Should Investors Cut Their Losses On KiOR?

(Our top stock pucks) Shares of KiOR, Inc. (NASDAQ:KIOR) jumped over 50% last week on news that it's received funding from Vinod Khosla, the venture capitalist.

In early March, KiOR, the producer of biofuels, said that its financial position was weak. And if it did not resolve its funding problems by April 1st, it would be able to continue operating as a going concern. With its capital infusion, shares surged and trading  volume spiked to levels that were five times the three-month daily average.

The company reported that it had finalized a senior promissory note for up to $25 million in debt financing. The first tranche of $5 million will be purchased by KFT Trust owned by Khosla. KFT will also receive a 2014 warrant to buy 872,000 shares of common stock at a price of 57.3 cents per share. Before Khosla came to the rescue, the stock had lost 80% of its value over the last 12 months.

The warning signs

The company is no stranger to missing earnings guidance. It's done that often, and usually by a substantial margin. For example, the guidance for the second quarter was production in the range of 300,000 and 500,000 gallons. Actual sales for the quarter were only 75,000 gallons. It has missed practically every guidance since then too.

People at the most senior levels of management have been leaving. There have been two sudden departures of late. First, CFO John Karnes left after giving only two days notice with a replacement nowhere in sight. There was no convincing explanation for his departure. A little later, Condoleezza Rice quit the board of directors without apparently giving notice.

One reason for her departure could be the SEC subpoena on Jan. 28 for a formal investigation, seeking documents about its Columbus facility and the projected production levels. SEC normally conducts informal investigations before taking a step like this, so it is possible that the probe had been going on for a while. As a public figure, it is likely that Rice wanted to distance herself from any possible SEC action.

Another red flag was raised when the company cancelled the announcement of its results for the fourth quarter and the full year. However, though the company did not issue a press release, we can gain some insight into the reason from the Annual Report filing with the SEC. The reason appears to be its reluctance to inform investors that it is losing money and finding it difficult to organize new funding for improvements in both technology and operations.

Annual Report disclosures

The first commercial facility in Columbus, Mississippi had to stop production at the end of 2013, and the company plans to keep the facility inoperative until productivity improvements are carried out. Even when this facility was producing, it was operating well below rated capacity. This facility, based on results from pilot plants and demonstration plants, is the only source from which substantial revenues can be generated. Khosla has likely demanded tough production milestones in return for his support, but the company's record is uninspiring.

Bottom line

Analysts are still bullish about the prospects of the company and, against the present price of $0.66, the price target expectations range from a mean of $2.06 to a high of $4.50. But the only thing standing between the company and extinction is the presence of Vinod Khosla. Investors should use caution when investing in KiOR.

The Latest Turnaround In Apparel Retail Is Underway

(Our top stock picks are here) The teen apparel industry has proven to be quite volatile over the past few years. Some of the most volatile stocks in the sector have belonged to the "Triple A's," which were staples of the apparel industry during the 2000's. These three companies are Abercrombie & Fitch (NYSE: ANF), Aeropostale (NYSE: ARO), and American Eagle (NYSE: AEO).

All hope is not lost

These logo-based retailers have quickly fallen out of fashion and taken a back seat to fast-fashion retailers. However, there is one teen apparel retailer that's looking to better compete with the fast-fashion retailers such as H&M and Forever 21.

Abercrombie & Fitch plans on turning its Hollister brand into a fast-fashion store. The initial step has been redesigning its storefront, which can already be seen at some stores. 

Abercrombie's other focus that should help its turnaround

The move into fast-fashion remodels should help give Abercrombie an edge over its teen apparel peers, but what drives its top line is store expansion. By positioning Hollister as a fast fashion brand, Abercrombie & Fitch will be able to better diffuse this brand into international markets. One market that Abercrombie & Fitch already has its eye on is the UAE. This is in part because the per capita spending on apparel in the UAE is one of the highest in the world.

The other beauty of focusing its expansion attention to Hollister is that stores are smaller than its other brands, making them cheaper to setup.

Meanwhile, it's close to closing all of its Gilly Hicks stores. It plans on continuing to close underperforming stores to enhance profitability going forward. Profitability is one area that Abercrombie & Fitch can improve. American Eagle has an operating margin of 7.2% over the trailing twelve months, while Abercrombie's is only 5.2%. 

