Housing Recovery Is a Confidence Game

NEW YORK (TheStreet) -- The housing recovery is showing signs of strain as rising rates, higher home prices and a shortage of homes for sale has dampened homebuyer enthusiasm.

Bank of America Merrill Lynch economist Ethan Harris noted in a report Friday that a number of housing indicators have weakened recently including housing starts, mortgage applications and new-home sales.

This is worrying, especially if interest rates rise further. As Harris put it, "While borrowing costs remain very low by historic standards, it is not clear whether the market is ready to come off 'life support' yet."

Bank of America Merrill Lynch's economists have so far maintained that the recent rise in interest rates would not derail the recovery as homebuyers continue to expect prices to go higher. That momentum from higher price expectations should offset the impact of rising rates. The economists expect home prices to rise 12% in 2013 and then expect gains to moderate to about 6% in 2014. But a collapse in home prices is unlikely, according to Harris, for three reasons. First, home prices are fairly "sticky" because buyers are slow to change their expectations in response to evolving trends. Secondly, the housing market is not as interest-rate sensitive today because there is significant pent-up demand from homeowners who exited in the downturn. Plus in the current credit market, it is the availability of credit rather than interest rates that are influencing the decision of buyers, particularly at the lower end. Basically, the buyers who are sensitive to interest rates are weeded out by the tough credit conditions. Lastly, Harris cited academic models that have found that interest rates have a smaller impact on home prices. Still, home prices respond with a lag to weakening activity so it might make more sense to study more timely demand data such as starts and permits and mortgage applications as well as the Michigan survey on home price expectations.

He added that if expectations of home prices continue to drop, BofA will cut its forecast.

In sum, the housing recovery right now rests on homebuyer confidence. Given the state of the economy now, the foundation is still weak.

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email. Follow @shavenk

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Biotech Stock Mailbag: Agenus, Aegerion, Ariad

BOSTON (TheStreet) -- An email from Steven B. about Agenus (AGEN) kicks off this week's Biotech Stock Mailbag:

I was looking at Agenus. I know you have been negative in the past. Any change of opinion with recent developments?

Agenus is awful. The company needed a temporary spike in its stock price this week so it could go out and raise some quick cash. On Tuesday, Agenus issued a press release touting "follow on" results from a mid-stage study of its brain cancer vaccine. Except these new drug data were actually stale, having been previously reported by the company in May.

No matter. Some investors were fooled and bid up Agenus shares 30%-plus intraday Tuesday. After Tuesday's close, Agenus rushed out a quickie stock offering priced at $3 per share (including one-third warrant coverage) and raising $10 million. Nicely played, Agenus. The bloody mess in the corner is what remains of your credibility, but no matter, cash raised. Until next time. Meantime, Seeking Alpha contributor Larry Smith hails Agenus' brain cancer vaccine results as "extremely impressive." Let's unpack this claim: The phase II study enrolled 46 patients with newly diagnosed glioblastoma multiforme treated with Prophage (that's Agenus' cancer vaccine) plus the current standard of care -- radiation therapy plus the drug temozolomide. Analysis of the study data showed a median overall survival of 23.3 months, according to Agenus on Tuesday and last May. There is no comparator arm in this study, which means drawing any conclusion about a potential survival advantage for Prophage is impossible. No matter, because Agenus decides to compare Prophage's survival data with a much larger study of newly diagnosed GBM patients published in the New England Journal of Medicine in 2005. This so-called "Stupp study" showed a median overall survival of 14.6 months for newly diagnosed GBM patients treated with radiation and temozolomide, thereby establishing the current standard of care. Prophage's median overall survival of 23.3 months is much longer than 14.6 months reported for the current standard of care, so therefore Prophage must be working. No. The problem with comparing data across different clinical trials is that patients' baseline characteristics are different. That is true in this case.

The GBM patients eligible for Agenus' Prophage study all had prior surgical resection of their tumors that was no less than 90% complete. By comparison, only 39% of patients enrolled in the Stupp study had complete tumor resection.

A later analysis of the Stupp study was published just looking at patients with complete tumor resection. The median overall survival for these patients was almost 19 months, very similar to the Prophage results, especially after factoring in the relative size of these studies. Agenus enrolled 46 patients in its phase II study while the Stupp study enrolled 573 patients, including 226 patients with complete tumor resection.

In a larger, controlled phase III study, that 23.3-month median overall survival for Prophage will undoubtedly fall.

In his Seeking Alpha story, Smith takes dubious cross-trial comparisons to another level by looking at two studies of Avastin in newly diagnosed GBM patients conducted by Roche (RHHBY). The control arm in both studies was the current standard of care -- radiation and temozolomide -- with median overall survival of 16 months and 17 months, respectively. Once again, Prophage looks better, but it's an illusion. As with Stupp, the GBM patients enrolled by Roche in its studies were generally sicker than those enrolled by Agenus. Fifty-nine percent and 42% of patients treated with standard of care entered the study with complete tumor resections. Agenus intends to meet with the FDA so that it can move ahead with a phase III study of Prophage in newly diagnosed GBM patients. As I've shown, the clinical evidence supporting this effort is dubious, at best. But this is biotech, where it's often more important to have a drug in phase III trials than it is for that drug to have any chance of success. That's particularly true for a company like Agenus, where raising cash is mission number one. Investor concerns that cholesterol-lowering PCSK9 drugs, including one under development by Amgen (AMGN), will eat into the market share and revenue generated by Aegerion Pharmaceuticals' (AEGR) Juxtapid have resurfaced over the past week or so. The result: volatility in Aegerion's stock price. Shares hit $97 on Sept. 10 but fell to $84 on Sept. 18. The stock was rebounding Thursday as some analysts came to Aegerion's defense. @adamfeuerstein Adam where do you stand on this? Why are folks worried abt a "threat" that is 2.5 yrs away? In the meantime, $AEGR kicks ass— Leo (@BiotechLeo) September 18, 2013

I stand with the Aegerion bulls, mainly because the competitive risk posed by PCSK9 drugs isn't proven yet and at best is still 2-3 years away. Meantime, the Juxtapid launch continues to perform very well. Aegerion's second-quarter results were stellar and I expect more of the same when the company reports the September quarter results in November.

The biggest threat to Aegerion shares today is not PCSK9 drugs but increased investor expectations and the stock's red-hot performance year to date. Any squiggle can be an excuse for profit taking. AEGR data by YCharts

In July, Aegerion raised its Juxtapid sales forecast for 2013 to a range of $30-35 million from $15-25 million. Current analyst consensus stands at $40 million for the year, the buyside "whisper number" is probably higher.

I expect another "beat and raise" quarter from Aegerion in November. Juxtapid treats homozygous familial hypercholesterolemia (HoFH), a rare genetic disease that causes extremely high and potentially fatal levels of cholesterol to build up in patients' blood. A year of Juxtapid therapy costs $295,000. The PCSK9 drugs under development by Amgen and others look very promising for patients who have at least partially functioning LDL receptors but still can't keep their cholesterol in check with statins. HoFH patients are different. They have no functional LDL receptors at all which is why their cholesterol levels are sky high and life threatening. From the data compiled so far, PCSK9 drugs are not effective enough to have a clinically meaningful effect on HoFH patients. For this reason alone, Juxtapid's place in treatment is secure for now. The competitive battleground between Juxtapid and PCSK9 drugs could be in patients with partially functioning LDL receptors i.e. heterozygous FH patients. But Aegerion has a lot more HoFH patients to treat with Juxtapid before that should be a significant concern. On Thursday, David Sobek rebutted the Ariad Pharmaceuticals' (ARIA) short thesis that I explained in last week's Mailbag. Here's the rebuttal of the rebuttal from one of the investors shorting Ariad quoted in my piece: "If that's the other side of the story, I feel very comfortable with my [short] position" in Ariad, he says.

Sobek's biggest blunder, this investor explains, is ignoring the time factor. The red flag in the Iclusig EPIC study is not that some patients with pre-existing heart conditions are excluded from enrollment, it's that Ariad decided to exclude more patients with heart problems after the study started.

"Ariad saw something troublesome in the study that said the original assumptions were not sufficiently conservative," he says.

-- Reported by Adam Feuerstein in Boston.

Follow @AdamFeuerstein

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Goldman Sachs Upgrades Comerica; Lowers Outlook (CMA)

Goldman Sachs announced on Tuesday that it has lifted its rating on Comerica Incorporated (CMA) to “Neutral.”

The firm has upgraded CMA from “Sell” to “Neutral,” and has raised the company’s price target from $38 to $42. This price target suggests a 2% upside from the stock’s current price of $40.83.

An analyst from the firm noted: “The market has shown willingness to price the shares at a premium based on CMA's absolute rate upside, which we do not expect to change much over time.”

