How An Activist Can Shakeup Walgreen

Jana Partners, an activist hedge fund, returned 20.4% in 2013, earning it the 7th highest ranking from Activist Insight. The fund focuses on companies that appear undervalued by the market and that have one or more catalysts to unlock that value. It appears that Jana has found once such opportunity in the retail pharmacy space. Its largest position is Walgreen (NYSE: WAG  ) . Walgreen has underperformed its top peer, CVS Caremark  (NYSE: CVS  ) , substantially over the past three years.

Walgreen is no longer just a U.S. focused pharmacy. It took a 45% stake in Alliance Boots during 2012. Boots is a European pharmacy operator, beauty products maker, and drug wholesaler with 3,330 stores, mainly focused in the U.K. Its drug wholesale unit includes 370 distribution centers. Walgreen has an option to buy the other 55% of Boots by 2015, and is reportedly exploring doing so. The move is a big bet on Europe. Together, the two would operate 11,000 drugstores across Europe, the U.S. and Asia.


The business is no longer just pharmacy retail, thanks to the stake in Alliance Boots and agreement with AmerisourceBergen. It's becoming more of an integrated drug company. The big opportunity that Jana sees with Alliance Boots is to boost company margins. The EBIT margins at Boots are double Walgreen's. The businesses are virtually the same, thus Jana believes Walgreen can learn a lot. Walgreen has a profit margin that's only 3.7%, which is below CVS' 4.4%. Jana Partners believes there's an opportunity to boost its margins. Part of that will come from the integration of Alliance Boots into Walgreen's business. 

Walgreen would have more purchasing power in the generic drug space with Alliance Boots on its side. But Alliance Boots is also a big seller of beauty products, which could help Walgreen become more effective at selling creams and makeup in the U.S. The margins on household and beauty products are higher than prescriptions.

One of the things that Jana is pushing for is a tax inversion. That would mean that Walgreen would become domiciled outside of the U.S. and benefit from a more favorable tax rate. Walgreen could save upward of $4 billion in taxes over the next five years by doing this.

Where CVS is focusing
CVS is also focused on broadening its presence in other markets. CVS already gets around 54% of its revenues from its pharmacy-services segment. However, Express Scripts is a formidable opponent in the pharmacy benefits management space. Express Scripts owns 50% of the pharmacy benefits-management market for large employers.

With Walgreen getting more involved in the generic side of the business, CVS is making specialty drugs a priority. Its acquisition of Coram last year is expected to add $1.4 billion to revenue in the first year. Its key products include medications administered via a vein or tube. These are used to treat immune and nutritional deficiencies.

The other big news is that CVS will stop selling tobacco products in October. Walgreen hasn't given in to the mounting pressure by the state attorneys general. Analysts expect that Walgreen has a big opportunity to capture CVS' lost market share, which could add billions in additional revenue. CVS has reported that it could lose upward of $2 billion in annual revenue due to its ceasing of the sale of tobacco products.

Bottom line
The drugstore industry should continue to see robust demand from the aging population. As the largest pharmacy chain, with lots of opportunity in generics and internationally, I think Walgreen is in a uniquely good position. For investors looking for a solid play in the drugstore industry, Walgreen is worth a closer look.

Is Coach Finally A Value Play?

Shares of Coach (NYSE: COH  ) are down close to 40% year to date. The latest is another tumble over the last few weeks or so after another dismal quarterly earnings report. But its dividend yield is now an impressive 4%, which is the highest it's been in five years. It still carries no debt and its dividend is only a 40% payout of earnings. So does all that make if a worthwhile investment?

Coach's weakness
Last month Coach once again tapered its near-term outlook, noting continued weakness in its North America business. Management has noted that revenue could fall by double digits in fiscal 2015.

Granted weak mall traffic and the tough winter weather led to decreased store traffic. However, it also takes longer to turn around larger companies. Coach's move from an accessory company to a lifestyle retailer could take longer than expected, which is part of the reason the stock continues to be hammered. It has to start competing more on fashion rather than price.

The turnaround plan
Last month Coach noted that "bold changes need to be made." These include gaining a larger presence in men's and increasing its reliance on sales from the fast-growing Asian market. Coach believes it has a $12 billion market opportunity in Asia.

