The Optimal Use Of Financial Leverage In A Corporate Capital Structure

A company needs financial capital in order to operate its business. For most companies, financial capital is raised by issuing debt securities and/or by selling common stock. The amount of debt and equity that makes up a company's capital structure has many risk and return implications. Therefore, corporate management has an obligation to use a thorough and prudent process for establishing a company's target capital structure. The capital structure is how a firm finances its operations and growth by using different sources of funds.

Empirical Use of Financial Leverage

Financial leverage is defined as the extent to which fixed-income securities and preferred stock are used in a company's capital structure. Financial leverage has value due to the interest tax shield that is afforded by the U.S. corporate income tax law. The use of financial leverage also has value when the assets that are purchased with the debt capital earn more than the cost of the debt that was used to finance them. Under both of these circumstances, the use of financial leverage increases the company's profits. With that said, if the company does not have sufficient taxable income to shield, or if its operating profits are below a critical value, financial leverage will reduce equity value and thus reduce the value of the company.

Given the importance of a company's capital structure, the first step in the capital decision making process is for the management of a company to decide how much external capital it will need to raise to operate its business. Once this amount is determined, management needs to examine the financial markets to determine the terms in which the company can raise capital. This step is crucial to the process, because the market environment may curtail the ability of the company to issue debt securities or common stock at an attractive level or cost. With that said, once these questions have been answered, the management of a company can design the appropriate capital structure poli! cy, and construct a package of financial instruments that need to be sold to investors. By following this systematic process, management's financing decision should be implemented according to its long-run strategic plan, and the manner in which it wants to grow the company over time.

The use of financial leverage varies greatly by industry and by business sector. There are many industry sectors in which companies operate with a high degree of financial leverage. Retail stores, airlines, grocery stores, utility companies, and banking institutions are classic examples. Unfortunately, the excessive use of financial leverage by many companies in these sectors has played a paramount role in forcing a lot of them to file for Chapter 11 bankruptcy. Examples include R.H. Macy (1992), Trans World Airlines (2001), Great Atlantic & Pacific Tea Co (A&P) (2010), and Midwest Generation (2012). Moreover, excessive use of financial leverage was the primary culprit that led to the U.S. financial crisis between 2007 and 2009. The demise of Lehman Brothers (2008) and a host of other highly levered financial institutions are prime examples of the negative ramifications that are associated with the use of highly levered capital structures.

Overview of the Modigliani and Miller Theorem on Corporate Capital Structure

The study of a company's optimal capital structure dates back to 1958 when Franco Modigliani and Merton Miller published their Nobel Prize winning work "The Cost of Capital, Corporation Finance, and the Theory of Investment." As an important premise of their work, Modigliani and Miller illustrated that under conditions where corporate income taxes and distress costs are not present in the business environment, the use of financial leverage has no effect on the value of the company. This view, known as the Irrelevance Proposition theorem, is one of the most important pieces of academic theory that has ever been published.

Unfortunately, the Irrelevance Theorem, like mo! st Nobel ! Prize winning works in economics, require a number of impractical assumptions that need to be accepted to apply the theory in a real world environment. In recognition of this problem, Modigliani and Miller expanded their Irrelevance Proposition theorem to include the impact of corporate income taxes, and the potential impact of distress cost, for purposes of determining the optimal capital structure for a company. Their revised work, universally known as the Trade-off Theory of capital structure, makes the case that a company's optimal capital structure should be the prudent balance between the tax benefits that are associated with the use of debt capital, and the costs associated with the potential for bankruptcy for the company. Today, the premise of the Trade-off Theory is the foundation that corporate management should be using to determine the optimal capital structure for a company.

Impact of Financial Leverage on Performance

Perhaps the best way to illustrate the positive impact of financial leverage on a company's financial performance is by providing a simple example. The Return on Equity (ROE) is a popular fundamental used in measuring the profitability of a business as it compares the profit that a company generates in a fiscal year with the money shareholders have invested. After all, the goal of every business is to maximize shareholder wealth, and the ROE is the metric of return on shareholder's investment.

In the table below, an income statement for Company ABC has been generated assuming a capital structure that consists of 100% equity capital. Capital raised was $50 million dollars. Since only equity was issued to raise this amount, total value of equity is also $50 million. Under this type of structure, the company's ROE is projected to fall between the range of 15.6 and 23.4%, depending on the level of the company's pre-tax earnings.



In comparison, when Company ABC's capital structure is re-engineered to consist of 50% debt capital and 50% equity capital, the company's ROE increases dramatically to a range that falls between 27.3 and 42.9%.



As you can see from the table above, financial leverage can be used to make the performance of a company look dramatically better than what can be achieved by solely relying on the use of equity capital financing.



Since the management of most companies relies heavily on ROE to measure performance, it is vital to understand the components of ROE to better understand what the metric conveys.

A popular methodology for calculating ROE is the utilization of the DuPont Model. In its most simplistic form, the DuPont Model establishes a quantitative relationship between net income and equity, where a higher multiple reflects stronger performance. However, the DuPont Model also expands upon the general ROE calculation to include three of its component parts. These parts include the company's profit margin, its asset turnover, and its equity multiplier. Accordingly, this expanded DuPont formula for ROE is as follows:



Based on this equation, the DuPont Model illustrates that a company's ROE can only be improved by increasing the company's profitability, by increasing its operating efficiency, or by increasing its financial leverage.

Measurement of Financial Leverage Risk

Corporate management tends to measure financial leverage by using short-term solvency ratios. Like the name implies, these ratios are used to measure the ability of the company to meet its short-term obligations. Two of the most utilized short-term solvency ratios are the current ratio and acid-test ratio. Both of these ratios compare the company's current assets to its current liabilities. However, while the current ratio provides an aggregated risk metric, the acid-test ratio provides a better assessment of the composition of the company's current assets for purposes of meeting its current liability obligations since it excludes inventory from current assets.

