Sen. Akaka to File Fiduciary Duty Amendment to Financial Reforms Bill

Wealth Manager has obtained a draft of the amendment. It mandates the extension of the fiduciary standard as it applies to investment advisors under the Investment Advisers Act of 1940, to broker/dealers who provide, "personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide)..."

It calls for the SEC to write rules:

"to provide that, with respect to a broker or dealer, when providing personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide), the standard of conduct for such broker or dealer with respect to such customer shall be the same as the standard of conduct applicable to an investment adviser under section 211 of the Investment Advisers Act of 1940.

The receipt of compensation based on commission or other standard compensation for the sale of securities shall not, in and of itself, be considered a violation of such standard applied to a broker or dealer. Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities."

The amendment also calls for additional authority for the SEC to:

* require broker/dealers to disclose the "range of products offered"
* prohibit or restrict "certain sales practices, conflicts of interest, and compensation schemes for brokers, dealers, and investment advisers that the Commission deems contrary to the public interest and the protection of investors."
* enforce "violations" of these rules with broker/dealers.

It also requires that advice givers:

* "act in the best interest of the customer"
* that "any material conflicts of interest shall be disclosed"
* and that, "the Commission will facilitate the provision of simple and clear disclosures to investors regarding the terms of their relationships with brokers, dealers, and investment advisers, including any material conflicts of interest"

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

Look Out Below! Patriot Coal (PCX) & VirnetX Holding (VHC) in Technical Trouble

There are really only two schools of thought in the world of stock-picking.... trade them based on what they should be doing, and trade them based on what they are doing. The former feels right, but it's the latter that tends to put the most money in your pocket. Enter VirnetX Holding Corporation (AMEX:VHC) and Patriot Coal Corporation (NYSE:PCX), stage right. Regardless of whatever pro/con arguments are being made for either, both PCX and VHC have dropped key technical hints that say the trading masses have their pitchforks and torches in hand.

Not that Patriot Coal Corporation was on the mend just yet, but after finding a floor at $6.86 last week for the third time since October, it was at least beginning to look like the bleeding stopped. Wrong. PCX has fallen 8.0% today, reaching $6.34 in the process and opening up a whole new door of bearish territory that up until now had been closed. And, given the way the 50-day and 100-day moving averages have been pressing down the whole time, it's not like there's a lot of hope for a quick fix now.

At the heart of the problem for PCX is falling coal prices. Coal prices have been sliding since early 2011, but the tumble started to reach 'in earnest' levels in January. Although coal's tumble may finally be coming to an end - thermal coal has been hovering $60-short ton since late January, and coking coal is getting in a groove around $200/tonne - it's down again today. Investors seem to be uninterested in waiting it out any longer with Patriot Coal Corporation simply because there's no end in sight for the slacking demand.

As for VirnetX Holding Corporation, a couple of months ago it looked like this pseudo-technology stock was ready to make a bullish run. We had just s! een VHC win a hard fought battle to get back above all of its key moving averages as well as a key resistance line. And, traders were getting excited about owning it again; the company had just been awarded a favorable ruling in a patent infringement case that stood to start generating some solid recurring revenue. Since then though, a reopening of the USPTO patent case has exposed this company's vulnerability in the mobile patent game.

To put it in technical trading terms, VHC has fallen back under all of its key moving averages, and back under that key ceiling at $24.09.... and it's still moving lower. We're also close to seeing a so-called 'death cross' of the 50-day moving average line (purple) under the 200-day moving average line (green), which would suggest the momentum for VirnetX Holding is bearish is multiple timeframes - the last thing any owner wants to see.

Apple: A Sector Unto Itself, Says JP Morgan

JP Morgan hardware analyst Mark Moskowitz this morning teams up with the folks at the firm’s portfolio strategy confab to discuss Apple (AAPL) as a “cyclical” sector unto itself. Not a cyclical company, but a sector.
Moskowitz’s colleague, portfolio strategist Thomas Lee, offers up some observations on how massive Apple is relative to the Standard & Poor’s 500 Index, how under-owned it is by funds, and how it is relatively undervalued:

AAPL carries greater weight than most industries and several sectors. At 3.7% of the S&P 500, AAPL carries a larger weight in the index than Basic Materials, Utilities, and Telecom Services (see Figure 7) and would be the 6th largest industry (GICS Level 3). YTD, AAPL has accounted for 11 of the 104-point move in the S&P 500. In other words, as a stock, AAPL is more important than most industries and many sectors. The stock remains underowned institutionally. Of the 282 mutual funds indexed to the Russell 1000, a surprising 40% do not have AAPL as a top 10 holding � this despite the fact that AAPL is the largest stock in the Russell 1000. AAPL at current valuation is undervalued on absolute P/E (12.0x vs. 12.7x S&P 500), its relative P/E (94% vs. historical avg of 164%), or PEG ratio. By our ests, moving to historical avg adds 24- 38 points to the S&P 500 � in short, showing AAPL is important to our Cyclical call.