Leaving other apparel retailers behind  

American Eagle is in second behind Abercrombie & Fitch when it comes to annual revenues. Despite trading in line with Abercrombie & Fitch from a valuation standpoint, Wall Street expects American Eagle to grow earnings at an annualized rate that's half of Abercrombie & Fitch's. Beyond that, American Eagle has seen its comparable store sales fall by 5%, 7%, and 5%, respectively, over the last three quarters.

As for Aeropostale, it has been the hardest hit of the "Triple A" retailers. Shares of Aeropostale are down over 60% during the last twelve months. Aeropostale is making the shift away from teen retail, looking to capture more of the pre-teen market with its P.S. stores. It has developed partnerships with Pretty Little Liars and Bethany Mota as well.

Nonetheless, shares continue to slide. Although it has no debt, it recently inked a deal with Sycamore Partners for $150 million. This should carry the company through the upcoming holiday season, giving it a chance to shift away from logo-based clothing and find a connection with its shoppers. 

Bottom line

Abercrombie & Fitch appears to be at the forefront of executing a turnaround. The other two, American Eagle and Aeropostale, look to be further behind. However, it is worth noting that Aeropostale is quite cheap; it trades with a P/S ratio of 0.15, compared to Abercrombie & Fitch and American Eagle, which both trade just above 0.5.

Nonetheless, Aeropostale appears to have a lot more execution risk as it tries to redefine its brand with partnerships. American Eagle has yet to lay out a clear strategy, while Abercrombie & Fitch is taking a more drastic approach and planning to take fast-fashion head on. For investors looking for a turnaround story to invest in, Abercrombie & Fitch is worth taking a look at.

How Pandora Can Keep Beating Apple

(check out our our stock top picks) Pandora (NYSE: P) has been beaten down of late. The momentum name is down nearly 30% over the last month. This comes despite the fact that Pandora posted growing listener hours on a year-on-year increase in the number of active listeners and a higher share of the radio market in the U.S. for the fourth quarter. Yet, investors remain concerned about the company's growth opportunities. However, the market appears to be overreacting. 

Still growing 

Investors overreacted on the February news that the company saw no increase in its base of active listeners. Investors took this as the market reaching a saturation point and that future growth would be difficult and costly. But things appear to be picking up.

For the month of March 2014, Pandora reported a 14% increase in listener hours to 1.7 billion compared to 1.49 billion in the same month of the previous year. In addition to this increase, its market share in the U.S. radio market increased to 9.1% versus 8.05% for the same period last year. Its active listeners increased 8% from 69.5% in the previous year to 75.3% this year.

Stacking up the competition

From 2009 to 2013, Pandora's revenues jumped from around $55 million to $427 million. But over that same period, its net loss has increased from $16.8 million to $38.1 million. This comes as the company has been increasing its spending on sales and admin expenses to attract more listeners. 

Compare this to Sirius XM Radio  (NASDAQ: SIRI), which over the same period grew revenues have from $2.5 billion to $3.8 billion, a jump of 32%. Its subscriber base increased from 18.8 million to 25.6 million. Sirius XM's bottom line has also improved significantly from a loss of $352 million to a profit of $377.2 million from 2009 to 2013.

The market is willing to accept some degree of losses, as long as Pandora is growing rapidly. Apple's  (NASDAQ: AAPL) iTunes, which was released in mid-2013, has yet to be the Pandora killer that it was once assumed to be. Pandora has survived the initial onslaught thanks to its first-mover advantage.

Pandora's competitive advantage

Pandora is still enjoying its first-mover advantage, being the pioneer in the customized music streaming service space. It was able to successfully convert its advantage into significant advertising revenues on the strength of its large Android listener base. Over 80% of Pandora's revenues are generated from ads. Compared to Spotify, which gets 80% from subscription fees, Pandora has figured out how to attract advertisers. 

But the thing is, Apple is no ordinary competitor. The tech giant has a very large cash pile and it controls a large ecosystem (thanks to the number of iTunes accounts), which means Apple already has a large potential listener base. But personalization is important for consumers, and Pandora's Music Genome Project (its personalization algorithms) is helping insulate the company from its competitors.

