Seattle’s Best Coffee Opens 10 Drive-Thrus "Overnight" in Dallas-Forth Worth

Starbucks' (NASDAQ: SBUX  ) Seattle's Best Coffee simultaneously opened 10 drive-thrus throughout the Dallas-Forth Worth area at 4:30 a.m. yesterday, using a store model that the company says "significantly cut its market entry time, reduced initial investment costs and developed locations that previously were not suitable for a traditional sized coffee shop."

The 10 stores that opened "overnight" were built in DeSoto, Texas, before being transported on flatbed trucks to their current locations across Dallas/Fort Worth. Tthe 10 new stores employ approximately 150 full- and part-time workers and four more stores are planned in the area in late summer.

In each drive-thru, customers can choose from arabica coffee beverages and food including egg sandwiches, pretzels, and pies. Seattle's Best Coffee also features 12 different combos priced under $5. To kick off the launch, Seattle's Best Coffee launched Free Coffee Week at the 10 drive-thrus from May 20-26.

The Dallas-Forth Worth area is one of the fastest-growing and most populous coffee markets.  

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Is Krispy Kreme About to Throw $50 Million in the Fryer?

On Monday, Krispy Kreme Doughnuts (NYSE: KKD  ) announced its board has approved the repurchase of up to $50 million of the company's common stock, effective immediately.

For those of you keeping track, remember that Krispy Kreme already completed a $20 million share repurchase program last fiscal year, and Monday's press release optimistically states they "view this $50 million additional repurchase authorization as a further indication of Krispy Kreme's financial strength, our outstanding free cash flow generation, and our positive outlook for the future."

Out of the pan...
To be sure, while the doughnut-maker's revenue in the most recent quarter increased 11.2% year over year, to $120.6 million, adjusted net income rose an even more impressive 37%, to $14.1 million during the same period. This was primarily a result of reduced operating expenses and solid 11.4% same-store sales growth. Meanwhile, GAAP net income also rose by a third, to $8 million.

Better yet, thanks to those strong first-quarter results and expected continued strength for the remainder of the year, Krispy Kreme raised its fiscal 2014 outlook for adjusted net income to between $42 million and $45 million, up from the previous forecast of between $37 million and $40 million. In all, they say, this should help boost its fiscal 2014 earnings per share by between 26% and 34% over fiscal 2013.

In addition, this week's release also noted that the company retired the remaining $22 million balance of its term loan as part of a refinancing of its existing secured credit facilities, which should save Krispy Kreme around $1 million in interest over first year following the transaction.

...and into the fire?
But with shares of Krispy Kreme currently trading at a whopping 59 times last year's earnings -- and that's including a 4% drop so far in today's trading -- does this buyback really make sense?

After all, while the company's results have been strong, remember that Krispy Kreme stock has more than doubled so far in 2013, and stands at more than triple its levels from this time last year. All in all, the stock has handily beat the broader index's returns since then:

KKD Total Return Price data by YCharts

And yes, I'll admit Krispy Kreme's forward price-to-earnings ratio is a much more manageable 26.6, but that's also assuming Krispy Kreme's plans go off without a hitch.

Company Chairman and CEO James Morgan did chime in, however, to assure investors they "always seek to first deploy cash to grow the business, [but] will complement that usage, as appropriate, with other means of increasing shareholder value."

Buybacks can create value, but...
To that end, if Krispy Kreme doesn't have anything better to do with its money, why not give investors the option of choosing what to do by initiating a dividend?

Of course, that doesn't mean share buybacks don't have their place; back in February, I supported iRobot's (NASDAQ: IRBT  )  plan to repurchase up to $25 million of its common stock, but that was only because the company had just taken a beating after an ugly fourth-quarter earnings report, and I also believed its shares were fundamentally undervalued relative to its growth prospects.

Sure enough, shares of iRobot have risen 85% since then on the heels of a great follow-up quarter, which beat even iRobot's lofty expectations, and this thanks to the strong performance of its fast-growing consumer segment. However, while I continue to hold my shares of iRobot today, if the company came out now to announce a fresh repurchase program on top of its existing authorization, I'd be forced to respectfully disagree with their decision.

Or take Warren Buffett, who told investors last year he'd be willing to repurchase shares of Berkshire Hathaway (NYSE: BRK-B  ) (NYSE: BRK-A  ) . The catch? He would do so only if the stock was trading below 1.2 times book value -- the price at which he believed it represented a fantastic bargain. In fact, last December, he did just that by repurchasing $1.2 billion in Berkshire stock at around 1.16 times book value from the estate of an unidentified longtime investor.

And you know what? If Buffett had it his way, he would have bought it even cheaper; remember, that self-imposed limit of 1.2 times book was actually raised from Buffett's previous limit of 1.1, which he says simply proved an unrealistic level at which nobody was willing to sell.

Foolish takeaway
Long story short, though buybacks can create shareholder value when executed at the right price, I have to agree with fellow Fool Sean Williams, who asserted last year that, by and large, investors generally get duped by most share repurchase plans.

In the end, then, while I'd love to give Krispy Kreme the benefit of the doubt, I just can't get behind this buyback.

But if you're on the lookout for high-yielding stocks with a history of creating shareholder value, you're in luck! The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

Copa Holdings: Panama Profits

There are always good operators in even the worst industries. Therefore, I am recommending a leading regional airline based in Panama, says Gavin Graham, contributing editor to Internet Wealth Builder.

Copa Holdings (CPA), operates a fleet of 83 modern aircraft, with an average age of 4.3 years, consisting of 57 Boeing 737-700s, and 737-800s, and 26 Embraer 190 jets.

From its base at Tocumen International Airport in Panama City, it offers the most destinations and international flights of any hub in Latin America, including eight destinations in the US as well as Toronto.

Tocumen's convenient location, excellent weather, and sea level altitude contribute to Copa's excellent on-time record and its ability to act as the centre of a major hub-and-spoke operation, allowing passengers to reach any destination within Central and South America with only one stop.

Copa has expanded rapidly in the last decade. After going public in 2005, it used the access to public markets to grow and modernize its fleet. Also in 2005, it purchased the second largest Colombian airline, and now operates an extensive schedule of internal and international flights in that country.

Copa carried 10.1 million passengers in 2012, a 17% increase on the previous year, and experienced a 24% increase in capacity as it added ten new Boeing 737 aircraft.

With its rapid growth and profitable track record, Copa has far outperformed the S&P 500, returning 170% over the five years to the end of 2012, compared to a 12% increase in the index.

With its new membership in the Star Alliance beginning in mid-2012, Copa should benefit from increased traffic from members of other airline loyalty schemes in the alliance, especially the merged United Continental. As well, it has added new US destinations, such as Las Vegas in 2012, and Boston in 2013.

With the widening of the Panama Canal in 2016 forecast to add substantially to trade and visitors to Panama, and with the boost to its capacity through adding seven new Boeing 737-800s in 2013, it is reasonable to expect Copa's traffic to continue rising over the next few years.

Assuming that the airline keeps its costs competitive, and maintains its conservative policy of fuel hedging to offset the risk of higher prices, Copa should be able to maintain its margins at their present levels, and remain a profitable and successful airline, benefiting from the rising demand for air travel from the growing Latin American middle-class.

With earnings of $11-$11.50 per share projected for 2013, Copa is selling at around 12-times forecast earnings. It pays around 30% of its earnings as a single annual dividend in June of each year, giving it a yield of 1.7%, although it paid a dividend early in December 2012, to beat the change in US dividend tax law.

Copa Holdings is a buy for investors, willing to put up with the volatility inherent in airlines, as a play on growing air traffic and rising incomes in Latin America and the Caribbean.

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This Real Estate Opportunity Killed My Business... But It Could Make You 30% Gains

In search of a second income after graduating from college, I started a small real estate publication that worked with local real estate agents to help promote their home listings. 

By broad standards, my venture could be labeled a success: On a startup cost of just $20, it had a 15-year run without needing another dime to keep it solvent. Although it certainly didn't make me wealthy, it was self-sustaining and provided me with enough extra cash to drive nice cars and purchase several decent home properties.

 

Then, the cash cow began to die. I was selling less in marketing and advertising services. By 2005, there wasn't enough money coming in to keep the doors open. The combination of the Internet, the housing bubble, and a consolidation of regional real estate shops had squashed the need for my little company. The market had spoken, and my business was finished.

One of the main catalysts for my company was the fragmented nature of the real estate business: It was mostly mom-and-pop shops with several regional chains mixed into the wide variety of offices dedicated to selling residential real estate. 

Other than the often bug-filled and severely lacking multiple listing services, there was no way for real estate agents to differentiate themselves and promote their home listings outside of their company network. My company offered an inexpensive and effective method of intra-real estate office marketing. Other than the Internet, which was slow to catch on with the often middle-age and older real estate agents, consolidation of real estate sales offices hurt my business much more than even the market crash. However, at the same time, this consolidation provides a great way for investors to profit.

Arguably the most successful of these real estate company consolidation firms is Madison, N.J.-based Realogy (NYSE: RLGY).

Given the recent rebound in the real estate market, I think it's an ideal time to invest in this growing company. Realogy is the world's leading franchisor of real estate brokerages. The company's franchise members operate 13,500 offices and employ nearly 250,000 sales associates in more than 100 countries. The company owns household names such as Better Homes and Gardens Real Estate, Century 21 Real Estate, Coldwell Banker, Coldwell Banker Commercial, ERA Real Estate, Sotheby's International Realty and NRT, not to mention related businesses such as relocation service company Cactus Corp. and Title Resource Group, a settlement services and title company. 