The report is in part prompted, no doubt, by the observations this week of how influential Apple is on the S&P, made by S&P’s own index veteran Howard Silverblatt, and written up on Tuesday by my colleague Brendan Conway.
Moskowitz and Lee are hosting a conference call this morning at 10 am, Eastern time.
In a companion note, Moskowitz this morning writes that he sees “substantial appreciation potenti! al from current levels” for Apple shares given that the company “continues to disrupt the tech playing field.”
With its optimized smartphone, tablet, and notebook PC form factors, complemented by its iTunes/App Store ecosystem, the company single-handily has disrupted the technology playing field. The supply chain has been impacted, and there also has been a splintering of the Wintel and Android-based camps. As a result, we expect many industry participants to be left scrambling to restore relevance in the next few years.
Moskowitz notes the company has “low penetration rates,” including just 19% share of smartphones, 5% share of PCs/
Apple shares this morning are up $3.57, or 0.7%, at $519.96.
Moskowitz and Lee offer a few tables of com parables to size how Apple ranks relative to cyclical stocks, industries, and sectors:

Home Properties Beats Estimates on Top and Bottom Lines

Home Properties (NYSE: HME  ) reported earnings on Feb. 9. Here are the numbers you need to know.
The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Home Properties beat expectations on revenues and earnings per share.
Compared to the prior-year quarter, revenue increased and GAAP earnings per share improved significantly.
Gross margins dropped, operating margins increased, and net margins grew.
Revenue details
Home Properties notched revenue of $153.3 million. The 13 analysts polled by S&P Capital IQ hoped for sales of $147.2 million on the same basis. GAAP reported sales were 15% higher than the prior-year quarter's $133.8 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.29. The eight earnings estimates compiled by S&P Capital IQ forecast $0.23 per share. GAAP EPS of $0.29 for Q4 were 61% higher than the prior-year quarter's $0.18 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 62.7%, 170 basis points worse than the prior-year quarter. Operating margin was 32.0%, 50 basis points better than the prior-year quarter. Net margin was 9.1%, 400 basis points better than the prior-year quarter.
Looking ahead
Next quarter's average estimate for revenue is $151.0 million. On the bottom line, the average EPS estimate is $0.23.
Next year's! average estimate for revenue is $617.4 million. The average EPS estimate is $1.14.
Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 55 members out of 108 rating the stock outperform, and 53 members rating it underperform. Among 40 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 21 give Home Properties a green thumbs-up, and 19 give it a red thumbs-down.
Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Home Properties is outperform, with an average price target of $62.93.
Can your retirement portfolio provide you with enough income to last? You'll need more than Home Properties. Learn about crafting a smarter retirement plan in "The Shocking Can't-Miss Truth About Your Retirement." Click here for instant access to this free report.

• Add Home Properties to My Watchlist.

Is Whole Foods' Stock Cheap or Expensive by the Numbers?

Numbers can lie -- but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

• The current price multiples.
• The consistency of past earnings and cash flow.
• How much growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap Whole Foods Market (Nasdaq: WFM  ) might be.
The current price multiples
First, we'll look at most investors' favorite metric: the P/E ratio. It divides the company's share price by its earnings per share (EPS) -- the lower, the better.
Then, we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.
Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.
Whole Foods has a P/E ratio of 34.7 and an EV/FCF ratio of 28.6 over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, Whole Foods has a P/E ratio of 57.5 and a five-year EV/FCF ratio of 76.4.
A positive one-year ratio under 10 for both metrics is ideal (at least in my opinion). For a five-year metric, under 20 is ideal.
Whole Foods is zero for four on hitting the ideal targets, but let's see how it compares against some competitors and industry mates.?