The exaggerated impact of the price hike

Pandora's recent hike in its Pandora One service by $1 to $4.99 per month was its first hike since the service was launched. The revised price will only apply to new subscribers and will not affect existing ones. It is also ending the yearly subscription option and moving all subscribers to monthly plans. Average revenue per subscriber is bound to improve from last year and the increase will flow directly to the bottom line.

Bottom line

For investors looking for a beaten-down momentum stock, Pandora might be worth a look. The company has no debt and is expected to grow earnings at an annualized 40% over the next five years. The company still has a first-mover advantage and continues to grow revenues despite new competition.

Is Groupon A Great Deal?

(See our top stock picks here) The selling off of top Internet and momentum names this month has really taken its toll on Groupon (NASDAQ: GRPN). Shares are already down down 40% year-to-date. Its core business model still has investors scratching their heads. Investors remain disappointed by the unimpressive performance, specifically from the last quarter and less-than-impressive guidance for the current quarter.

First, the bad news

Revenues were actually up 20% year over year for the fourth quarter of 2013. North America was up 18%, while Europe, the Middle East, and Asia was up 43%. Total revenues were nearly $770 million for the quarter. For the first quarter of 2014, the company expects revenues to be between $710 million to $760 million. On a quarter-over-quarter basis, then, sales growth will be negative. 

The big worry is that Groupon's business model is easily duplicated by other companies. Its recent deals with vendors have not been particularly large, and the company does not have an economic moat that can keep the competition at bay. It does have cash of $1.3 billion, compared to its market cap of just over $5 billion and shrinking. The company's debt is negligible, however, giving it a solid balance sheet. Groupon is also looking to pivot by diversifying revenues away from daily deals. 

Management shakeup and laying out the vision

Groupon has had a long road since its IPO. Since its late 2011 IPO, shares are down nearly 75%. The market did take CEO and co-founder Andrew Mason's departure as a positive, though; shares were up nearly 13% on the news.

Groupon's other co-founder, Eric Lefkofsky, took over as CEO. His focus is on ramping up its marketing efforts, while reinventing the company as an online retailer. However, the management team has been unable to win the support of Wall Street and analysts.

Lefkofsky has a number of positive initiatives under way. One of these is increasing the generation of non-coupon based revenues. This move will help the company diversify its revenues and rely less on the online deals business, which is attracting serious competitors such as Google (NASDAQ: GOOG) and its Google Offers and Amazon.com's (NASDAQ:AMZN) LivingSocial. However, investors should take solace in the fact that Amazon and Google have their hands full with other ventures.

LivingSocial has also delayed its IPO, making Groupon the only pure play at the moment in crowdsourcing coupons. After all, investors aren't likely to buy Amazon just to gain exposure to LivingSocial. 

The long-term growth map

Global e-commerce revenues have jumped from $482 billion in 2009 to an estimated $963 billion in 2013. In North America alone, the revenue growth has gone from $132 billion to $263 billion during that period. This means that the market potential is very large for Groupon.

That market appears to be big enough for many competitors as well. Amazon might be taking its eye off of the e-commerce market, providing Groupon with an opportunity. Amazon has been turning itself into more of a hardware company, meaning that it's competing more with companies like Apple. Amazon recently launched its Fire TV and is also developing mobile phones. With Amazon's large customer base, it's not unreasonable that the company will get further entangled with Google and Apple over the fight for mobile payments as well. 

Making a move to better resonate with shoppers

The company has just launched its latest line of deals, called the "Elite Deal Series." This is a collection of luxury items that will be available on an ongoing basis and will feature premium pricing. For the past few years, the company has been successful with high-end products such as diamond rings and designer handbags because it has been able to offer its customers substantial discounts.

This should be a positive for two reasons. First, it will help the company to boost its profitability because of the premium-plus pricing. Second, it will help to insulate the company from a weak economy, as higher-end goods tend to perform well regardless of the economic environment. 

Groupon is also building a warehousing operation so that goods can be shipped directly to customers instead of relying on merchants to do so. It is believed that the company will focus on selling specific merchandise at the best possible prices rather than trying to be everything to everybody. That's a big positive, since previous complaints about Groupon have been focused on the fact that its targeted deals were not always relevant. 

The company is aggressively developing revenue streams from various sources. It's established the Goods division to expand its online retailing business. It has also kick-started overseas sales with the $260 million acquisition of Ticket Monster, while also establishing an immediate online presence by paying $43 million for Ideeli, the fashion retailer. Finally, the company has made a move into TV advertising with a new campaign featuring its e-commerce business.