Realogy posted impressive second-quarter 2013 results with net revenue of more than $1.5 billion representing a 17% increase from the same period last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) was up 27%, to nearly $280 million. In addition, the $330 million retirement of high-cost debt and the $492 million refinancing of 11.5% debt with $500 million of nearly 3.4% debt will continue to help the company's bottom line. Realogy expects year-over-year improvement of 17% to 19% in third-quarter home sale transaction volume. 

Considering that real estate firms earn commission from selling other people's property, real estate may be the perfect business: no inventory or commissioned salespeople, but unlimited upside. Combine this potential with the upward swing in the real estate market, and it equals a great opportunity to invest in Realogy.

Risks to Consider: Things are looking positive in the real estate sector. But there is no guarantee the positive trend will continue. The real estate market is tightly tied to the economy as a whole. Any further issues with the macroeconomic picture could negatively affect this stock. Always use stops, diversification and position size wisely when investing.

Action to Take --> Taking a look at the technical picture, the price has been in a choppy channel between $46 and $52 on the daily chart. Buying now in between $46 and $47 should allow you to get in at the bottom part of the current range. My 12-month target is $60. Stops at $42.50 will allow for more potential consolidation prior to the next upswing.

P.S. -- Part of investing is finding little-known stocks like Realogy that offer huge upside... That's why we've recently put together a special report on 17 little-known "spin-off" companies. Because of the way they were formed, these companies have beat the market 7-to-1 in the past decade and raised dividends as much as 600%, yet most investors don't understand them at all. To get the names and tickers of some of these stocks immediately, click here.

10 Best Small Cap Stocks To Own For 2014

Following the sale of several wireless markets to Verizon in which U.S. Cellular� (NYSE: USM  ) received $480 million, the�cellular services provider�announced yesterday that it will be paying investors a special dividend of $5.75 per share.

The board of directors said the special dividend is payable on June 25 to the holders of record at the close of business on June 11.

U.S. Cellular President and CEO said: "We have a strong balance sheet and ample liquidity from our cash balances and the recent divestiture transaction, enabling us to issue this special cash dividend and continue to invest in our business and pursue our strategic initiatives to position U.S. Cellular for long-term success."

The Chicago-based wireless carrier does not pay a regular dividend.

10 Best Small Cap Stocks To Own For 2014: Petroquest Energy Inc(PQ)

PetroQuest Energy, Inc. operates as an independent oil and gas company. It engages in the acquisition, exploration, development, and operation of oil and gas properties in Oklahoma, Arkansas, and Texas, as well as onshore and in the shallow waters offshore the Gulf Coast Basin. As of December 31, 2009, the company had estimated proved reserves of 1,931 thousand barrels of oil and 167,361 million cubic feet equivalent of natural gas. It owned working interests in 9 net producing oil wells and 277 net producing gas wells. PetroQuest Energy was founded in 1983 and is headquartered in Lafayette, Louisiana.

Advisors' Opinion:

• [By SmallCap Investor]

  Shares traded sharply higher after the oil and gas explorer issued an operational update that revealed details of a discovery at its La Cantera site in Louisiana. Raymond James analysts bumped the stock rating to market perform based on the new findings and an improving balance sheet.

10 Best Small Cap Stocks To Own For 2014: bebe stores inc.(BEBE)

bebe stores, inc. engages in the design, development, and production of women?s apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21 to 34-year-old woman. As of July 2, 2011, it operated 252 retail stores, and an online store at bebe.com in the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in south east Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey. The company was founded in 1976 and is headquartered in Brisbane, California.

Advisors' Opinion:

• [By Wyatt Research]

  The women's apparel retailer reported fiscal fourth-quarter sales and same-store sales both rose 7 percent. The stock is up 30 percent year-to-date.

10 Best Financial Stocks To Buy For 2014: EZchip Semiconductor Limited(EZCH)

EZchip, a fabless semiconductor company, engages in the development and marketing of Ethernet network processors for networking equipment. Its products include network processor chips, evaluation boards and network-processor based systems, and development software toolkits. The company offers network processors for use in forming the silicon core of networking equipment, such as switches and routers; and for voice, video and data integration in various applications. Its network processors are single-chip solutions, which enable its customers to design multi-port line cards, such as processing and classification engines, traffic managers, media access controllers, as well as a range of specialized hardware blocks that accelerate various functions. The company offers Evaluation systems which enable customers to test NPU-based systems; and toolkits that assist customers in creating, verifying, and implementing solutions based on its network processors. It provides a library f eaturing data plane code for a range of applications, which include Metro Ethernet protocols, Multi-Protocol Label Switching, IPv4 and IPv6 routing, Access Control Lists, GPON/EPON OLT functionality, Network Address Translation, and Server Load Balancing. The company sells its products directly, and through contract manufacturers and distributors to network equipment vendors. It markets its products in Israel, China, Hong Kong, the Far East, Canada, the United States, and Europe. The company was formerly known as LanOptics Ltd. and changed its name to EZchip Semiconductor Ltd. in July 2008. EZchip Semiconductor Ltd. was founded in 1989 and is based in Yokneam, Israel.

Advisors' Opinion:

• [By Paul]  

  Known for designing high-speed networking equipment chips. They had a solid first quarter as revenue gained 38% and now they are sitting on $75 million of cash with no expenses or debt. I believe this is a strong technology bet and I place a target of $30.

10 Best Small Cap Stocks To Own For 2014: Voyager Oil & Gas Inc.(VOG)

Voyager Oil & Gas, Inc. engages in the exploration and production of oil and gas in the United States. It primarily focuses on oil shale resource prospects in Montana, North Dakota, Colorado, and Wyoming. As of May 17, 2011, the company controlled approximately 141,500 net acres in the five primary prospect areas comprising 28,000 net acres targeting the Bakken/Three Forks in North Dakota and Montana; 14,200 net acres targeting the Niobrara formation in Colorado and Wyoming; 800 net acres targeting a Red River prospect in Montana; 33,500 net acres in a joint venture targeting the Heath Shale formation in Musselshell, Petroleum, Garfield, and Fergus counties of Montana; and 65,000 net acres in a joint venture in the Tiger Ridge gas field in Blaine, Hill, and Chouteau counties of Montana. It supplies energy and fuel for industrial, commercial, and individual consumers. The company is based in Billings, Montana.

Advisors' Opinion:

• [By SmallCap Investor]

  Shares of this explorer, which has operations in the Western U.S., crossed back above $3 and have risen 40 percent in the past month, amid increasing investor interest in companies drilling in the Bakken region.

10 Best Small Cap Stocks To Own For 2014: Sky-mobi Limited(MOBI)

Sky-mobi Limited engages in the operation of a mobile application store in the People?s Republic of China. It works with handset companies to pre-install its Maopao mobile application store on handsets and with content developers to provide users with applications and content titles. The users of its Maopao store could browse, download, and purchase a range of applications and content, such as single-player games, mobile music, and books. The company?s Maopao store enables mobile applications and content to be downloaded and run on various mobile handsets with hardware and operating system configurations. It also operates a mobile social network community, the Maopao Community, where it offers localized mobile social games, as well as applications and content with social network functions to its registered members. The company owns proprietary mobile application technology in the cloud computing, the MRP format, and SDK development environment. As of March 31, 2011, it had entered into cooperation agreements with approximately 523 handset companies to pre-install Maopao. The company was formerly known as Profit Star Limited and changed its name to Sky-Mobi Limited in October 2010. Sky-mobi Limited was incorporated in 2007 and is headquartered in Hangzhou, China.

Advisors' Opinion:

• [By Wyatt Research Staff]

  MOBI hit another 52-week high of $12.15 late last week. The stock continues to surge on increasing volume. The latest advance in share price came after Oppenheimer upgraded the stock to "Outperform".

  Last week, the China-based internet portal and gaming provider giant Sohu.com (Nasdaq: SOHU), announced an advertising agreement with MOBI.

10 Best Small Cap Stocks To Own For 2014: Hot Topic Inc.(HOTT)

Hot Topic, Inc., together with its subsidiaries, operates as a mall- and Web-based specialty retailer in the United States. The company operates Hot Topic and Torrid store concepts, as well as an e-space music discovery concept, ShockHound. Its Hot Topic stores sell music/pop culture-licensed merchandise, including tee shirts, hats, posters, stickers, patches, postcards, books, novelty accessories, CDs, and DVDs; and music/pop culture-influenced merchandise comprising women?s and men?s apparel and accessories, such as woven and knit tops, skirts, pants, shorts, jackets, shoes, costume jewelry, body jewelry, sunglasses, cosmetics, leather accessories, and gift items for young men and women primarily between the ages of 12 and 22. The company?s Torrid stores sells casual and dressy jeans and pants, fashion and novelty tops, sweaters, skirts, jackets, dresses, hosiery, shoes, intimate apparel, and fashion accessories for various lifestyles for plus-size females primarily betw een the ages of 15 and 29. As of July 30, 2011, it operated 636 Hot Topic stores in 50 states, Puerto Rico, and Canada; 145 Torrid stores; and Internet stores, hottopic.com and torrid.com. The company was founded in 1988 and is headquartered in City of Industry, California.

