Wholesalers boost stockpiles for 3rd month

WASHINGTON (AP) — U.S. wholesalers increased their stockpiles in September for the third straight month, an indication that they expect more demand from businesses and consumers.

The Labor Department says wholesale stockpiles rose a seasonally adjusted 0.4%. That follows an increase of 0.8% in the previous month. August's increase was the highest in seven months.

Sales at wholesale businesses rose 0.6% in September, up from 0.4% in August.

ECONOMY: Factory production rises 0.3% in October

Stockpiles of computer equipment and machinery increased. Inventories of consumer items such as groceries, clothing and beer, wine and other alcoholic beverages also rose.

Strong restocking helped drive the economy's 2.8% annual growth rate in the July-September quarter. Rising stockpiles contributed 0.8 percentage point to growth.

Rising stockpiles boost growth because it means factories have produced more goods. And rising sales among wholesalers shows businesses are unlikely to get caught with too many unsold goods on their shelves.

Still, the gains may not last. Consumers and businesses have been spending at a cautious pace. If that continues, companies won't need to keep building stockpiles at the same rapid pace as they did in the third quarter.

Consumers increased their spending at just a 1.5% annual rate in the July-September quarter, the slowest pace in more than two years. And businesses actually reduced their purchases of new equipment.

Those trends suggest that companies won't need to add much to their stockpiles in the October-December quarter. Inventory changes may even subtract from growth.

As a result, economists at Bank of America Merrill Lynch have cut their forecast for fourth-quarter growth to an annual rate of 1.7%, down from a 2% rate.

AMR Corp., US Airways Surge as Merger Support Grows

Texas isn’t the only state backing the merger of AMR Corp. (AAMRQ), the parent of American Airlines, and US Airways (LCC). Oklahoma has now voiced its support for the combination.

Agence France-Presse/Getty Images

Tulsa World reports:

Oklahoma Attorney General Scott Pruitt is continuing to press for the merger of American Airlines and US Airways, telling a court in Washington, D.C., that he intends to file for “friend of the court” status for the upcoming trial in an antitrust lawsuit brought by the Justice Department.

Pruitt’s announcement Wednesday came the same day as mayors of seven cities, all with American and US Airways hubs, sent a letter to U.S. Attorney General Eric Holder asking him to withdraw the lawsuit.

Michael Linenberg also raised US Airways to Buy from Hold. Analyst Michael Linenberg and team explain:

We are raising our rating on US Airways’s shares from Hold to Buy based on an improved fundamental outlook that, in our opinion, transcends the potential uncertainty surrounding the company’s proposed merger with American which has been blocked by the DOJ. The improvement observed in the Sep Q (e.g. pretax margin expanded 4 points to 9.5%) combined with material revisions to our 2013 and 2014 EPS estimates underlie a revised 12 month price target of $30 implying upside of 40% for LCC shares. We believe that math is too compelling to disregard despite regulatory uncertainty that may not be resolved until early 2014.

Shares of AMR Corp. have gained 9.7% to $6.91–just 3.4% from its 52-week high–while US Airways has risen 5.5% to $22.57. Southwest Airlines (LUV) has advanced 3.4% to $16.96, Delta Air Lines (DAL) has jumped 2.6% to $26.27 and JetBlue Airways (JBLU) is up 2.9% at $12.31.

The KonaRed Retail Footprint is About to Explode (JMBA, WMT, KRED, WFM)

Quick, what do Wal-Mart Stores, Inc. (NYSE:WMT), Whole Foods Market, Inc. (NASDAQ:WFM), and Jamba, Inc. (NASDAQ:JMBA) - the purveyor of Jamba Juice smoothie shops - have in common? They're all three offering at least one product from KonaRed Corp. (OTCBB:KRED). All told, KRED products can be found in a variety of retail outlets, ranging from mass marketers like WMT to niche players like WFM to service providers like JMBA to convenience stores like 7-Eleven to grocers like Albertson's to.... well, the point becomes clear. KonaRed is in a lot of places. Yet, the number of spots where a KRED could multiply by eight by the middle of the year. In fact, the organization's growth rate is the most exciting - and perhaps most understated - aspect of the KonaRed story.

If you're not familiar with the company, that's ok; most investors aren't. Most consumer weren't that familiar with the company a year ago either. Things change, however, and quickly. In less than a year, the number of places that offer a KRED product ramped up from 375 locales (mostly in Hawaii) to 540 locations, some of which - like Whole Foods Market - are retail venues in Hawaii. That's a 44% improvement in the number of places where the company's coffee fruit beverages and green teas are available. And it's not like these venues are second-rate players either. Wal-Mart doesn't bother carrying anything it doesn't think will have mass appeal, even on a local/regional basis. Jamba, via its Jamba Juice stands, won't take the risk of co-branding a smoothie flavor unless it's sure it will only enhance and not damage its own brand name. And, Whole Foods Market has a well-known penchant for only offering the highest-quality and healthiest products on its store shelves. The fact that any of these outlets was willing to sell a KonaRed product is impressive, but the fact that all of them - and several more key players - are willing to carry a KRED line of products is nothing less than amazing, and encouraging.

Great, but what's the product? Don't get the wrong idea by the "coffee fruit beverage" description. It's not coffee. The flagship product fruit juice, made from the fruit surrounding the coffee bean while it's growing. Previously this fruit/shell had been discarded, but as it turns out, not only is packed full of antioxidants and other healthy ingredients, it tastes great too. KonaRed also offers a line of green tea, and most recently has announced it will begin production of coconut water... the latest hot button in the functional beverage world.

They're all secondary details for KRED fans and followers at this point, though. The show stopper is the number of places KonaRed CEO Shaun Roberts expects his company's products to be found in by the end of the second quarter of this year. It's 3200, up nearly 500% from the current venue-count of 540.