All of these moves are positive, but they will take time to pay off. The company is sacrificing near-term earnings to invest in its long-term prospects.

Bottom line

Over the last couple of years, short-term investors piled into what should be a long-term investment. As a result, they have been disappointed in their investments. Groupon is making some positive changes, although it will take time before its new initiatives pay off. It still has strong brand and name recognition advantages, and it still has a robust deals business. For investors that are looking for a tech company with turnaround potential, Groupon is worth a look.

A Key Stock For Attacking The Chinese Apparel Market

(See our top stock picks here) A lot of the apparel retail industry is up in arms. The shift from logo-based wear to fast fashion has left a lot of companies carrying merchandise that's simply out of fashion.

Take American Eagle and Abercrombie & Fitch as prime examples. Both companies have been hit hard by consumers' shifts to Forever 21 and H&M. Meanwhile, The Gap (NYSE:GPS) is holding up quite nicely. That results from the apparel retailer holding three strong brands (Gap, Old Navy, and Banana Republic), coupled with its geographical diversification.

Gap is up nearly 10% over the past twelve months while Lululemon (NASDAQ: LULU) is down nearly 20% and Chico's FAS is down over 5%. On the other hand, VF Corp (NYSE:VFC) is up over 40%. However, VF Corp has been seeing revenue boosts thanks to the cold weather. Its Timberland and North Face brands tend to perform well in the cold.

Gap's next big growth idea

Gap has decided that the roll-out of Old Navy in China is its next major growth driver. At the end of fiscal 2013, Gap only had one Old Navy store in Asia. One of the big reasons why Gap is looking to further penetrate the Chinese market is that expectations call for apparel sales in China to hit $156 billion before 2017.

At the end of fiscal 2013, Gap generated only $1.6 billion in sales from Asia (9% of its total sales). Only $77 million of that was generated by Old Navy. If Gap can capture just a small fraction (say 0.5%) of that aforementioned $156 billion market, this could boost sales for Gap by 5%.

Although VF Corp does much less direct-to-consumer business than does Gap (most of its business is wholesale), it's worth noting that VF Corp has been seeing weakness in its sales in Asia. Its product sales, namely jeanswear, have fallen victim to weak consumer demand in China.  

However, Gap might have an advantage with its lower-priced goods. That's precisely why it plans to push its Old Navy brand, rather than the Gap or Banana Republic brands, in China. Gap plans to focus its Old Navy roll-out on the lower-tier cities in China, where rent is cheaper and the value brand should better resonate with shoppers.

Continuing to tap new, faster growing, markets

Gap has also managed to get its hands on the yoga and athletic wear industry as it takes advantage of the weakness that Lululemon experienced last year, which includes its quality-control issues. Recall that Lululemon had to pull hundreds of pairs of its pants from shelves due to a lapse in quality. The company came under more fire when it stood by its strategy of not carrying plus-size pants. However, Gap's yoga-focused stores, Athleta, do carry plus-size clothing.

The Gap also has an opportunity to capture more of Lululemon's market share by opening more stores. Currently, Athleta has a store count that's less than a third of what Lululemon boasts. However, it plans to add 100 stores to its store count, which currently stands at just 60.  

Bottom line

Gap pays a 2.2% dividend yield. However, that's only a 26% payout of its earnings. It has increased its dividend payment for the last four years. While it is one of the largest apparel retailers, it continues to find ways to grow its earnings for investors. With a return on equity of 40% (which towers over its major peers in the industry), its P/E ratio of 15 could well be considered low, especially considering that the apparel industry average P/E is 25. For investors looking for a solid play on apparel retail, Gap is definitely worth a look.

3 Of The Best Ways To Invest In China

(Check out our top stock picks here) If you don't want to invest directly in Chinese companies, you can still gain access to one of the fastest-growing economies in the world. The best way to do this is to invest in U.S. companies with exposure to the Chinese economy.

The three companies below all have exposure to China but still have strong footings in the U.S.. All three of them have opportunities to grow their businesses in China along with heavy diversification in other markets. This contrasts with other companies, such as Mead Johnson, which gets over 30% of its revenue from China. 

Finding value among consumer products

It's no surprise that the largest consumer products company in the world, Procter & Gamble (NYSE: PG), has a presence in China. Its products have impressive breadth and reach. It has 25 brands that each brings in more than a billion in sales annually.