Advisors' Opinion:

• [By Wyatt Research]

  The teen retailer reported its same-store sales rose 0.4 percent, with same-store sales at its Torrid chain for overweight teens rising 7 percent. Analysts were expecting a decline.

10 Best Small Cap Stocks To Own For 2014: Achillion Pharmaceuticals Inc.(ACHN)

Achillion Pharmaceuticals, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of treatments for infectious diseases. The company focuses on the development of antivirals for the treatment of chronic hepatitis C; and the development of antibacterials for the treatment of resistant bacterial infections. Its drug candidates for the treatment of chronic HCV include ACH-1625, a protease inhibitor, which is in phase IIa clinical trial for the treatment of chronic HCV; ACH-2684, a pangenotypic protease inhibitor, which is in phase I clinical trial for the treatment of chronic HCV infection; and NS5A inhibitors for the treatment of chronic HCV infection, including ACH-2928, which is to enter a phase I clinical trial, as well as various additional NS5A inhibitors in preclinical development. Its pipeline of product candidates also includes ACH-702 and ACH-2881 for drug resistant bacterial infections; elvucitabine for HIV infection; and AC H-1095 for HCV infection. The company was founded in 1998 and is based in New Haven, Connecticut.

Advisors' Opinion:

• [By Wyatt Research]

  The developer of treatments for infectious diseases has seen its shares rise 280 percent in the past year, and last month had a successful sale of 1.44 million more shares that raised $60.9 million.

• [By Brian Nichols]

  Achillion is an odd play because it has both the most upside and the most downside of any stock on this list. The company's developing and testing its hepatitis C treating drug, ACH-1625, which is currently in phase II. The results of initial testing have consisted of ups and downs, but after many years and a long process, ACH-1625, appears to be on the right track for an FDA approval.

  The upside in shares of ACHN comes from two places: encouraging data from trials and its likelihood of being acquired. In my opinion, ACHN has a very high chance of being acquired in the next 6 months. Both Pharmasset (VRUS) and Inhibitex (INHX) were acquired over the last 5 months with insanely large premiums. VRUS was purchased at a 81% premium and INHX for a 182% premium. ACHN is perhaps the most speculative, but it could also be purchased the cheapest.

  The stock's recently pulled back after a downgrade and is trading much lower over the last couple weeks. The stock's trend reminds me so much of INHX; the month following the VRUS acquisition when INHX traded higher by nearly 300%. But then after the one-month gain, INHX lost its momentum and traded lower by 40% before being acquired with a 182% premium. INHX traded higher after the VRUS purchase because investors thought it would also be acquired, because of its hepatitis C candidate. ACHN is following the same trend, from November 12 till January 13 the stock more than doubled, but has since retraced.

  At $10 I think ACHN is a buy, it does have a good HCV candidate, and I believe that big pharma will bid to acquire ACHN in the near future. However, the risk in ACHN is if the company's not acquired, then it could have significant loss over the next year. But in a competitive biotechnology industry I believe the reward is worth the risk, and that a large pharma company will take the chance and purchase ACHN in an attempt to stay competitive and capitalize on the trend of investors being bullish on HCV treating drugs.

10 Best Small Cap Stocks To Own For 2014: ATA Inc.(ATAI)

ATA Inc., through its subsidiaries, provides computer-based testing services in the People?s Republic of China. It offers services for the creation and delivery of computer-based tests utilizing its test delivery platform, proprietary testing technologies, and testing services; and provides logistical support services relating to test administration. The company?s computer-based testing services are used for professional licensure and certification tests in various industries, including information technology (IT) services, banking, securities, teaching, and insurance. Its e-testing platform integrates various aspects of the test delivery process for computer-based tests ranging from test form compilation to test scoring, and results analysis. ATA also provides career-oriented educational services, such as single course programs, degree major course programs, and pre-occupational training programs focusing on preparing students to pass IT and other vocational certification tests; test preparation and training programs and services to test candidates preparing to take professional certification tests in securities, futures, banking, insurance and teaching industries; online test preparation and training platform for the securities and banking industries; and test preparation software for the teaching industry. In addition, the company offers HR select employee assessment solution, an online system that utilizes its proprietary software and an inventory of test titles to help employers improve the efficiency and accuracy of their employee recruitment process. As of March 31, 2010, it had contractual relationships with 1,988 ATA authorized test centers. The company serves Chinese governmental agencies, professional associations, IT vendors, and Chinese educational institutions, as well as individual test preparation services. ATA Inc. was founded in 1999 and is based in Beijing, the People?s Republic of China.

Advisors' Opinion:

• [By Wyatt Research Staff]

  The Chinese-based educator spiked higher recently after it exceeded analysts' expectations. Revenue and adjusted earnings soared 78% and 269%, respectively. Its long-term annual growth rate is 15%.

  Analysts at Zacks Investment Research upgraded shares from "neutral" to "outperform". 

10 Best Small Cap Stocks To Own For 2014: OCZ Technology Group Inc(OCZ)

OCZ Technology Group, Inc. designs, develops, manufactures, and distributes computer components for computing devices and systems worldwide. It primarily offers solid state drives, flash memory storage, memory modules, thermal management solutions, AC/DC switching power supply units, and computer gaming solutions. The company?s products are used in industrial equipment and computer systems; computer and computer gaming solutions; mission critical servers and high end workstations; personal computer (PC) upgrades to extend the useable life of existing PCs; high performance computing and scientific computing; video and music editing; home theatre PCs and digital home convergence products; and digital photography and digital image manipulation computers. OCZ Technology Group, Inc. offers its products to retailers, on-line retailers, original equipment manufacturers, systems integrators, and distributors. The company was founded in 2002 and is headquartered in San Jose, Califo rnia.

Advisors' Opinion:

• [By Wyatt Research]

  The maker of solid state drives for computers reported revenue more than doubled and posted adjusted net income of 1 cent per share. It predicted a full-year revenue rise of at least 65 percent. The share price has jumped 210 percent in the past year.

10 Best Small Cap Stocks To Own For 2014: Rackspace Hosting Inc(RAX)

Rackspace Hosting, Inc. operates in the hosting and cloud computing industry. It provides information technology (IT) as a service, managing Web-based IT systems for small and medium-sized businesses, as well as large enterprises worldwide. The company?s service suite includes dedicated hosting comprising customer management portal and other management tools that manage data center, network, hardware devices, and operating system software; and cloud computing that enables customers to provide and manage a pool of computing resources, as well as delivery of computing resources to business when they need them. It offers cloud servers, cloud files, and cloud sites, as well as cloud applications, such as email, collaboration, and file back-ups; and hybrid hosting that provides a combination of dedicated hosting and cloud computing services. The company also offers customer support services. It sells its service suite through direct sales teams, third-party channel partners, an d online ordering. The company was formerly known as Rackspace.com, Inc. and changed its name to Rackspace Hosting, Inc. in June 2008. Rackspace Hosting, Inc. was founded in 1998 and is headquartered in San Antonio, Texas.

Advisors' Opinion:

• [By Sherry Jim]  

  This computing specialist that provides web-based IT systems has soared 60%+ in the past year.  With a P/S above 3 and Price to Cash of 10 this stock is poised to continue to soar and outperform it’s peers. $25 in a year is a realistic bet.

Should You Fear the Sheriff of Wall Street?

Former political pariah Eliot Spitzer has made headlines recently with his re-emergence into the public-service arena. Spitzer initially gained notoriety as the attorney general of New York, a position that gave him the nickname "The Sheriff of Wall Street." Now running for state comptroller, a role that includes overseeing the New York's $139 billion pension funds, Spitzer vows to resume his hard-line stance on public companies. The politician has already proved he isn't afraid of going after big-name financial institutions, and he has a record of chasing down fraudsters of all shapes and sizes. When it comes to your investments, are you worried about the second coming of The Sheriff of Wall Street?

Go-getter
Before Eliot Spitzer's fall from grace as New York governor in 2008, he had maintained a strong reputation as a statesman. As attorney general, Spitzer brought the 1921 Martin Act back to life. The Martin Act is a New York piece of legislation that gives power to the attorney general to chase down financial frauds. It's the only law of its kind among the 50 states.

Using the law and his powers as attorney general, Spitzer hunted down the likes of Hank Greenberg, the former chief of AIG (NYSE: AIG  ) . Alleging that Greenberg misled investors as to the financial health of the world's largest insurer, Spitzer eventually forced the CEO to resign in 2005. As the world found out just a couple of years later, Spitzer may have been on to something in suing Greenberg for fraud. Even after his time as attorney general and governor, Spitzer continued to lambast Greenberg and AIG's actions in writing his 2009 editorial in Slate. In what appears to be an act of vengeance, Greenberg has just now opened a lawsuit against Spitzer (announced one day after Spitzer's name was added to the ballot) on grounds of defamation.

For AIG and its investors, the potential return of Spitzer likely isn't anything to stress over. For one, AIG has rebounded wonderfully from its financial-crisis lows. The company has a much stronger balance sheet and maintains a more positive view in the eye of both Streets -- Wall and Main.

Furthermore, Spitzer as comptroller would not meaningfully threaten public companies or their investors.

A different tune
As comptroller, Spitzer would be in more of an oversight role -- regardless of his platform of restoring confidence to Wall Street. While it holds some influence and is a crucial part of the state's financial management, the office would not enable a full reinstatement of the Sheriff.