Then there's the men's business. Revenue from its men's business was up 50% in fiscal 2013 but still only accounted for $600 million  of its total $5 billion in annual sales. Coach is opening stand-alone men's stores to try to boost sales to men. Management thinks it can boost sales of its men's business to $1 billion by fiscal 2016.

A couple of top-notch competitors
Kate Spade (NYSE: KATE  ) is another pure play on accessories, thanks to its previous divestitures of the Juicy Couture and Lucky Brand units. But back in May, Kate Spade reported a mixed quarter, with revenue up 33% year over year and beating analysts' expectations. However, its earnings loss of $0.06 a share was greater than the expected $0.04. However, Kate is still up nearly 20% year to date.

Michael Kors Holdings  (NYSE: KORS  ) has been one of the hottest stocks around -- not just in the accessory space. Shares are up 10% year to date and up 114% over the last two years. Kors has managed to beat earnings in each of the last four quarters. Its fiscal fourth-quarter earnings were up 63% year over year.

Still facing intense competition from Kate and Kors
Although Coach is hoping to turn to the men's business to help take the pressure off accessories, it is going to have some serious competition. Kate Spade is increasing its distribution of its men's merchandise brand, Jack Spade.

Meanwhile, there is Kors that is looking to boost its presence in Asia. It is doing so via regional licensees. However, Kors is also set to expand its presence in North America, which could further pressure comps for Coach. Most notably is Kors' plans to boost its shop-in-a-shops. Then there's the men's business, which Kors is also going to focus on. Kors believes there is a $1 billion opportunity in men's sportswear and watches.

How shares stack up
Coach is the only major accessory retailer that offers a dividend yield. Its current P/E ratio of right at 10 is the lowest it has been in more than five years. Coach also has the highest return on investment -- at 43% -- of the three. Kors' is 37% and Kate Spade's is 34%. As mentioned, Coach has no debt, but neither does Kors.

Bottom line
Coach's brand name and recognition is still very strong, but it appears the turnaround is a several-year project. The dividend yield will likely attract some income investors, but it's tough to see value investors getting involved at this stage, at least not until signs of a turnaround are in place.

The Beaten Down Tech Company That's A Takeover Target

One area of that market that has led the current stock market recovery is the technology sector. The Powershares QQQ has been on a steady trajectory higher since 2009. It has more than tripled in value. Rising from just under $30 to above $92 today. However, not all names have followed this same trajectory. This comes as the technology space has become increasingly competitive.

One technology stock that is still trading 30% below levels that it traded at in both 2011 and 2012 is Citrix Systems (NASDAQ: CTXS  ) . And with a market cap that's just over $10 billion, it could be a buyout target for the likes of Cisco  (NASDAQ: CSCO  )  and Oracle (NYSE: ORCL  ) . Analysts expect Citrix to grow earnings at a faster rate over the next five years than either Cisco or Oracle. What's more is that Citrix is loved by hedge funds. A number of major big hedge fund names and billionaires are piling into this beaten-up tech company. Names like billionaires Lee Ainslie, George Soros, Dan Loeb, Richard Perry, Ken Griffin, and Steve Cohen are at the top of any list of the all-time great hedge fund managers.

Betting on virtualization
Citrix Systems operates in the cloud infrastructure and networking space. The company specializes in helping companies build, manage, and secure virtual and mobile workspaces that deliver apps, data, and services to virtually anyone, on any device, over any network or cloud.

Citrix is in the process of finding a new CEO and is undergoing a restructuring. All the big hedge funds are banking on a turnaround. Citrix is not a distressed company. About 8% of its market cap is covered by cash on the strong balance sheet. The other key for a potential Citrix buyer is that it carries no debt. . Shares are now trading at their lowest levels in five years on an enterprise value-to-earnings before interest taxes depreciation and amortization basis.

Buyout potential?
Bank of America Merrill Lynch recently touted Citrix Systems as a takeover target. The bank believes Citrix would be a great fit for a company trying to diversify away from declining hardware sales.

As mentioned, both Cisco and Oracle are a couple companies that are making cloud computing a bigger focus. They both also have strong balance sheets that would allow them to swallow up Citrix. Citrix's market cap is a mere $10 billion compared to Cisco's $126 billion and Oracle's $180 billion.