“That said, near-term expectations could be at risk given the ~4% decline in loans in 3Q, which if it continues could weigh on its longer-term earnings profile,” the analyst added.

Looking ahead, the firm has lowered its FY2013 earnings estimates from $2.85 to $2.81 per share. FY2014 estimates have been reduced from $2.95 to $2.90 per share and FY2015 estimates of $3.30 per share were maintained.

Comerica shares were mostly flat during pre-market trading Tuesday. The stock is up 35% YTD.

Retirement Assets Continue to Recover: ICI

Investors took advantage of a growing economy and favorable market conditions to add almost a trillion dollars to retirement accounts in the first quarter.

The Investment Company Institute reports in its quarterly roundup that total U.S. retirement assets were $20.8 trillion as of March 31, up 4.6% from $19.9 trillion on Dec. 31. Retirement savings accounted for 36% of all household financial assets in the United States.

Assets in individual retirement accounts totaled $5.7 trillion, an increase of 5.1% from year-end 2012. Defined contribution plan assets rose 5.7% to $5.4 trillion.

Government pension plans—including federal, state and local government plans—held $5.2 trillion in assets as of the end of March, a 5.3% increase from the end of the fourth quarter of 2012. Private-sector defined benefit (DB) plans held $2.7 trillion in assets at the end of the first quarter, and annuity reserves outside of retirement accounts accounted for another $1.9 trillion.

Defined Contribution Plans

Americans held $5.4 trillion in all employer-based DC retirement plans on March 31, of which $3.8 trillion was held in 401(k) plans. Those figures are up from $5.1 trillion and $3.6 trillion, respectively, as of December 31. Mutual funds managed $3.1 trillion of assets held in 401(k), 403(b), and other DC plans at the end of March, up from $2.9 trillion at year-end 2012. Mutual funds managed 57% of DC plan assets at the end of the first quarter.

Individual Retirement Accounts

IRAs held $5.7 trillion in assets, up from $5.4 trillion at the end of 2012. Forty-six percent of IRA assets, or $2.6 trillion, was invested in mutual funds.

Other Developments

Target date mutual fund assets totaled $529 billion, an increase of 10% in the first quarter. Retirement accounts held the bulk of target date mutual fund assets: 91% of target date mutual fund assets were held through DC plans and IRAs.

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Check out Median Retirement Balance Is $3,000 for All Working-Age Households on AdvisorOne.

Bet on Best Buy as it Hits New High - Analyst Blog

Shares of Best Buy Co., Inc. (BBY) surged to attain a new 52-week high of $30.35 on Jul 9, 2013, before closing at $29.73. Shares of this Zacks Rank #3 (Hold) stock have amassed a year-to-date return of roughly 155.2%.

Based on the current price, this consumer electronic retailer is 12.1% above the Zacks Consensus average analyst price target of $26.53. The company currently trades at a forward P/E of 13.03x, a discount of 5% to the peer group average of 13.72x.

Best Buy is undergoing a turnaround program including a price match policy, multi-channel strategy, multi-year cost reduction program and closure of some big box stores. In the first quarter of fiscal 2014, the company lowered its cost by $175 million, in addition to $150 million reduced in the fourth quarter of fiscal 2013.

Best Buy's online sales performance remains a positive. Domestic online sales jumped 7.1% during the quarter. We believe that the company is leaving no stone unturned in wooing consumers and capturing incremental revenue, as evident from its strategic initiative of opening "Samsung Experience Shops" within its stores.

It also entered into a similar agreement with Microsoft Corp. (MSFT) to roll out "Windows Store" across its 500 outlets in the U.S. with an additional 100 in Canada. For Best Buy, the deal adds more compelling products to its portfolio to better compete against discount giants such as Wal-Mart Stores Inc. (WMT) and online retailers like Amazon.com Inc. (AMZN).

Best Buy also entered into a contract to divest its 50% stake in Best Buy Europe to Carphone Warehouse Group, the joint venture partner in the same. The move would facilitate the company to concentrate more on its U.S. operations. We believe that the step to offload its stake in Best Buy Europe would augment its return on capital employed.

The Road To Creating An IPO

Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first time. But as we will see below, there are ways a company can go public more than once. In a recent survey of public companies, The Economist publication described the IPO process as the locomotive of capitalism. This is because throughout history, the IPO has let the investing public own a small share in many companies that have grown large and hugely successful since they first went public.

Issuing shares through an IPO is one of the primary reasons that stock markets exist. It lets the company raise capital for a variety of reasons, such as to grow further, let initial and early-stage investors cash out some of their investment, or create a currency (such as common stock) to acquire rivals, or even sell shares at a later date. The entire process is referred to as the primary market and happens when an investor buys stock directly from the company. A secondary market is more common, and it exists when investors trade among themselves with shares that have already been issued by a firm.

The Process to Taking a Company Public
As you might imagine, the process to get a company through to its IPO takes time, is expensive and must pass many regulatory hurdles. A very important component of going public is opening a firm's books to public scrutiny, as well as the oversight of the Securities & Exchange Commission (SEC). An investment banker, or underwriter, will help a company through this process, and the younger associates at an investment banking firm will bear the brunt of the grunt work. Those associates will spend many sleepless nights preparing a preliminary prospectus for the SEC and investors, which has come to be referred to as a red herring.

Through many revisions and discussions between the company and its bankers, the red herring will eventually become the final prospectus, which is the formal legal document filed with the SEC that lets the IPO process go through. One of the more common prospectus documents is referred to as form S-1, the formal registration statement under the Securities Act of 1933. Other "S" versions exist and refer to different securities acts, such as those related to investment trusts, employee plans or real estate companies. The prospectus may sound dull and can include hundreds of pages of seemingly mundane and redundant information. But it is extremely important for investors to use to understand what the company does, why it is issuing shares through an IPO and what type of ownership structure is being offered.

PwC, a consulting firm, provides a summary of costs that a company can expect to incur to go public. It also illustrates the steps needed to complete an IPO. For starters, the underwriters, which generally include a lead underwriter and multiple other underwriters (also referred to as the sell side firm and the lead "book runner", with "co-managers"), can take a cut of 5% to 7% of the gross IPO proceeds to distribute shares to investors. There will also be legal, accounting, distribution and mailing, and road show expenses that can easily total in the millions of dollars. A road show is just as it sounds, and it occurs when company executives, including the CEO, CFO and investor relations individual (if it already exists) hit the road to build enthusiasm for investing in the IPO and explain their motivations for doing so. A successful road performance can drive demand for the stock and result in more capital raised.

In rarer circumstances a road show can have the opposite effect. Back when Groupon went public, it came under fire from the SEC for an accounting term it referred to as "Adjusted Consolidated Segment Operating Income". The SEC, as well as other investors, questioned the manner in which it adjusted for marketing and advertising expenses, and called into question how fast the company could grow or generate ample profits in the future.

The Role of IPO Underwriters
Returning briefly to the role of the underwriters, there are other terms to be familiar with in the IPO process. Through a greenshoe option, underwriters can have the right to sell additional shares, or an overallotment of shares. This can occur if an IPO ends up having strong demand and lets the bankers make additional profits, which are earned by selling the shares off at a higher price. It can also let the company earn additional capital. A tombstone refers to a summary advertising document that underwriters issue to prospective investors (and sometimes themselves to commemorate that the IPO process has been completed). It basically summarizes a prospectus and briefly introduces a company.

Underwriters also help companies determine price, or how to best balance the supply of shares being offered with investor demand. Of course, most companies will happily increase supply (such as through a greenshoe option) to meet higher demand, but a difficult balance must be reached. A stock exchange, such as the New York Stock Exchange (NYSE), can help the process and indicate what an opening price on the IPO day is likely to be. Market makers and floor brokers help in this process, as does the syndicate of underwriters, to gauge the overall level of investor interest.

Deciding which exchange to use is also of the utmost importance. Most firms would prefer the NYSE or Nasdaq markets given their ability to transact billions of dollars of daily trading activity and a solid guarantee of market liquidity, trading execution and follow-up reporting.

The Process from the Company's Perspective
In addition to the cost considerations, a company must make many changes to survive when public. The prospectus stipulates many of the new financial, regulatory and legal burdens, and PwC estimates that there will be at least $1.5 million in additional ongoing costs to the average firm that goes public. Hiring and paying a board of directors, or at least a higher profile board, can be expensive. Sarbanes Oxley regulation also imposed cumbersome duties on public companies that must still be met by most larger firms. Learning to deal with analysts, holding conference calls and communicating with shareholders may also be a new experience.