Capitalization ratios are also used to measure financial leverage. While there are many capitalization ratios that are used in the industry, two of the most popular metrics are the long-term-debt-to-capitalization ratio and the total-debt-to-capitalization ratio. The use of these ratios is also very important for measuring financial leverage. However, these ratios can be easily distorted if managemen! t leases the company's assets without capitalizing the assets' value on the company's balance sheet. Moreover, in a market environment where short-term lending rates are low, management may elect to use short-term debt to fund both its short- and long-term capital needs. Therefore, short-term capitalization metrics also need to be used to conduct a thorough risk analysis.

Coverage ratios are also used to measure financial leverage. The interest coverage ratio, also known as the times-interest-earned ratio, is perhaps the most well-known risk metric. The interest coverage ratio is very important because it provides an indication of a company's ability to have enough pre-tax operating income to cover the cost of its financial burden. The funds-from-operations-to-total-debt ratio, and the free-operating-cash-flow-to-total-debt ratio are also important risk metrics that are used by corporate management.

Factors Considered in the Capital Structure Decision-Making Process

There are many quantitative and qualitative factors that need to be taken into account when establishing the company's capital structure. First, from the standpoint of sales, a company that exhibits high and relatively stable sales activity is in a better position to utilize financial leverage, as compared to a company that has lower and more volatile sales.

Second, in terms of business risk, a company with less operating leverage tends to be able to take on more financial leverage than a company with a high degree of operating leverage.

Third, in terms of growth, faster growing companies are likely to rely more heavily on the use of financial leverage, because these types of companies tend to need more capital at their disposal than their slow growth counterparts.

Fourth, from the standpoint of taxes, a company that is in a higher tax bracket tends to utilize more debt to take advantage of the interest tax shield benefits.

Fifth, a company that is less profitable tends to use more fi! nancial l! everage, because a less profitable company is typically not in a strong enough position to finance its business operations from internally generated funds.

The capital structure decision can also be addressed by looking at a host of internal and external factors. First, from the standpoint of management, companies that are run by aggressive leaders tend to use more financial leverage. In this respect, their purpose for using financial leverage is not only to increase the performance of the company, but to also help ensure their control of the company.

Second, when times are good, capital can be raised by issuing either stocks or bonds. However, when times are bad, suppliers of capital typically prefer a secured position, which in turn puts more emphasis on the use of debt capital. With this in mind, management tends to structure the capital makeup of the company in a manner that will provide flexibility in raising future capital in an ever-changing market environment.

The Bottom Line

In essence, corporate management utilizes financial leverage primarily to increase the company's earnings per share and to increase its return-on-equity. However, with these advantages come increased earnings variability and the potential for an increase in the cost of financial distress, perhaps even bankruptcy. With this in mind, the management of a company should take into account the business risk of the company, the company's tax position, the financial flexibility of the company's capital structure, and the company's degree of managerial aggressiveness when determining the optimal capital structure.

What's a tweet worth? Twitter sets IPO price

Bloomberg News

Twitter Inc. is seeking as much as $1.4 billion in the largest Internet initial public offering since Facebook Inc., betting that it can convince investors of its ability to turn 500 million tweets a day into profits.

Twitter plans to sell 70 million shares at $17 to $20 each in the offering, according to a regulatory filing Thursday. That would value Twitter at $10.9 billion at the top end of the range, based on the 544.7 million common shares that will be outstanding after the IPO.

“They're picking a slightly lower valuation to ensure that the IPO goes up on the first day of trading,” said Francis Gaskins, president of IPODesktop.com. “I would definitely buy them in the offering at this valuation.”

The six-year-old short-messaging site, which draws more than 230 million monthly active users and has transformed the way people communicate, is taking advantage of renewed appetite for social-media stocks to sell a 13% stake. While the company has more than doubled revenue every year, it hasn't yet turned a profit and the pace of user gains is slowing. Still, chief executive Dick Costolo is betting the service's popularity on mobile phones will help lure advertisers.

SILICON VALLEY'S TAKE

Twitter is aiming to avoid the fate of Facebook, whose stock fell below its $38 debut price after its record $16 billion Internet IPO in May 2012 before finally rallying to close above that level in August.

For Silicon Valley, a successful Twitter IPO will go a long way toward erasing the aftertaste from Facebook's IPO, which along with the poor stock market performances of Web companies like Zynga Inc. and Groupon Inc., dented confidence in consumer Internet companies.

Following those offerings, venture capitalists and others shifted investing dollars to technology businesses that sold their products to other businesses, said Nihal Mehta, founder of LocalResponse Inc. and a venture capitalist at Eniac Ventures. Now with Twitter's debut and Facebook trading above its offering price, confidence in consumer technology has revived.

Top Tech Companies To Buy For 2015

“Twitter will help escalate all the other advertising-based consumer companies, and create potential for more to be born,” Mr. Mehta said. “We're seeing more consumer deals than we ever have before.”

BOOSTING SOCIAL MEDIA

Twitter's average revenue per user is less than half Facebook's, regulatory filings show. The service had an monthly average of 231.7 million active users in the three-month period through September, up 39% from the year-earlier period. That compares with 65% growth the prior year.

With the money from the off! ering, Twitter may seek to expand globally and prove it can draw advertisers to the network. Advertisers can sponsor one of the service's 140-character posts, paying to have it show up on users' feeds even if they don't follow the company.

About three-fourths of Twitter's most active users accessed the service from mobile devices in the third quarter, compared with 69% in the year-earlier period, filings show. More than 70% of advertising revenue comes from those devices, a higher proportion than Facebook's.

The Goldman Sachs Group Inc. is the lead underwriter of the IPO, joined by Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Deutsche Bank AG, Allen & Co. and Code Advisors. Twitter has said it will list on the New York Stock Exchange and trade under the symbol TWTR.

Co-founder Evan Williams' stake will drop to 10.4% from 12% after the offering, the filing shows. He's the single biggest individual stockholder.

(Bloomberg News) Like what you've read?

Top Consumer Companies To Watch In Right Now

If 2013 was one for the investment banks, then 2014 should be the year for the big bank holding companies like Bank of America (BAC) and JPMorgan Chase (JPM), according to a new Citigroup report.

Reuters

Last year, Bank of America returned 35%, while JPMorgan returned 36%, a great year, unless you compare those gains to Goldman Sachs (GS), which� returned 41%, and Morgan Stanley (MS), which surged 65%.