The state's pension funds invest in thousands of companies, with few holding substantial influence. The state's largest position is in ExxonMobil, with more than $1 billion invested -- that's 0.25% of the company. Reuters reported that current Comptroller John Liu filed 61 shareholder proposals during his tenure, only one-third of which were backed by other shareholders. Thirty-one proposals went to vote, and just eight passed.

There is quite a bit of chatter that the major financial institutions are trembling over Spitzer's renewed political ambitions -- but this may simply be media hype. As an investor, you have little to worry about: The former Sheriff, if elected, will not have the same arsenal this time around.

More from The Motley Fool
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Why Limoneira's Earnings May Not Be So Hot

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 Limoneira (Nasdaq: LMNR  ) , 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, Limoneira burned $7.2 million cash while it booked net income of $4.6 million. That means it burned through all its revenue and more. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

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 Limoneira look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

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

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

With questionable cash flows amounting to only 2.4% of operating cash flow, Limoneira's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, changes in taxes payable provided the biggest boost, at 37.2% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures. Limoneira investors may also want to keep an eye on accounts receivable, because the TTM change is 3.9 times greater than the average swing over the past 5 fiscal years.

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.

Looking for alternatives to Limoneira? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

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

Add Limoneira to My Watchlist.

Why Shanda Games Shares Dropped

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

What: Shares of Shanda Games  (NASDAQ: GAME  ) fell 20% today after the company announced an acquisition.

So what: The company will buy affiliates who provide user and payment platform services from Shanda Interactive for $811.5 million. Management says it will lower costs and improve earnings by about 40% to 50% going forward.  

Now what: The big question is whether or not Shanda shareholders are paying too much for these assets. The company hasn't been able to grow earnings over the past three years, and now it's spending cash that may reduce the risk of falling earnings to acquire an affiliate at over half the value of Shanda Games itself? The company will also have to take on a significant amount of debt to complete the acquisition, and I don't think it will help the stock in the long term at all.

Interested in more info on Shanda Games? Add it to your watchlist by clicking here.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

50 Ways to Make Money at Home and Online

In this economy, making money online or part-time is an attractive proposition. It may seem intimidating at first, but don't worry -- you needn't be a design maven, crochet whiz or computer savant to earn a little extra on the side. Here are a few ways to turn what you currently have (stuff, skills, un-skills) into a little extra cash.

Plug your money leaks
Remember that while cutting back on expenses definitely helps your budget, the easiest way to save money is to make more. Still, we'll start off with some easy tips to stop bleeding money where it doesn't actually help much.

1. Refinance your mortgage
Interest rates are at an all time low, and many families are considering refinancing their home to save on monthly mortgage payments. Determine whether or not refinancing will save you money in the long term by following this guide.

2. Switch providers
Don't assume that your cable, phone and Internet bills are locked into a slow but inexorable climb. Taking the first provider that comes along is a great way to waste money that can be saved elsewhere. Once you reach the terms of your contract, get on the phone or in an office and negotiate your bill down – or at least get a few perks thrown in for free.

3. Get rid of cable
Cable can rack up a hefty bill over a year, especially when you keep pay-per-view, premium channel, and miscellaneous costs in mind. Opt for online providers like Netflix or Hulu Plus that let you stream shows directly onto your computer, mobile device, or TV.

Pro tip: Switch between 30-day trial periods of Netflix, Hulu Plus and Amazon Prime to get a full season of free watching.

4. Use credit cards with the best rewards
The best parts about credit cards are the perks and rewards that come with them. By using a card with shoddy rewards or cash back, you are doing yourself and your budget a disservice. Find a credit card that rewards wherever you spend the most, whether that's travel, gas, groceries, or (ohmigod) shoes -- the NerdWallet credit card tool makes personalized recommendations based on your own spending habits.

Pro tip: Use the calculator button to further customize your recommendation.

5. Invest wisely
You're never too young to start investing -- in fact, the time to have an aggressive (high risk, high reward) profile is when you're younger, and you don't plan to use the money for a couple decades. But there's no reason to pay top dollar for actively managed mutual funds. Despite the prestige and high fees, active funds outperform the market only 24% of the time. You're much better with an index fund, which has much lower fees and will probably get you a better return for your money. Stop paying to lose money!

6. Pay off your debt
You know how I just told you to invest? Paying off high-interest debt is the best investment you can make. It's virtually impossible to get a guaranteed 12% return on your investments -- unless you're getting rid of credit card debt. Get in the black first before you start looking for babies that talk about stocks. Check out our in-depth article on getting rid of debt for guidelines and ways to lower the interest on your debts.

7. Improve your credit score
This one is a no-brainer. There are multiple sites that let you check your credit score for free. After finding out where you stand, work on improving your score and contact your credit card, personal loan or other issuer to negotiate a lower interest rate.

8. Maximize your tax returns
A great way to boost your income part time happens during a particular part of the year. Take advantage of tax loopholes and exceptions to maximize your long-anticipated tax refund check.

9. Use rewards malls and cashback websites
Little-known fact: You can earn cash back for the money you spend online anyway, just by clicking through another website first. Your credit card probably has a rewards mall that offers 5% back or more on everything from Expedia to Macy's to Zales, and even if it doesn't, you can use straight-up cash-back sites like eBates or Upromise to get an automatic discount on online purchases.

10. Take advantage of rebates and coupons
Often, stores will advertise that they'll beat the lowest price offered by any other competitor. Many credit cards also give price match guarantees, paying the difference if the price drops below a certain amount after you've made the purchase. Check your card's fine print for details. Also, use coupon comparison tools to score quick deals without scouring the Internet or pawing through your neighbors' mail.

11. Consider a flexible savings account (FSA)
Your employer may offer an FSA, which allows you to cover medical expenses not paid by insurance tax-free. This can be anything from out-of-pocket costs to prescriptions to dependent coverage. Because it's tax-advantaged, you'll save up to 30% on medical expenses. Keep in mind, though, that you lose any funds you don't spend at the end of the year, so you need to know your budget well. If you have a high-deductible insurance plan, you can also contribute to a health savings account (HSA), which doesn't lose money at year-end.

Turn money into more money
You can set policies in place to grow your existing money further. Someone pretty smart once said that compounding is the greatest force in the universe. Keep in mind that both of the following techniques compound, meaning that taking action now will yield even larger benefits in the future.

12. Max out your IRA and 401(k)
Max out your 401(k) and IRA contributions every year -- not only will you receive a tax benefit, but given the low interest-rate environment, you're much better putting your money in the markets than sticking it into a savings account that doesn't beat inflation. A 22-year-old who invests $5,000 in an IRA and never invests again will enjoy $137,000 at retirement, compared to just $101,000 if she invested in a regular savings account. It doesn't matter how old you are -- unless you're paying off debt, the time to start saving for retirement is now.

13. Ask for a raise
Like we said, saving money is all well and good, but making more money is even better. Try negotiating for a raise -- even in a tough job economy, sitting down at the bargaining table with politeness, confidence and respect for yourself and the organization can have its benefits. Here's a great flow chart scripting a possible conversation -- preparation is key.

Pro tip: Catch your boss when she's in a good mood, but don't let her know you know she's in a good mood.

Mo' money, less clutter
Okay, let's be honest. Chances are, you have too much stuff. If you can identify high-value items and present them well, you can have a cleaner, more simple living space as well as money to spend on what you really want.

14. Have a garage sale
Wipe off the dust, clear out the storage closet, and set up a garage sale. Put some effort into presentation: Items lovingly arrayed on a plastic tablecloth will sell better than those chucked into a cardboard box. If you don't have enough clutter to warrant a garage sale on your own, rope a few other neighbors into a neighborhood-wide sale.

15. Value your antiques and collectibles
Dig into storage, sell off what is valuable and throw away the rest. Before you sell indiscriminately, get your collectibles, antiques, and heirlooms appraised. You may be selling rare valuable items at underpriced rates otherwise. After you've consulted with an expert, do a gut check by looking at eBay and similar websites to see if the price is reasonable.

16. Free and flea market flipping
Browse the "free" section on Craigslist or your local flea market for interesting items. Add your own special touches, restore the items, and resell for a profit. Buy interesting items both online and at your local flea market and restore them and resell for a profit. Flea Market Flips offers some great ideas for trash-to-treasure projects.

17. Sell your old mobile phone
Given the rate at which we churn through cell phones these days, you probably have an old cell phone lying around. Amazon offers gift cards for fully functional iPhones, while specialty sites like Gazelle and Swappa specialize in cash for cell phones.

18. Turn in printer cartridges
Many office supply stores, from Staples to Office Depot, will offer credits for empty printer cartridges. Not only is it good for your wallet, but it's good for the environment.

Take part in the share economy
If you have an extra anything, chances are there's someone who'd like to borrow it from you. As the so-called "share economy" grows, you have an increasing opportunity to get cash for your idling machines and empty space.

19. Rent out an underused parking spot
Parking spots can be a hot commodity, particularly in crowded cities. If you happen to be holding on to a coveted spot that you do not use all the time, put it up for rent on Craigslist. If your landlord or building offers you parking at a discount rate, consider seeing whether you can rent it out for a higher price -- assuming you're allowed to do so, of course.