Oracle has been active on the software-as-a-service acquisition front. This includes the 2012 acquisition of RightNow and Taleo, 2013 acquisition of Eloqua, and purchase of Responsys earlier this year. It already has a very large installed customer base, and offering additional services has proven to be a great way to penetrate its customer base even further.

Cisco owns the Ethernet switching and routing market. The company could look to become more a holistic solution for customers, which would make Citrix an interesting acquisition. Regardless, Cisco will be a big benefactor of the rise in bandwidth consumption.

Cisco and Citrix have been in partnership for a couple years now. Earlier this month, they extended their partnership. This comes as more companies are moving to SaaS applications that are deployed via the cloud, which has changed the data center market. Cisco will now be using Citrix's ADC technology for its NetScaler devices to that provide load balancing across networks.

What makes Citrix enticing?
By buying up Citrix now, the acquirer would get the business while it trades at one of its lowest levels on a price to earnings, price to sales and price to book basis. But what's more is that Citrix Systems is a leader in the one of the fastest growing industries in tech, the virtualization and cloud computing space. It's expected to grow earnings at an annualized rate of 11% over the next five years, which is above what either Oracle or Cisco will churn out, according to analysts' expectations. 

It also boosted its position in the cloud-based data storage segment with its ShareFile. ShareFile offers cloud solutions to companies, with over 14,000 paying corporate clients. It has also teamed up with VMware and snatched up mobile device management company, Zenprise. Citrix also owns GoToMeeting, where the global web conference market size could be as large as $4 billion. 

All in all, Citrix operates across various verticals. Its GoToMeeting and ShareFile offerings gives its a software-as-a-service presence, while its XenApp and NetScaler products makes the company a formidable force in the cloud and virtualization space.

Citrix has a number of key development and products it's rolling out, making it an even greater presence these fast growing markets. One of the key items is its Workspace Suite, which brings together desktop, mobile, app, and data services.

As part of its cloud offering, Citrix has rolled out NetScaler MobileStream, which brings together mobile networks and applications. Its NetScaler product is already growing faster than the rest of the company, making cloud a larger part of total sales.

Bottom line

Citrix appears to be trading at attractive valuation levels, potentially attractive enough to interest one of the major tech companies. Regardless, as a stand-alone company, Citrix is positioned to compete nicely in the virtualization market. For investors looking for a beaten-down play on the cloud computing market, Citrix might be worth a closer look.

Capitalizing On The Chinese Film Industry

China surpassed Japan last year to become the second-largest film market in the world. The Chinese film market generated $2.7 billion at the box office, but it still has a long way to go to catch up the U.S., whose film market generated almost $11 billion last year.

For investors looking to capitalize on the Chinese film industry, there aren't a lot of options. You could try to play one of the big media giants like Walt Disney  (NYSE: DIS  ) , but it won't be a pure play on the Chinese market. The best option for investors looks to be to follow Twenty-First Century Fox (NASDAQ: FOXA  )  and its CEO, Rupert Murdoch, and invest in a pure-play Chinese film company.

Murdoch's investment in China
Bona Film Group  (NASDAQ: BONA  ) is China's second-largest film production and distribution company. Twenty-First Century Fox owns 19.9% of the company. What attracted Rupert Murdoch to Bona Film Group was the company's vertically integrated business model. The company not only makes films, but distributes them as well.

Bona Film Group is posting impressive numbers. The company just released its first-quarter earnings at the end of May, which showed that revenue grew more than 30% year over year. Earnings per share came in at $0.04 and doubled the consensus estimate of only $0.02. Over the last five years, Bona has managed to grow revenue at an annualized rate of 45%. Over the next five years, analysts expect earnings to grow at an impressive annualized rate of 70%.

This year looks to be another record year for Bona Film Group. This comes as the company benefits from its Chinese New Year blockbuster film The Man from Macau. The company also received regulatory approval to distribute the foreign films Non-Stop and Pompeii. A third film,12 Years a Slave, which won three Oscars, is in the process of getting regulatory approval.

Other ways to play film
Disney is active in the television, theme park, film, and consumer products businesses. Disney made a big move in the film business at the end of 2012 by buying Lucasfilm, which owns the Star Wars franchise. This was just the latest move in Disney's acquisition spree that has built up its film business. In 2009, it snatched up Marvel Entertainment, and in 2006, it bought animation studio Pixar.