Hot Oil Stocks To Own For 2015

At first it sounds like a ridiculous number; Roberts may as well have predicted a kajillion outlets by the middle of the year, since it's an equally unattainable number. Here's the thing - 3200 locales is completely attainable, as KonaRed Corporation has tapped the resources, know-how, and marketing reach of beverage distribution expert Splash Beverage. Splash Bevarage also handles brand names like Red Bull, Ernest & Julio Gallo, and Nabisco. So, it (almost) goes without saying that adding an extra 2660 KonaRed retail locations is not only not out of reach, it would be a little surprising if it didn't happen.

As for KRED investors, there's a lot to be compelled by, but more than anything it's becoming clear than 2014 is apt to be a breakout year for the company. The stock is likely to follow suit.

For more on KonaRed, visit the SCN research page here.

The Most Popular Investment in America

Top 5 Companies To Buy Right Now

By Hal M. Bundrick

NEW YORK (MainStreet) Investors are constantly being pitched IPOs, alternative investments, exchange-traded funds and managed accounts. But regardless of the newest stock on the block, one investment vehicle remains the most popular of all: mutual funds.

Though long in the tooth, with a history that spans hundreds of years, mutual funds are still the preferred investment of 56.7 million American households -- nearly half (46.3%) of all households -- and represents 96 million individual investors, according to the Investment Company Institute's latest survey of U.S. investors. That is far and above the 5.7 million households that reported owning exchange-traded funds (ETFs) and the 3.8 million households who said they own closed-end funds in 2013.

But these investors seem to be taking a more conservative position since the financial crisis. Three in 10 mutual fund-owning households surveyed were willing to take "substantial" or "above-average" risk in their mutual fund holdings this year, compared with 36% in May 2008. "The dramatic stock market decline from October 2007 to March 2009 appears to still linger in investors' minds," says Sarah Holden, ICI senior director of retirement and investor research. "Nevertheless, equity mutual funds continue to be the most commonly owned type of fund, held by 86% of mutual fund-owning households." Other survey findings for 2013 include: More than twice as many U.S. households owned mutual funds through tax-deferred accounts, such as employer-sponsored retirement plans, individual retirement accounts (IRAs), and variable annuities, compared with 18.5 million owning funds in taxable accounts. Almost all investors were focused on saving for retirement, noted as one investment goal for 92% of mutual fund-owning households -- and the primary goal for nearly three-quarters of the households surveyed. Fully 56% of households owning mutual funds had incomes between $25,000 and $99,999, and two-thirds were headed by individuals between the ages of 35 and 64. Two-thirds of mutual fund investors said that fund performance was a "very" important factor influencing their views of the industry, and more than 40% cited fund performance as the most important factor. As the stock market moved upward, mutual funds' favorability among shareholders was 68% in 2013, an increase from 65% in 2012. More than nine in 10 households owning mutual funds had Internet access in 2013, with more than 80% using the Web for financial purposes. --Written by Hal M. Bundrick for MainStreet

Wednesday Analyst Moves: Oracle Corporation, Verizon Communications Inc., Texas Instruments Incorporated, More (ORCL, VZ, TXN, More)

Before Wednesday's opening bell, a number of big name dividend stocks were the subject of analyst moves. Below, we highlight the important analyst commentary for investors.

Canaccord Genuity Lifts Fluor Corp to “Buy”

Canaccord Genuity reported that it has upgraded Fluor Corporation (FLR) from “Hold” to “Buy” as equipment stocks are now trading at a discount. FLR currently has a dividend yield of 0.77%.

Oppenheimer Downgrades Oracle; Valuation Call

Oracle Corporation (ORCL

Is The Cult Of Central Bankers Unraveling?

What's fascinating about recent events though, and has been little mentioned, is that investor confidence in the words of central bankers appears to be waning.

In May, Bernanke indicated the QE tapering was on the cards. When bond yields jumped soon after, leaks to the press tried to downplay the impact of tapering on interest rates. In other words, the Fed was at pains to emphasise that QE tapering did not automatically mean higher interest rates. Investors didn't get the memo and yields spiked further.

Similarly, Britain's new central bank chief Mark Carney pledged to keep policy loose and rates low, but investors all but ignored him. Earlier this month, Carney said he'd keep benchmark interest rates at a record low of 0.5% until unemployment in the U.K. falls to 7% – a threshold not expected to be reached until 2016. But with the economy and inflation picking up, investors have already factored in a rise in rates in 2015, a year prior. The worry is, of course, that these market expectations will feed through to higher mortgage rates before then.

These events could prove a significant turning point. Up until now, investors have treated the words of central bankers as gospel. Since 2009, these bankers have pledged massive stimulus and low rates. Investors have taken their word and parted with cash to pile into stock and bond markets. What the central bankers wanted, they got. This explains why the correlation between stimulus and the S&P 500 is more than 90%, for instance.

Now it seems that investors are getting more sceptical of central bank pledges. It's not before time!

But it's important to understand the ramifications of this. The developed world desperately need bond yields to remain low. As I've argued in a previous post, higher interest rates would cripple many over-indebted developed countries.

For example, if interest rates in the U.S. normalise and increase by 100 basis points annually over the next five years, the interest expense on government debt would rise from US$360 billion last year to US$1.51 trillion. To put this in context, U.S. government cutbacks earlier this year, which some worried would tip the economy into recession, totalled just US$85 billion. The upshot is that normalising interest rates would result in massive cutbacks in U.S. government programs.

Elsewhere, higher interest rates would be even more brutal. The Bank of International Settlements estimates that if bond yields were to rise just 300 basis points across the yield spectrum, the losses for holders of debt in France, Japan, Italy and the U.K. would range from 15% to 35% of GDP.

I repeat: the developed world can't afford higher interest rates. The problem is that though central banks control short-term rates, the market controls long-term rates. Once investors start to lose faith in the ability of central bankers to manage an exit from the extraordinary policies of recent years, much higher interest rates will be on the cards. It's only then that the ugly implications of these policies, which has led to even greater debt in developed countries than prior to the crisis, will come to light.