Expect Bank of America and JPMorgan Chase to outperform in 2014, says Citigroup’s Keith Horowitz and team. They write:

We are upgrading BAC to a buy with a target price of $19 (23% expected total return), which reflects a cost of equity more in line with history and no longer impacted by legacy issues. We believe BAC has built-in earnings drivers on the cost side which puts us slightly ahead of consensus. Also, if US economy continues to improve, we believe investors will look to BAC (as well as JPM) as a play on the US economy due to an asset sensitive balance sheet and exposure to the US consumer. We see similar value in JPM, and are raising the target price to $72 with an expected total return of 27%. We expect JPM to beat modestly in 4Q13 and BAC to report in-line results for 4Q.

Top Consumer Companies To Watch In Right Now: United-Guardian Inc.(UG)

United-Guardian, Inc. researches, develops, manufactures, and markets cosmetic ingredients, personal and health care products, pharmaceuticals, and specialty industrial products in the United States, Canada, China, France, and internationally. Its personal care products include LUBRAJEL, a line of water-based moisturizing and lubricating gel formulations; KLENSOFT, a surfactant for cosmetic formulations; UNITWIX, a cosmetic additive used as a thickener for oils and oil-based liquids; CONFETTI DERMAL DELIVERY FLAKES for use in various water-based products; ORCHID COMPLEX, a base for cosmetics; LUBRASLIDE and B-122 lubricants used in cosmetics; AQUATHIK, a powder used as a gelling agent for aqueous solutions or emulsions; and HYDRAJEL PL, a personal lubricant for the feminine personal care market. The company?s medical products comprise LUBRAJEL RR and RC water-based gels used as lubricants for catheters; LUBRAJEL MG to lubricate urinary catheters, prelubricated enema tips, and other medical devices; LUBRAJEL LC, a mouth moisturizer for oral use; and LUBRAJEL FLUID to lubricate water-soluble products. Its pharmaceuticals consists of RENACIDIN, a prescription drug to prevent and dissolve calcifications in urethral catheters and the urinary bladder; and CLORPACTIN WCS-90, an antimicrobial for use in urology and surgery to treat infections in the urinary bladder. United-Guardian?s industrial products include DESELEX Liquid, a sequestering and chelating agent; and POLYCOMPLEX M and Q complexing agents to produce clear solutions of water-insoluble materials. The company distributes its products to drug wholesalers, drug stores, hospitals, physicians, long-term care facilities, Veteran?s Administration, and other government agencies through marketing partners, distributors, advertising in medical and trade journals, mailings to physicians, and exhibitions. United-Guardian, Inc. was founded in 1942 and is based in Hauppauge, New York.

Advisors' Opinion:

• [By Jonathan Morgan]

  PSA Peugeot (UG) Citroen added 5.4 percent as its chief executive officer predicted a market-share increase in an interview with Le Parisien. Telecom Italia SpA rose 8.4 percent after a report that Egyptian billionaire Naguib Sawiris may buy a stake in Italy�� biggest phone company. TeliaSonera AB slid 1.9 percent as Finland cut its holding in the network operator.

• [By Dorothee Tschampa]

  Volkswagen AG (VOW) (VOW), PSA Peugeot Citroen (UG) and Renault SA (RNO) (RNO), Europe�� three largest carmakers, all dropped 5 percent or more after preliminary data showed Chinese manufacturing is unexpectedly contracting.

• [By Inyoung Hwang]

  PSA Peugeot (UG) Citroen climbed to a 17-month high after saying it won�� cut prices for the Peugeot brand. Glencore Xstrata Plc advanced 2.3 percent after raising its estimate for financial gains from its merger with Xstrata Plc. Neste Oil Oyj surged to a five-year high after upgrading its full-year forecast. GlaxoSmithKline Plc slid 2.5 percent as new U.S. guidelines opened the door for generic versions of its Advair drug.

• [By Marc Bastow]

  Cosmetics maker United-Guardian (UG) raised its semi-annual dividend 13% to 50 cents per share, payable on Dec. 20 to shareholders of record as of Dec. 6. This marks the 37th consecutive annual increase to the dividend.
  UG Dividend Yield: 4.86%

Top Consumer Companies To Watch In Right Now: Latteno Food Corp (LATF)

Latteno Food Corp. (Latteno), incorporated on August 24, 1994, is engaged in acquiring, organizing, developing and upgrading companies in the international food and beverage market. Latteno is specializing in the dairy industry and coffee industry. The Company operates through its subsidiary in Brazil. On February 10, 2010 Latteno acquired Global Milk Businesses and Administration of Private Properties Ltda. (Global Milk). Global Milk holds the rights of certain intellectual property of the brand name products manufactured and sold under the brand name Teixeira. In March 2013, the Company acquired Green Cannabis Collective Inc.

Latteno is leasing an instant and roasted coffee factory located in Cruzeiro, Sao-Paulo, which was property the Company previously owned under its BDFC Brasil Alimentos Ltda (BDFC) subsidiary. In addition to the lease, the Company has maintained ownership of four brand names, Samba Cafe, Vivenda, Torino and Brazilian Best, used in the past by Latteno to sell its instant and roasted coffee across the world. The Company engaged the service companies to assist with its operations, such as Log-Frio Ltda, SigaSolutions Ltda, Microsiga Ltda and Varistao Transportes Ltda.

The Company competes with Nestle, Companhia Cacique de Cafe Soluvel, Cafe Soluvel Brasilia and Companhia lguacu de Cafe Soluvel.