Company	1-Year P/E	1-Year EV/FCF	5-Year P/E	5-Year EV/FCF
Whole Foods	34.7	28.6	57.5	76.4
Kroger (NYSE: KR  )	11.5	13.0	13.9	18.3
Safeway (NYSE: SWY  )	13.2	12.8	17.9	11.7
SUPERVALU (NYSE: SVU  )	58.9	10.6	NM	9.3

Source: S&P Capital IQ. NM = not meaningful due to losses.

Numerically, we've seen how Whole Foods' valuation rates on both an absolute and relative basis. Next, let's examine...
The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash flow generation.
In the past five years, Whole Foods' net income margin has ranged from 1.4% to 3.4%. In that same time frame, unlevered free cash flow margin has ranged from -2.2% to 3.9%.
How do those figures compare with those of the company's peers? See for yourself:

Source: S&P Capital IQ; margin ranges are combined.

Additionally, over the last five years, Whole Foods has tallied up five years of positive earnings and five years of positive free cash flow.
Next, let's figure out...
How much growth we can expect
Analysts tend to comically oversta! te their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But while you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared to similar numbers from a company's closest rivals.
Let's start by seeing what this company's done over the past five years. In that time period, Whole Foods has put up past EPS growth rates of 6.5%. Meanwhile, Wall Street's analysts expect future growth rates of 16.7%.
Here's how Whole Foods compares to its peers for trailing five-year growth:

Source: S&P Capital IQ; EPS growth shown.

And here's how it measures up with regard to the growth analysts expect over the next five years:

Source: S&P Capital IQ; estimates for EPS growth.

The bottom line
The pile of numbers we've plowed through has shown us the price multiples shares of Whole Foods?are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.
The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 34.7 P/E ratio, and we see high price multiples all around. It's had some negative free cash flow years as it invests in growth, but it looks like it's turned the corner to having this figure be consistently positive. Unlike its peers, Whole Foods is the rare growth-stock grocer -- it's a pioneer in mainstream organic food. It's hard to call Whole Foods cheap by traditional metrics. You have to believe in the growth story for that to b! e true.< /p>
But these initial numbers are just the beginning. If you find Whole Foods' numbers or story compelling, don't stop. Continue your due diligence process until you're confident one way or the other. As a start, add it to My Watchlist to find all of our Foolish analysis.
To see the stocks that I've researched beyond the initial numbers and bought in my public real-money portfolio, click here.

Nvidia: One Downgrade, But Bulls Unfazed

Shares of Nvidia (NVDA) closed down 9 cents, or 0.6%, at $14.84, and the stock received one downgrade today, after the company last night said floods in Thailand that have hampered disk drive production were affecting shipments of graphics processing units (GPU) from Nvidia in personal computers, and would impact its fiscal Q4.
For the quarter ending this month, the company sees about $950 million in revenue, below the $1.07 billion it previously forecast back in October. Up until last night, analysts had been modeling $1.06 billion, but the majority have cut their number to $979 million.
The company also said its sales of its “Tegra 2” application processor for phones and tablets dropped as it moved the new version, “Tegra 3,” into production.
Alex Gauna with JMP Securities cut his rating on the shares to Underperform from Market Perform, with a $12.50 price target.
Gauna writes, “Our primary concern with the stock is less these backward-looking and well understood developments and more so the lackluster design win picture emerging for Tegra 3 relative to rivals, the timing and nature of the Ivy Bridge refresh, and our doubts that Windows 8 can prove a meaningful driver in the 2012 timeframe.”
Gauna thinks there is some “headline risk” that competitors such as Qualcomm (QCOM) will have a stronger showing at the Mobile World Congress trade show that takes place at the end of February.
But other than Gauna, many this morning seem to be inclined to give Nvidia a pass on what they deem an extraordinary but not altogether surprising development:
Hans Mosesmann, Raymond James: Reiterates a Strong Buy rating, while cutting his price target to $23 from $28. The pre-announcement is “not all that different from Intel��s pre-announced December quarter” and actu! ally rem oves an “overhang” from the stock, he writes. “The Tegra3 ramp remains intact in our opinion, and the ARM SoC game was never going to be won or lost in CY4Q11.” The hard disk issue is more of a threat to desktop add-in graphics cards than notebooks, he thinks, and he still expects Nvidia to take notebook GPU share as machines come to market with Intel’s (INTC) Ivy Bridge processors.
Rajvindra Gill, Needham & Co.: Reiterates a Buy rating and cuts his price target to $17 from $18. “Given Intel��s preannouncement on 12/12 and AMD��s lower C1Q guidance yesterday, NVDA��s preannouncement was not a huge surprise [��] Now that a bottom has been set in the earnings level (we think F1Q), we would be aggressive buyers on any pull-back in the shares. We remain bullish for the following reasons: 1) broader traction of Tegra 3 in the smartphone market, specifically LTE quad-core smartphones, 2) strong market position on Windows-ARM based notebook platforms; 3) second-half ramp on Intel��s Ivy-bridge processors; and 4) compelling valuation (trading at 8.9x FY13 Non-GAAP EPS).” Gill cut his fiscal 2013 estimate to $4.16 billion in revenue from $4.46 billion, with $1.10 in EPS, down from $1.30 previously.
Brendan Furlong, Miller Tabak: Reiterates a Buy rating and a $20 price target. “We see the short fall in revenue and EPS for the January quarter as largely industry related due to supply chain disruptions in the PC market. Slower Tegra2 sales are a disappointment but the company does indicate that Tegra3 sales will be ramping in the current calendar quarter, which is a positive.” Furlong is enthusiastic about the company’s opportunity in “Windows-on-ARM” devices coming, assumedly, this year.
There was some grumbling, however, about where Nvidia stands in the context of very bullish forecasts just a few months ago:
Craig Ellis, Caris & Co.: R eiterates an “Average” rating while cutting his price target to $15 from $17. The company has “effectively” withdrawn the promised fiscal 2013 target model it had laid out, he thinks. “Since early-September NVDA has targeted $4.7B-5.0B in F13 revenues. [��] After our recent cuts, and even modeling in steeper F1Q-F4Q13 qq growth, our new revenue estimates fall to $4.2B/+5.1% from $4.5B/+9.7% with whopping 21% yy growth now needed to hit the target revenue mid-point, something we just don��t see.”