And recent events also show, a number of developing countries, particularly in Asia, would also suffer from higher interest rates. Inevitably, like now, those countries with large current account deficits would be hit hardest.

A wake-up call for Asia

Which brings us to the plights of India and Indonesia. While recent currency turmoil hasn't entirely surprised, the speed and ferocity of it has. There's little doubt that they've both been large beneficiaries of lavish QE and now victims thereof. But equally, they've been targeted for good reason.

According to the IMF, India's current-account deficit is likely to be 5% this year, compared with 2.8% from 2008-2011. Similarly, Indonesia's current-account deficit will reach 3% this year after an average surplus of 0.7% from 2008-2011.

As alluded to earlier, current-account deficits essentially mean you're investing more than you're saving. The only way to keep this up is to borrow surplus savings from abroad. Or put another way, you're borrowing money to finance growth.

QE tapering is leading to expectations of higher interest rates in the developed world. Money which had been flowing into Asia in search of yield is now heading back to the West. And that makes the ability to finance current-account deficits more difficult.

India and Indonesia are certainly in a bind. If they hike interest rates, that will slow their economies, leading to another drop in international confidence and further money outflows. If they defend their currencies against further falls, forex reserves will decline, eroding confidence and resulting in accelerating outflows. Do nothing and their currencies are likely to fall further.

The elephant in the room is that both countries have elections next year. This makes raising interest rates a politically undesirable option. Though as Indonesia has shown with its recent rate hikes, there may not be a choice in the matter. The diagram from Citi below illustrates the quandary in which India and Indonesia find themselves.

Both countries better prayer that higher interest rates in the developed world don't become a reality. More seriously, they need to rectify the issues which have led to their growing current-account deficits, and quickly. Both actually have similar problems which need addressing, namely:

1) Cutting fuel and other subsidies. Indonesia has made some progress on this front while India hasn't. It goes a long way to explaining some of the entrenched inflation issues in both countries. I get that it's politically sensitive particularly when you'd rather bribe voters with subsidies in an election year. But it needs to be done, and soon.

2) Reducing bureaucracy. There's a reason that Indonesia and India are ranked 128 and 132 out of 185 economies for doing business, according to the World Bank.

3) Tackling corruption once and for all. The current Indonesian President promised to crack down on corruption but has had little success. Indian corruption hasn't gotten any better despite endless political scandals. It's a huge issue holding both economies back.

4) Welcome foreign investment. It's amazing how unwelcoming both countries are to foreign investment. When I was a portfolio manager, I used to deal with the maddening situation of many Indian companies capping foreign ownership in their stocks. I had to ask permission from the company whether there was room for our fund to buy stock. Indonesia isn't much better, as the continued imposition of regulations and taxes on foreign mining companies with operations in the country attests.

These are but a few examples of what India and Indonesia need to do to rebalance their economies. Hopefully, this crisis acts as a catalyst for reform.

What it means for markets

What does all of this mean for markets then? If I'm right and the world can't afford higher interest rates, that'll mean central banks will fight to keep rates low by printing more and more money. Whether a small cut to QE happens this month or not, a rather quick reversal shouldn't be ruled out. And other countries will print away regardless.

In this environment, oversold bond and gold markets may outperform, as they've been done for the past few weeks. Stocks may rebound at some point but should lag other assets, given their relative outperformance in the months prior.

Regular readers will know that my preference is to invest for the long term ie. 3-5 years. On this basis, I still prefer overweights in gold and cash versus stocks and bonds. With yields low, bonds guarantee low-to-negative real returns. Stocks are more attractive than bonds, particularly in Asia where valuations are reasonable compared with the likes of the U.S.. But the view here remains that the bear market in stocks which began in 2000 hasn't finished and consequently valuations can potentially go a lot lower from here.

Gold is attractive as a hedge against further money printing and currency debasement. Meanwhile cash is the ultimate contrarian play! Everybody hates it. But it's likely to come in handy if risk assets get beaten up at some point - which is the base case here. In terms of currencies, the Singapore dollar, Thai baht (especially after recent tumult) and U.S. dollar are favoured. The dollar is a flawed currency but should be a beneficiary of an eventual flight to safety. At least, initially.

This post was originally published at Asia Confidential: http://asiaconf.com/2013/08/31/central-banker-cult-unravels/

Doubts raised over ID of Target malware author

A California cybersecurity firm's assertion that a Russian teenager authored the malware behind the massive Target data breach during the holidays was disputed Sunday by the Internet security blogger who broke the Target story.

IntelCrawler, based in Los Angeles, said late Friday that a teenager "close" to 17 years old authored the malicious software and reportedly sold it for about $2,000 to dozens of cybercriminals in Eastern Europe and other countries.

Brian Krebs, a widely followed Internet security blogger and former Washington Post reporter, disputed that information in an interview and on Twitter.

"We don't think we are wrong," IntelCrawler president Dan Clements responded Sunday.

While IntelCrawler says the teen allegedly authored the malware, it doesn't allege that he perpetrated the breach.

Clements says IntelCrawler's CEO did a report on the malware, known as BlackPOS, earlier last year and the teen was identified then as the author and allegedly is a well-known programmer of malicious code in the underground world.

Target, the nation's second-largest retailer, has apologized for the security breach, which it said affected up to 110 million shoppers.

The same malware may have been involved in a similar but far smaller attack on luxury retailer Neiman Marcus around the time, IntelCrawler says. The retailer has not said how many customers were affected by its breach.

The retailers had no further comment on the incidents Sunday. The Department of Homeland Security did not respond to inquiries.

The software reportedly enabled the thieves to remotely hack into Target's computer systems and obtain customer credit card numbers and other information, which was then sent back to a computer controlled by cyber thieves.

State and federal officials, including the Secret Service, have launched an extensive investigation into the breaches.

Pizza Hut pumps more air into new lighter crust

The hot pizza trend for 2014: air.