Is Buying an IPO a Good Idea?
For investors in general, it pays to be careful when investing in an IPO. Most importantly, the company and underwriters have control over the timing of an IPO and will try to take the firm public under the most opportune circumstances. This could include during a rising or bull market, or after the firm posts very favorable operating results. A higher price is great for the company and bankers, but it can mean the investment potential in the future is less bright. A great strategy to consider may be to buy into an IPO later in the secondary market after the excitement has died down. A stock that falls in value following an IPO could indicate a pricing miscue by the underwriter, or potentially a lower price to invest in a solid company.

An IPO usually refers to selling shares to the public for the first time. But a company can be taken private (such as by a private equity firm) and then be taken public again, which is also an IPO. This has occurred with Burger King several times.

Bottom Line
Since capitalism has existed, investing in public companies has been an engine of capitalism that lets individuals invest in large firms that have created vast wealth for shareholders. The process is complex, and investors need to be aware of IPO timing, but understanding the road to creating an IPO can be lucrative for companies, underwriters and investors alike.

Lululemon: Here's What We Know

Friday capped a difficult week for stocks with another losing day, as the S&P 500 (SNPINDEX: ^GSPC  ) , and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) , lost 0.6% and 0.7%, respectively.

Lululemon laughs it off
The announcement on Monday that Lululemon Athletica's (NASDAQ: LULU  ) CEO Christine Day would be stepping down took the market by surprise -- and not the good kind, as the stock shed nearly a fifth of its value the next day. The stock has yet to recover, and the company is trying to lighten the mood with a facetious CEO job ad/ application on its website (reminiscent of Ben & Jerry's "Yo! I'm Your CEO" essay contest that ran in 1994-1995 simultaneously with their search for a new CEO).

The reasons for Day's departure remain a mystery, but it's unlikely that she was forced out by her board. This looks like a case in which the "personal reasons" that outgoing CEOs mechanically cite in the press release is actually accurate.

The following graph shows the performance of Lululemon's stock (blue line) on a total-return basis, starting on Jul. 1, 2008, the date on which Christine Day assumed the role of CEO. The graph also includes three benchmarks: the S&P 500, the Russell 2000 Growth Index (which tracks small-capitalization growth stocks) and Under Armour, the athletic apparel maker that is arguably Lululemon's closest peer.

LULU Total Return Price data by YCharts

The graph makes it plain that, over this nearly five-year period, Lululemon has absolutely smashed the broad market and small-cap growth stocks, while matching Under Armour's fantastic returns.

Now, Foolish investors know that a five-year period is a significant chunk of time, particularly in a market in which many investors' time horizon does not extend beyond the next couple of quarters. As such, that performance is unlikely to be the product of anything other than outstanding business fundamentals. On that note, it's worth recapping a few of the company's achievements under Day's tenure:

During the five-year period ending on Feb. 3, 2013, average annual return on equity was 34.5%. Better yet, this was achieved without any recourse to leverage -- Lululemon doesn't have a dollar of financial debt on its balance sheet. Over the five-year period ended May 5, 2013, revenues grew at an annualized rate of 36.5%. That's a fantastic number in any environment, but Lululemon did this in a very tough economic climate for retail.

Does this week's share price slump present an opportunity for investors? At nearly 31 times the next 12 months' earnings-per-share estimate, Lululemon's stock remains pricey by conventional standards, and it may be dead money as Wall Street takes a "wait-and-see" approach to the leadership issue. However, Lululemon appears to have carved out a solid franchise in a very competitive area; for investors with a higher-than-average risk tolerance and a multi-year time frame, the current price could ultimately prove to be an attractive entry point.

Lululemon has the potential to grow its sales by 10 times if it can penetrate its other markets like it has in Canada, but the competitive landscape is starting to increase. Can Lululemon fight off larger retailers, and ultimately deliver huge profits for savvy investors? The Motley Fool answers these questions and more in its most in-depth Lululemon research available. Thousands have already claimed their own premium ticker coverage; gain instant access to your own by clicking here now.

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Is Regal Beloit's Cash Machine Empty?

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Regal Beloit (NYSE: RBC  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Regal Beloit generated $257.4 million cash while it booked net income of $196.4 million. That means it turned 8.2% of its revenue into FCF. That sounds OK.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Regal Beloit look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only 4.9% of operating cash flow, Regal Beloit's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 3.2% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 26.3% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

If you're interested in companies like Regal Beloit, you might want to check out the jaw-dropping technology that's about to put 100 million Chinese factory workers out on the street – and the 3 companies that control it. We'll tell you all about them in "The Future is Made in America." Click here for instant access to this free report.

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Minor News Moves Citigroup Up

On a day when the markets are otherwise flat, Citigroup (NYSE: C  ) shares are trading up roughly 0.5% halfway through the trading day, seemingly on no news other than some changes at some senior positions at the bank. The stock move is slightly less than its median daily move over the past 12 months, so it was to be expected, but let's take a closer look at those changes and what they could mean for the future of the bank.

But first, the sector
The rest of the Big Four banks have also stayed put for the most part this morning:

JPMorgan Chase recovered from earlier losses this morning and is now flat. Wells Fargo is up 0.53% amid a residual Buffett blessing from last week. Bank of America remains highly traded per usual and is up 0.67%. The KBW Bank Index (DJINDICES: ^BKX  ) is up 0.59%.

Citigroup shouldn't react as much as the others to housing data set to be released this week, but it doesn't make that information any less important for people that keep an eye on banks. As the overall economy continues to improve -- housing is only one measure to look at -- profits at big banks should continue to reap the rewards.

Senior shuffling at Citi
With the departure of CitiMortgage CEO Sanjiv Das planning on leaving the bank to pursue "other opportunities," Citibank CEO Michael Corbat announced a new leader at that division, prompting a shuffling of the deck at some of Citibank's most senior positions. Jane Fraser will move from the CEO seat at Citi's private bank into Das' old position. Mark Mason, current CEO of Citi Holdings, will take over the private bank, while Francesco Vanni d'Archirafi goes to Citi Holdings.

Citi Holdings could perhaps be the most important position of these moves, as the division manages all of the non-core assets that Citigroup is winding down or selling. At the end of the previous quarter, Citi Holdings accounted for 8% of the bank's total assets, a fairly significant amount. Vanni d'Archirafi will look to continue the work of Mason, who managed to reduce the account 29% over the previous year, allowing the bank to continue to focus on its core businesses.

Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and there's a considerable amount of uncertainty after a shocking management shakeup. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot on your watchlist, I invite you to read our premium research report on the bank today. We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas Citigroup investors need to watch going forward. Click here now for instant access to our best expert's take on Citigroup.

Greece Holds Out Hope for 2013 Budget Target

ATHENS, Greece (AP) -- Greece's finance minister pledged Tuesday to stick with unpopular austerity measures and correct years of profligate state spending, in the hope of securing a budget surplus this year that could pave the way for a new debt reduction deal.

"We still face a hard road ahead, until Greece can access markets again," Yannis Stournaras told a press conference. "But we have covered at least two thirds of the way, as far as fiscal adjustment goes, and three quarters of the way on competitiveness."

Stournaras was speaking a day after Greece struck a deal with creditors expected to secure it 8.8 billion euros in further loan payments from its international creditors. The deal followed weeks of tough negotiations and will include a taboo-breaking 15,000 layoffs in the public sector.

The minister told the press conference Tuesday that the country's next main target is to achieve a primary surplus -- which excludes the cost of servicing the huge public debt -- on its budget in 2013, a year ahead of target. Athens hopes that by reaching this milestone, it will get further debt relief from its creditors.

The country has been locked out of international bond markets after its economy imploded in 2010, and been kept afloat by rescue loans from its European partners and the International Monetary Fund. In exchange, it has implemented harsh and deeply resented austerity measures, slashing incomes, hiking taxes, and overhauling an inflated, largely inefficient public sector.

The cutbacks fueled a deep recession, now in its sixth year, while pushing unemployment to a record 27 percent. Almost 1,000 jobs have been lost every day over the past three years in the private sector.

The main left wing opposition leader, Alexis Tsipras, said the measures have left "social wreckage" in their wake, and urged action to revive the economy.

"How can they say our sacrifices are paying off when the country is slumped in recession and the public finances are being destroyed?" the Syriza party head said at a business conference. "Every year, recovery is delayed until the following year."

Tsipras said Greece needs an immediate change of course, "the same way a heart attack patient needs an electric shock."

Labor unions have reacted with a series of general strikes and demonstrations that often ended in street riots but failed to put the brakes on austerity.

On Tuesday, Greek islands were left without ferry links with the mainland due to a 24-hour strike by seamen, while state railway workers were also to hold brief work stoppages.