Top Energy Stocks For 2015: Ass British Food(ABF.L)

Associated British Foods plc operates as a diversified food, ingredients, and retail group. The company operates through five segments: Sugar, Agriculture, Retail, Grocery, and Ingredients. The Sugar segment engages in growing and processing sugar beet and sugar cane for sale to industrial users. The Agriculture segment procures grain and oilseeds from farmers and co-products from the food, drink, and bioethanol industries. It manufactures and sells animal feeds and premixes to farmers; and micro ingredients to farmers and feed manufacturers. This segment also provides agronomy advice and crop inputs. The Retail segment is involved in buying and merchandising clothing and accessories. It offers womenswear, lingerie, childrenswear, menswear, footwear, accessories, hosiery, and home ware through the Primark and Penneys retail chains primarily in the United Kingdom, the Republic of Ireland, Spain, the Netherlands, Portugal, Germany, and Belgium. The Grocery segment manufactur es hot beverages; sugar and sweeteners; vegetable oils; bread, baked goods, and cereals; ethnic foods, herbs, and spices; and meat products that are sold to retail, wholesale, and foodservice businesses. The Ingredients segment produces bakers? yeast, bakery ingredients, specialty proteins, enzymes, lipids, and yeast extracts. The company operates in the United Kingdom, Europe, Africa, the Americas, and the Asia Pacific. The company was founded in 1935 and is headquartered in London, the United Kingdom. Associated British Foods plc is a subsidiary of Wittington Investments Limited.

Top Consumer Companies To Watch In Right Now: Torotrak(TRK.L)

Torotrak plc engages in the design and development of traction drive systems for vehicle makers and transmission manufacturers in Europe, North America, India, and Japan. The company licenses its patented traction drive technology for use in main drive transmissions for vehicles, such as buses, trucks, and small cars; variable drive pressure charging for fuel economy; and mechanical flywheels that recover braking energy. It also provides engineering consultancy services, including supporting projects through advice and helping customers to apply the Torotrak plc?s technology. The company was founded in 1988 and is based in Leyland, the United Kingdom.

Top Consumer Companies To Watch In Right Now: Dole Food Company Inc(DOLE)

Dole Food Company, Inc. engages in sourcing, growing, processing, marketing, and distributing fresh fruits and vegetables, and food products to wholesale, retail, and institutional customers worldwide. It operates in three segments: Fresh Fruit, Fresh Vegetables, and Packaged Foods. The Fresh Fruit segment involves in growing and selling bananas under the DOLE brand name primarily in North America, Europe, and Asia; ripening and distributing DOLE and non-DOLE branded fresh produce in Europe; growing, sourcing, and selling fresh pineapples under the DOLE TROPICAL GOLD label; and exporting Chilean fruits, including grapes, apples, pears, stone fruits, and kiwifruits primarily to North America, Latin America, and Europe. The Fresh Vegetables segment engages in sourcing, harvesting, cooling, distributing, and marketing various fresh and fresh-cut vegetables, including iceberg lettuce, red and green leaf lettuce, romaine lettuce, butter lettuce, celery, cauliflower, broccoli, c arrots, Brussels sprouts, green onions, asparagus, snow peas, artichokes, and radishes, as well as fresh strawberries and raspberries. This segment also processes and markets value-added vegetable products, such as packaged salads and packaged fresh-cut vegetables. The Packaged Foods segment produces and markets canned pineapples, canned pineapple juice, fruit juice concentrate, fruit parfaits, snack foods, and frozen fruits, as well as fruits in plastic cups, jars, and pouches. Its principal customers include mass merchandisers and supermarkets. Dole Food Company, Inc. was founded in 1851 and is based in Westlake Village, California.

Advisors' Opinion:

• [By Eric Volkman]

  It didn't take long for Dole Foods (NYSE: DOLE  ) to reverse its policy on stock repurchases. Less than three weeks after initiating a buyback program, the company has suspended it. Instead, it will plow capital into upgrading its fleet of ships, a project it anticipates will cost roughly $165 million.

• [By Michael Lewis]

  On a valuation basis, Chiquita isn't richly valued, though not the extreme bargain it once was, either. Set to return to profitability this year, Chiquita is trading at a little over 10 times forward earnings. Competitor Dole (NYSE: DOLE  ) , which just this week received a buyout offer led by its CEO, is now valued at 20 times forward earnings. On an EV/EBITDA basis, Dole has been valued by its CEO's offer at nearly 19 times. Chiquita trades at 12.6 times.

• [By Rich Duprey]

  That's why seeing Dole Foods (NYSE: DOLE  ) lurch from a stock buyback program one day to suspending it weeks later so it can buy new ships instead, rattled investors and caused its stock to drop 10% so far.

• [By Jeremy Bowman]

  What: Shares of Dole Food� (NYSE: DOLE  ) were looking sweeter today, gaining as much as 22% after CEO David Murdock offered to pay $12 a share for the remaining 60% of the company that he doesn't already own.

Top Consumer Companies To Watch In Right Now: Lindeteves-jacoberg Ltd (L15.SI)

Lindeteves-Jacoberg Limited, an investment holding company, engages in the distribution of electric motors and components. The company sells its products under Brook Motors, Brook Crompton, Western Electricm, and Fumex trademarks in Singapore, Asia, Australia, New Zealand, the United Kingdom, Europe, North America, and the Middle East Asia. It also licenses its Brook Crompton trade mark. The company was incorporated in 1947 and is based in Singapore. As of May 3, 2006, Lindeteves-Jacoberg Limited operates as a subsidiary of ATB Austria Antriebstechnik AG.

Top Consumer Companies To Watch In Right Now: Domino Printing(DNO.L)

Domino Printing Sciences plc engages in the research and development, manufacture, and sale of industrial printing equipment, controllers, and consumables for the high-speed printing of variable information. Its primary products include printers, controllers, consumables, fluids, and spare parts, as well as provides after sales support services. The company also offers black ink for a range of plastic-based substrates; coding and marking solutions to identify, authenticate, and personalize products; and codes and marks for protection of brand value. In addition, Domino Printing Sciences plc provides various technology solutions, including ink jet, thermal ink jet, scribing laser, binary, thermal transfer overprinting, drop on demand, print and apply labelling machinery, and laser printers. Further, it offers digital printing technologies, which are used in Web-based applications. Domino Printing Sciences plc serves beverage, binding, cable and wire, construction, cosmetics and personal care, electronics, finishing, food, games management, mailing, pharmaceutical, plastic cards, newspaper, postal systems, and tobacco, as well as for tickets, tags, and labels industries. The company distributes its products through third party distributors primarily in North America, South America, Europe, the Asia Pacific, and the Middle East/Africa. Domino Printing Sciences plc was founded in 1978 and is headquartered in Cambridge, the United Kingdom.