Wednesday, Pizza Hut will unveil a new lighter, airy version of its best-selling Hand-Tossed pizza, which will make its debut nationally on Thursday. So certain is Pizza Hut that the lighter crust will be a hit, that it's offering to pay for any consumer's next pizza if they don't like the new Hand-Tossed crust.

"We set out to completely blow up the notion that all pizzas are created equal," says Carrie Walsh, chief marketing officer at Pizza Hut. The new Hand Tossed crust will have "noticeable imperfections" such as air pockets that makes each pizza "truly one of a kind," he says.

SINGLE SLICE: Pizza Hut tests selling 'by the slice'

The crust also is brushed with a garlic-buttery finish and topped with mozzarella. Under current pricing, the pizza sells for $10 nationally — any size.

Traditional pizza chains such as Pizza Hut are seeking ways to evolve their concepts to make them more compelling for consumers — and to try to differentiate themselves from the pack.

Pumping a bit more air into pizza can help create pizzas that look and taste more customized, a popular trend in the fast-casual pizza category. Consumer interest in pizza customization has bolstered the growth of at least a dozen fast-casual pizza chains, including Blaze Pizza. It has even recently lured Chipotle into exploring the pizza business with a Pizzeria Locale location in Denver, and possibly more to come.

"This is really a marketing ploy," says Darren Tristano, executive vice president at Technomic, a restaurant research and consulting firm. With it, Pizza Hut is trying to mimic, in part, the success of some younger, fast-casual chains that create more customized pizzas, he says.

Top 10 Heal Care Stocks To Buy For 2014

Tristano says that the air-filled pizza crust also looks more healthful (and may appear to have fewer calories), but Pizza H! ut says this new crust actually has a slightly higher calorie count due to the flavoring brushed onto the crust — and it will not be marketed as more healthful.

Slowly, the fast-casual pizza sector — which makes the individual pizzas quickly — has lured customers into ordering more pizzas at lunch, not just at dinner.

The move by Pizza Hut comes at a time the $33.5 billion pizza industry is on a roll. Industry sales grew about 4% in 2012 and another 4%, or so, in 2013, says Tristano.

But change doesn't come easy. These pizzas are made a bit differently. Launching the new version of the pizzas required the most "intense" training program by Pizza Hut in two decades, says Walsh. Employees, he says, have a new "freedom of creativity when making our new Hand-Tossed pizza."

Will EMC Continue to Run Higher?

With shares of EMC Corporation (NYSE:EMC) trading at around $24.88, is EMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

EMC has underperformed the market year-to-date, which has frustrated investors. However, the past month has been strong – the stock is up more than 7 percent. Investors had been waiting for a catalyst earlier in the year. After a Q1 where revenue increased 5.80 percent year-over-year but earnings declined 1.20 percent year-over-year, there wasn't a lot of reason for investor conviction. This led to EMC making a couple of moves. It now yields 1.60 percent, and it expanded its share repurchase program to $6 billion through December 31, 2015. It should be noted that $3.5 billion will be repurchased by the end of Q2 2014.

EMC will also increase its debt load in order to fuel growth. This may lead to acquisitions in the areas of cloud computing, big data, and/or IT. EMC has displayed strong debt management to date. Despite the companies renewed hunger for growth and the increasing debt, the balance sheet will remain strong for the foreseeable future. Therefore, R&D and innovation opportunities will remain.

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In regards to revenue, EMC has a compounded annual growth rate of 11.55 percent over the past four years. Revenue has consistently improved on an annual basis, but the pace of growth has slowed. The same pattern has been seen for NetApp (NASDAQ:NTAP), but on a different scale. Hewlett-Packard (NYSE:HPQ) has had a more difficult time as its revenue and earnings declined last year as well as last quarter on a year-over-year basis. Hewlett-Packard is struggling with a -11.60 percent profit margin. By comparison, NetApp has a profit margin of 7.98 percent, and EMC has a profit margin of 12.39 percent. NetApp is trading at 28 times earnings, and EMC is trading at 20 times earnings, making EMC look like the better value.

Top 5 Dividend Companies For 2014

EMC Proven Solution may act as a catalyst going forward. This is private cloud computing. If successful, the rewards could be large. Cloud computing is booming, and this boom is expected to continue for many years. Storage is a concern for most businesses, and cloud computing offers businesses an opportunity to save time and money.

EMC's company culture is above average. According to Glassdoor.com, employees have rated their employer a 3.5 of 5, and 71 percent of employees would recommend the company to a friend. As far as leadership is concerned, 88 percent of employees approve of CEO Joe Tucci. This is an impressive number. It all starts at the top. If a good leader is in place, then the odds of success greatly increase.

In regards to analysts, they love the stock: 33 Buy, 7 Hold, 0 Sell.

On the negative side, there has been a decline in IT spending throughout the industry. Another negative is that operating margin for EMC declined 30 bps year-over-year to 18.9 percent. However, do the positives outweigh the negatives for EMC? That answer will be revealed soon.

Let's take a look at some important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

EMC has picked up some upside momentum over the past month. Can this momentum continue?

	1 Month	Year-To-Date	1 Year	3 Year
EMC	7.20%	-1.11%	1.54%	34.95%
NTAP	5.84%	14.04%	26.15%	-0.60%
HPQ	13.99%	73.40%	13.34%	-44.21%

At $24.88, EMC is trading above its averages.

50-Day SMA	23.52
200-Day SMA	24.09

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E = Equity to Debt Ratio is Strong

The debt-to-equity ratio for EMC is stronger than the industry average of 0.20.

	Debt-To-Equity	Cash	Long-Term Debt
EMC	0.07	6.53B	1.70B
NTAP	0.48	6.95B	2.25B
HPQ	1.12	13.24B	26.79B

E = Earnings Have Been Strong

Earnings and revenue have consistently improved on an annual basis over the past three years.

Fiscal Year	2008	2009	2010	2011	2012
Revenue ($) in millions	14,876	14,026	17,015	20,008	21,714
Diluted EPS ($)	0.64	0.55	0.88	1.10	1.23

Looking at the last quarter on a year-over-year basis, revenue improved and earnings declined. Both revenue and earnings declined on a sequential basis. However, EMC is now getting more aggressive.