While Bona is focused on films in China, Disney is making moves in the theme park space there. It's currently constructing a new theme park in Shanghai that's set to open before 2016. Meanwhile, Fox also has a stake in Bona, but it doesn't have quite as robust of a multi-platform strategy as Disney. It's still a major player in the entertainment business, though. Major revenue sources include films, network programming, and television, which generate 31%, 39%, and 18% of revenue, respectively.

How shares stack up
Bona Film trades at the highest P/E ratio based on next year's earnings estimates, but it's still one of the best pick's in the industry. Bona trades at a 22.4 forward P/E ratio, compared to Fox's 20 and Disney's 18.5. But, factoring in Wall Street's growth expectations for the next five years, Bona trades at a P/E to growth (PEG) ratio of only 1, compared to Fox's 2.3 and Disney's 1.5.

Bottom line
Disney is a relatively diverse player in the entertainment business, with a strong presence in the film industry. Fox is more heavily tied to TV, but the company is still diversified across various brands. However, for investors looking to play one of the fastest-growing film markets, China, Bona is worth a closer look. 

The Best Investment In Entertainment You've Never Heard Of

The news that former Microsoft CEO Steve Ballmer will buy the Los Angeles Clippers for $2 billion is quite remarkable when you stop and think about it. Consider that just a few months ago, Forbes valued the team at around $575 million. Even more remarkable might be the fact that former owner Donald Sterling purchased the team in 1981 for only $12.5 million.

The fact remains that professional sports teams are great investments. The teams benefit from lucrative TV contracts as well as game day ticket and concession sales. The Clippers are located in Los Angeles, the second-largest media market in the US, and this makes the team especially valuable because of its large fan base.

According to Forbes, the most valuable NBA franchise is the NY Knicks. It valued the team at $1.4 billion when it put the $575 million figure on the Clippers. If the Clippers are worth $2 billion, well how much are the Knicks worth now?

One of the best plays on sports entertainment
Investors can capitalize on America's love of sports by investing in The Madison Square Garden Company (NASDAQ: MSG  ) , which owns the NY Knicks. The company also owns the Madison Square Garden Arena, the NY Rangers, NY Liberty, the Hartford Wolf Pack, and the MSG television network. Madison Square Garden just sold its Fuse music television channel to Jennifer Lopez and her NuvoTV for $226 million in cash and a 15% stake in the combined Fuse/NuvoTV.

The real value of Madison Square Garden is its ownership of the NY Knicks. The Knicks are considered one of the premier trophy properties in all of sports. The Clippers sold for such an outrageous sum because sports teams in a large market like Los Angeles rarely become available. When they do, billionaires line up in bidding wars.

The Clippers have now set the bar at a $2 billion valuation. Most experts value the Los Angeles Lakers at over $3 billion if the Buss family ever decides to sell. What makes the Knicks more valuable than the Lakers is the fact that they're in the number one media market in the U.S. and come with their own arena. The Lakers do not own the Staples Center where they play--Madison Square Garden owns the arena where the Knicks play.

Other unique entertainment investments
It's hard not to think of Disney (NYSE: DIS  ) when you think of entertainment companies. Some 46% of its revenue derives from media networks, with 31% from parks and resorts. It has an impressive suite of networks, but its ESPN brand makes it an interesting play in sports entertainment. Other key brands include ABC, Marvel Entertainment, Touchstone Pictures, and Lucasfilm.

Over the long term, Disney plans to put more money to work in its resorts business in an effort to increase its market share and create steady long-term growth opportunities.

Liberty Interactive (NASDAQ: LINTA  ) is another unique investment. The company runs QVC networks,, and It also has interests in HSN and Expedia. Its e-commerce business in the U.S. accounts for roughly 50% of its U.S. revenue.

Another unique angle to Liberty is that QVC owns 4.8 million shares of TripAdvisor, for which it paid $300 million. It owns roughly 22% of the travel review company. It also has a strong presence in international markets. International revenue at QVC makes up around a quarter of its revenue, but that number is expected to jump to 50% within five years.


How the shares stack up
Madison Square Garden does trade at the highest P/E ratio of the three, but it has no debt. Madison Square Garden trades at a 35 P/E ratio, compared to 33.4 for Liberty and 22 for Disney. Disney does pay a dividend (yielding 1%), while the other two do not.

