U.S. Stocks Fall as Fed Maintains Plan as Economy Shrinks

Nine out of the 10 groups in the Standard & Poor’s 500 Index retreated as energy and industrial companies fell the most, dropping at least 0.6 percent. An index of homebuilders slipped 1.3 percent as Lennar Corp. declined 2.4 percent. Amazon.com Inc. jumped 4.8 percent after reporting gains in sales and North American operating margin. Facebook Inc. fell 1.4 percent in late trading after posting a drop in profit.
The S&P 500 fell 0.4 percent to 1,501.96 at 4 p.m. in New York. The Dow Jones Industrial Average lost 44 points, or 0.3 percent, to 13,910.42. Both measures yesterday reached their highest levels since 2007. The Russell 2000 Index slid 1.2 percent, falling from yesterday’s record high. About 6.8 billion shares traded hands on U.S. exchanges today, or 9.5 percent above the three-month average.
“The underlying trend for the market is upward, but the problem is there is some weakness in the economic numbers that I don’t think investors have fully factored in,” David Kelly, chief global strategist at JPMorgan Funds in New York, said by phone. His firm oversees about $400 billion. “It’s transitory as the Fed said. But when you put in a negative number on GDP for the fourth quarter, it’s hard for the market to rally.”
Fed Chairman Ben S. Bernanke has unleashed the power of the central bank to buy unlimited amounts of Treasury and mortgage- backed securities in a bid to end a four-year long period of unemployment above 7.5 percent and bolster the economy. The central bank said today it will keep purchasing securities at the rate of $85 billion a month as the economy paused because of temporary forces including bad weather

Boeing reported a profit of $978 million

Boeing reported a profit of $978 million, or $1.28 a share, down from $1.39 billion, or $1.84 a share, a year earlier.

Core operating earnings--which adjusts to exclude pension components related to market fluctuations and other impacts--were $1.46 compared with $1.92 a year earlier, which included 52 cents a share related to a favorable tax settlement.

Revenue increased 14% to $22.3 billion.

Analysts polled by Thomson Reuters most recently projected earnings of $1.19 on revenue of $22.36 billion.

Earnings to Watch (22/01/2013)

Tuesday before Market Open, or BMO:

Delta Air Lines Inc. (NYSE:DAL)provides scheduled air transportation for passengers and cargo across the U.S. and around the world. The company has a market capitalization of $11.69 billion. It is expected to report fiscal year 2012 fourth-quarter EPS of 28 cents on revenue of $8.58 billion, compared with a profit of 45 cents a share on revenue of $8.4 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of $1.83 on revenue of $36.65 billion. That compares to $1.41 per share and $35.12 billion in the previous year. Delta Air Lines is trading around $13.76 a share. Over the past 12 months, the stock has gained 57.9 percent.

E.I. Du Pont De Nemours and Co. (NYSE:DD) is a chemical company. The company has a market cap of $43.11 billion. It is expected to report FY 2012 fourth-quarter EPS of 7 cents on revenue of $7.3 billion, compared with a profit of 35 cents a share on revenue of $8.43 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of $3.29 on revenue of $35.42 billion. That compares to $3.93 per share and $37.96 billion in the previous year. DuPont is trading around $46.25 a share. Over the past 12 months, the stock has lost 4.8 percent.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is an international mining company. The company has a market cap of $32.35 billion. It is expected to report FY 2012 fourth-quarter EPS of 76 cents on revenue of $4.62 billion, compared with a profit of 67 cents a share on revenue of $4.16 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of $3.22 on revenue of $18.27 billion. That compares to $4.84 per share and $20.88 billion in the previous year. Freeport-McMoRan Copper & Gold is trading around $34.15 a share. Over the past 12 months, the stock has lost 20.9 percent.

Johnson & Johnson (NYSE:JNJ)is engaged in the research and development, manufacture, and sale of a range of products in the health-care field. The company has a market cap of $201.89 billion. It's expected to report FY 2012 fourth-quarter EPS of $1.17 on revenue of $17.67 billion, compared with a profit of $1.13 a share on revenue of $16.26 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of $5.09 on revenue of $67.31 billion. That compares to $5.00 per share and $65.03 billion in the previous year. J&J is trading around $72.87 a share. Over the past 12 months, the stock has gained 11.9 percent.