Quarter	Mar. 31, 2012	Jun. 30, 2012	Sep. 30, 2012	Dec. 31, 2012	Mar. 31, 2013
Revenue ($) in millions	5,094.38	5,311.39	5,278.18	6,029.96	5,387.38
Diluted EPS ($)	0.27	0.29	0.28	0.39	0.26

Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

To put it simply, even if IT isn't as strong as in the past, demand for cloud computing is expected to increase, and data levels will intensify. EMC is aiming for simplification in all areas, and buyers of any product or service appreciates simplicity. Combining these factors with a 1.60 percent yield, an expanded share repurchase program, and quality leadership, EMC is an OUTPERFORM.

Are Richardson Electronics's Earnings Better Than They Look?

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 Richardson Electronics (Nasdaq: RELL  ) , 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, Richardson Electronics generated $7.5 million cash while it booked net income of $4.2 million. That means it turned 5.2% 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 Richardson Electronics 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 46.9% of operating cash flow coming from questionable sources, Richardson Electronics investors should take a closer look at the underlying numbers. 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 41.4% of cash flow from operations. Overall, the biggest drag on FCF also came from changes in taxes payable, which represented 22.3% 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.

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We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

Add Richardson Electronics to My Watchlist.

Stocks to Watch: Alcoa, Sears, YRC Worldwide

Among the companies with shares expected to actively trade in Friday’s session are Alcoa Inc.(AA), Sears Holdings Corp.(SHLD) and YRC Worldwide Inc.(YRCW)

Alcoa  swung to a steep fourth-quarter loss as the aluminum maker recorded a $1.72 billion impairment charge tied to two acquisitions made over a decade ago. Adjusted profit Alcoa reported for the latest period wasn’t as strong as analysts expected, though the top line exceeded expectations. Shares dropped 6.6% to $9.98 premarket.

AngioDynamics Inc.(ANGO) swung to a modest fiscal second-quarter loss but achieved break-even per-share results as the medical-device maker’s revenue improved more than expected, pushing shares up 6.5% to $19.15 premarket.

Baker Hughes Inc.(BHI) warned a disruption to its business in Iraq will reduce its fourth-quarter profit by about $80 million. The oil-field services company, which resumed operations by the end of December, had warned in November that it suspended operations in Iraq following a protest incident at a facility belonging to one of its units. Shares edged down 2.2% to $50.66 premarket.

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Fifth & Pacific Cos.(FNP) unveiled a plan to change its name to Kate Spade & Co., the second time the clothing maker has changed its moniker since 2012, with the latest move tied to its narrow focus on the designer brand. Shares dropped 8.2% to $29.25 premarket as the company also issued a fiscal-year sales outlook that missed Wall Street expectations.

Five Below Inc.(FIVE) cut its fiscal fourth-quarter outlook as the discount retailer blamed bad weather for its weaker-than-expected sales for the holiday season, sending shares down 7.8% to $40.20 premarket.

Francesca’s Holdings Corp. raised the low end of its fourth-quarter outlook, after the retailer said it experienced a positive finish for the holiday season. “After a lackluster start to the holiday selling season beginning the week of Thanksgiving, we ended the season stronger,” said Chief Executive Neill P. Davis. Shares surged 16% to $21.03 premarket.

Pacific Sunwear of California Inc.(PSUN) cut its fiscal fourth-quarter outlook as the teen-focused specialty retailer cited a “choppy” holiday season. PacSun said same-store sales for the holiday period were flat on a continuing-operations basis, and up 1% if online sales are included. Shares dropped 17% to $2.83 premarket.

Sears projected adjusted losses for the fiscal fourth quarter and full year that badly miss Wall Street’s expectations, as the struggling department-store operator warned of continued same-stores sales weakness. Shares declined 11% to $37.80 premarket.

Hilltop Holdings Inc.(HTH) offered to buy the rest of SWS Group Inc.(SWS) that it doesn’t already own, valuing the financial-services company at about $231 million. Hilltop, a regional banking and insurance company, offered $7 a share, a 16% premium over Thursday’s close. SWS surged 19% to $7.20 premarket, topping the offer price.

YRC Worldwide failed to win a contract extension from the International Brotherhood of Teamsters, weakening the struggling trucking company’s prospects of completing a financing deal. Shares plunged 22% to $12.30 premarket.

Is Barnes & Noble the New Borders?

Barnes & Noble (NYSE: BKS  ) isn't getting any closer to a storybook ending.

CEO William Lynch is resigning from the struggling book retailer, and more changes may be afoot as the chain continues to review its strategic alternatives.

Lynch was the head of the company's online retailing division when he was promoted in 2010. At the time it seemed to indicate an emphasis on the chain's digital initiatives. Barnes & Noble had decided to compete against Amazon.com (NASDAQ: AMZN  ) a year earlier by introducing the Nook, and BN.com was positioning itself to be a bigger force in media retail.

However, it isn't easy running a bookstore where prices need to stay high to cover the overhead of manning a physical store and running a website that's competitive with Amazon's cutthroat pricing. It's hard to fight both battles, because a Barnes & Noble shopper is -- by definition -- well read. Prices need to be consistent across both platforms, or buyers are going to know about it.

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Nook could've been a game changer, and it seemed to have a shot initially as the retailer tied e-reader promotions to in-store visits. Unfortunately, Barnes & Noble was competing against Amazon's Kindle. The leading online retailer was brazen in its e-tail pricing, but it was even more aggressive when it came to its thriving e-reader business. Amazon was willing to sacrifice margins on the hardware, banking on making it back in its ecosystem.

Barnes & Noble didn't have much of a choice. It was forced into running its Nook business at a loss, but in a surprising show of validation last year, Microsoft (NASDAQ: MSFT  ) agreed to shell out $300 million for a 17.6% stake in the company's Nook and campus bookstore business.