Top Consumer Companies To Watch In Right Now: Enviro-hub Holdings Ltd (L23.SI)

Enviro-Hub Holdings Ltd., an investment holding company, provides environmental restoration services through its technology and solutions. The company engages in the recovery, processing, and trade of ferrous and non-ferrous metals; melting and refining of copper; recycling and trade of electronic waste; refining of platinum group metals; conversion of waste plastic into fuel oil; piling works; sale, rental, and servicing of engineering hardware, construction machinery, and equipment; and property development activities. It operates primarily in Singapore, Hong Kong, China, Malaysia, and Europe. Enviro-Hub Holdings Ltd. is based in Singapore.

Top Consumer Companies To Watch In Right Now: Pacrim Intl Cap Com Npv(PCN.TO)

Pacrim International Capital Inc., an investment holding company, engages in the rental of real estate properties. It also focuses on the production and sale of various packaging products. The company?s packaging products include paper boards, cartons, color boxes, and other paper products, as well as flexo series printed packages, offset series printed packages, paper pallet cardboard insert packages, slip sheets, and assembly display products. In addition, the company engages in the printing of trademarks. It offers its packaging materials primarily to the manufacturers of electronics, computers, machinery and equipment, non-perishable food products, toys, sport equipment, and various other products in China. The company was founded in 1990 and is headquartered in Hong Kong, Hong Kong.

Top Consumer Companies To Watch In Right Now: China Sports Intl Limited (FQ8.SI)

China Sports International Limited, an investment holding company, engages in the design, manufacture, and sale of sports fashion footwear, and sports fashion apparel and accessories under the YELI brand. It also produces shoes for original equipment manufacturer customers under the Kappa brand name. The company sells its products through distributors in approximately 20 provinces in the People�s Republic of China, as well as exports its products to Europe, the Middle East, South America, Asia, and South Africa. China Sports International Limited was founded in 1998 and is based in Jinjiang, the People�s Republic of China.

Top Consumer Companies To Watch In Right Now: Viterra Inc (VT.TO)

Viterra Inc. operates as an integrated agri-business company in Canada and internationally. The company�s Grain Handling and Marketing segment sells commodities comprising grains, oilseeds, and special crops; and provides related ancillary services, such as grain handling, blending, cleaning, and storage. Its Agri-Products segment manufactures, distributes, and retails fertilizers, crop protection products, and seed and seed treatments; and sells private label and third-party crop protection products, including herbicides, insecticides, and fungicides, as well as general merchandise, small agricultural equipment, general merchandise, and wool through a network of retail locations. This segment also offers various financial services, which include loans to feed products customers to purchase feeder cattle, as well as related feed inputs; and distributes bulk fuel. The company�s Processing segment manufactures and markets food ingredients associated with pasta, oats, canol a, wheat, and malt barley, as well as feed products and other related products for consumer products companies and food processors. Viterra Inc. was founded in 1924 and is headquartered in Regina, Canada. As of December 15, 2012, Viterra, Inc. operates as a subsidiary of Glencore International plc.

Top Consumer Companies To Watch In Right Now: Tesla Motors Inc.(TSLA)

Tesla Motors, Inc. designs, develops, manufactures, and sells electric vehicles and advanced electric vehicle powertrain components. It offers Tesla Roadster, an electric sports car. The company markets and sells its vehicles directly to consumers through the phone and Internet, as well as through its network of Tesla stores. It operates 18 Tesla stores located in Boulder, Chicago, Los Angeles, Menlo Park, Miami, New York, Newport Beach, San Jose, Seattle, Washington, D.C., Copenhagen, London, Milan, Monaco, Munich, Paris, Tokyo, and Zurich. The company was founded in 2003 and is headquartered in Palo Alto, California.

Advisors' Opinion:

• [By Sue Chang and Saumya Vaishampayan]

  Tesla (TSLA) shares recovered 3.8%. The electric car company has asked the National Highway Traffic Safety Administration to fully investigate the recent Model S fires, according to�Chief Executive Elon Musk. The announcement on a company blog Monday outlined a three-pronged plan to fight investor concerns.

Top Consumer Companies To Watch In Right Now: Ridley Inc (RCL.TO)

Ridley Inc. engages in the commercial animal nutrition business in North America. The company manufactures and markets a range of animal nutrition products, including formulated complete feeds, premixes, and feed supplements; block supplements, such as low moisture, pressed, compressed, composite, and poured blocks as well as loose minerals; vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives, and micro feed ingredients; and animal health products. It also provides nutrition and sales support services for retailers. The company offers its products in bulk, as well as in various sizes, bags, and barrels. It primarily serves consumers, commercial producers, dealers, and mass merchandisers; livestock and poultry breeders and growers; and the equine, companion animal, and hobby farm segments directly, as well as through distributor and dealer channels. The company is headquartered in Mankato, Minnesota. Fairfax Fina ncial Holdings Limited is a subsidiary of Fairfax Financial Holdings Limited.

Top Consumer Companies To Watch In Right Now: Great Group Holdings Limited (I5H.SI)

Great Group Holdings Limited, an investment holding company, engages in the design, manufacture, distribution, and sale of men�s and women�s undergarments primarily in Europe, Asia, North America, and South America. It also designs, manufactures, and sells children�s and infants� apparel, swimwear, casual home wear, and pyjamas; produces garments, weaving products, ribbon, printing, shoes, hats, and bags; and provides contract manufacturing services. In addition, the company engages in the sale and distribution of garments and apparel; trading of clothes; and wholesale of footwear, headwear, boxes, fabrics, and accessories. It sells garments under its GRAT.UNIC brand in 140 points of sales, such as specialty stores and dedicated shelf-spaces located in shopping malls, department stores, and commercial areas in the People�s Republic of China, as well as in a specialty store in Hong Kong. The company was incorporated in 2008 and is based in Quanzhou City, the People�s Republic of China. Great Group Holdings Limited operates as a subsidiary of G & W Investment Management Co., Ltd.