Regions Financial Corp. (NYSE:RF)is a financial holding company. The company has a market cap of $10.48 billion. It is expected to report FY 2012 fourth-quarter EPS of 21 cents on revenue of $1.35 billion, compared with a profit of 9 cents a share on revenue of $1.36 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of 74 cents on revenue of $5.42 billion. That compares to 17 cents per share and $5.55 billion in the previous year. Regions Financial is trading around $7.41 a share. Over the past 12 months, the stock has gained 54.6 percent.

Synovus Financial Corp. (NYSE:SNV) is a financial-services and bank holding company. The company has a market cap of $2.07 billion. It is expected to report a loss of 9 cents per share in the fourth quarter of fiscal year 2012 on revenue of $278.93 million, compared with a profit of 1 cent a share on revenue of $300.63 million in the year-ago period. The analysts' consensus full-year forecast calls for a loss per share of 1 cent on revenue of $1.14 billion. That compares to a loss of 15 cents per share and $1.26 billion in the previous year. Synovus Financial is trading around $2.63 a share. Over the past 12 months, the stock has gained 64.8 percent.

The Travelers Cos. Inc. (NYSE:TRV)is engaged in providing a range of commercial and personal property and casualty insurance products and services. The company has a market cap of $28.99 billion. It is expected to report FY 2012 fourth-quarter EPS of 14 cents on revenue of $5.34 billion, compared with a profit of $1.48 a share on revenue of $5.26 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of $5.66 on revenue of $22.37 billion. That compares to $3.28 per share and $22.19 billion in the previous year. Travelers is trading around $76.01 a share. Over the past 12 months, the stock has gained 16.3 percent.

Verizon Communications Inc. (NYSE:VZ) is a provider of communications, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company has a market cap of $120.66 billion. It's expected to report FY 2012 fourth-quarter EPS of 54 cents on revenue of $29.73 billion, compared with a profit of 52 cents a share on revenue of $28.44 billion in the year-ago period. The analysts' consensus full-year forecast calls for EPS of $2.41 on revenue of $115.49 billion. That compares to $2.15 per share and $110.88 billion in the previous year. Verizon is trading around $42.27 a share. Over the past 12 months, the stock has gained 8.3 percent

A Quick Glance at News (22/01/2013)

The Bank of Japanannounced on Tuesday its most determined effort yet to end years of economic stagnation, saying it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent.

Asian shares rose on Tuesday amid optimism over the globalgrowth outlook, but bold easing measures from the Bank of Japanfailed to lift Tokyo equities and the yen rebounded from a brief sell-off as investors digested the central bank's actions.

U.S. safety investigators on Sunday ruled out excessvoltage as the cause of a battery fire this month on a Boeing Co (BA.N) 787 Dreamliner jet operated by Japan Airlines Co (JAL) (9201.T) and said they were expanding the probe to look at the battery's charger and the jet's auxiliary power.

The yen briefly fell against the dollar on Tuesday after the Bankof Japansurprised markets by adopting an open-ended commitment to buy assets, but later regained ground as the new scheme for additional purchases only comes into effect next year.

Shares of Research In Motion surged to a 13-month high on Mondayafter its chief executive said the company may consider strategic alliances with other companies after the launch of devices powered by RIM's new BlackBerry 10 operating system.

Brent crude rose 0.3 percent to $112.07 a barrel as the BOJ's latest easing action added to the recent positive data from the United States and China, while growing confidence in the strength of China's economic recovery pushed London copper up 0.7 percent to $8,111.75 a metric ton.

Republican leaders in the U.S. House of Representatives have scheduled a vote on Wednesday on a nearly four-month extension of U.S. borrowing capacity, aimed at avoiding a fight over the looming federal debt ceiling and shifting their negotiating leverage for spending cuts to other fiscal deadlines.