Facebook Readies IPO Filing

Facebook is close to picking Morgan Stanley as the lead underwriter for its initial public offering, a significant step toward what is likely to be one of the biggest-ever U.S. public debuts. Don Clark has details on The News Hub. Photo: Reuters

Facebook Inc. could file papers for its initial public offering as early as this coming week, people familiar with the matter said, as anticipation mounts for what is likely to be one of the biggest debuts for a U.S. company.
The deal, seen as defining moment for the latest Web investing boom, could raise as much as $10 billion and value the social network between $75 billion and $100 billion, said people familiar with the matter. A valuation of $75 billion would be below earlier expectations.
The website, which in less than eight years has attracted more than 800 million members, has changed the way people across the globe communicate, from organizing political protests to sharing baby pictures.
The ! Internet giant is close to picking Morgan Stanley to lead the deal, these people said. Wall Street banks, many of them struggling amid a crimp in trading profits, have been jostling for a leading role in the deal, which could yield them tens of millions of dollars in banker fees, potential new business and bragging rights.
A nod for Morgan Stanley would mark a disappointment for rival Goldman Sachs Group Inc., which a year ago was viewed as having an edge to lead the deal. One person familiar with the matter said that while Morgan Stanley would likely land the coveted "lead-left" spot on an IPO financial filing, Goldman would also likely play a significant role.
Spokespeople for Facebook, Morgan Stanley and Goldman Sachs declined to comment.

Facebook could file IPO paperwork as early as Wednesday of next week, and Morgan Stanley is close to winning the "lead left" position in the IPO. Facebook has been valued between $75 and $100 Billion dollars.

Facebook could file documents with the Securities and Exchange Commission as early as this coming Wednesday, said one person familiar with the matter. But that timing is just one scenario Facebook executives are considering, the person said. Executives are also considering filing a few weeks later, the person said.

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People familiar with the matter have sai! d the co mpany is targeting an IPO sometime between April and June.
A $10 billion Facebook offering would rank fourth among IPOs for U.S. companies, behind Visa Inc., General Motors Co. and AT&T Wireless, according to Dealogic. It would rank Facebook as the biggest U.S. Internet offering ever, replacing Google Inc., which raised $1.9 billion in 2004 at a $23 billion valuation.
At a $100 billion valuation, Facebook would be worth about the same as McDonald's Corp. and nearly half of Google.
Facebook's revenue is driven by its advertising business, as big brands rush to the site to interact with consumers through display ads and fan pages. Facebook has been able to increase its world-wide advertising revenue from $738 million in 2009 to $3.8 billion in 2011, according to estimates from research firm eMarketer. It isn't known if Facebook is profitable.
Facebook's final valuation will be determined by a variety of factors, people familiar with the matter said, such as investor demand for social media, the IPO market and the health of the European economy.