Digging a bit deeper, Wall Street does expect Madison Square Garden to grow earnings per share next year at the highest rate of the three at 21.3%. Analysts expect 10.4% EPS growth from Disney and 18% from Liberty.

Bottom line
Madison Square Garden is one of the more interesting investments in the sports entertainment space. Its shares don't appear all that cheap on the surface, but considering its diverse business model, it has a number of growth opportunities. For investors looking for a unique investment in the entertainment industry, Madison Square Garden is worth a closer look.

The Next Unexpected Turnaround In Retail

Office Depot (NYSE: ODP  ) and OfficeMax merged back in November. Since then shares of Office Depot have essentially been flat. The stock traded below $4 per share last month before the company announced an earnings beat last quarter, and the shares now trade near their 52-week high. The stock is still down 85% from its all-time high back in 2006.

The two newly merged companies will be closing 20% of their locations by the end of 2016. Office Depot and OfficeMax expect synergies of $600 million. The company is now hyper focused and near the beginning of its turnaround and could be a solid long-term investment. 

Further consolidation ahead?
There's still the potential for a merger of Office Depot and Staples (NASDAQ: SPLS  ) . The companies differ by enough to suggest that the FTC would approve a merger. The lower prices offered by  (NASDAQ: AMZN  )  could play a key role in convincing the FTC to grant approval.  In the Office Depot-OfficeMax analysis done by the FTC, it found that "today's market for sale of consumable office supplies is broader, due to...explosive growth of online commerce, which has had a major impact on this market." 

The FTC would likely require store closings, but Staples is heavily concentrated in the Northeast. About 33% of its stores are located in the area, meaning the retailer shouldn't see a huge impact from accelerating its store closures. Ultimately relying on Office Depot's retail base. Staples is a much bigger player in e-commerce anyway. About 40% of Staples revenues are derived online. It also has a strong delivery network that it can implement at Office Depot. But it wouldn't just be lower prices from Amazon and market share that the FTC would look at. The potential for a merger between the two would have to benefit the customer and the industry, but would nonetheless help the two better compete against the likes of Amazon and Wal-Mart.

Staples is also a good bit larger than Office Depot so it could easily buy it. Staples generated over $20 billion in revenue last year, compared to Office Depot's $10 billion. Office Depot's market cap sits right at $3 billion. Meanwhile, Staples has $800 million in cash on its balance sheet and generates over $850 million in free cash per year.

Staples also has a debt to equity ratio of only 20%. That's well below Office Depot's 80%. Just assuming that Staples bought Office Depot for $3.7 billion, its debt to equity ratio would be right in line with Office Depot's current ratio. As mentioned, Staples has enough cash to cover 11% of its market cap. Its free cash flow yield is an impressive 10%. Even when accounting for dividends and buybacks, Staples is generating a free cash flow yield of 3.5%.  Even without accounting for dividends and buybacks, Wal-Mart's free cash flow yield is only 3.9%. 

The only issue with an Office Depot purchase is that it would be a long-term move and likely put pressure on the company in the near-term. While its balance sheet and cash flow generating capabilities are very strong, Staples would have to take on more debt or dilute shareholders to get the deal done. Either of which could pressure Staples dividend payment or share buyback program.


Right-sizing retail
As mentioned earlier, Office Depot will close some 20% of its store base over the next couple of years. Some 75% of Office Depot's store leases will be up for renewal in the next half decade, which means that the company can save money by not renewing the leases on underperforming stores, and it will not have to pay steep fees to exit the lease contracts. Staples is also embarking on store closures. It will close up to 225 stores while also reducing the size of its stores.

What about e-commerce?
Amazon doesn't just want to eat the lunches of Office Depot and Staples, it's going after the hardware market. It made a foray into the set-top box TV set market earlier this year with its Fire TV. Now it's in the smartphone market with the Amazon Fire Phone. This could be good news for the office supply retailers if it means that Amazon is somewhat distracted with hardware creation.

Staples is also standing up to Amazon a bit better than other retailers. Staples is the third largest e-commerce site by revenue in North America, behind only Amazon and Apple. While Amazon will likely keep the market share in office supplies that it's gained with its low prices, hopefully Office Depot and Staples can grow their sales with larger-ticket items, such as furniture, as the economy rebounds.