20. Rent out a spare bedroom
If that extra guest bedroom in your midtown Manhattan walk-up is left unused, consider renting it out on Airbnb.com or other vacation rental sites. Make sure that everything is kosher with your rental agreement beforehand.

Pro tip: Even if you don't have a spare bedroom, chances are there's a college kid willing to pay for four walls, a door, an air mattress, a shower and more privacy than a hostel affords.

21. Rent out your car
Don't need your car on the weekend or during the day? Going on a trip? Services like Getaround and RelayRides let you rent out your car by the hour, while FlightCar arranges for an incoming traveler to rent your car rather than you having to pay for airport parking and letting it sit idle.

Turn talent into a paycheck

22. Crafty? Crochet away!
Have a penchant for crocheting, jewelry-making or embroidery? Sell your goods on Etsy.com. Etsy is the go-to site for artisans and simply impassioned folk selling home goods, paintings, and knickknacks.

Pro tip: Offer to make personalized products -- not only does it establish an emotional connection with the customer, but it often brings in more income.

23. Become a freelance writer
Sites like eHow and Livestrong will pay by the article for content on anything from business to tech to how to fart. While they say you'll need "professional experience" or a degree or certification, honestly, there's not much you'll be asked to write that a quick tour of Google can't make you an expert on.

24. Take up a skilled freelance gig
Websites like TaskRabbit, Odesk, and Craigslist offer opportunities to avid freelancers to pick up programming, design, and marketing jobs on the side. Working on a per-project basis lets your balance your side job with your current one. Sites like Freelancer.com can also offer a leg up.

25. Small-scale catering
Fancy yourself to be the next Iron Chef? Take those skills to the marketplace by setting up your own catering business that you can run out of your own kitchen on the weekend. Cook for dinners, birthday parties and friends' events; or just bake a bunch of cookies and stand outside the nearest bar at 2 a.m.

Heads up: Be careful to comply with food safety laws.

26. Become an online travel agent
Have a knack for finding the best deals on Expedia? Hawk your services as a low-cost alternative to full service travel agencies. You can earn a pretty commission by doing what you love.

27. Bartend
The great thing about nightlife is that it doesn't conflict with day life. Pick up late-night or weekend shifts to earn some extra income without sacrificing hours at your current job or studies.

28. Tutor
If you were an SAT whiz, there is a huge market for competitive parents and children looking for private tutors. Join a large company like Kaplan or Princeton Review, or tutor at your own schedule by going private.

29. Affiliate marketing
Do you write emails to your friends and family that actually get read? Are you blessed with a silver tongue, razor wit or keen eye for society? Write it up. Join an affiliate network (Amazon has a good one) to earn money whenever someone buys the product by going through your website or blog.

Turn lack of talent into a paycheck
You don't need to be a master craftsman, mixologist or Iron Chef to earn supplementary income. Here are some income boosters that don't require specialized skills.

30. Get paid to be a reviewer
Although you may fancy your Yelp Elite status, all those reviews really did not pay for much but a fancy badge and a few exclusive invites. Take your review skills to the marketplace and earn $1-$50 per review, depending on quality and technical knowledge required.

31. Sell your photos
Stock photo websites like iStockPhoto purchase images from everyday people. Even if you aren't Ansel Adams, the most commonly requested (and often overlooked) photos often include everyday images like stop signs, coffee cups and other everyday objects.

32. Resell food
True story: In college, Zappos founder Tony Hseih bought pizza from a parlor down the road and resold it at a profit in his college dorm room. His friend Alfred Lin would always buy two pizzas a night -- Hseih assumed he was just hungry. Turns out Lin was actually taking the pizzas upstairs and selling them at a slice for an even tidier profit. He later went on to become the Zappos COO.

Anyway, long story short, you can probably find lazy, hungry college kids and young adults outside of bars and in parks. They will happily buy pizza, beer and water by the unit and pay handsomely for the convenience.

Heads up: This is not exactly FDA-approved.

33. Referrals
Services as diverse as your cable company to your orthodontist will pay a nice little gift for both referrer and referred. Small businesses and companies just getting off the ground are often the most likely to give referral bonuses.

Pro tip: Your employer might well give referral bonuses, too, so scour your personal networks to see if you know a good fit for open positions.

34. Survey websites
Although those posters on the side of the road may overshoot how much you can potentially make by simply answering surveys online, generating a side income from online surveys is still possible and profitable.

35. You must be good at babysitting
Get yourself registered on a reliable sitter search website and get to work. Babysitters can make great pay and get some benefits like free Wi-Fi thrown in as well.

36. You aren't? Are you good at petsitting?
Most pet owners actually cannot afford a luxury weekend for their pet at the kennel. Price your rates competitively during your stint as a pet sitter and make sure your place allows for multiple pets. Many sites, such as Care.com, offer job boards for pet sitters and those looking for animal care.

37. Really? Still? Okay, how about house-sitting?
Even if you hate kids and animals, you can look for house-sitting gigs through personal referrals, Craigslist, or websites like Mind My House.

Pro tip: Double up the income by renting our your own domicile while house-sitting.

38. Participate in clinical research
Hospitals and academic medical centers live, breathe, and thrive on clinical trials. Most participants are paid a good amount of money for their dedication to research and the trial. Do not overload on this option, as being enrolled in too many trials with conflicting pharmaceutical regiments may lead to skewed results and a medically unhappy you.

39. Engage in market research
Market research is the bread and butter of advertisement agencies. Many large ad agencies will conduct large focus groups to better tailor their strategies. Contact a local or large market research firm and secure your spot in a future group.

40. Become a tour guide
If you happen to know a bit more history concerning the old town square than the average citizen (or if you can just Wikipedia it), consider running your own personal tour guide business. Walking tours are en vogue, and you can advertise your services on TripAdvisor for tourists looking for an insider's perspective.

41. Find seasonal work
Snow shoveling, amusement park work, holiday staffing and lifeguarding are all seasonal work options that are low commitment and can be done sparingly according to your schedule. You want flexibility, employers want flexibility -- it works.

42. Become a part-time care taker
With the baby boomer generation retiring, many older folk in your community will require the services of a caretaker to help them around the house and with chores. Make a side income at a job that helps you contribute to your local community.

43. Host a foreign exchange student
Hosting an exchange student can be a source of cultural, as well as material, enrichment. Check out the number of hosting sites online, or contact your local high school or college for international student programs.

44. Data entry
Pick up administrative and data entry jobs that can be done by telecommuting, on Craigslist, or at your college campus's career center.

45. Become an on-site manager or landlord
Earn a spot to live rent-free while making a side income as an on-site manager for apartment building owners that live outside of town.

46. Garden
Turn your passion for all things green into a side business by offering landscaping and gardening tutorials to fellow flower aficionados.

47. Donate plasma, sperm or blood
These three precious bodily liquids are always in demand, and you can often get paid for the service. Be careful, though: Only go with reputable organizations that won't leave you in an ice-filled bathtub minus a kidney.

Heads up: The Red Cross recommends waiting 28 days between plasma donations and 56 between blood donations, and not exceeding 13 plasma donations a year.

48. Become a mystery shopper
Yes, they really do exist. Market research firms and companies doing internal audits often want to see how their stores perform from a customer's perspective, so sign up to become their eyes and ears.

49. Micro-task
Services such as Amazon Mechanical Turk connect businesses with a cohort of individuals looking to make a little cash on the side (i.e., you), in order to crowdsource small tasks. You can walk away with a nice check or gift card for a few hours of work.

50. Join a car service
The taxicab industry used to be limited to a handful of licensed professionals. Now, companies like Sidecar, Lyft and Flightcar allow anyone with a license to perform the same functions as a taxi driver, but with greater flexibility, and sometimes better pay.

Declining Spreads Are a Big Concern for Oil and Rail Companies

Since the recession, there has been a noticeable pricing gap between West Texas Intermediate crude, a lighter grade of oil used as the benchmark for pricing in the U.S., and Brent crude, the European crude benchmark of light sweet crude produced from the North Sea.

Historically, these two oil types have traded almost in tandem with one another. However, the recession and subsequent economic and supply troubles of the U.S. and Europe changed all that.

Source: Energy Information Administration.

Because of decreased production in the U.S. and supply issues in Europe, Brent crude was at one time valued at $28 more per barrel than WTI. Some had actually questioned the importance of WTI in terms of overall global pricing given the strength that Brent had been exhibiting. 

This gap, while troublesome for midstream companies that had developed intricate transmission, pipeline, and storage systems that delivered oil assets to Cushing, Okla., the major oil hub of the U.S., turned out to be a boon for many independent oil companies operating in the oil-rich Bakken shale and Permian basin. It also was also a big help at just the right time for the railroads as commodity shipments like coal have dropped off a cliff because of cheaper alternative energy pricing. With oil companies looking to pump up their profits, they turned to railroad companies to ship their oil past Cushing to Louisiana terminals, where they could receive the higher Brent crude price, pay the rail company for shipping, and still walk away with a higher price than WTI in almost every instance.

This has been a lucrative practice for both oil and rail companies, but it may be on the verge of collapsing.

A disappearing spread
According to the Energy Information Administration, last year the U.S. produced an average of 6.5 million barrels of oil per day! That's the quickest rate of production we've witnessed since the mid-1990s, according to a report by The Wall Street Journal. Furthermore, production in May came in at 7.4 million barrels per day, the fastest monthly rate in more than two decades.