Back in 2013, Millward Brown, the brand research company, found that P&G had three of the top five brands in China: Pampers, Olay, and Crest. The other two brands in the top five included Yum! Brands' KFC and Colgate of Colgate-Palmolive. P&G already has quite an impressive presence in the country. And although P&G doesn't break out its revenue from China, the revenue that P&G is getting from developing countries grown from 35% (of total revenues) in 2011 to 40% in its last fiscal year. 

A company has big opportunities to streamline its production and product roll-out in markets abroad, such as that of China, by localizing its production. This should help the company boost its margins via supply chain efficiencies.

A high-end accessory play

Coach (NYSE: COH) is another major company that is looking to China for growth. Only about 30% of its revenue comes from outside of North America. Coach has focused on building its Americas portfolio and it has done a great job of it. It has a very recognizable brand when it comes to high-end handbags. 

For 2014, Coach plans to open 15 stores in North America and 30 in China as it expands its strong brand into the faster-growing Chinese market. This comes after it opened only 10 stores in China last year. Its store count in China currently makes up about 25% of its total store base.

Coach is also focusing more on the men's accessory market. That's a big positive considering how much men spend on luxury items in China. In China the men's market makes up 55% of luxury-goods spending, while the global average is closer to 40%.

It's tough to go wrong with athletics

Nike (NYSE: NKE) is a leader when it comes to athletic apparel and footwear. And athletic apparel is gaining traction, where individuals are living a more active lifestyle. . The problem is that this is really only true for the U.S. Nike still has a large opportunity to capture market share in China. It generates just around 10% of its revenue from China. However, it does remain the leader in the country--it owns some 12% of the Chinese sportswear market, versus adidas' 11%.

Nike is making an effort to become more of a direct-to-consumer company. This includes its decision to open a store in Shanghai. The Nike in China story going forward should be about increasing the company's brand awareness. Along those lines it's partnering with governments and universities in China to support running clubs. 

The other nice thing about Nike is that it continues to have a strong balance sheet, with a debt-to-equity ratio of only 11%. Its return on equity is fairly high at 25%. Compare that to adidas' 25% debt-to-equity and its 15% return on equity. 

Bottom line

The fact remains that China's economic growth is expected to remain well above the U.S. for the next couple of years. But when investing in China, investors should find a company with a strong brand and geographical diversification. For investors looking to increase their exposure to China, the three stocks above are great places to start.

The Fast Food Resturant In The Headlines For The Wrong Reason

There's much debate over how Yum! Brands' (NYSE:YUM) fast-food company Taco Bell will fare in the breakfast market. No matter what happens, Taco Bell has been rolling out some great marketing, calling out the likes of McDonald's (NYSE:MCD) by name. The move should prove to be a great marketing ploy to also get foodies interested in Taco Bell. But the growth story for Yum! could go beyond the breakfast menu.

First, what are Taco Bell's chances at breakfast success?

There's no doubt the breakfast market is huge, so it only makes sense that Taco Bell would try and capture some of it. The $50 billion U.S. breakfast market is something that every restaurant company should take notice of. The market is nearly four times Yum!'s total annual revenue. If Taco Bell can just capture 5% of the breakfast market, that would be a $2.5 billion increase in revenue -- which is 20% of Yum!'s annual revenue.

McDonald's is still a very tough competitor

Gaining market share in a fickle industry usually isn't that hard, since customers have little-to-no loyalty to fast-food chains. They will generally be drawn to whatever is cheapest. That's in part why McDonald's continues to own the breakfast market.

McDonald's offers a comprehensive menu of $1 breakfast items. And it plans to double down on the number of breakfast items priced at $1 for the near term. At year-end 2013, McDonald's had nearly 20% market share in the breakfast category among quick-service restaurants.

Burger King Worldwide (NYSE:BKW) is the smallest of the three companies (by market cap). But it has managed to garner solid footing in the breakfast market, in part thanks to its popular croissan'wich. However, there has been a move to healthier items among consumers. McDonald's is already offering oatmeal, but Taco Bell plans to debut yogurt parfaits and oatmeal soon.

The real growth story at Yum!