How the shares stack up
Office Depot trades at a P/E of 17 based on next year's earnings estimates with a P/S ratio of 0.23. Meanwhile, Staples trades at a forward P/E ratio of only 11.5, but its P/S ratio is 0.32. Staples also pays an impressive 4.3% dividend yield. It's not a perfect comparison, but to put these multiples into perspective, consider that Amazon trades at a forward P/E ratio of 100 and a P/S ratio of 1.9.

Bottom line
The major brick-and-mortar retailers have been hit hard over the last few years. But the major office supply stores appear to be in deep value territory. With a merger they could team up to better battle Amazon. Regardless, Office Depot and Staples look like solid value plays in a beaten down retail sector.

Why AMC Networks Remains the Best Bet on Cable Television

In Hollywood, you're known by your latest hit. Good talent is hard to come by, and it's especially hard for investors to find management that can continue to deliver hits year after year.

Further complicating matters is when a company like Netflix (NASDAQ: NFLX  )  comes along and changes the way people watch television. This has been rough on cable operators and the channels they offer.

One company, AMC Networks (NASDAQ: AMCX  ) , has defied these odds. AMC has had a string of successes over the past few years, including Breaking Bad, Mad Men, Hell on Wheels, and The Walking Dead. The company also owns WE tv, IFC, and the Sundance Channel.

Consolidation in the TV industry
Comcast's plan to buy Time Warner Cable and the AT&T deal for DirecTV will shrink the pay-TV industry, but there could be more consolidation on the way, this time in the media industry. AMC is trading 24% off its 52-week highs. The stock trades at only 12 times next year's earnings and has a P/E to growth, or PEG, ratio of only 0.9.

With a market cap below $5 billion and an inexpensive valuation, AMC could be a takeover target. AMC could easily be snatched up by any of the larger players, which include 21st Century FoxDisney (NYSE: DIS  ) , and Viacom. All three have market caps above $35 billion, and the deal would boost the negotiating power of these major media companies.

The other key is that one of the big media companies would get a rapidly growing content company. For example, analysts expect 19.4% earnings growth from AMC next year. Compare that to 10.5% for Disney, 15% for Viacom, and 16% for Fox. Wall Street also expects AMC to grow its annual earnings more rapidly over the next five years than any of those three.

What about Netflix?
Netflix owns nearly 50% of the market in the U.S. for homes that don't subscribe to a pay-TV service. Anything the major media companies can do to fend off further market share gains from Netflix would benefit them, including buying up AMC. It is worth noting that the major media companies all have stakes in Hulu (the chief competitor to Netflix), including Disney.

Although the major cable companies and Netflix are in a heated battle, Netflix has managed to co-exist with the likes of AMC and Disney. Netflix has had a partnership with AMC for years. It's been a two-way street, with Netflix subscribers becoming AMC fans with the likes of The Walking Dead, The Killing, and Breaking Bad streaming on Netflix, while AMC devotees are turning to Netflix to catch up on other AMC shows. As far as Netflix and Disney go, Netflix is creating content based on Disney's Marvel Comics. Disney is also getting into the streaming market via its ESPN property. It has been streaming FIFA World Cup matches via ABC and ESPN apps.

However, Netflix has been seeing marked success with its own content, such as House of Cards and Orange is the New Back. But AMC also has a strong pipeline. It already has plans to produce the second season of Better Call Saul even before the first season has aired. It's also developing a new zombie series given the popularity of The Walking Dead.

Bottom line
The media industry could be on the brink of consolidation, which should help it better compete with the likes of Netflix and other streaming services. It appears that AMC has a strong pipeline of shows and trades at a very attractive valuation. For investors who look to gain exposure to the entertainment industry, AMC is worth a closer look.

Buy This Beverage Game Changer Instead of Coke

Investors can easily lose money by investing in fads. Many businesses come up with "hot" products that lack long-term usefulness. Crocs is one of the best examples of this. Its shares quintupled in just a couple of years after its 2006 IPO to hit $70 per share, but now trade for less than $15.

Even still, the market gets it wrong sometimes by confusing a viable product with a fad.SodaStream (NASDAQ: SODA  ) is over 50% off its 52-week high with a short interest of 33%. A perfect storm of bad news has pushed the stock to multi-year lows. However, for investors who are willing to focus on the long term, now could be a great buying opportunity. It's also a feel good, environmentally friendly story, as it helps cut down on plastic bottle waste. 