The liquidation of rival Borders in 2011 also seemed like a good way to drum up sales at neighboring Barnes & Noble stores, but that uptick was short-lived. Borders going away wasn't an opportunity as much as it was a textbook case of foreshadowing.

The story doesn't get any better. Despite persistent rumors of Microsoft acquiring the online operations and the retailer's founder actually making a play for the superstore assets, nothing seems to work out right for Barnes & Noble.

Regardless of Microsoft's role as a prominent investor, Barnes & Noble suspended support for the Mac and PC versions of the Nook stand-alone e-reader software a month ago. Just two weeks ago it pulled the plug on its Nook Color tablet business.

Clearly Barnes & Noble is a company in retreat, and it may want to hurry up in sorting through its strategic alternatives while there is still a choice to be made.

Barnes & Noble is in better financial shape than Borders was when it fumbled its options away, but time is running out for a happy ending.

Amazon doesn't take it easy when it comes to traditional retailers
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BlackBerry Is No Apple

Things may not be all that rosy for Apple (NASDAQ: AAPL  ) these days, but at least it knows that it can count on its growing loyal audience to show up for new product introductions.

In this video, longtime Fool contributor Rick Munarriz explores the real problem with BlackBerry's (NASDAQ: BBRY  ) 2.7 million Z10 and Q10 devices sold during their debut quarter by comparing the 3% adoption rate to Apple's better-than-10% adoption rate when the iPhone 5 came out. There seemed like a flattering nugget out of BlackBerry from its previous conference call in March, but in the context of last week's carnage, it's not pretty.

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Amazon Publishing Signs Fan Fiction Agreements With Comic Book Publisher, Authors

Amazon (NASDAQ: AMZN  ) Publishing has expanded again. This week the company announced it has secured licenses for its new publishing platform, Kindle Worlds, with comic book publisher Valiant Entertainment and four best-selling authors: Hugh Howey, Barry Eisler, Blake Crouch and Neal Stephenson.

Under the license terms, any writer will be allowed to create and sell fan fiction from Valiant's comic book library, including Bloodshot, X-O Manowar, and Shadowman. Writers can also earn royalties creating works based on Hugh Howey's Silo Saga, Barry Eisler's John Rain novels, and Blake Crouch's Wayward Pines Series. 

Writers will be able to sell their fan fiction through Amazon Kindle Worlds, which launched last month. Under the terms, authors will be paid a standard royalty rate of 35% of profits for works of at least 10,000 words. 

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While the company has yet to release any of these works yet, it plans to soon. By the end of the month, the Kindle Worlds Store will open with more than 50 works. At the same time, Amazon will launch a self-service submission platform to speed up the fan fiction creation process.

link

The Dow's 5 Most Loved Stocks

Move over, Superman: There's a more unstoppable force that can leap even the highest expectations, and its name is the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . America's most iconic stock market index comprising 30 of its most globally diverse companies is up an astonishing 16.4% year to date and hasn't seen a down month since October.

Plenty of factors are working in the Dow's favor, such as record-low lending rates that are spurring business lending and home purchases, as well as an improving unemployment rate and slow-but-steady growth in the manufacturing sector.

While your initial thought might be that this rally is long overdue for a correction, short-sellers have wisely avoided certain companies within the Dow Jones Industrial Average. Today I propose we look at these so-called most-loved stocks of the Dow, discover what makes them so universally shunned by short-sellers, and determine whether current shareholders have anything to worry about.

Company

Short Interest As a % of Shares Outstanding

Merck (NYSE: MRK  )	0.76%
Coca-Cola (NYSE: KO  )	0.77%
Pfizer (NYSE: PFE  )	0.78%
United Technologies (NYSE: UTX  )	0.80%
Wal-Mart	0.82%

Source: S&P Capital IQ.

Merck
Why are short-sellers avoiding Merck?

Merck jumped to the top of the least short-sold list after not even appearing on it last month likely because of its strong clinical data reported at the American Society of Clinical Oncology's annual meeting. A new class of immunotherapy drugs known as PD-1 inhibitors are the hottest thing in the biotech sector, and Merck's Lambrolizumab delivered an impressive 38% overall response rate in early-stage results for advanced melanoma. With patent expirations not stinging its bottom line as much as expected, Merck is certainly wowing existing shareholders.

Do investors have a reason to worry?

There is no such thing as a reason not to worry when it comes to owning a pharmaceutical company, because patent protection periods are for only a finite period of time. Luckily for Merck, it has fracture-preventing osteoporosis drug Odanacatib slated to be filed for new drug approval next year, and it has the potential to deliver up to $3 billion in sales, according to the Street's estimates. Although growth prospects might be tempered over the coming years for Merck, it'll still deliver strong cash flow and a solid dividend, which doesn't make it a particularly convincing short-sale candidate.

Coca-Cola
Why are short-sellers avoiding Coca-Cola?

I'm still trying to figure out how Coca-Cola got bumped from its top spot this month, or any other month for that matter. Coca-Cola operates in all but two countries worldwide, giving it what is essentially unparalleled geographic diversity. The company offers everything from high-growth energy drinks to slow-but-steady brand-name growth with its traditional sparkling beverage lines. It's no wonder that research firm Interbrand anointed Coca-Cola as its most valuable brand in the world for 2013.

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Source: KB35, Flickr. 

Do investors have a reason to worry?

Only if they're planning to try to make a quick buck on Coca-Cola over the short term. Of course, no stock is going to go up forever, and even Coca-Cola could run into slower growth in developed regions such as Western Europe and the U.S. in the short run. However, there's still a moat of opportunity in emerging-market nations for Coca-Cola to grow, and it boasts incredible pricing power over its peers. Simply put, with 51 straight annual dividend increases under its belt, why would you ever bet against Coca-Cola?

Pfizer
Why are short-sellers avoiding Pfizer?