Top Consumer Companies To Watch In Right Now: Express Scripts Holding Co (ESRX)

Express Scripts Holding Company, incorporated in 2011, provides healthcare management and administration services on behalf of its clients, which include health maintenance organizations (HMOs), health insurers, third-party administrators, employers, union-sponsored benefit plans, workers compensation plans, and government health programs. The Company operates in two segments: Pharmacy Benefit Management (PBM) and Emerging Markets (EM). PBM services include network claims processing, home delivery services, patient care and direct specialty and fertility home delivery to patients, benefit plan design consultation, drug utilization review, formulary management, drug data analysis services, distribution of injectable drugs to patients homes and physicians offices, bio-pharma services, and fulfillment of prescriptions to low-income patients through manufacturer-sponsored patient assistance programs. EM segment provides distribution of pharmaceuticals and medical supplies to providers and clinics, healthcare account administration and implementation of consumer-directed healthcare solutions. In September 2013, it announced the acquisition of the SmartD Medicare Prescription Drug Plan (PDP).

On July 20, 2011, Express Scripts, Inc. (ESI) entered into a merger agreement (the Merger Agreement) with Medco Health Solutions, Inc. (Medco). During the year ended December 31, 2011, it reorganized its FreedomFP line of business from its EM segment into its PBM segment. On April 2, 2012, the Company completed the Merger Agreement, and after which ESI and Medco became the wholly owned subsidiaries of the Company. The Company�� customers include HMOs, health insurers, third-party administrators, employers, union-sponsored benefit plans, government health programs, office-based oncologists, renal dialysis clinics, ambulatory surgery centers, primary care physicians, retina specialists and others.

Advisors' Opinion:

• [By Holly LaFon] ss Scripts is a pharmacy benefit manager that generates revenue through delivering prescription drugs through its network of contracted retail pharmacies, specialty pharmacy services, home delivery and EM services.

  Express Scripts��stock tumbled to a 52-week low of $34.37 at the end of the third quarter, from a high of $60.89. Cooperman bought 719,000 shares of the company at an average of $43 per share. He previously owned shares of Express Scripts in 2007 when the price was about $23 per share, and sold over the next several quarters as the stock climbed to $34 in the second quarter of 2008, when he closed his position.

  Express Scripts Inc. has a market cap of $24.76 billion; its shares were traded at around $50.17 with a P/E ratio of 17.8 and P/S ratio of 0.5. Express Scripts Inc. had an annual average earnings growth of 28.6% over the past 10 years. GuruFocus rated Express Scripts Inc. the business predictability rank of 5-star.

  Over the past decade, Express Scripts has generated strong and growing free cash flow, which grew from $1.6 billion in 2009 to a record of almost $2 billion in 2010.

  In October, the company had to lower its earnings per share guidance from the previously expected $3.15 to $3.25, to a range of $2.95 to $3.05. The decrease was due to multiple factors: a greater shortfall in claims versus expectations, a stagnant economy impacting claims volumes, additional expenses, including accelerating spending on projects in preparation for the integration of Medco Health Solutions Inc., expenses to support clients and members as they transfer from Walgreen�� pharmacies and to comply with new regulations. The company is also facing heightened competition.

  Later, on October 25, the company announced that it expects 95% of its clients��prescription volume to continue after it loses Walgreens as a network supplier in 2012. It also expects that the merger with Medco, another PBM, will be slightly accretive to EPS in

4 Tech Stocks Rising on Unusual Volume

DELAFIELD, Wis. (Stockpickr) -- Professional traders running mutual funds and hedge funds don't just look at a stock's price moves; they also track big changes in volume activity. Often when above-average volume moves into an equity, it precedes a large spike in volatility.

>>5 Stocks Set to Soar on Bullish Earnings

Major moves in volume can signal unusual activity, such as insider buying or selling -- or buying or selling by "superinvestors."

Unusual volume can also be a major signal that hedge funds and momentum traders are piling into a stock ahead of a catalyst. These types of traders like to get in well before a large spike, so it's always a smart move to monitor unusual volume. That said, remember to combine trend and price action with unusual volume. Put them all together to help you decipher the next big trend for any stock.

>>5 Stocks Ready to Break Out

With that in mind, let's take a look at several stocks rising on unusual volume recently.

Super Micro Computer

Super Micro Computer (SMCI), together with its subsidiaries, develops and provides high-performance server solutions based on modular and open-standard architecture in the U.S. and internationally. This stock closed up 2.4% at $21.50 in Monday's trading session.

Monday's Volume: 707,000

Three-Month Average Volume: 287,411

Volume % Change: 140%

>>5 Rocket Stocks for a Volatile Week

From a technical perspective, SMCI trended higher here right above some near-term support at $20.40 with above-average volume. This stock recently gapped up sharply from $18 to $23.54 with monster upside volume. Following that move, shares of SMCI have sold off to its recent low of $20.40. Shares of SMCI are now starting to bounce off that low and move within range of triggering a big breakout trade. That trade will hit if SMCI manages to take out Monday's high of $21.94 to its 52-week high at $23.54 with high volume.

Traders should now look for long-biased trades in SMCI as long as it's trending above some key near-term support levels at $20.40 or at $20 and then once it sustains a move or close above those breakout levels with volume that's near or above 287,411 shares. If that breakout hits soon, then SMCI will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $27 to $30.

Rubicon Technology

Rubicon Technology (RBCN), an electronic materials provider, develops, manufactures and sells monocrystalline sapphire and other crystalline products for light-emitting diodes, radio frequency integrated circuits, blue laser diodes, optoelectronics and other optical applications. This stock closed up 1.8% to $11.33 in Monday's trading session.

Monday's Volume: 727,000

Three-Month Average Volume: 484,039

Volume % Change: 95%

>>5 Stocks Under $10 Set to Soar

From a technical perspective, RBCN spiked modestly higher here with above-average volume. This spike briefly pushed shares of RBCN into breakout territory, after the stock flirted with some key overhead resistance levels at $11.54 to $11.70. Shares of RBCN closed just below those levels at $11.33. Market players should now look for a continuation move higher in the short-term if RBCN can manage to take out Monday's high of $11.75 with strong volume.