While seeing Taco Bell make a push into the breakfast market is a positive for investors, as the move is relatively low risk, there are a number of other growth opportunities. China remains Yum! Brands' workhorse when it comes to generating revenue. The country generates double the revenue for the company that the U.S. does.

McDonald's still has a relatively small store base in China compared to the U.S. It's looking to change that by expanding into China more rapidly. However, Yum! Brands' KFC will have an advantage given its vast presence there -- meaning KFC has already had its pick of prime locations. And as McDonald's tries gaining a footing in China, it'll be competing with Starbucks for ideal locations.

Burger King entered the Chinese market nearly a decade ago, but it's yet to gain any meaningful traction. That's because McDonald's and Yum! continue to eat its lunch (so to speak) abroad. Burger King has less than 200 stores in China. Meanwhile, McDonald's opened 275 stores in China last year and plans to open another 300 this year.

Yum! stumbled in China during 2012 and 2013 due to quality concerns related to chicken at its KFC restaurants. But it looks ready to take McDonald's and Burger King head on in 2014. Yum! was able to raise KFC prices by 3% in China earlier this year, as the chicken issues look to be fading away.

A renewed focus on the U.S.

Yum! is also looking to gain better footing in the U.S. quick-service restaurant market. Part of that involves the rollout of Taco Bell breakfast items. Taco Bell does account for 60% of its U.S. operating profits. And Taco Bell has posted eight consecutive quarters of positive comps grow as of the fourth quarter of 2013.

As part of its plan to grow its U.S. business, Yum! is looking to increase its Pizza Hut and Taco Bell stores while also focusing on a smaller-format store that requires a lower initial investment. The company has set a long-term target of 8,000 Taco Bell stores; compare that to the less than 6,000 it had at year-end 2013.

Yum! has also launched a new store in Texas that will challenge Chick-fil-A. This is a big positive considering that Chick-fil-A passed KFC in annual revenue last year. And it did so with a fraction of the stores. There are only around 1,800 Chick-fil-A stores in the U.S. (heavily concentrated in the South) compared to KFC's near 4,500. This new store in Texas offers a limited menu and is focused on hand-breaded chicken sandwiches.

Bottom line

Yum! Brands is one of the best investments in the fast-food space. It has a large geographical presence and a number of key growth opportunities. It also offers a modest dividend yield at 2%. Trading at 18 times next year's earnings estimates, Yum! appears rather expensive. But its P/E-to-growth ratio of 1.7 is in-line with McDonald's and Burger King. And Yum! generates a return on equity that towers over its major peers at 46%. So, for investors looking for exposure to the fast-fast industry, Yum! Brands is worth a closer look.

Google's Attack On The Travel Industry

The online travel agency industry has been a great growth story over the past half decade. This comes as worldwide Internet usage is on the rise, and as consumers are finding much better deals online than conventional travel agencies can offer. And as tech giant Google (NASDAQ:GOOG) (NASDAQ:GOOGL) looks to gain a presence in the hotel booking space, it adds more validation to the online travel industry's growth story.

What's the best play on this growth industry?
The recent news in the industry is that Google is licensing hotel booking software from Room 77. As part of this, Google is adding photos to its hotel listings, as well as reviews. These moves should promote consumers to book more of their trips directly with Google. Worth noting is that the likes of Priceline.com (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE) are a couple of Google's most valuable advertisers. So, in a way, it's a Catch 22. 

Wall Street analysts are expecting Priceline to grow earnings at a rate that's head-and-shoulders above its peers, and the travel industry as a whole. Priceline is expected to grow earnings at an annualized 20% over the next half decade. That compares positively to what Wall Street expects for Orbitz and Expedia, which is only 6% and 14%, respectively. Priceline's expected earnings growth is above Google's and in line with what Apple is expected to generate. 

Opportunities for growth

The two big opportunities for Priceline include expanding its market share in the U.S. and growing its presence in Europe. Pricelines' Booking.com is the leading online travel site in Europe, having a market share of over 30%. However, in the U.S. its market share is only 16%, while Expedia owns 40% of the market.

Part of its strategy to gain share includes embarking on a new marketing strategy. Its booking.yeah campaign launched last year marks the company's first offline ad campaign. The campaign is for its booking.com site and has already gotten a lot of attention. 