The IPO will mint a new generation of Silicon Valley millionaires on the level not seen since Google's offering. Some 3,000 people work at Facebook.
An IPO will also test the ability of Chief Executive Mark Zuckerberg, age 27, to manage a global company whose financial performance will be scrutinized every three months by investors. Mr. Zuckerberg started the company in 2004 out of his Harvard University dorm room. Overall, about 500 million users now log into the site daily, according to Facebook.
Mr. Zuckerberg had been reluctant to push forwar! d with a n IPO. People familiar with his thinking said he has been fearful of the damage an IPO could do to the company's culture. He wants employees focused on making great products, not the stock price, they said.
But outside forces are partly pushing his hand. Facebook executives began to realize in 2010 that Facebook would have more than 500 shareholders by the end of 2011, which would trigger a regulatory requirement that Facebook start publicly reporting financial information.
Mr. Zuckerberg decided it made more sense for Facebook to go public and reap some financial benefit from an IPO, rather than stay private but have to release its financial information, said people familiar with his thinking.
Leading the Facebook sale would be a huge win for Morgan Stanley, which last year cemented its position as the top Internet stock underwriter by leading the IPOs of LinkedIn Corp., Groupon Inc., and Zynga Inc. The bank's global tech banking team, led by Michael Grimes and Paul Chamberlain, is also based in Menlo Park.
Facebook would cap a recent wave of Web IPOs, some of which have struggled amid growing investor scrutiny of the new Internet companies. But investors and analysts said now could be a good time for a Facebook offering.

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This year, the overall market has risen, and on Friday other Internet stocks rallied on news that Facebook would soon file for a deal. "The excitement around Facebook is still enormous," said Max Wolff, an analyst at GreenCrest Capital, which researches companies going public.
The recent IPO climate "hasn't been particularly strong," said Peter Falvey, co-head of the technology banking group at Morgan Keegan & Co. But Mr. Falvey added that with "the recent stock market strength and maybe some green shoots in the economy, there could be a fortuitous window for Facebook."
Write to Shayndi Raice at shayndi.raice@wsj.com and Randall Smith at

Barnes & Noble Settles With Burkle–To What End?

Failing bookstore company Barnes & Noble (NYSE: BKS), maker of the also-ran e-reader, the Nook,? has settled with raider Ron Burkle, who bought enough shares in the company so that he could claim that he needed a board seat.
The Wall Street Journal reports that “As part of the settlement, Barnes & Noble will add two independent directors to the board, in addition to a director affiliated with Yucaipa Cos., the investment firm run by Mr. Burkle, these people said.”
Burkle believed that the founding Riggio family, which holds a controlling interest in the firm, would act in their interests and not those of other shareholders. Burkle will end his proxy fight against the company in exchange for those board seats and support the re-election of chairman Leonard Riggio. Apparently, Barnes & Noble will pay the raider’s legal costs for his challenge. It is hard to imagine why this is a good deal for shareholders who will watch Burkle pick the company’s pocket in exchange for a seat at the table.
Riggio is already acting in his best interests and those of Burkle as well by putting the book company up for sale. Riggio has indicated that he may be a buyer, probably with a private equity firm which could borrow most of the purchase price from unwitting banks which have already lost tens of billions of dollars on LBOs.
Barnes & Noble has been thrashed by Amazon.com which has sold books online for more than a decade and does not have the costs of maintaining store locations. Amazon has also launched its Kindle e-reader which controls that market with a share that is estimated at 70% or better.
Even with a potential private sale of the company, its shares are only up to $14.48, well below their 52-week high of $25.07 and their five-year high of $48 reached in May 2006 when selling books out of physical locations was as good a business as selling DVDs from stores. Blockbuster found out the hard way that its sales would s! uffer wh en DVD sales moved to the Internet and the same now holds true of books, both paper and digital.
It is hard to see what Burkle gains by his new-found seat at the table. Barnes & Noble can hardly be broken up. The company’s online business many be attractive, but its stores are an albatross which have very little value at all.
Burkle may regret that he got what he wanted.