Bank of Japan to adopt 2% inflation target

The Bank of Japan on Tuesday formally adopted a 2% inflation target in a major shift in its policy stance, and said it will continue its asset purchases on an "open-ended" basis to further expand its monetary stimulus. At the conclusion of its two-day policy meeting, the central bank said its "price stability target" of 2% year-on-year increase in consumer prices will replace its previous "goal" of a 1% increase in inflation. Under its open-ended asset purchases, the Bank of Japan said it will pursue "aggressive monetary easing" aimed at achieving its 2% price stability target, "through a virtually zero interest rate policy and purchases of financial assets," for as long as the bank judges it appropriate. The decision sent the yen and Japanese stocks on a wild ride: The yen initially fell sharply after the announcement, sending stocks rallying, but the currency soon bounced back sharply as the market digested the details, with shares likewise moving back to losses

Gold and silver bullion are on the move

The price movement of gold and silver often attract much attention. When prices make a noticeable increase, it regularly leads to perma-bulls calling for the next great explosion in precious metals. On the other hand, any dips or corrections lead to critics calling for an end to the 12-year bull market. Both sides are debatable, but there is no denying that physical bullion made impressive moves this past week.

The Bundesbank confirmed reports and announced it will repatriate a portion of its foreign gold reserves. By 2020, the central bank intends to store half of Germany’s gold reserves in its own vaults within the country, compared to only 31% now. The other half will remain in New York and London. The plan will remove 300 tonnes of gold from New York, reducing Germany’s percentage of reserves held at the New York Federal Reserve from 45% to 37%. Another 374 tonnes will be relocated from Paris to Frankfurt, which removes all of Germany’s gold held in France’s capital.

Central banks have shown a great deal of interest in gold over the past few years. For the first-time in decades, central banks across the globe became net buyers of the precious metal in 2009. Last year, central bank purchases increased 17% to 536 metric tons, according to Thomas Reuters GFMS. This represents the biggest addition to gold reserves in 48 years. The organization also expects central banks to add another 280 tons in the first half of 2013.

Silver making moves too…

Gold is not the only precious metal making moves this week. The iShares Silver Trust, which is the biggest exchange-traded fund for silver, added 572 tons of the metal. It is the biggest increase in assets for the BlackRock  managed fund since December 2007. The ETF has received inflows of more than $600 million this week, leading all ETFs in the marketplace. According to Bloomberg and Barclays, global investment through all silver-backed exchange-traded products is at a record 19,114 tons.

Demand in silver coins is also showing strength. The U.S. Mint suspended sales of the new American Silver Eagle. In a statement to authorized purchasers, the Mint explains, “The United States Mint has temporarily sold out of 2013 American Eagle Silver Bullion coins. As a result, sales are suspended until we can build up an inventory of these coins. Sales will resume on or about the week of January 28, 2013, via the allocation process.”

The 2013 American Silver Eagle was initially released on Jan. 7, 2013. On the first day of availability, the Mint received more than 3.9 million orders, the highest one-day of sales in the history of the program. According to the latest information on the Mint’s website, sales have reached about 6 million coins for January and are on pace to surpass the all-time high of 6.1 million coins set in January 2012.



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George Soros's most-promising picks

Small- and mid-cap stocks don't get as much attention from bankers, third-party analysts and the media, which often leaves them less-efficiently priced than their larger peers. Generally speaking, hedge funds take advantage of this by dedicating their research teams to work on the little guys, and consequently, they generate a significant portion of their alpha from the small-cap world.

At Insider Monkey, we've empirically tested this phenomenon, and according to our own analysis, investing in the hedge fund industry's top small-cap picks has generated an alpha of about 120 basis points per month. 

Let's take a look at the top small-cap stock picks of one hedge fund in particular: George Soros's Soros Fund Management. The stocks presented here have market capitalizations between $1 billion and $5 billion, which is consistent with the criterion used in our strategy ( see all of George Soros's stock picks ). 