Traders should now look for long-biased trades in RBCN as long as it's trending above $11 or above its 50-day at $10 and then once it sustains a move or close above Monday's high of $11.75 with volume that's near or above 484,039 shares. If we get that move soon, then RBCN will set up to re-test or possibly take out its next major overhead resistance levels at $13 to its 52-week high at $13.78. Any high-volume move above those levels will then give RBCN a chance to tag $14 to $15.

Qihoo 360 Technology

Qihoo 360 Technology (QIHU) provides Internet and mobile security products in the People's Republic of China. This stock closed up 6.2% to $89.99 in Monday's trading session.

Monday's Volume: 4.49 million

Three-Month Average Volume: 2.91 million

Volume % Change: 58%

From a technical perspective, QIHU spiked sharply higher here right off its 50-day moving average of $83.74 with above-average volume. This move is starting to push shares of QIHU within range of triggering a big breakout trade. That trade will hit if QIHU manages to take out Monday's high of $90.48 to just above $94 and then once it clears some more key overhead resistance levels at $96.25 to its all-time high at $96.74 with high volume.

Traders should now look for long-biased trades in QIHU as long as it's trending above its 50-day at $83.74 or above $82.50 and then once it sustains a move or close above those breakout levels with volume that's near or above 2.91 million shares. If that breakout triggers soon, then QIHU will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $105 to $110, or even $115.

ICG Group

ICG Group (ICGE) is a private equity and venture capital firm specializing in growth capital, acquisitions and mid and late venture investments in public and private companies. This stock closed up 3.2% to $18.85 in Monday's trading session.

Monday's Volume: 449,000

Three-Month Average Volume: 202,306

Volume % Change: 150%

From a technical perspective, ICGE spiked notably higher here right above its 50-day moving average of $17.66 with above-average volume. This move pushed shares of ICGE into breakout and new 52-week-high territory, after the stock took out some near-term overhead resistance at $18.81. Market players should now look for a continuation move higher in the short-term if ICGE can manage to take out Monday's high of $18.99 with strong volume.

Traders should now look for long-biased trades in ICGE as long as it's trending above its 50-day moving average of $17.66 or above more near-term support at $17 and then once it sustains a move or close above $18.99 with volume that hits near or above 202,306 shares. If we get that move soon, then ICGE will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $23 to $25.

To see more stocks rising on unusual volume, check out the Stocks Rising on Unusual Volume portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>4 M&A Deal Stocks to Watch in 2014

>>3 Tech Stocks Under $10 Spiking Higher

>>3 Huge Stocks to Trade (or Not)

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

Using Nadex Spreads to Help You Trade Canadian Dollar Interest News

Last Wednesday, the Bank of Canada announced it was keeping its interest rates steady at one percent.

The Canadian central bank's staying with the status quo was expected, as they have not changed the rate since 2010.

Even with the rate change being kept the same other statements caused a massive move in the USD/CAD forex pair. 

What is Forex TIP: Forex, also known as FX and Foreign Exchange, is buying one currency in exchange for another. For example, if you travel from the U.S. to Canada you might go to the foreign exchange booth at the airport and provide them U.S. dollars. They'll then provide you the equivalent value at that time in Canadian dollars.

With the USD/CAD currently at 1.10 -- for every $1.00 in US dollars you gave them they would give you $1.10 in Canadian dollars.  These values fluctuate and you can trade these nearly every single day of the week. And you don't have the large $25,000 account size requirement to do shorter term day trades like you do in stocks.

Speculators try to grab some of the move that is expected right after the announcement is made. Others sit back and let the news come out and be over with before they get back into the markets.

The issue is, you and the speculators honestly have no idea which way the market will move when the Canadian rate statement is announced. But what you can know is how far the USD/CAD moves on average when this statement comes out right after the release. Using the weekly economic outlook calendar you would have known that the projected move on USD/CAD when the Bank of Canada makes its rate statement is 85 pips. (See Economic Outlook HERE)

What is a Pip TIP: (A pip is a minimum increment move; i.e., on stock a "cent" is a minimum increment move. So one could say a pip on a stock is .01. It is simply the last digit the trading instrument is quoted in. The term pip is used on forex, and as you are dealing with multiple currency pairs it's easier to say "pip" than "cent aussie," "Canadian cent," etc... On a stock .01 is worth 1 cent. So when a stock movs .01 the value goes up or down by 1 cent. On Nadex spreads a pip is worth $1.00 no matter what instrument it is. So when the forex pair moves by .0001 then the value goes up or down by $1.00. This is a benefit in the North American Derivatives Exchange, or Nadex, as you don't have to deal with currency conversion at all when trading Forex).

With a straddle you don't have to sit aside and watch the move, you don't have to pick direction, you just need to have an expected movement at a specified time in either direction.

So instead of trying to be a guru and pick direction, or sitting aside and missing out on the move, you could also a simple straddle using Nadex spreads. When you do a straddle so long as the market moves far enough in either direction you could have profited on the trade doing a Nadex Straddle.

The North American Derivatives Exchange is based out of Chicago and is regulated by the U.S. Futures Trading Commission (CFTC). Nadex allows traders to trade binaries and spreads on foreign exchange (forex) markets, U.S. and International Stock Indices, and Commodities like gold and oil.

Leverage And Low Risk Tip: Trading forex allows you to trade with large leverage, depending on the broker of up to 50:1. So you have $50 of buying power leverage of $50 for every $1.00 put up to trade. Unfortunately, leverage can cut both ways -- but with Nadex the leverage can not only be 50:1 but even much higher, and the leverage works for you but not against you. The reason is, with Nadex all risk is capped and your risk never increases from the initial risk, no matter how far the market moves against you. 

So How Do You Do A Straddle On Nadex?

At approximately 8 AM ET the USD/CAD was trading right around 1.0960. You could have then entered a 3 PM expiring straddle trade.

1) Buy The Upper Spread

Bought the upper 1.0960 to 1.1160 3 PM ET spread  at around 8 AM ET for a price of 1.0980.