Meanwhile, competition is less fierce overseas. And the hotel industry is quite fragmented in the European Union. Worth noting is that Europe is showing signs of stabilizing. Expedia actually saw hotel rooms booked in Europe increase at a faster pace than in other quarters. That's a big positive as Priceline is the market leader over there.  

So a key focus will likely be overseas

During the fourth quarter, gross bookings grew nearly 40% year over year. That was driven by international bookings, which rose 41%. Domestic bookings were up only 26.5%. Thus, a continued focus on international markets should be a big positive.

Internet usage isn't quite as prevalent in overseas countries, thus, Priceline could easily be a first mover in certain areas. Two notable areas of opportunity are Asia and South America. And Priceline is already making a splash in Asia. Its Agoda brand is the number one online travel agency in five Asian countries. 

With its head start in international markets, Priceline shouldn't have a problem staying ahead of Expedia. Priceline's market cap is over six times that of Expedia, coming in at $64 billion, whereas Expedia's is less than $10 billion and Priceline only has $2 billion in debt. Google is very early in its attempt to gain market share. And with Priceline's stellar balance sheet, it should be able to make any necessary acquisitions to get a leg up in local markets. 

Back in 2012, Priceline snatched up Kayak for under $40 a share to help expand its market. Kayak is a meta-search engine, and owns over 50% of the travel search market share in the U.S. 

Bottom line

While Priceline's valuation does appear a bit rich, its P/E is 34, that's relatively in line with Google and still below top competitor Expedia's 43 P/E. Priceline is already the leader in a number of overseas countries. These countries should be key for driving the online travel industry, and ultimately Priceline, higher. For investors who are looking to play the upcoming rebound in the travel market, and the increasing usage of Internet in overseas markets, Priceline is worth a look

Best Stock In The Off-Price Economy

Shoppers traded down to off-price retail during the financial crisis because it was cheaper. But even with a rebounding economy, shoppers are still going to stores. That's because shoppers have integrated off-price retail into their shopping routine. However, many investors might be missing this trend, and more importantly, overlooking an investment in the space.

The overlooked opportunity in off-price retail

Most investors think of either Ross Stores (NASDAQ: ROST) or The TJX Companies (NYSE: TJX) when thinking of off-price retail. However, one of the lesser-known names is Stein Mart (NASDAQ: SMRT) and it might present a compelling opportunity. Shoppers generally consider Stein Mart a bit more put together than either Ross or TJ Maxx.

Unlike the cement floors and jumbled racks that you'll find in some Ross and TJ Maxx stores, Stein Mart stores are nicer. However, Stein Mart keeps its products competitively priced, offering a blend of national brands and private label brands. The national brands give Stein Mart a fashion feel. 

Stein Mart is also a turnaround story. After going through four CEOs from 2003 to 2011, the company brought back Jay Stein to run the company. Since his return, he's been weaning the company off of coupons. Stein Mart is now focused on providing products that resonate with customers. 

Stein Mart's key growth opportunity

Stein Mart has less than 265 stores, down from 282 in 2008. After closing various underperforming stores, Stein Mart is looking to accelerate store growth. And the nice thing about that is that its new stores generate 20% more on an annual basis than an average store.

Stein Mart has already identified 100 markets for new stores (this includes some 20 in Southern California, 25 in Chicago, and 40 in the metro New York area). Even with another 100 stores, Stein will have just over 360 locations, compared to Ross Stores' 1,200, and TJ Maxx's 1,000 stores. 

Selling more product and internal efficiencies are core to Stine Mart's story  

Stein Mart has been offering more fashion-focused products. In 2009, about a third of its sales were national brands. That number was up to 70% in 2013. This attracts a customer that tends to spend more.

The other part of getting customers to spend more includes credit cards. Many retailers are finding success with private label credit cards. 2013 was the first full-year that Stein Mart offered its private label card, and credit card customers are already spending 50% more than other customers.

Stein Mart also continues to innovate on the supply chain side. A couple of years ago it revamped product delivery by utilizing warehouses to catalog and ticket merchandise, rather than shipping from distribution centers straight to stores.

As with any retailer, e-commerce is becoming increasingly important. Stein launched its e-commerce site last year, Ross is yet to make that move, and TJX already has a website. E-commerce still makes up less than 1% of Stein's sales, but should grow over time.  