Monday's deal with the creditors included 15,000 layoffs in the public sector, which was for decades considered a secure and undemanding work environment where nepotism ran rife. However, the government will be allowed to break a hiring freeze and replace all sacked employees.

Stournaras said legislation on the agreed measures would be passed "the soonest possible" to ensure payment of the loan installments.

He said a further priority was to complete by the end of this month the recapitalization of Greece's banking sector, which took bad losses from last year's public debt writedown. Ministry and banking officials say some 20 billion euros in deposits have returned to domestic lenders after a strong outflow during political instability last summer.

Get Ready for Microsoft's 7-Inch Surface

Smaller tablets are all the rage these days. Tablets with displays of 7 inches to 8 inches are turning out to be the sweet spot with consumers, balancing mobility and usability while carrying lower price points relative to larger tablets with displays of 9 inches to 10 inches.

Amazon.com (NASDAQ: AMZN  ) was the first to show the market the way, with its 7-inch Kindle Fire being the first mover in the smaller-sized segment. Google (NASDAQ: GOOG  ) followed suit nearly a year later with the Nexus 7. Even Apple (NASDAQ: AAPL  ) has come around, launching its iPad Mini late last year, which is quickly eating into full-sized iPad sales.

Now Microsoft (NASDAQ: MSFT  ) is preparing to get in the 7-inch game, according to a recent report from The Wall Street Journal. Insiders say that a 7-inch Surface is set to enter production later this year, which is a relatively recent development since last year Microsoft had no plans for such a device. The WSJ report is but the latest piece of evidence pointing toward Microsoft's inevitable move downmarket.

Not only has the software giant been incentivizing OEMs to explore smaller touchscreen devices through a series of discounts and price cuts, but also Microsoft's upcoming Windows 8.1 update (code-named "Blue") will include support for 7-inch tablets.

The company has also tweaked its guidelines for Windows certification to a similar effect, reducing the minimum supported resolution. The company said the change was not meant to encourage OEMs to use lower resolutions, but instead was to allow them to explore "designs for certain markets."

In doing so, the company also seemingly acknowledged that its choice of a 16:9 aspect ratio may have been misguided, since using Surface in portrait mode is comical at best and downright awkward at worst. Microsoft is opening the door to a 4:3 aspect ratio, which is what Apple uses in its iPads with much success (Amazon and Google both use 16:10).

Even Amazon is having a hard time selling its 8.9-inch Kindle Fire HD. The e-tailer just got aggressive with that device's pricing, and the price drop presumably isn't because Amazon was selling so many of them.

Microsoft has no choice if it hopes for any semblance of tablet success. A 7-inch Surface is coming.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Limits to stretch IRAs floated to pay for highway repairs

(iStock)

When Congress returns from its July 4 recess next week, the Senate tax-writing panel will resume its effort to pass a bill that would pay for highway repairs in part by changing policy toward inherited individual retirement accounts.

The provision, part of a bill before the Senate Finance Committee, would require the distribution of IRAs within five years of the death of the account holder, with some exceptions — including cases where the recipient is a spouse, minor or whose age is within 10 years of the person who died. Under current law, distributions can be stretched over the life of the beneficiary, which can be many years if he or she is young.

A committee summary of the bill says that limiting so-called stretch IRAs would raise $3.7 billion over 10 years. The entire bill, which includes several other provisions, would raise a total of about $8 billion for the Highway Trust Fund.

The highway fund must be reauthorized by Congress. It could start running out of money in August, according to the Department of Transportation, which could halt local projects.

On Tuesday, President Barack Obama challenged Congress to act quickly or else put at risk tens of thousands of layoffs related to road-work jobs.

The Senate Finance Committee began a markup of a highway-financing bill on June 26. The session recessed prior to a vote. The panel will reconvene as soon as possible after lawmakers return to Washington next week, according to Ryan Carey, a spokesman for committee Chairman Ron Wyden, D-Ore.

“I've bent over backward to come up with the most benign, agreeable offsets possible,” Mr. Wyden said in remarks prepared for the June 26 meeting. “Rather than raising taxes, the legislation includes measures designed to boost tax compliance — to make sure people pay taxes they owe.”

Curbing inherited IRAs “is one of the least painful revenue raisers waiting to be used,” said Clint Stretch, senior tax policy counsel at Tax Analysts, a consulting and publishing firm. “This is not really a tax increase, it's a tax acceleration.”

It has been on the congressional shelf for many years and often is proposed to pay for spending priorities.

Michael Kitces, a partner and director of research at Pinnacle Advisory Group, wrote about limits on stretch IRAs in 2012 highway funding discussions in his blog, Nerd's Eye View.

As is the case today, there’s no guarantee that stretch IRAs will be tapped as a highway funding source, Mr. Kitces wrote in 2012. But he recommended that investment advisers be cognizant of the possibility.

“It may be best practice when discussing estate planning matters with clients to at least acknowledge the risk that by the time the client's estate plan is actually implemented, a stretch IRA may no longer be an arrow in the estate planner's quiver,” Mr. Kitces wrote.

Once a tax-reform idea is pu! t on the table at the Capitol, it's rarely taken off. In the case of inherited IRAs, the opponents have already been identified, and new ones won't likely be created, according to Mr. Stretch.

“You know who you're going to offend,” Mr. Stretch said. “It will always come up.”

Highway projects are usually funded by gasoline taxes. It's unclear what approach the Republican-majority House will take.

5 Stocks Under $10 Making Big Moves

 DELAFIELD, Wis. (Stockpickr) -- At Stockpickr, we track daily portfolios of stocks that are the biggest percentage gainers and the biggest percentage losers.

>>5 Hated Earnings Stocks You Should Love

Stocks that are making large moves like these are favorites among short-term traders because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst such as a recent earnings release. Sometimes stocks making big moves have been hit with an analyst upgrade or an analyst downgrade.

Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend -- a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success. >>5 Rocket Stocks Ready for Blastoff With that in mind, let's take a closer look at a several stocks under $10 that are making large moves to the upside.

Stock quotes in this article: VTNR, SMSI, CYNI, RBSN, EVRY 

EveryWare Global

EveryWare Global (EVRY) provides tabletop and food preparation products for the consumer, foodservice and specialty markets. This stock closed up 8.5% to $1.02 in Tuesday's trading session.

Tuesday's Range: $0.86-$1.05
52-Week Range: $0.67-$13.74
Tuesday's Volume: 215,000
Three-Month Average Volume: 147,747

From a technical perspective, EVRY spiked sharply higher here with above-average volume. This stock has been absolutely destroyed over the last six months, with shares moving lower from over $8 to its recent 52-week low of 67 cents per share. During that move, shares of EVRY have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of EVRY are now starting to spike higher off that 67 cent per share low and it's breaking out into its recent gap-down-day zone from a few days ago that started near $1.50. Traders should now look for long-biased trades in EVRY as long as it's trending above Tuesday's low of 86 cents per share and then once it sustains a move or close above Tuesday's high of $1.05 with volume that hits near or above 147,747 shares. If that move starts soon, then EVRY will set up to re-fill more of its gap-down-day zone that started near $1.50.

Stock quotes in this article: VTNR, SMSI, CYNI, RBSN, EVRY 

Rubicon Technology

Rubicon Technology (RBCN), an electronic materials provider, develops, manufactures and sells monocrystalline sapphire and other crystalline products for light-emitting diodes, radio frequency integrated circuits, blue laser diodes, optoelectronics and other optical applications. This stock closed up 2% to $7.42 in Tuesday's trading session.

Tuesday's Range: $7.26-$7.58
52-Week Range: $6.84-$14.67
Tuesday's Volume: 586,000
Three-Month Average Volume: 663,387

From a technical perspective, RBCN jumped higher here right above some near-term support at $7.07 with decent upside volume. This stock has been downtrending badly for the last month and change, with shares moving lower from its high of $14.67 to its recent low of $6.93. During that downtrend, shares of RBCN have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of RBCN are now starting to bounce off that recent low of $6.93 and off oversold levels, since its relative strength index reading is coming off sub-30 readings. Traders should now look for long-biased trades in RBCN as long as it's trending above some key near-term support levels at $7.07 or at $6.93 and then once it sustains a move or close above Tuesday's high of $7.58 to some more near-term overhead resistance at $7.92 with volume that hits near or above 663,387 shares. If that move materializes soon, then RBCN will set up to re-test or possibly take out its next major overhead resistance levels at $8.50 to $9.50. Any high-volume move above $9.50 will then give RBCN a chance to re-fill some of its recent gap-down-day zone that started at $10.30.

Stock quotes in this article: VTNR, SMSI, CYNI, RBSN, EVRY 

Cyan

Cyan (CYNI) provides various carrier-grade networking solutions that transform legacy networks into open high-performance networks in North America, Asia and Europe. This stock closed up 4.1% to $3.49 in Tuesday's trading session.