According to its last 13F filing with the SEC, the No. 1 small-cap stock in Soros's fund was Adecoagro SA AGRO +1.34% . With a little under 26 million shares, Soros owns approximately 21.3% of Adecoagro's outstanding shares. Since its U.S. IPO roughly two years ago, the agricultural holding company has lost 25.5% of its value, but shares have been in the green since the start of 2013.

The crux of Adecoagro's bullish thesis lies in its exposure to one of the best asset classes out there for the long run: arable land. The company owns around 40 different farming properties throughout Argentina, Brazil and Uruguay. Though most investors are aware that farmland prices have been skyrocketing in the United States, Brazil, for example, has also seen the average value of its arable land increase by nearly fourfold over the past decade ( via Informa Economics FNP). Uruguayan and Argentinian farmlands have experienced a similar boom. 

Another benefit of Adecoagro's portfolio — which is most heavily concentrated in Argentina — is its crop diversity, which reduces its exposure to one commodity in particular, like corn or wheat. At a mere 14.9 times forward earnings, shares of Adecoagro are cheap at the moment, and the sell-side expects the company to finish 2013 with earnings of 63 cents a share — nearly twice its 2012 forecast. Ospraie Management's Dwight Anderson is also very bullish about this stock ( see Anderson's top picks ). 

Acacia Research Corporation ACTG -1.18% is the second-largest small-cap stock in Soros's portfolio, worth a little over 1.1% of his total 13F holdings. The company and its subsidiaries match patent owners and inventors to corporate partners. Acacia holds 250 different patent portfolios for use in medicine, media, IT and energy. Oil and gas production is the company's latest play as we head into the third week of 2013. 

Some bears may cry "troll," while others may believe that its business model is perfectly legitimate, but the fact is this: The number of patent portfolios under Acacia's banner has close to quadrupled over the past half-decade. The sell-side expects earnings growth of 38% annually through 2017. At a price-to-earnings growth multiple near 0.7, the markets are clearly undervaluing these prospects, and we'll be watching Acacia's presence in the energy industry closely. Famed "magic formula" man Joel Greenblatt was also quite bullish on this company in his last 13F filing ( see all of Joel Greenblatt's stock picks here ). 

Internet-based photo-publishing service Shutterfly SFLY +1.17% is George Soros's third-largest small-cap investment. The hedge fund manager owns about 8.4% of Shutterfly's outstanding shares, with short-sellers shorting another 21% of the company. Despite this abnormally high level of bearish investors, shares of Shutterfly have actually gained 9.2% since the start of the year on the back of an upgrade from Topeka Capital Markets and the acquisition of ThisLife, a cloud-based media storage provider. 

Topeka now holds a $40 price target on the stock, specifically citing the belief "that current competitors will continue to struggle to achieve sustained profitability." Generally speaking, Wall Street sees an upside of 15%-16% from these levels. At depressed book (1.9x) and sales (2.2x) multiples, Shutterfly offers investors value as well. 

Cheniere Energy LNG -0.30% , the liquefied-natural-gas company, sits at No. 38 in Soros's 13F portfolio, and is his next largest small-cap holding. Cheniere has been a beast since mid-November, gaining over 40% in value. As its ticker symbol suggests, the company is currently the U.S.'s only approved LNG export terminal. The Department of Energy's Federal Energy Regulatory Commission believes the site will have the capacity to ship 2.6 billion cubic feet of gas per day when export activity commences in late 2015. 

While it remains to be seen exactly how many of Cheniere's peers — like Dominion Resources (D), for example — will gain terminal approval, forward-looking investors can take solace in this exclusivity at the moment. 

Last, but certainly not least, rounding out our top five is U.S. Airways Group LCC -0.74% . U.S. Airways is closing in on a merger with American Airlines, which, if completed, should generate around $500 million in cost savings, and additional revenue close to twice this estimate. Up 9.5% in the New Year, investors are certainly cheery on the prospects of a deal being done, but it's worth noting that in isolation, LCC still trades at a measly 0.18 times sales. The iconic David Tepper and his fund, Appaloosa Management, are also bullish on U.S. Airways.