Just as we saw with Merck, big pharmaceutical companies often provide big dividends, huge margins, and steady cash flow, which make them poor short-sale candidates. Short-sellers have even less reason to bet against Pfizer, with blood-thinning drug Eliquis, which is co-developed with Bristol-Myers Squibb, being approved by the Food and Drug Administration in late December. Eliquis has multibillion-dollar potential.

Do investors have a reason to worry?

Yet again, it depends on what your investing timeframe is. For short-term investors, Pfizer may cause shareholders fits, with Lipitor's expiration still stinging and blockbuster pain drug Celebrex due to lose patent exclusivity in December 2015 after a one-and-a-half-year extension in March. Over the long run, Eliquis and Pfizer's remaining pipeline may prove more than enough to continue to pump out steady profits, and short-sellers would be wise to keep their distance.

United Technologies
Why are short-sellers avoiding United Technologies?

Despite serving the building and aerospace industries, which are quite prone to hiccups related to lower government spending, United Technologies silenced pessimists in the first quarter by reporting an adjusted EPS increase of 16% and reaffirming its full-year EPS outlook. What weakness had been expected in the U.S. appears to be more than made up by growth in its equipment orders aboard -- especially in China.

Do investors have a reason to worry?

United Technologies is more of a macroeconomic global play than anything else. Unless we see a rapid deterioration in Europe's economy, or we see China's GDP break into the 5% GDP growth range (about half its 30-year average growth rate), then shareholders probably don't have too much to worry about. Keep an eye on growth rates in China, as they'll probably dictate where United Technologies heads next.

Wal-Mart
Why are short-sellers avoiding Wal-Mart?

The thesis for why pessimists avoid Wal-Mart is relatively simple: It's the largest retail chain in the world, and it commands incredible pricing power that can squash a good chunk of its competitors. Wal-Mart provides investors with predictable cash flow stemming from the fact that more than half of its revenue comes from the grocery aisle. As a one-stop-shop for nearly everything, it certainly doesn't offer short-sellers a compelling reason to bet against it.

Do investors have a reason to worry?

This might be the one case among these five companies where investors should be showing signs of concern. Wal-Mart may the "low-price leader," but even it is having trouble with higher payroll taxes and delayed tax refunds because of IRS furloughs eating into its bottom line. Wal-Mart is a good indicator for retail sales in our economy, and its 1.4% same-store sales decline in its latest quarter may not bode well for the retailer in the interim. Wal-Mart isn't particularly expensive at 13 times forward earnings, but its revenue growth rate of 4% certainly leaves a lot to be desired.

Which most loved Dow Jones component do you think has the best chance at moving decisively lower? Share your thoughts in the comments section below.

Can Merck beat the patent cliff?
This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, the Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more click here to claim your copy today.

Will Big Lots Beat These Analyst Estimates?

Big Lots (NYSE: BIG  ) is expected to report Q1 earnings around May 24. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Big Lots's revenues will increase 1.9% and EPS will decrease -10.3%.

The average estimate for revenue is $1.32 billion. On the bottom line, the average EPS estimate is $0.61.

Revenue details
Last quarter, Big Lots booked revenue of $1.75 billion. GAAP reported sales were 5.0% higher than the prior-year quarter's $1.67 billion.

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

EPS details
Last quarter, non-GAAP EPS came in at $2.09. GAAP EPS of $2.08 for Q4 were 18% higher than the prior-year quarter's $1.76 per share.

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

Recent performance
For the preceding quarter, gross margin was 39.9%, 30 basis points worse than the prior-year quarter. Operating margin was 11.6%, much about the same as the prior-year quarter. Net margin was 6.9%, much about the same as the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $5.50 billion. The average EPS estimate is $3.16.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 408 members out of 497 rating the stock outperform, and 89 members rating it underperform. Among 128 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 102 give Big Lots a green thumbs-up, and 26 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Big Lots is hold, with an average price target of $35.23.

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PayPal Streamlines Online Shopping

With the help of PayPal, eBay (NASDAQ: EBAY  ) is making the world of online shopping a whole lot simpler.

Log In With PayPal takes a single user login ID and proliferates it across the world of online commerce so a buyer can make secure purchases without entering much more than a login ID and password. On the backend, PayPal sends all of the pertinent credentials to the merchant so that the buyer doesn't have to. In the context of mobile, Log In With PayPal revolutionizes the mobile online shopping experience since it eliminates as many required fields as possible.

It's a win-win
Before you start busting out those PayPal jokes about this being a nightmare for sellers, bear in mind that both parties stand to benefit.

Buyers no longer have to remember a swath of login credentials associated with shopping at multiple sites, which could be viewed as a huge convenience factor. Sellers stand to benefit from a more streamlined online checkout experience, which is likely to improve shopping cart abandonment rates. This is especially true for mobile devices, where filling in required fields isn't exactly ideal.

Two fronts, one face
The opportunity is for PayPal and eBay as a whole is quite tremendous, considering the company is attacking commerce from both online and offline fronts. As a result, eBay estimates its addressable market has expanded to $10 trillion, of which it expects to enable $300 billion of global commerce by 2015.

When you boil it down, PayPal and eBay are addressing the challenges associated with increased online commerce growth across the world (not to mention shopping on a mobile device). If PayPal has its way, the days of remembering all multiple login credentials to shop will become a thing of the past.

I suppose you could consider this another reason to buy eBay today.

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Solid economic news puts tapering back on the agenda

Friday's surprisingly robust jobs report has triggered fresh debate about dialing back the Federal Reserve's $85 billion-per-month quantitative easing program.

The report showed that the U.S. economy added 204,000 jobs in October, 70% above the consensus estimates of 120,000 new jobs. It also included upward revisions for the jobs reports from both August and September.

The positive data followed a Thursday report showing that the economy was growing at 2.8% clip, or about 40% above what analysts were forecasting.

Meanwhile, the unemployment rate on Friday was adjusted slightly higher to 7.3% from 7.2%, an increase that market analysts see as an anomaly related to the recent government shutdown.