Tuesday's Range: $3.29-$3.56
52-Week Range: $3.18-$13.92
Tuesday's Volume: 126,000
Three-Month Average Volume: 348,921

From a technical perspective, CYNI ripped higher here right above some near-term support at $3.29 with lighter-than-average volume. This move is quickly pushing shares of CYNI within range of triggering a near-term breakout trade. That trade will hit if CYNI manages to take out some near-term overhead resistance levels at $3.57 to $3.64 with high volume. Traders should now look for long-biased trades in CYNI as long as it's trending above some near-term support at $3.29 or above its 52-week low of $3.18 and then once it sustains a move or close above those breakout levels with volume that hits near or above 348,921 shares. If that breakout triggers soon, then CYNI will set up to re-test or possibly take out its next major overhead resistance level at its 50-day moving average of $4.07 to possibly even $4.50.

Stock quotes in this article: VTNR, SMSI, CYNI, RBSN, EVRY 

Smith Micro Software

Smith Micro Software (SMSI) provides software and services that simplify, secure and enhance the mobile experience. This stock closed up 6.1% to 86 cents per share in Tuesdays trading session.

Tuesday's Range: $0.80-$0.86
52-Week Range: $0.66-$2.69
Tuesday's Volume: 144,000
Three-Month Average Volume: 456,676

From a technical perspective, SMSI trended sharply higher here right above some near-term support at 80 cents per share to 75 cents per share with lighter-than-average volume. This stock recently gapped down sharply from over $1.40 to its 52-week low of 66 cents per share with heavy downside volume. Following that move, shares of SMSI have now started to rebound off its 52-week low and it's quickly moving within range of triggering a major breakout trade. That trade will hit if SMSI manages to take out some key near-term overhead resistance levels at 86 to 89 cents per share and then once it clears its gap-down-day high of 95 cents per share with high volume. Traders should now look for long-biased trades in SMSI as long as it's trending above some key near-term support levels at 80 cents to 75 cents per share and then once it sustains a move or close above those breakout levels with volume that hits near or above 456,676 shares. If that breakout triggers soon, then SMSI will set up to re-fill some of its previous gap-down-day zone that started just above $1.40.

Stock quotes in this article: VTNR, SMSI, CYNI, RBSN, EVRY 

Vertex Energy

Vertex Energy (VTNR), an environmental services company, provides various services designed to aggregate, process and recycle industrial and commercial waste streams, as well as off-specification commercial chemical products. This stock closed up 6.8% to $8.00 in Tuesday's trading session.

Tuesday's Range: $7.32-$8.02
52-Week Range: $2.35-$9.19
Thursday's Volume: 300,000
Three-Month Average Volume: 332,353

From a technical perspective, VTNR ripped higher here right above its 50-day moving average of $6.87 with decent upside volume. This spike higher on Tuesday is quickly pushing shares of VTNR within range of triggering a major breakout trade. That trade will hit if VTNR manages to take out Tuesday's intraday high of $8.02 to some more key near-term overhead resistance levels at $9.14 to its 52-week high at $9.19 with high volume. Traders should now look for long-biased trades in VTNR as long as it's trending above Tuesday's low of $7.32 or above its 50-day at $6.87 and then once it sustains a move or close above those breakout levels with volume that hits near or above 332,353 shares. If that breakout hits soon, then VTNR will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $10 to $12. To see more stocks that are making notable moves higher, check out the Stocks Under $10 Moving Higher portfolio on Stockpickr. -- Written by Roberto Pedone in Delafield, Wis. RELATED LINKS:   >>3 Stocks Spiking on Unusul Volume   >>3 Big Stocks to Trade (or Not)   >>5 Stocks Ready to Break Out Follow Stockpickr on Twitter and become a fan on Facebook.

Stock quotes in this article: VTNR, SMSI, CYNI, RBSN, EVRY  At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

Why Hewlett-Packard (HPQ) Stock Is Down Today

NEW YORK (TheStreet) -- Hewlett-Packard (HPQ) was falling 2.7% to $31.60 Thursday following rival IBM's (IBM) poor quarterly results.

In its first-quarter results IBM posted earnings of $2.54 a share, missing analysts' estimates by 1 cent. Revenue fell 4% from the year-ago quarter to $22.48 billion, while analysts surveyed by Thomson Reuters expected $22.93 billion in revenue.

The drop in revenue was largely due to a 23% drop in hardware and chip sales, a segment in which IBM and HP compete.

Must read: Warren Buffett's 10 Favorite Growth Stocks STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings team rates HEWLETT-PACKARD CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation: "We rate HEWLETT-PACKARD CO (HPQ) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and attractive valuation levels. However, as a counter to these strengths, we find that the company's profit margins have been poor overall." Highlights from the analysis by TheStreet Ratings Team goes as follows: Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 46.95% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year. HEWLETT-PACKARD CO has improved earnings per share by 17.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HEWLETT-PACKARD CO turned its bottom line around by earning $2.62 versus -$6.45 in the prior year. This year, the market expects an improvement in earnings ($3.71 versus $2.62). The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, HEWLETT-PACKARD CO has underperformed in comparison with the industry average, but has exceeded that of the S&P 500. HPQ's debt-to-equity ratio of 0.89 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.75 is weak. The gross profit margin for HEWLETT-PACKARD CO is currently lower than what is desirable, coming in at 25.76%. Regardless of HPQ's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HPQ's net profit margin of 5.06% is significantly lower than the industry average. You can view the full analysis from the report here: HPQ Ratings Report STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Stock quotes in this article: HPQ, IBM 

Bud Light? No Thanks. Beer Drinkers Shifting to Darker, Flavorful Imports

Shutterstock/Boule

Bud Light may still be America's best-selling beer -- it has been for more than a decade -- but retail sales of this and other leading lower-calorie lagers such as Bud Light Lime, Miller Lite, and Natural (aka Natty) Light, declined in 2013, according to data from IRI, a Chicago market research firm. Not that this spells the end of light beers, which still make up a significant chunk of the market. Even as big brewers push into the craft segment, some big-name labels are still experiencing an uptick. Case sales of Coors Light, which became the No. 2 beer brand in the U.S. in 2012, grew nearly 1.8 percent last year, according to IRI. Michelob Ultra Light sales were also up, although it is an outlier in a fast-declining Michelob franchise. "There will always be a place for 'Big Lager' as it's more drinkable in the sense that one can have many lagers but only a few dark beers," says Euromonitor International analyst Edward Hsyeh. "The dark beers are heavy in body, so there can only be so much 'share of the stomach' they possess." Still, big challenges loom: First, Americans' growing thirst for darker, more flavorful brews can't be ignored. Volume sales of lager-a lighter style of beer-have fallen every year since 2009 except 2012, according to Euromonitor's data, though the vast majority of beer consumed in the U.S. is still lager. Sales of pale ales, on the other hand, were up by 13 percent in 2013 alone, and wheat beer grew by 6 percent. The shift is reflected in the recent craft beer boom (volume sales grew 13 percent in the first half of 2013) in which India Pale Ale has become popular. Second, aside from craft, the big brands are seeing competition from imports, too. Modelo Especial volume sales, for example, more than doubled since 2009, according to IRI, and sales of Corona were up 11 percent. Last, hard ciders and new beer-like varieties such as AB InBev's (BUD) Bud Light Lime Straw-Ber-Rita, which sold more than 7 million cases since launching last year, are stealing market share. AB InBev said in its last earnings report that "the Ritas" (Bud Light Lime Straw-Ber-Rita and Bud Light Lime Lime-A-Rita) achieved a combined market share of 0.8 percent in the third quarter of 2013. AB InBev, which owns Bud and Natural, declined to comment because it's in a quiet period ahead of its next earnings report. MillerCoors, a joint venture between SABMiller and Molson Coors (TAP), reported that sales to retailers fell 2.8 percent in 2013, due to declines in such premium light brands as Miller Lite and in value brands that include Miller High Life and Keystone. Molson Coors Chief Financial Officer Gavin Hattersley said at a conference last year that beer drinkers are simply "looking for more flavors, they're looking for more options than ever before." Meanwhile, sales of Milwaukee's "the beast" Best haven't done any better.

You can thank or blame Richard Stanger for writing 401(k)

Bloomberg News

We’ve been looking for someone who was involved in actually writing section 401(k) of the U.S. tax code more than 35 years ago, read the e-mail to Richard Stanger. “Yes, that’s me,” he wrote back.