As the Obama administration has pushed for greater reliance on domestic oil, U.S. oil and gas companies have responded in record fashion. With the transmission, storage, and pipeline infrastructure in place now that simply wasn't there even five years ago, refiners across the U.S. have been able to use their capacity to refine more domestic WTI and less imported Brent crude. The end result has been an incredible tightening of the spread between Brent and WTI. 

Oil producers are losing their free money
One of the biggest losers of the tightening Brent-WTI spread will be oil and gas drillers that operate in liquid-rich shale assets that historically had delivered production to Cushing, specifically the Bakken and Permian basin.

The Bakken, as my Foolish colleague Matt DiLallo recently pointed out, has seen total oil reserve estimates jump from a range of 3 billion to 4.3 billion barrels five years ago to a current estimate of 7.4 billion. A liquid-rich region like this is highly sought after by oil drillers who want to lessen the impact of still relatively inexpensive natural gas prices. The biggest name in the Bakken, and largest leaseholder, is Continental Resources (NYSE: CLR  ) , which has been shipping close to two-thirds of its Bakken production by rail to Louisiana.

A really intriguing deal was actually forged by refiner Phillips 66 (NYSE: PSX  ) , which struck a five-year deal to ship 50,000 barrels per day of Bakken refined oil to New Jersey. For a refiner that relies on nimbleness and the ability to adapt production based on spreads and demand, this is a risky gamble that WTI will remain cheaper than Brent for quite a long period of time. It could wind up being a gamble that could backfire.

In the Permian Basin, Occidental Petroleum (NYSE: OXY  ) has been a big rail transport beneficiary, since it produced as much oil in 2011 as the No. 2, No. 3, and No. 4 producers combined! Being able to pilfer a few extra dollars per barrel can mean hundreds of millions of dollars extra for companies like Occidental with huge oil exposure.

Derailed
The biggest demand shock, though, could come from railroad companies, which have relied on this spread to drive petroleum transports.

Source: Ron Reiring, commons.wikimedia.org.

Railroad companies have seen declining demand for coal transports across the board, which is disconcerting since it can account for up to 30% of revenue for some companies. Coal, a "dirtier" fuel source, is being replaced with natural gas and other alternative energies by electric utilities looking to cut their long-term production and environmental costs. Furthermore, relatively weak U.S. economic growth coupled by austerity measures in Europe isn't exactly creating a situation where the rails are seeing consumer goods shipping demand pick up.

Notable railroads that could be hit by a slowdown in oil transports because of a declining spread include Canadian National Railway (NYSE: CNI  ) , Union Pacific (NYSE: UNP  ) , and Berkshire Hathaway subsidiary BNSF.

Canadian National may get a bit of a pass since it's developing railway networks, which could be crucial in the transport of oil extracted from Canada's oil sands, but it nonetheless will feel a pinch being one of the Bakken's prime oil-by-rail shippers.

Union Pacific has even more riding on petroleum transports. CEO Jack Koraleski is expecting oil shipments to rise by as much as 40% this year. This may not happen if the Brent-WTI spread tightens further, which could leave Union Pacific in a short-term bind. You see, increased lumber shipments have also been its other recent boon, and with interest rates rising rapidly of late, that too may come to a grinding halt in the form of slower homebuilding efforts.  

Even railway giant BNSF could feel the pinch, although I highly doubt Warren Buffett will bat an eye, with a portfolio of nearly 60 well-diversified investments.

How to play this move
I certainly wouldn't suggest trying to fight this shrinking spread, nor would I suggest abandoning your rail investments, either, since crude transport represents, in most cases, only a small (but growing) portion of their income. I also don't think, without a major surge in WTI, that we'll see a big price difference in the oil drillers themselves. I mean, what they lose from the Brent difference they gain from cheaper shipping costs, since they can sell at the wellhead or in Cushing, which is often a lot closer than Louisiana.

The smart way to play tightening Brent-WTI spreads is by investing in midstream companies that have the pipelines and storage network to handle a boom in oil production. There are frankly too many to list, so consider this a "to be continued" for a few days, when I'll name a few midstream companies that have my undivided attention.

If you're on the lookout for some currently intriguing energy plays, check out The Motley Fool's "3 Stocks for $100 Oil." For free access to this special report, simply click here now.

Best Penny Stocks To Invest In Right Now

If you're a regular reader of StreetAuthority, you know I love getting -- and reinvesting -- dividend paychecks. Simply put, my goal is to earn a paycheck every day of the month by owning a basket of solid income securities -- and then grow the size of those paychecks by harnessing the power of compounding through dividend reinvestment.

So far, the results have been very rewarding. From an initial $200,000 investment, I'm earning nearly $16,000 in dividends a year (or more than $1,300 a month) using this strategy. And that doesn't even include a penny from the healthy capital gains I've made from most of my holdings.

 

But as I said, you may have already heard this before. My goal today is to show you how to get the most out of your income investments using a simple yet effective three-part strategy.

Best Penny Stocks To Invest In Right Now: China Nepstar Chain Drugstore Ltd (NPD)

China Nepstar Chain Drugstore Ltd. operates retail drugstores in the People?s Republic of China. The company?s drugstores provide pharmacy services and other merchandise, including prescription drugs; over-the-counter drugs; nutritional supplements, such as healthcare supplements, vitamins, minerals, and dietary products; herbal products, including drinkable herbal remedies and packages of assorted herbs for making soup; and private label products. Its stores also offer personal care products, such as skin care, hair care, and beauty products; family care products, including portable medical devices for family use, birth control products, and early pregnancy test products; and convenience products, such as soft drinks, packaged snacks, other consumables, cleaning agents, and stationeries, as well as seasonal and promotional items. The company operates its stores under the China Nepstar brand name. As of December 31, 2009, its store network comprised 2,479 retail drugstores located in approximately 71 cities in Guangdong, Jiangsu, Zhejiang, Liaoning, Shandong, Hunan, Fujian, Sichuan, and Hubei provinces, as well as in Shanghai, Tianjin, and Beijing municipalities of the People?s Republic of China. The company was founded in 1995 and is headquartered in Shenzhen, the People?s Republic of China.

Best Penny Stocks To Invest In Right Now: Enstar Group Limited (ESGR)

Enstar Group Limited, through its subsidiaries, acquires and manages insurance and reinsurance companies in run-off. The company settles insurance and reinsurance claims. It also offers management and consultancy, claims inspection, and reinsurance collection services to its affiliates and third-party clients. The company operates in the United States, Bermuda, the United Kingdom, Europe, and Australia. Enstar Group Limited was formerly known as Castlewood Holdings Limited and changed its name to Enstar Group Limited. Enstar Group Limited was founded in 2001 and is based in Hamilton, Bermuda.

Best Blue Chip Companies To Buy For 2014: BGC Partners Inc.(BGCP)

BGC Partners, Inc. operates as a financial intermediary to the financial markets specializing in the brokering of various financial products. It provides electronic marketplaces, including government bond markets, spot foreign exchange, foreign exchange options, corporate bonds, and credit default swaps in various financial markets through its eSpeed- and BGC Trader- branded trading platform which can be accessed through its high speed data network, over the Internet, or third party communication networks. The company?s brokerage services include trade execution, broker-dealer services, clearing, processing, information, and other back office services, as well as cover various products, including fixed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures, and structured products. It also provides financial technology solutions, market data, and analytics related to financial instruments and markets . In addition, the company offers customized screen-based market solutions, which enables its clients to develop a marketplace, trade with their customers, issue debt, trade odd lots, access program trading interfaces, and access its network and intellectual property. Further, it licenses intellectual property portfolio and software solutions to various financial markets participants; and provides software development, software maintenance, customer support, infrastructure, and internal technology services to support electronic trading platforms. The company serves banks, broker-dealers, investment banks, trading firms, hedge funds, governments, investment firms, professional trading firms, futures commission merchants, and other professional market participants and financial institutions in the United States, the United Kingdom, France, Asia, Europe, Africa, the Middle East, and other Americas. The company was founded in 1999 and is based in New York, New York.

Best Penny Stocks To Invest In Right Now: China Valves Technology Inc.(CVVT)

China Valves Technology, Inc., through its subsidiaries, engages in developing, manufacturing, and selling low, medium, and high-pressure metal valves for customers in the electricity, petroleum, chemical, water, gas, nuclear power station, and metal industries in China. The company?s product categories include high pressure and high temperature valves for power station units; valves for long distance petroleum and gas pipelines, and sewage; special valves for chemical lines; and large valves for water supply pipe networks. Its products comprise gate, globe, check, throttle, butterfly, ball, safety, water pressure test, vacuum, and extraction check valves. The company markets its products through regional agents and distributors. China Valves Technology, Inc. has a strategic cooperation frame agreement with Dongfang Electric Corporation for the development of high-end valves. The company was founded in 2007 and is headquartered in Kaifeng, the People's Republic of China. Advisors' Opinion:

• [By Robert Hsu]

  China Valves Technology (NASDAQ: CVVT) recently announced that its subsidiary, Able Delight Valve,  has been certified as a qualified supplier of China Nuclear Power Engineering. This is CVVT’s second subsidiary to receive this certification.

  This is a nice milestone for the company as CVVT continues to gain market share in the nuclear power industry. The demand for nuclear power applications is growing but the inspection of prospective suppliers is strict — and the company believes that the addition of Able Delight as a qualified supplier will become another catalyst for rapid growth in the near future. CVVT is a buy under $10.50.