Coke's entry into at-home beverages
Coca-Cola (NYSE: KO  ) is hoping to get into the at-home beverage market through a partnership with Keurig, but it still lags SodaStream in terms of infrastructure. Coca-Cola now owns 16% of Keurig, up from its initial 10%. However, CO2 cartridges require a network and expertise to build, two things that SodaStream already has. 

SodaStream's business model
SodaStream makes money from selling the machine, the bottle, the carbonation and the syrup. The carbonation and syrup provide recurring revenue streams. Its business model doesn't require much capital and its gross margin is 50%. SodaStream also has a strong presence internationally--Western Europe has seen revenue growth of over 30% for the past two years.

The company's operating margin is currently being held down by sales of machines in the U.S. But once it has a large base of installed machines, its margin should start to rise. That's because the consumable products that SodaStream offers have higher margins. Switzerland is a mature market, saturated with machines, where consumables make up 80% of the company's sales. As a result, it has a 25% operating margin there, compared to an operating margin of 5% in the U.S.

Partnership opportunities
The speculation that PepsiCo (NYSE: PEP  ) might buy SodaStream is dying down. That doesn't mean the two couldn't partner together, or that PepsiCo wouldn't make an equity investment in SodaStream. However, PepsiCo remains in an active battle with activist billionaire Nelson Peltz, which has been going on for a while now. Peltz is pushing for a spin-off of PepsiCo's snack and beverage business. PepsiCo believes that offering both beverages and snacks provides unrivaled synergies, and that the combination gives the company negotiating power with purchasers.

Last year, SodaStream added Wal-Mart as a partner and started selling SodaStream products in Wal-Mart stores. Other potential opportunities include eventually working with major refrigerator manufacturers to install SodaStream machines.

How the shares stack up
SodaStream looks to be one of the best investments around, and not just in the beverage industry. The shares trade at a P/E to growth ratio of only 0.66. The stock actually trades below either Coca-Cola or PepsiCo on a price-to-earnings basis. What you will get with Coca-Cola and PepsiCo are solid dividends, as both yield 2.9%.

Bottom line
Coca-Cola's partnership with Keurig might not be as big of a threat to SodaStream as many fear. SodaStream's strong recurring revenue and presence abroad make it a compelling investment. For investors looking for a solid play in the beverage industry, SodaStream is worth a closer look. 

All Eyes Are Oil, Here’s How To Invest

The violence in Iraq has sent oil prices to the highest levels of the year. Iraq is the second largest producer of oil among the OPEC countries. But there has been violent conflicts in Iraq for a decade.

Even sill, supply concerns should continue to push oil stocks higher. But what’s more is that some of the U.S. energy stocks should help offset any supply shock from the Iraq conflict. The news from Iraq will likely shed further light on the need for the U.S. to become a bigger player in its own energy future, as well as its potential to increase its presence on the global oil stage.

What looks to be three of the best plays on the domestic energy market also happen to be three of Gabelli Funds’ top picks. These include Pioneer Natural Resources (NYSE:PXD), EOG Resources (NYSE:EOG) and Continental Resources (NYSE:CTR). All three are some of the biggest players in the U.S. oil shale boom.

The energy boom in the U.S. is set to continue, and all three of the companies above appear to be well positioned for the long-term.

The Billionaire Activist Is Back At It

Billionaire investor and hedge fund manager, Carl Icahn, has waged his latest campaign. Icahn has been very active of late, taking on some of the market’s top companies. His latest campaign included prodding Apple to boost its buybacks and pushing for eBay to spinoff PayPal. He’s now active in the retail space.

Icahn has a 10% stake in Family Dollar (NYSE:FDO), and is pushing for sale of the company. The market is betting on Icahn, with shares of Family Dollar up over 10% during the last week.

MKM’s McKeever could be valued as high as $83, which is still nearly 25% higher than where it currently trades. Another major activist investor is also a major shareholder, Nelson Peltz. He’s owned Family Dollar for a number of years. Its dividend yield  is 1.9% and it has increased its dividend payment for 37 straight years. It’s the only one of the big 3 dollar store chains to offer a dividend yield.

Buy Family Dollar for upside to $80. That puts Family Dollar in line with peers and assumes that even if Icahn can’t get a deal done it can put in place some strategic initiatives that better positions Family Dollar in the industry, including boosting margins.