Mr. Stanger was a primary author of a little-noticed piece of a 1978 tax law. At the time, the 869-word insert was lost in the political heat of limits on tax-deductible three-martini lunches, lower capital gains rates and a bipartisan coalition that was rejecting President Jimmy Carter’s proposals. Today, 401(k) is likely the most recognizable number in the Internal Revenue Code.

(Don’t miss: Corporate pension plans mark sad milestone)

As the first 401(k) generation ages — about 10,000 baby boomers turn 65 every day in the U.S. — questions multiply about the adequacy of their finances. Just last week, President Barack Obama proposed a new retirement plan for Americans who don’t have 401(k) plans at work as he warned that Social Security often isn’t enough to rely on.

How 401(k) grew from an insignificant provision into a behemoth that transformed retirement savings and started an industry that holds $4 trillion in Americans’ assets is a study in the sometimes unintended consequences of Washington action. Consider: The initial provision was estimated to have a “negligible effect upon budget receipts.” Now, defined contribution plans are the fifth-biggest tax break for individuals, with an estimated revenue loss to the government of $61.4 billion in fiscal 2014.

“There was absolutely no discussion in ’78 that if you do this, the world is going to change,” said Daniel Halperin, then a senior Treasury official and now a Harvard Law School professor.

The tale of Richard Stanger, who said he hadn’t been interviewed previously about his role, is also a story about accidental actors at historic moments. As Mr. Stanger himself says, if anyone had known how important 401(k) would become, the Joint Committee on Taxation never would have let him, a 28-year-old junior lawyer, write it.

Mr. Stanger is now 63, the same age as Americans worried about their retirement security. He was a three-year-old in Queens, New York, when the fight began over what would become 401(k).

Irving Trust Co. and other New York-based banks had set up profit-sharing plans in which taxes could be deferred. They were accepted by the IRS with formal rulings in 1956 and 1963. Those plans typically covered bonus payments, not a choice about deferring a portion of regular salary.

LAW STUDENT

By 1972, while Mr. Stanger was a law student at Temple University in Philadelphia, IRS officials became co! ncerned about benefits going to top executives. They proposed regulations that would have required immediate taxation of money contributed into the plans in some cases, undercutting the whole concept.

Congress in 1974 then froze the status quo in place for existing plans, effectively promising to set permanent policy and deferring a final decision. This was part of the Employee Retirement Income Security Act, which came to be known as Erisa.

That created a situation where one set of rules applied to existing plans and there was no clear structure for setting up new plans.

Meanwhile, Mr. Stanger was graduating from law school and planning to focus on international taxation. Instead, he became a pension policy specialist after the firm he joined lost its expert to a job at the IRS and needed someone to learn that 1974 law. Mr. Stanger refers to himself as an “Erisa child.”

“It slowly dawned on me that I was an expert on this — and I should leverage it,” he said in an interview in his Manhattan office.

Three years later, at a conference in Chicago, Mr. Stanger ran into Mervin Wilf, his former law professor. Mr. Wilf mentioned a job opening in Washington he had heard about. As a result, Mr. Stanger started working in November 1977 at the Joint Committee on Taxation, the nonpartisan staff that helps Congress write tax legislation and estimates its cost.

In 1978, the Carter administration proposed a law to cut tax rates, add a credit to benefit middle-income taxpayers, limit deductions for business meals and raise taxes on some capital gains. At the time, the thresholds for tax brackets weren’t indexed for inflation, meaning that more people moved into higher brackets each year unless Congress acted.

A bipartisan coalition in Congress resisted the president’s plan and began assembling its own bill, pulling together ideas proposed by a variety of lawmakers.

1978 ACT

The main goal of what became the Revenue Act of 1978 wasn’t retirement savings, ! said form! er Democratic Congressman Jim Jones of Oklahoma, who helped rally support for the plan.

The point, instead, was tax cuts for the middle class and lower levies on capital gains to spur business investment. The legislation countered Mr. Carter’s tax proposal to Congress, so Mr. Jones and Wisconsin Republican Bill Steiger solicited amendments from members on the House Ways and Means Committee to build bipartisan support, Mr. Jones said.

Mr. Jones said Republicans wanted a proposal that would provide incentives for individual retirement savings.

Representative Barber Conable, the top Republican on Ways and Means, suggested the add-on related to profit-sharing plans that became section 401(k), Mr. Jones said. Mr. Conable, who died in 2003, had been talking to businesses such as Xerox Corp. (XRX) and Eastman Kodak Co. that were major presences in his home region in upstate New York.

“I considered it not an expensive proposition from the standpoint of revenue loss, and a supplement to retirement that could catch on, but never be the dominant factor,” said Mr. Jones, now chairman of ManattJones Global Strategies in Washington. “At that particular time in life, it looked like defined-benefit plans would be the order of the day for years and years and years.”

The Carter administration had concerns about the 401(k) provision, though decided to allow it to proceed, Mr. Halperin said.

“Would I like that decision back?” Mr. Halperin said. “I’m not so sure. But there are certainly times when I think it may have been a terrible mistake.”

Mr. Conable’s idea, which he had introduced as a bill, was passed along to the Joint Committee on Taxation — and to Richard Stanger.

Mr. Stanger described his job as the provision’s primary author, to come up with language, work with the drafters and coordinate with the Treasury Department.

PENCILS, PAPER

He would write with pencils and paper or dictate language into recorders, to be trans! cribed by! stenographers. Then he would head over to a conference room in the Cannon House Office Building, across Independence Avenue from the Capitol, to meet with Ward Hussey, the top tax legislative drafter, and other officials to hash out the details of the wording.

The goals: create a structure for these kinds of plans and establish some safeguards, including a definition of “highly compensated” employees who weren’t allowed to benefit unless others did, too.

Mr. Stanger wasn’t the only author of section 401(k), just the technical expert charged with shaping it into its final form. The provision, changed and expanded in the years since, blessed the idea that employees could direct part of their salary into retirement accounts without paying taxes on it up front and established basic r

Your Investment Watch List for 2014

It's been a great year for the U.S. stock market. The Standard & Poor's 500 Index is up about 25%, and the Dow Jones Industrial Average has climbed 23%.

And Money Morning's gurus have done even better than that for their subscribers this year...

Chief Investment Strategist Keith Fitz-Gerald decoded an 80% gain for readers of his Money Map Report with an insurance company that pays out a super dividend.

Our Defense and Technology Specialist Michael A. Robinson, delivered a 100% gain with a politics-proof defense contractor.

Now it's time to pick the next big winners for 2014. Some of our experts share what they're watching, looking for, or forward to, next time around.

The Good

Here's who's going to have a great 2014:

Two of our favorite tech stocks, Apple Inc. (Nasdaq: AAPL) and Microsoft Corp. (Nasdaq: MSFT), bear close watching next year, according to Money Morning's Capital Wave Strategist Shah Gilani.

"Apple is headed back to $700," he said, on the basis of "new products and business lines that will shock the world." AAPL is trading at $560 per share now.

Meanwhile, Gilani says Microsoft will mount its own challenge to Apple and Google - and emerge from the fight "bigger, stronger, and more growth-oriented."

2013 was a rough year for the equity markets in the emerging economies of Asia and Latin America. Although gross domestic product (GDP) growth was 4.5% in those markets, share price indexes for Asia were only up 1.7%, and down 8.7% for Latin America, according to research firm Yardeni.

Next year, things will start to look up, at least for one of the big emerging economies.

"2014 is going to be all about Brazil: economically, politically, athletically," said Gilani. "If Brazil can rise to the many challenges it faces, its stock market will soar."

Brazil will host the 2014 FIFA World Cup and the 2016 Olympics in Rio da Janeiro, both events that will tax the country's infrastructure.

And speaking of soaring, this famed investor is poised to have a massively profitable 2014...

"Billionaire private equity investor Stephen Schwartzman will make still more billions as his fund Blackstone IPOs more of its portfolio companies." Blackstone took Hilton Hotels public in 2013, and it has plenty more companies in its portfolio. The Fed(s)

In the U.S., 2013 market activity seems to have revolved around one question: What's the Fed going to do?

The Open Market Committee answered that question - taper starts in January - but that doesn't mean the Fed has become irrelevant.

Far from it. The Federal Reserve and the federal government - "the Feds" plural - will only increase in importance.

One thing our experts absolutely agree is a must-watch for next year is the Federal Reserve Bank and its incoming Chairman, Janet Yellen.

"There is no stock, no investment, no person more important to watch than Janet Yellen and the rest of the central bankers," said Money Morning's Chief Investment Strategist Keith Fitz-Gerald. "The central bankers will take their cue from Yellen, which will set the tone for every asset class in the world."

And speaking of politics and money, our Global Investing & Income Strategist Robert Hsu predicts we'll "See a lot more class warfare in the United States next year, thanks to the Congressional mid-term elections in November."