Best Penny Stocks To Invest In Right Now: Orchids Paper Products Company(TIS)

Orchids Paper Products Company manufactures private label tissue products for the consumer market in the United States. Its product line includes paper towels, bathroom tissue, and paper napkins. The company also offers its products under the Orchids, Velvet, Colortex, Ultra Valu, Dri-Mop, Big Mopper, Soft & Fluffy, Tackle, My-Size, and Care brand names. It serves value retailers (dollar stores), discount retailers, grocery stores, grocery wholesalers and cooperatives, and convenience stores. The company markets its products directly, as well as through independent brokers. Orchids Paper Products Company was founded in 1976 and is headquartered in Pryor, Oklahoma.

Everything You Think You Know About Electric Cars Is Wrong

Last month, the electric-car industry passed a small but important milestone. There are now more than 100,000 electric cars on America's roads, including those that operate as plug-in hybrids. That's happened in just two and a half years, as electric-vehicle sales have only been tallied independently since the last month of 2010, when a mere 345 were first parked in customer garages.

Despite this milestone, there's plenty of pessimism to go around regarding the adoption rate of the plug-in EV, which have thus far made up only half of 1% of all cars sold in the U.S. this year. My fellow Fool -- and resident Foolish auto expert -- John Rosevear offered a succinct overview of that pessimism a couple of months ago, which I'll sum up as this: There's no charging infrastructure, and the batteries make EVs cost more than is justifiable.

Does that mean EVs are a failure?

From the perspective of the broader auto market, and when compared to the ambitious one-million-EV goal set by President Obama for 2015, EV hype seems destined for the junkyard. However, from a historical perspective, EVs aren't doing so badly at all. In fact, most of the common complaints about EVs are simply short-sighted or downright wrong when viewed through either a historical lens or one with a longer time horizon for the future. Let's take a look now.

Historical perspective on the auto industry
The American auto industry effectively began in 1896 with a 13-vehicle production run at the Duryea Motor Wagon plant (or garage, as the case might well be). Three years later, just before the start of the 20th century, there were roughly 8,000 cars on what passed for American roads -- virtually nothing was paved for vehicle travel. There were 8,000 EVs on the road after eight months of tracking. That's not really fair, though, because there are more than three times as many people in the U.S. as there were at the turn of the 20th century. Adjusted for population growth, there should have been 33,000 EVs on the roads after three years. That happened after 19 months, and we're now approaching three times that number midway through the third year of tracking. In fact, EVs are outperforming hybrids at the same point after adoption as well. Here's what that looks like:

Automobile Adoption Rates | Create infographics

I included battery-only EVs on the chart to prove I wasn't fudging the numbers on EV adoption by using plug-in hybrids -- battery-only EVs surpassed the population-adjusted sales pace of the earliest cars with eight months to go in their third year of tracking. It's also worth pointing out that battery-only EVs have outsold plug-in hybrids by more than 1,000 vehicles for each of the past three months and are on track to reach a cumulative total of roughly 68,000 sales at the end of the year.

Why compare EVs with the earliest cars? The "motor wagons" of the late 1800s faced similar challenges to those often attributed to EVs: minimal supporting infrastructure and a high price tag relative to the dominant (horse-drawn) transportation of the day.

The first gas stations wouldn't even be built until almost a decade after the Duryeas built the first 13 cars in America, and they had no drive-up pumps -- that innovation didn't arrive until 1913. There are already more than 6,000 publicly accessible EV charging stations in the country. This doesn't count interesting infrastructure developments such as Tesla's (NASDAQ: TSLA  ) battery-swap stations or its growing network of "superchargers" scattered across the United States. It's also worth noting that EVs, unlike early internal-combustion vehicles, can get recharged in most owners' garages.

A comparison between the price of cars at the start of the 20th century and the price of EVs today shows another advantage in electricity's favor: the average car in 1900 cost nearly twice the typical household income, while the average base price of the top three EVs on the market today -- Nissan's (NASDAQOTH: NSANY  ) Leaf, Tesla's Model S, and General Motors' (NYSE: GM  ) Chevrolet Volt -- is about 90% of the median national income.

However, EVs have a hurdle that the motor wagons didn't -- the competition is already mechanical, and it has a century-plus head start. The earliest autos simply had to be better than a horse, which is limited by biology to a certain speed and a certain work capacity. A horse doesn't have an R&D budget or an assembly line, and you have to clean up after it, which is pretty gross. Its obsolescence was inevitable. EVs have to beat a competitor that's benefited from tens of billions of dollars in global research and development spending each year for decades , and which is a significant part of a worldwide oil-and-manufacturing infrastructure that creates trillions of dollars in annual revenue.

EVs have to overcome an entrenched culture, just as early motor wagons did -- but today's car culture is far more deeply embedded in the national psyche than horses ever were. There's one automobile on American roads for every 2.3 Americans today, compared with one horse for every 3.5 Americans in 1900. The average person traveled about 340 miles per year in 1900, compared with 16,000 miles per year in cars and airplanes today. Despite facing one of the most entrenched opponents in the history of capitalism, EVs are already outperforming the puttering internal-combustion pioneers in terms of market penetration, price, and infrastructure deployment at a similar point after introduction.

Let's sum some of that up visually:

Autos vs. EVs: a Comparison | Infographics

Hard to hold a charge
Of course, with all of that said, we come back to perhaps the biggest roadblock between EVs and mass adoption: Battery technology just isn't as good as gas. "A full tank of gasoline," according to American Physical Society Fellow Alfred Schlachter, "contains as much energy as 1,000 sticks of dynamite." It's accessible, portable, and (despite protestations over $5 gallons of gas) quite affordable. The New York Times' Green blog quoted IBM battery researcher Winfried Wilcke on the charging-efficiency problem three years ago:

[Wilcke] illustrated the challenge of building a battery with the energy density of gasoline by recounting that it took 47 seconds to put 13.6 gallons of gas in his car when he stopped to fill up on the way to San Francisco. That's delivering power at the rate of 36,000 kilowatts, he said. An electric car would need to pump 6,000 kilowatts to charge its battery in that period.

"The dream that we have today to have exactly the same car charge up in minutes and drive off hundreds of miles cannot happen," Mr. Wilcke said. "Or at least not for 50 years."

Schlachter points out that battery technology is not subject to Moore's Law-like efficiency gains, because "significant improvement in battery capacity can only be made by changing to a different chemistry." Computing hardware has improved on the same substrate by investing in miniaturization technology since the 1960s, but the energy density of a given chemical compound is essentially fixed -- it's only improvements in the surrounding machinery using that compound (whether engines or batteries) that makes more use of the same material.

However, it may not be necessary for EVs to charge in 20 seconds to make them a compelling alternative. Most people simply never drive far enough in a given day to need a quick charge -- 95% of all people tracked in 2009 by the National Household Travel Survey had a commute of less than 40 miles, and the average commute was less than 14 miles. The average total daily driving of urban dwellers was 37 miles, and that of rural drivers was 49 miles. The Nissan Leaf, which is the cheapest of the three best-selling EVs on the market, can drive at least 73 miles on a single charge. Battery quick-swap stations go a long way toward solving the problem of charging delays on the other 5% of those commutes, and the high cost of batteries -- widely seen as the biggest drawback to EV adoption and a roadblock to quick-swap ubiquity -- is not something that will persist forever.

The lithium-ion batteries used in modern EVs have more than doubled in energy density and have declined in price per kilowatt-hour of capacity by a factor of 10 since the early 1990s, when the modern EV movement began to gestate. A McKinsey research paper published last year projects that lithium-ion batteries will continue to decline in price from roughly $600 per kWh today to about $200 per kWh in 2020. Gas prices aren't likely to decline any time soon, so a two-thirds reduction in battery costs would make EVs a better value on balance than internal-combustion vehicles, according to the McKinsey analysis. None of this would account for another battery breakthrough that would make lithium-ion obsolete, and as the commercial impetus to sell EVs continues to gain steam, it only becomes more likely that intensified research will find something better.

Will EVs continue to outperform the original auto pioneers in the face of stiffer competition? I can't say. However, early results are indeed more promising than many pessimistic commentators would you like to believe. Just as autos replaced horses en masse once their technological superiority was undeniable, EVs will have to be objectively better than internal-combustion vehicles to justify widespread adoption. There are bound to be some bumps and bankruptcies along the way. After all, more than 1,000 automakers of all sizes were founded between 1896 and the mid-1920s. How many of them are still around?

Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.

Transocean Loses Round in Fight Over Deepwater Horizon Documents

NEW ORLEANS (AP) -- Transocean Deepwater Drilling Corp. has lost a round in its fight to avoid handing over documents to a government board investigating the 2010 Deepwater Horizon oil rig explosion.

Transocean is appealing a federal court order enforcing a subpoena of the documents by the U.S. Chemical Safety and Hazard Investigation Board.

The 5th Circuit Court of Appeals on Tuesday refused to stay the document handover while the appeal is pending.

"We are extremely pleased with the court's decision," said Dr. Daniel Horowitz, CSB's managing director. "After years of litigation, it paves the way for the CSB to finally conclude its Deepwater investigation, which we believe holds lessons for all the energy industry."

The documents were collected by a Transocean internal investigation team.

