could have long-term rebound potential well beyond a year-end bounce.

J.C. Penney’s (JCP: $10.11) attempted turnaround has been played out in financial headlines for much of the year. Now new management is out and old management is back in. It remains to be seen if old management can really right the ship, but a few positive headlines would boost the stock’s already attractive short-term rebound potential.

Newmont Mining (NEM: $23.38) is one of the world’s largest gold miners. The price of gold has been lackluster this year, but the company has had other problems as well. A new CEO was brought in to bolster the balance sheet and stabilize operations. The fact the Newmont’s stock has underperformed many of its peers over the last half of the year makes it especially vulnerable to year-end selling.

Peabody Energy (BTU: $18.44) has suffered along with most of the coal mining sector as low natural gas prices and environmental concerns have driven investors out of the stocks. Nonetheless, coal remains a dominant domestic fuel source, and Peabody is well positioned to capitalize on any rebound in coal prices. In the meantime, the stock looks like a good candidate for a year-end bounce.

Teradata (TDC: $45.35) is a world leader in ana-lytic data platforms and services. A steady rise in the stock price since the lows of early 2009 began to falter in late 2012 when investors grew concerned about the weakening macro environment in Asia and increas-ing open-source competition. The stock-price decline has continued for much of 2013, possibly setting the stage for a good year-end bounce.”

Editor’s Note: George Putnam, III is editor of The Turnaround Letter, 1212 Hancock St., Ste. LL-15, Quincy, MA 02169, 1 year, 12 issues, $195. The Turnaround Letter, published for over 27 years, has a 15-year annualized return of 13.23% making the newsletter the industry’s best performing investment newsletter, out of over 200 on the market, for that period. For more information and a Special Offer visit www.turnaroundletter.com.

Year-End Bounce Candidates

23

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