“I think the Fed can take some confidence from these reports and really put tapering back on the table,” said Dan Heckman, fixed-income strategist at U.S. Bank Wealth Management.

“I wouldn't be surprised to see a taper announcement from the Fed this year and with tapering starting in January,” he added. “There are good reasons to go ahead with tapering now, and it is certainly going to be a topic that gets moved to the front burner and will be more on the minds of investors.”

(But Fed’s Lockhart says Fed can’t rule out QE tapering next month.)

As if on cue, the bond market took the jobs data and treated it as tapering announcement, driving the yield on both the 10-year and 30-year Treasury bonds up about 14 basis points in early trading. Meanwhile, stocks rallied, with the Dow Jones Industrial Average climbing 95 points, or about 0.6%, to 15,688.56 by afternoon. The S&P 500 index added nearly 1%.

“The market is saying we probably should have tapered in September, and that's why we're getting the sell-off in Treasuries now,” said Dan Toboja, vice president of fixed income at Ziegler Capital. “I think this latest data definitely puts tapering back on the table. Right now, the market is telling you it's ready for tapering and it's giving you an excuse to do it now.”

One of the major wrinkles with regard to tapering is the impact of the head fake that Fed Chairman Ben S. Bernanke threw the financial markets in September by not beginning to taper after implying in May that such a move would be imminent.

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“This time around, I'm not sure you'll see the same kind of buildup you saw in September ! when the markets thought there would be some tapering,” said Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors.

Mr. Albright, who believe there now is a 50% chance of a tapering announcement this year, said any Fed action will still be heavily data-dependent and will be driven especially by the next jobs report, which comes about 10 days before the December Fed meeting.

The other major wrinkle that could be stalling tapering activity is the fact that Mr. Bernanke is expected to pass the Fed chairmanship to Janet Yellen on Feb. 1.

That reality has sparked a new level of handicapping around the unprecedented five-year quantitative easing program, which has already swelled the Fed's balance sheet to beyond $3 trillion.

“If Bernanke were going to remain, tapering would certainly be back on the table now, but it all has to do with the transition of power at the Fed, and that's one of the reasons they didn't taper in September,” said Sean Clark, chief investment officer at Clark Capital Management Group.

“Janet Yellen's stamp will be to begin tapering at her will,” he added. “And there's a potential for her to make Bernanke look hawkish by comparison.”

And then there are those like Dan Veru, chief investment officer of Palisade Capital Management, who believes the Fed's motivation for tapering has gone well beyond the stated dual mandate of managing inflation and employment.

“I don't want to make too much out of two discreet pieces of specific data, but 200,000 is not enough to force the Fed to start tapering,” he said, referring to the number of jobs added in October. “I think it's wrong to assume that the liquidity is going away, because this decision to taper is also subject to political winds and there's another big budget debate coming in January.”

With tapering essentially off the table, Mr. Veru thinks the stock market can gain add another 3% to 5% between now and the end of the year.

Th! e backbur! ner theory is also supported by Paul Schatz, president of Heritage Capital LLC.

“Before the jobs report we were hearing consensus estimates that tapering would possibly start in March, but it could be as far away as June, but now suddenly people are saying tapering is back on the table,” he said. “I just don't believe one jobs report changes the Fed's plan.”

Mr. Schatz, who sees the stock market gaining at least another 2.5% by January, doesn't believe the economy is even strong enough to absorb any reduction on the quantitative easing program.

“I don't believe the market or the economy can stand on its own two feet year, so as long as there's no inflation I think they should increase quantitative easing,” he said. “In our economy right now, banks, housing, and everything is predicated on historically low rates, and if rates begin to spike imagine what that does. The fed cannot afford that ah-ha moment.”

Executive Shuffle at Boeing Puts Defense Chief Next in Line as CEO

Aircraft maker The Boeing Co. (NYSE: BA) announced Wednesday morning that the company had made a number of changes in its top management, including the naming of the current COO of its defense systems group to be vice chairman, president, and CEO of the company. The head of the commercial aircraft division retains his previous title as president and CEO of the commercial division and has been promoted to vice chairman.

Dennis Muilenberg will assume his new role as COO on December 31st and move the company's Chicago headquarters. The 49-year old engineer has worked at Boeing for 28 years and his appointment today anoints him as the heir-apparent to 64-year old CEO Jim McNerney. There was no indication that McNerney intends to step down soon, but the company now has a succession plan.

Muilenberg has presided over Boeing's defense and space systems group since September 2009, and under his stewardship the group's revenues have risen by about $600 million annually, to $32.61 billion. That's a rise of just 1.9% over the past 3 fiscal years, and revenues for this year are on track to be about level with 2012 revenues. But the main thing to remember is that it could have been worse. Military aircraft revenues are unlikely to reach the $16.4 billion level again this year, but the group appears that it can make up a significant portion of the difference in network & space division work.

Raymond Conner, who was promoted to vice chairman to go with his title as president and CEO of the commercial aircraft group, is 58 years old and has worked at Boeing for 35 of those years. The turbulence surrounding the launch of the 787 Dreamliner may have cost him his shot as second in command. That and the possibility that McNerney may not retire for another year or two yet and Conner would be near 60 when he ascended to the top job. In a business with really long horizons, that is probably not a plus.

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McNerney has been Boeing's CEO since June of 2005, and may want to stick around for another couple of years. He came to Boeing from 3M Company (NYSE: MMM) where he was president and CEO following a 20-year stint in various executive jobs at General Electric Co. (NYSE: GE).

The company's board has given Muilenberg a chance to show that a military hardware guy can run a company that is now heavily tilted toward commercial planes. Boeing's commercial aircraft revenues in 2012 totaled $49.13 billion and are on track to surpass that mark this year.

Shares of Boeing are down 1.6% at $133.70 in a 52-week range of $72.68 to $142.00. That is probably less a reflection on today's announcement than it is investors' wariness about the coming announcement of the FOMC later this afternoon.