But there is more to money and banking than is dreamt of by Treasury secretaries and central bankers. And that's why Money Morning's Global Income Specialist Robert Hsu is watching China's shadow banking system.

"There's probably going to be at least one default in China's underground credit system," he warned.

And The Tech-y

This year was great for technology, with the tech-heavy NASDAQ Composite Index up 33% - higher than the Standard & Poor's 500's 25%.

And 2014 will be no different.

"Americans love technology and the country is continuing to embrace new developments, products and innovations," said Money Morning's Defense & Technology specialist Michael Robinson. "The big money makers are going to be in cloud computing and biotechnology."

3D printing really got noticed in 2013, Robinson said, which means that the industry will only increase its momentum in the New Year. "We're talking about an industry with a compound growth rate of 25% per year. 3D printing is going to be everywhere."

But it's not all business...

Here at Money Morning we love keeping you abreast of the news you can profit from. And we have a good time doing it. (Besides, sometimes a good time is also a good investment.)

But even we like to kick back with a great TV series or movie, and 2014 is looking to be a bang-up year for entertainment.

The year 2013 brought the untimely end of beloved chemistry teacher-turned-drug kingpin Walter White. People distraught over the end of AMC's hit series Breaking Bad will rejoice, says Robert Hsu, as the spin-off and prequel Better Call Saul becomes the most anticipated TV show in years.

Perhaps most importantly, the long wait for the second Avengers installment comes out next year, too. Robert tells us that the new movie's villain, Thanos, "will move out of comic book obscurity and into the mainstream."

Now get started on making 2014 your most profitable year ever: This New Year's Eve, "Ring the Register" for Profits

Ron Burgundy film is second, but RV first in yuks

Ron Burgundy, of Dodge Durango TV and online ad fame, finished the weekend in second place in the box office listings. But that's not bad considering the competition, and that the Will Ferrell comedy, Anchorman 2: The Legend Continues, may be considered one of the top driving movies of the year.

Yes, driving. The absurdist comedy features bowling balls, scorpions and really bad driving, especially when it comes to a vintage motor home that rolls over.

But getting what looks to be an old General Motors RV to actually perform the needed rollover was a monumental task.

While Will Ferrell, Steve Carell, Paul Rudd and David Koechner had a great time yukking it up, pretending to roll in the crash against a green screen background.

Writer-director McKay has called it "a giant pain in the ass" to get the scene for the scene he and Ferrell wrote at two in the morning. It ended up taking three days to shoot.

But McKay had his hands full with the real exterior shots of the dramatic rollover crash.

He hired one of the best Hollywood stuntmen going and three old RVs to make sure he got the shot. But the trailer just wouldn't perform the shot.

"It's insane, there's no way we could get it to roll," says McKay. "It's just such an oddly shaped vehicle."
"We really had to find the right angle to do it," he adds. "We did three tries, and we finally got the roll and the shot we needed on the last one. Thank God."

Determining Risk And The Risk Pyramid

You might be familiar with the risk-reward concept, which states that the higher the risk of a particular investment, the higher the possible return. But many investors do not understand how to determine the risk level their individual portfolios should bear. This article provides a general framework that any investor can use to assess his or her personal risk level and how this level relates to different investments.

Risk-Reward Concept
This is a general concept underlying anything by which a return can be expected. Anytime you invest money into something, there is a risk, whether large or small, that you might not get your money back. In turn, you expect a return, which compensates you for bearing this risk. In theory the higher the risk, the more you should receive for holding the investment, and the lower the risk, the less you should receive.

For investment securities, we can create a chart with the different types of securities and their associated risk/reward profiles.



Although this chart is by no means scientific, it provides a guideline that investors can use when picking different investments. Located on the upper portion of this chart are investments that have higher risks but might offer investors a higher potential for above-average returns. On the lower portion are much safer investments, but these investments have a lower potential for high returns.

Determining Your Risk Preference
With so many different types of investments to choose from, how does an investor determine how much risk he or she can handle? Every individual is different, and it's hard to create a steadfast model applicable to everyone, but here are two important things you should consider when deciding how much risk to take:

Time Horizon Before you make any investment, you should always determine the amount of time you have to keep your money invested. If you have $20,000 to invest today but need it in one year for a down payment on a new house, investing the money in higher-risk stocks is not the best strategy. The riskier an investment is, the greater its volatility or price fluctuations. So if your time horizon is relatively short, you may be forced to sell your securities at a significant loss. With a longer time horizon, investors have more time to recoup any possible losses and are therefore theoretically more tolerant of higher risks. For example, if that $20,000 is meant for a lakeside cottage that you are planning to buy in 10 years, you can invest the money into higher-risk stocks. Why? Because there is more time available to recover any losses and less likelihood of being forced to sell out of the position too early. Bankroll Determining the amount of money you can stand to lose is another important factor of figuring out your risk tolerance. This might not be the most optimistic method of investing; however, it is the most realistic. By investing only money that you can afford to lose or afford to have tied up for some period of time, you won't be pressured to sell off any investments because of panic or liquidity issues. The more money you have, the more risk you are able to take. Compare, for instance, a person who has a net worth of $50,000 to another person who has a net worth of $5 million. If both invest $25,000 of their net worth into securities, the person with the lower net worth will be more affected by a decline than the person with the higher net worth. Furthermore, if the investors face a liquidity issue and require cash immediately, the first investor will have to sell off the investment while the second investor can use his or her other funds.

Investment Risk Pyramid
After deciding how much risk is acceptable in your portfolio by acknowledging your time horizon and bankroll, you can use the risk pyramid approach for balancing your assets.



This pyramid can be thought of as an asset allocation tool that investors can use to diversify their portfolio investments according to the risk profile of each security. The pyramid, representing the investor's portfolio, has three distinct tiers:

Base of the Pyramid – The foundation of the pyramid represents the strongest portion, which supports everything above it. This area should consist of investments that are low in risk and have foreseeable returns. It is the largest area and comprises the bulk of your assets. Middle Portion – This area should be made up of medium-risk investments that offer a stable return while still allowing for capital appreciation. Although more risky than the assets creating the base, these investments should still be relatively safe. Summit – Reserved specifically for high-risk investments, this is the smallest area of the pyramid (portfolio) and should consist of money you can lose without any serious repercussions. Furthermore, money in the summit should be fairly disposable so that you don't have to sell prematurely in instances where there are capital losses.

The Bottom Line
Not all investors are created equally. While others prefer less risk, some investors prefer even more risk than others who have a larger net worth. This diversity leads to the beauty of the investment pyramid. Those who want more risk in their portfolios can increase the size of the summit by decreasing the other two sections, and those wanting less risk can increase the size of the base. The pyramid representing your portfolio should be customized to your risk preference.

It is important for investors to understand the idea of risk and how it applies to them. Making informed investment decisions entails not only researching individual securities but also understanding your own finances and risk profile. To get an estimate of the securities suitable for certain levels of risk tolerance and to maximize returns, investors should have an idea of how much time and money they have to invest and the returns they are seeking.

Wal-Mart Lays Groundwork for Future as Markets Soar on News of Debt Ceiling Deal

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

As of 1:05 p.m. EDT the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 179 points, or 1.18%, to wipe out yesterday's 133-point decline. This big jump higher came shortly after the opening bell rang as senators indicated a plan was formed to get a debt ceiling compromise passed as soon as possible. But there is still a lot that needs to be done, and the deal must be voted on by both the Senate and House of Representatives. Regardless of the number of times investors have been told a deal was just around the corner, the markets are once again rallying across the board: The S&P 500 and the NASDAQ are higher by 1.16% and 1.08%, respectively.

One big Dow mover today is Wal-Mart (NYSE: WMT  ) , up 1.1% after yesterday's analyst meeting in Arkansas. The company had a lot of big news to report, including the expansion of its grocery delivery service through a test offering in Denver. The service was previously only offered in the California cities of San Jose and San Francisco. The decision to expand the service comes as Amazon.com, eBay, and even Google are offering same-day delivery for different types of merchandise. This is clearly a way for Wal-Mart to fight the big tech companies at their own game. 

Furthermore, Wal-Mart reported that it expects overall sales to increase 1.9% to 3% in fiscal 2014, which is starting now for the company. That would put total revenue at $475 billion to $480 billion, higher than last year's $466 billion. Additionally, the company believes fiscal 2015 will produce 3% to 5% growth as it adjusts its sales strategies to meet those goals. The company also believes its square footage growth will be slightly smaller in the coming budget year than it had previously said. The company now plans to open 34 million square feet of store space during fiscal 2014 and 33 million square feet in 2015. Those figures are down from a range of 36 million to 40 million square feet in 2014 and 33 million to 37 million square feet in 2015.  