The 5th Circuit said Transocean failed to justify action that would delay the safety board's report on the explosion, which killed 11 and spawned the nation's worst offshore oil spill.

"Transocean has resisted the subpoenas for thirty-one months, of which twenty-one were consumed by litigation. An appeal in this court could take anywhere from one to three years," the opinion by a three-judge panel of the 5th Circuit said. "By the time the subpoenas' enforceability is finally determined, a delay in the documents' release may cause the CSB to have missed the opportunity to prevent another accident of the type that occurred on the Deepwater Horizon, which itself resulted in eleven deaths."

Transocean owned the Deepwater Horizon drilling rig, which exploded and sank over BP's Macondo well.

Transocean lawyers were not immediately available for comment.

Capstead Mortgage Keeps Dividend Steady

Agency mortgage real estate investment trust Capstead Mortgage (NYSE: CMO  ) announced this morning its second-quarter dividend of $0.31 per share, the same rate it paid last quarter.

The board of directors said the quarterly dividend is payable on July 19 to the holders of record at the close of business on June 28. The mREIT has made payouts to investors since 1990.

The board also announced an initial dividend of $0.32292 per share on the mREIT's 7.50% Series E cumulative redeemable preferred stock that trades on the NYSE under the symbol CMOPRE for the period between May 13 through July 14. The payout will be payable on July 15 to the holders of record on June 28.

The regular dividend payment equates to a $1.24-per-share annual dividend, yielding 9.9% based on the closing price of Capstead Mortgage's stock on June 12.

Capstead invests in mortgages issued and guaranteed by government-sponsored enterprises such as Fannie Mae and Freddie Mac, as well as government agencies like Ginnie Mae.

CMO Dividend data by YCharts

Corporations Boost Dividends 3.3 Times Since 1998

In 2000, Wal-Mart (WMT) generated $8.2 billion in cash from operations, $6.2 billion (75%) of which went into capital expenditures, like investing in new stores. A far smaller share -- about $1 billion -- was returned to shareholders in the form of dividends and share buybacks. Investing in the future far outweighed rewarding investors today.

In 2012, the tables flipped. Wal-Mart generated $25.6 billion in cash from operations and spent $12.9 billion -- or 50% -- on capital expenditures. Another $13 billion was distributed to shareholders in dividends and buybacks. Investing in the future and rewarding shareholders today took equal precedence.

Part of this shift is Wal-Mart maturing from a growth company into a stalwart. But it's actually indicative of how most of corporate America has changed over the last decade. Goldman Sachs recently published a report showing how S&P 500 (SPY) companies have spent their cash over the last 15 years.

(click to enlarge)

(click to enlarge)

Source: Goldman Sachs

If you look carefully at the first graphic, you will note that the FCF for the S&P 500 corporations as a whole was $800 billion in 1998. Since 13% of it was paid out in dividends, we can surmise that the total for dividends paid was $104 billion. Fast forward to 2013 and we have an estimated FCF of $1.9 trillion with 18% of it going out as dividends. That is $342 billion of dividends, or an amount 3.28 times greater than in 1998. That gives us a compound annual growth of total dividends paid out for the last 15 years of 8.24%.

A few trends stick out:

Buybacks are up.Dividends are up.Capital expenditures are down.

Part of this is because of a weak economy. No business will invest in a new clothes! shop if consumers don't have enough income to buy more clothes. And given America's demographic headaches and anti-immigrant propaganda from some quarters, businesses would have fewer investment opportunities today compared with a decade ago even if the economy were strong.

Though it's harder to prove, part of this is likely a shift toward short-term thinking among corporate executives. Henry Blodget of Business Insider wrote this weekend:

"The way most companies do business is to focus primarily on today's bottom line: The prevailing ethos in corporate America, after all, is that companies exist to make money for their owners -- and the more and the sooner the better -- so every decision should be made in the context of that.

The result of this is that many (most?) companies scrimp on things like long-term investments, customer service, product quality, and employee compensation, in the interest of delivering a few more pennies to this quarter's bottom line."

Now, corporations may act this way for rational reasons. Most professional investors are judged by short-term performance. Rare is the fund manager who can truly reach for superior long-term investment results; investors give up on managers who suffer a down year, or even a bad quarter. They need companies to produce returns today, even if it comes at the expense of higher returns tomorrow.

There are exceptions, of course. Amazon (AMZN) in recent years has pumped nearly all of its effort into investing in future, profits today be damned. "Amazon, as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers," wrote Matthew Yglesias last year.

But as CEO Jeff Bezos wrote in a letter to shareholders:

"Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odds with being a for-profit company ..."

But I! don't th! ink so.

To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast-moving as the one we all live in.

More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.

The irony here is that Amazon stock price has produced greater short-term shareholder returns than the vast majority of companies, up 280% in the last five years.

Despite of this, I like what Wal-Mart is doing much more. I believe that only serious form of investing is in companies that have demonstrated the ability to pay and increase dividends year after year.

Alas, for us long-term investors, the hope of buying them on the cheap is diminishing fast since the start of this year. Here are two very alarming news for my fellow cheap stocks lovers:

1.) Goldman Sachs raises its S&P 500 forecast to 1625

2.) The end of the gold hysteria, mourned even by Glenn Beck.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Apple's Tim Cook Deserves Time

At this time last year, Apple (NASDAQ: AAPL  ) CEO Tim Cook was sitting on top of the world. Apple had just reported results that blew by expectations for two consecutive quarters, culminating in the company's stratospheric gross margin of 47.4% for the quarter that ended in March 2012. Not surprisingly, these strong results led to big increases in Apple's stock price. In the first nine months following Tim Cook's appointment as the permanent CEO of Apple (which occurred on Aug. 24, 2011), Apple stock soared more than 50%.

Apple Price Chart; data by YCharts.

Clearly, at this time last year, the market believed Tim Cook was a capable leader for Apple. There was comparatively little second-guessing of Cook's decisions, and no hand-wringing about what Steve Jobs would do if he were still around.

Fast-forward a year, and things have changed dramatically. Before Apple's earnings report in late April, Forbes contributor Gene Marcial asserted that anonymous "sources" had heard that Apple might be looking for a replacement CEO. Marcial further noted that several major funds had cut their holdings of Apple and cited this as evidence of a looming shareholder rebellion. Cook seems to be holding off shareholder pressure for now because of Apple's recently announced dividend and buyback increase. Still, the flurry of speculation about his job security indicates that many people think Tim Cook has not performed up to expectations. This judgment seems very hasty, though: Cook deserves at least another year at the helm to show whether he can deliver exciting new products.

The end of innovation?
Not surprisingly, the main worry about Cook's leadership is that as an "operations guy" he won't be able to drive innovation at Apple. Steve Jobs had an uncanny ability to figure out what consumers would want and devise successful marketing campaigns for the resulting products, and it is unfair to expect Cook or anybody else to "be the next Steve Jobs." That said, Apple bears believe that competitors have caught up to Apple because the company is settling for evolution rather than innovation. Bears frequently like to point to the iPhone 5 or the iPad Mini as evidence for their point.

The iPad Mini. Source: Apple.

Both products -- but especially the iPad Mini -- differentiate themselves from predecessors primarily by adopting a new form factor. The iPhone 5 has a slightly larger screen than previous iPhones, while the iPad Mini is a slimmed-down iPad with a smaller screen. Critics argue that these products are mere reactions to big-screen phones from Samsung and others, and smaller, cheaper tablets from the likes of Amazon.com and Google. Instead, they assert that Apple should be innovating by bringing completely different products to market.

Innovation is a process
The single-minded focus on what Apple has done lately seems misguided. First, it takes a long time to develop and perfect a new product category. Apple engineers were working on a touchscreen tablet by 2004 or so, more than five years before the iPad's introduction. Ultimately, Apple concentrated on the iPhone first, before returning to what became the iPad. Apple hasnt introduced any new product categories since Tim Cook took the helm, but it's quite possible that one or more products are in development and will hit the market in the next year or two.

Second, while recent iPhone upgrades have been incremental in nature, that's really a testament to Apple's already having made all of the "easy" improvements to the design. With the iPhone 4, Apple pushed the "thin, light, and sleek" design aesthetic as far as possible. The iPhone 4's successors have added other useful features, such as Siri and LTE support. However, with less room for improvement, these features seemed to many observers like evolution rather than innovation.

How will we know?
Tim Cook's critics still have one viable argument. Apple's failure to launch a new product category in the past year may not prove that innovation is dead at Apple, but it doesn't prove that innovation is alive, either. How long is it reasonable for investors to wait before concluding that something has gone wrong under Cook's leadership?

Cook may have provided the answer to that question on Apple's earnings call last month. In his prepared remarks, Cook claimed that Apple had great opportunities in new product categories, and he also stated that the company is "hard at work on some amazing new hardware, software, and services that we can't wait to introduce this fall and throughout 2014."

Accordingly, investors should wait until this product cycle plays out to make an informed judgment about Tim Cook's success or failure. Tim Cook set a clear goal for himself by setting a timeframe for new products and raising expectations for what would be coming. At the end of next year, if Apple's existing product lines have continued to stagnate and no new product line has arrived, it will be fair to blame Cook for not delivering results. As an Apple shareholder, I'm willing to give him that amount of time to impress me (and the rest of the world). I don't think I will be disappointed.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.