How shares stackup

Stein Mart actually trades at a hefty discount to its major off-price department retail peers. Stein Mart trades at an enterprise value-to-earnings before interest taxes depreciation and amortization multiple of 7.7, while Ross trades at 9.8 and TJX at 10.7. Stein Mart also offers a 1.5% dividend yield, well above its peers.

With no debt, and over 10% of its market cap covered by cash, the balance sheet can easily support a robust store growth strategy. Investors should also look for Stein Mart to invest more heavily in e-commerce and eventually bring e-commerce fulfillment in house.

Bottom line

Stein Mart should benefit from a rebounding economy. Factoring in a continued strengthening of the housing market, and Stein Mart is worth a closer look. That's because shoppers are interested in sprucing up their homes and they're looking for more 'fashion' focused apparel than the other off-price retailers can offer.

The Top Stock In Entertainment

(Top stock picks) Twenty-First Century Fox (NASDAQ: FOXA) is now a media conglomerate. After spinning out of News Corp, it's been able to focus on becoming a more profitable TV and film content creator.

It has a diversified portfolio, with various channels, including Fox News, FSN, Fox Sports 1, FX, FXX, Speed, and National Geographic. However, that's not the true growth story. Fox is looking to position itself as the top media giant, going up against Disney (NYSE: DIS) and Comcast (NASDAQ: CMCSA) , by shifting more of its business model to cable networking. 

Media giants with differing models for growth

Disney's main revenue driver remains its media networks, which includes the likes of ESPN, Disney Channel, and A&E. Its second key revenue driver is parks and resorts.

And although Comcast generates revenue from theme parks and films, its major revenue driver is cable communications, a segment that includes offering video, Internet, and voice services. Now it's looking to increase its exposure to this area of the market. Just under two months ago, Comcast agreed to buy Time Warner Cable, in a deal that's valued at over $40 billion. It would make Comcast the undisputed leader when it comes to TV, Internet, and phone subscribers, covering over 30% of Americans.The merger will face antitrust hurdles and at the very least will require concessions by Comcast, such as divesting certain subscribers to competitors. 

Meanwhile, Fox gets the majority of its revenues from cable networks and film production. The company plans to shift more of its reliance for revenue generation to cable production going forward, and away from the more competitive film industry.

Fox also has a 33% stake in Hulu, along with co-owners Disney and Comcast. Hulu is one of the key players in the online streaming space, one that DirecTV offered to buy for $1 billion just under a year ago. There could be a solid opportunity for Fox to monetize this asset in the future. Just look at the success of Netflix, shares of which are up over 100% in the past year.

Look for less reliance on film from Fox going forward

Disney has been a big winner in the entertainment space over the past half-decade. After buying Marvel for $4 billion in 2009, Disney has had some big successes by bringing some of the big comic-book hits to life on the big screen. Last weekend, its Captain America: The Winter Soldier had the best opening weekend of any movie this year. Its animated film,Frozen, was also also a huge success, becoming the top-grossing animated film of all time. 

Meanwhile, Avatar was a big hit for Fox, but we still have another two years before Avatar 2hits theaters. Fox also plans to bring Charlie Brown to the big screen. The initial plans are for the Peanuts movie to be launched in late 2015.

However, it's rising cable affiliate fees that Fox will look to capitalize on going forward. Last year, affiliate revenues made up 28% of revenues, up from the 22% in 2011. With affiliate fees expected to continue rising, Fox is looking to make its cable network programming segment more of a contributor to revenues. That includes gaining a larger presence in the sports market. To that end, it has launched a new network, Fox Sports 1.

The sports entertainment business has proved to be a lucrative one. Disney has had a lot of success with its ESPN franchise, and now Fox wants a piece of the pie. Fox already has a number of strong regional sports networks, including FSN. Its Fox Sports 1 network is expected to help give the company a larger presence in the world market. It already has the rights to various events related to soccer, UFC ultimate fighting, and Major League Baseball.

Bottom line

Fox is a very compelling investment. Its dividend yield isn't quite as high as its major peers, but there's room for growth there. The dividend yield is only 0.7%, but the payout is only at 10% of earnings. The key growth drivers include rising affiliate fees and a greater presence in the sports market. Fox's P/E ratio is also only at 14.5, which is a steep discount to other major media companies, as Disney and Comcast trade at P/E ratios of 22 and 19.6, respectively. For investors looking to gain some exposure to the media market, Fox looks to be worth a look.