This is good news for Wal-Mart investors, but remember that it's just what the company plans to do -- not what it has done. These projections should be taken with a grain of salt. For example, the economy could tumble back into another recession, and the 3% expected revenue growth may fall apart as the company tries to make it through the rough patch. If you need Wal-Mart to grow revenue at 3% to make it a worthwhile investment, you should probably pass on the company and continue looking elsewhere.

Who Will Rule Retail?
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the "3 Companies Ready to Rule Retail" in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

What's in a (Social Security) number?

I never know what I'll find when I'm surfing the Social Security Administration's web page. It's a wealth of information, though the treasure trove of rules and statistics can be overwhelming if you don't know where to look.

The other day I stumbled on this tidbit: Social Security numbers are no longer tied to geography. Who knew?

A nine-digit Social Security number has three parts. The first set of three digits is called the “area number” and originally designated the geographical region in which the person was living at the time he or she obtained a number.

Generally, numbers were assigned beginning in the Northeast and moving westward. So people on the East Coast have the lowest numbers and those on the West Coast have the highest numbers.

The remaining six digits in the number — including the second set of two digits called the “group number” and the final set of four digits called the “serial number” — are more or less randomly assigned. They were organized to facilitate the early manual bookkeeping operations associated with the creation of Social Security in the 1930s.

Now all new Social Security numbers, including the initial “area numbers,” are assigned randomly in an effort to prevent fraud and to extend the available pool of nine-digit Social Security numbers in every state.

Randomization also introduced previously unassigned area numbers including “000,” “666” and “900-999”.

The geographic ties were severed for cards issued after June 25, 2011. The new assignment process only applies to those receiving a new number for the first time. It does not affect curren

Home Prices Rising — in China

Since August 2012, house prices in 69 of 70 Chinese cities have risen an average of 7.5%, leading to fears of a housing bubble in the Middle Kingdom. Higher prices are encouraging more development, and prime property in Beijing and Shanghai is selling for record prices.

At the same time that prices are jumping in some cities, the country is plagued with "ghost cities" like Jing Jin City, just an hour east of Beijing, where 3,000 villas and other high-end amenities go begging for residents. And there are more ghost cities spread all over the country.

Earlier this year, Shanghai's local government ordered banks to stop making loans for purchases of third homes. In Beijing, the government limited single residents to a single home. Both cities said that a 20% capital gains tax on profits from property sales would be strictly enforced.

The deputy director of the country's Ministry of Housing and Urban-Rural Development has said that 80% of home purchasers are first-time buyers who want to improve their living conditions, not investors looking to flip homes for a profit. The central government denies that a bubble is developing, despite some regional issues.

A real estate researcher estimates that, based on the record sales prices for land in Beijing and Shanghai, housing prices will rise 50% in a year. Another researcher recently told China Daily, "It is the combination of local governments, companies and banks taking advantage of the higher prices that contributes to skyrocketing prices."

Investors Become Complacent; Volatility Drops

Volatility in bond and equity markets is back down to levels that would have been familiar to investors back in 2007. Bond and share prices have all moved relentlessly higher, often into uncharted territory.

The only things that have changed for the worse are economic fundamentals.

Growth across developed economies remains subdued and though forecasters are hopeful next year turns out better than this one, that’s still a long way short of the unshakeable optimism most observers felt in the year or two before the financial crisis.

Economic gloom might support high sovereign debt prices, but it’s not so good for equities and corporate bonds. And yes it’s true that a greater share of GDP is accruing to companies than to workers, which at first light is supportive of both corporate debt and share prices. But ultimately the less money people earn the less there is to be recycled into demand, which is bad for firms generally.

Central banks are clearly stitching the whole web together. Weak economies mean central bank liquidity, which supports asset prices, fundamentals notwithstanding.

The problem is that investors have grown convinced nothing can possibly go wrong for them. The VIX, which measures S&P 500 volatility and is popularly called a fear index, is broadly back down to where it was during the boom years–if not quite to those lows. Ditto for the VStoxx volatility index which measures European equity market volatility.

The MOVE index, which measures bond market volatility, has dropped back from the summer’s highs when debt markets were rocked by fears the Federal Reserve would start trimming its bond purchase program by the autumn, and isn’t far off 2007 levels again.

To judge from central banks’ reaction functions, maybe investors have a point. The Fed relented on tapering when equities and bonds wobbled. In effect, the central bank was saying that it is putting a floor under asset prices. As long as investors believe this can be achieved, asset prices will keep climbing.

The key question then is to what degree can central banks achieve this promise? Eventually there will be enough growth to dictate higher interest rates for fear of inflationary consequences. Central banks have to consider where asset prices might be at that point if they maintain their current asymmetric response. Will they abandon price stability for fear of upsetting asset markets? Or will they accept another collapse on the assumption that it won’t be as catastrophic?

Recent history suggests that when asset markets spin out of control–in either direction–central banks find it hard to control them. What investors now have to consider is what might cause asset markets to lose control. Economic fundamentals might yet trump central banking liquidity and government interventions in pricing assets. As they’ve regularly done in Japan over the past two decades.

Should I Buy Kellogg Stock? 3 Pros, 3 Cons

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Investors' appetite for Kellogg (K) continued today, with Kellogg stock up about 4%.

Yet for the third quarter, Kellogg earnings were actually mixed. The company posted flat sales of $3.7 billion, which was in-line with Wall Street expectations. But earnings increased by 2.5% to $326 million, or 90 cents a share. The analysts' consensus was for 89 cents. But after excluding one-time items, Kellogg earnings came to 95 cents a share.

But perhaps the biggest factor moving Kellogg stock today was the announcement of a restructuring program.  It could lead to juicier profits over the next few years.

So is it time to buy Kellogg stock? Or should investors hold off? To see, let's take a look at the pros and cons:

Pros on Kellogg Stock

Brand portfolio. It's extensive. Some of Kellogg’s franchise brands include Corn Flakes, Keebler, Eggo and Rice Krispies.

But of course, Kellogg has expanded its portfolio using savvy acquisitions.  Just look at its purchase of Pringles, which was owned by Proctor & Gamble (PG). With the transaction, Kellogg got a big foothold in the lucrative snacks category, with top brands like Pop-Tarts and Cheez-Its.

But over the years, Kellogg has struck some other key deals, such as for Morningstar Farms, Nutri-Grain and Kashi.

Restructuring. Called "Project K," Kellogg announced a wide-ranging effort to realize efficiencies. The projection is for reductions of $425 million to $475 million by 2018. But to achieve this, Kellogg has announced a 7% slashing of its global workforce. It looks like a big target for cuts will be in the supply chain.

This is certainly a tough decision. But to remain competitive, Kellogg had little choice. Kellogg says it will still invest in key parts of its business, such as R&D, brand building and emerging markets.

Dividend. Kellogg stock has a juicy yield of 3%. And there should be little risk of a cutback as Kellogg continues to generate healthy cash flows. For the full-year, they are expected to total between $1.1 billion to $1.2 billion (this includes the costs of Project K.

Something else: Kellogg has paid a dividend since 1925.

Cons on Kellogg Stock

Debt. Kellogg’s leverage is on the high side. Keep in mind that long-term debt is a hefty $6.3 billion. There is also outstanding pension liabilities of $886 million. All this compares to about $2.8 billion in equity.

Even though Kellogg's strong cash flows should be enough to support the overall liabilities, there may still be a problem. That is, the company may not have much firepower to use debt financing for acquisitions.

Valuation. Kellogg stock is far from cheap. The current price-to-earnings ratio is at 24X, which is well above some of its peers. General Mills (GIS), for example, has a multiple of 18X and Kraft Foods (KRFT) is trading at 17X.

Consumer shift. The cereal business, which accounts for over 30% of overall revenues for Kellogg, is feeling pressure. The fact is that older and affluent consumers have been looking at alternatives. For example, Greek yogurt, smoothies and breakfast sandwiches have become quite popular.

At the same time, the competitive environment in the cereal market is also intense. Companies like General Mills have been aggressive with discounting and promotions.

Verdict on Kellogg Stock

Kellogg has some troublesome headwinds, as seen with the competition and sluggishness with the core cereal business. But the good news is that the company is taking swift actions to restructure its cost structure. The result should be higher cash flows, which will allow for a robust dividend and share buybacks in Kellogg stock. There will also be opportunities to pursue more acquisitions.

Kellogg is also positioned nicely for the megatrend of healthier eating habits. The company's brands like Morningstar Farms, Nutri-Grain and Kashi have become synonymous with the category.

So then should you buy Kellogg stock? Yes — if you're looking for a fairly low-risk, high-dividend-paying option for your portfolio, the pros certainly outweigh the cons.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.