Risk is calculated on a bought spread as simply the difference between where you buy and the floor (lower strike of the spread) The floor is 1.0960 though bought price is 1.0980 - this makes the risk .0020 or 20 pips every pip is worth $1.00 so your risk is $20  Reward is calculated on a bought spread as simply the difference between the ceiling (higher strike of the spread) and the price you buy the spread.  The ceiling on this spread is 1.1160 and you bought at 1.0980 - this makes the max reward potential .0180 or 180 pips with every pip worth a dollar that is a profit potential of $180.

2) Sell The Lower Spread

Sold the lower 1.0760-1.0960 3 PM ET spread at around 8 AM ET for a price of 1.0950

Risk is calculated on a sold spread as simply the difference between the ceiling (upper strike of the spread) and where you sell the spread. The ceiling was 1.0960 and you sold at 1.0950 this makes the risk .0010 or 10 pips every pip is worth $1.00 so your risk is $10.  Reward is calculated on a sold spread as simply the difference between where you sold the spread and the floor (lower of the spread) The floor on this spread is 1.0760 and you sold at 1.0950 - this makes the max reward potential .0190 or 190 pips with every pip worth a dollar that is a profit potential of $190.

3) Calculate the Max Risk

Combined the max risk on the trade is $30 ($20 on the long and $10 on the short side). And there is plenty of profit potential for a 1-to-1 or higher profit on the trade.

4) Calculate A 1 to 1 Profit Ratio 

For a 1-to-1 take profit you would simply take the total risk, plus the risk on either side, to know where to take profit for 1-to-1. Pretend your total risk is $30, plus $10 risk on the short side. You need to make $40 on the bought side for a 1-to-1, as you are counting on the short side loosing the $10, netting you a $30 profit.

You can also look at that in reverse; saying the total risk is $30 plus $20 risk on the long side. You need to make $40 on the sold side for a 1-to-1, as you are counting on the long side losing the $20, netting you a $30 profit. Now you need to add 40 pips to the price you bought the upper spread at and set that as your take profit ,to sell it to exit. Bt $300. 

For Example

Add 40 pips to the price you bought the upper spread at and set that as your take profit to sell it to exit. Bought the  1.0960 to 1.1160 3 PM ET at 1.0980 once filled set a take profit to sell it back at 1.1020.

Likewise, you need to subtract 50 pips for the price on the one you sold and set a order to take profit to buy it back at as your take profit to exit. Sold the 1.0760-1.0960 3 PM ET at 1.950. Once filled set a take profit to buy it back at 1.0900.

(Note: we are just talking one straddle at $30 -- you could do 1, 10, 100 etc... to multiply out the value, risk, and profit potential)

5) Before Entering Check Your Range

The range on the average move is 85 pips so add 85 pips to where the market is and subtract 85 pips from where the market is and ensure your take profits are within the expected range.

For Example:

Market USD/CAD at approx 1.0962 at 8 AM ET.  

85 pips above this is 1.1047 (this is higher than our take profit on the long side of 1.1020 so the long trade is also within our range).

85 pips below this price is 1.0877 (this is lower than our take profit of 1.0900 on the short trade so it is within the range.

So how did the trade work out?

In the chart below the trade was entered, the market took off and you easily surpassed the 1.1020 take profit goal -- giving you your 1-to-1 take profit. And you had the ability, if so desired, to trail your stops for a reward potential of greater than 1-to-1. If you held to expiration the market expired at 1.0820 so the profit would have been approximately $102 on the

Market Wrap-Up for Sept. 6 (AMT, STI, MCO, TKR, more)

Stocks opened higher this morning, following the release of August’s jobs report. Even though the report was underwhelming, investors and traders starting buying up stocks due to their belief that the weak employment data would prevent the Federal Reserve from applying the breaks to its monetary stimulus. However, those initial gains were quickly erased following comments from Russian president Vladimir Putin that suggested that Russia would aid Syria in the event of a strike by the United States. Nonetheless, stocks eventually bounced off their lows and the major indices were mostly unchanged by the close.

Stocks on the Rise

American Tower Corp (AMT) shares rallied after the company announced a $4.8 billion acquisition of MIP Tower Holdings. Also rising today were shares of Timken Co (TKR), after the company announced that it will separate into two publicly-traded companies.

Furthermore, Wall Street analyst upgrades of Moody’s (MCO) and SunTrust banks (STI) helped push the stocks higher in the day’s trading session and a dividend increase announcement from Trinity Industries (TRN) caused the stock to rise. Walter Energy (WLT) and Extra Space Storage (EXR) were a few other strong performers on the day.

Stocks on the Decline

Among the stocks in negative territory today were The Gap (GPS), after reporting disappointing August sales, M&T Bank (MTB), following a Wall Street analyst downgrade, and Ford Motor Company (F).

Be sure to check the Dividend Daily for all the latest earnings reports, analyst moves, and much more.

Jobs, the Fed, QE, and Dividend Investors

The big news on Wall Street this morning was August’s Non-Farm Payrolls jobs report, which showed that 169,000 new jobs were created in August and the unemployment rate ticked down to 7.3%. Seems great right? Well, not exactly. Actually, not at all. The jobs created failed to top economists’ expectations of 180,000 new jobs. Not only that, but June and July’s job numbers were revised down sharply. Also falling was the labor force participation rate, which was the primary reason why the unemployment rate dropped to 7.3% despite all of the negative underlying jobs data.

Because of these disappointing numbers, many analysts and investors believe the Federal Reserve will be less likely to taper its bond buying stimulus this month or in the near future, as a less accommodative monetary policy would put the brakes on our already slow economic recovery. These expectations of continued monetary stimulus caused investors and traders to send stocks higher this morning, with bonds rising as well. However, I’m not sure that this continuance of QE-infinity will be the case; don’t be surprised if the Fed continues toward its path of a tighter monetary policy at its FOMC meeting in a week and a half.

What Dual Mandate?
This is because, historically, worrying about unemployment has not been the Federal Reserve’s main concern. Of the two pillars of its dual mandate, the Fed typically worries more about price stability, o