Amazon Investors Should Be Frightened of Slowing Revenue Growth

Aragorn: "Are you frightened?"
Frodo: "Yes."
Aragorn: "Not nearly frightened enough!"
--�Lord of the Rings: The Fellowship of the Ring, 2001

On Tuesday afternoon, Amazon.com (NASDAQ: AMZN  ) posted its fourth-quarter earnings report. Revenue of $21.27 billion missed analyst estimates by $1 billion, while EPS of $0.21 missed the consensus estimate of $0.28. However, gross margin of 24% and operating margin of 1.9% beat expectations. This margin expansion did not fall to the bottom line because of higher non-operating expense and a higher tax rate.

Following earnings, Wall Street analysts have focused on Amazon's margin expansion rather than the big top-line miss. Numerous analysts commented to Reuters that they were impressed by the margin growth. In fact, at least 13 analysts raised their price targets for Amazon after the earnings report! However, the fourth-quarter revenue shortfall seriously jeopardizes the investment thesis for Amazon. If growth does not meet expectations, the company's sky-high valuation will eventually contract. In short, investors should be very frightened of slowing revenue growth at Amazon.

Margin expansion: Good but expected
Recently, Amazon has invested heavily to build new warehouses that are closer to customers, in order to reduce delivery times and shipping costs�. The company has also invested heavily in content for the Prime Instant Video service and (to a lesser extent) the Kindle Lending Library. Amazon hopes that these initiatives will boost revenue over the long term, but the resulting cost increases are more significant in the short term. Therefore, Amazon's operating margin has dropped precipitously over the past two years, as can be seen in the chart below.

AMZN Operating Margin TTM data by YCharts.

However, Amazon bulls have always expected that margins would recover over time, due to future revenue growth. Amazon's margin outperformance in the fourth quarter has been taken as confirmation that the company's recent margin deterioration was only temporary.

This is certainly reassuring for Amazon shareholders. It is good to see some evidence that Amazon's heavy investments are generating real returns. On the other hand, this was already expected, and fully reflected in Amazon's share price. Amazon reported a small loss for fiscal year 2012; clearly, the company would not be valued at more than $120 billion if investors expected losses to continue for an extended period of time.

Slowing revenue growth is a red flag
While there has been a long-standing consensus in the investment community that Amazon's margins would eventually recover, there is more debate about the company's future revenue trajectory. Amazon posted 22% revenue growth last quarter, which is certainly a strong number. However, it is well below the company's historical growth rate, with the exception of the 2008-2009 Great Recession. Amazon's forecast for revenue growth of 14% to 26% next quarter suggests that this was not a one-quarter blip.

AMZN Revenue Growth (YOY), data by YCharts.

Amazon bulls have projected a much stronger growth rate well into the future. Less than a month ago, Scott Devitt of Morgan Stanley predicted that Amazon would record revenue of $166 billion in 2016. This would reflect a compound annual growth rate of 29% over the next four years. This projection requires a reacceleration of revenue growth that is very unrealistic for a company of Amazon's size.

In valuing Amazon's business, faster margin expansion cannot fully offset slower revenue growth. The profit that Amazon can earn today on revenue of $61 billion clearly pales in comparison to the profit that it could earn in 2016 if it were to meet Devitt's prediction for $166 billion in revenue. If Amazon's revenue grows at 20% over the next four years, the company will fall short of Devitt's 2016 revenue target by nearly $40 billion. This lower revenue target significantly decreases Amazon's potential profit in future years.

Explaining the revenue miss
Based on a single data point, it is impossible to know with certainty what caused Amazon's revenue growth to moderate last quarter. However, there are two key factors that may have contributed. First, Amazon began collecting sales tax in Texas, Pennsylvania, and California during the third quarter. This leveled the playing field between Amazon and physical retailers for the 77 million residents of those states. Second, a number of major competitors, including Best Buy (NYSE: BBY  ) , Wal-Mart (NYSE: WMT  ) , and Target (NYSE: TGT  ) , stepped up their competitive responses to Amazon over the course of the year.

In the past, Amazon has disputed whether collecting sales taxes would damage its business. However, by not collecting sales tax, Amazon has been able to "save" customers as much as 10% compared to retailers with a physical presence, which must charge tax. On big-ticket items, this savings would be substantial. Indeed, Amazon CFO Thomas Szkutak specifically referenced weakness in items selling for more than $1,000 (and weakness in consumer electronics more generally) to explain the slower revenue growth.

The change in sales tax policy in a number of large states was compounded by a change in strategy by other retailers. For the first time ever, Best Buy and Target offered to match Amazon's prices during the holiday season, a policy which appears to have been more successful than many experts expected. Target has now decided to match Amazon's prices year-round! Wal-Mart did not match prices, but it competed on price viciously over the holiday season. Most notably, the company offered Apple's new iPhone 5 for $127 in mid-December, well below the MSRP of $199.

Looking forward
Only time will tell whether the revenue growth slowdown last quarter is a blip or the beginning of a trend. However, the company's valuation is stretched at two times revenue, while Wal-Mart and Target (its closest competitors) are valued at approximately 0.5 times revenue. Amazon clearly has a superior growth rate, but if growth continues to decelerate, the company's revenue premium will be unsustainable.

Investors should keep a close eye on revenue growth in future quarters, to see if competitors like Wal-Mart, Target, and Best Buy are finally holding their own vis-a-vis Amazon. Based on Amazon's 5% gain on Wednesday, investors are not nearly frightened enough by the company's fourth-quarter revenue shortfall.

Learn more
Want to learn more about whether Amazon is worth its lofty price? We'll tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

The Arsenal of Democracy and the French Fries of Freedom

On this day in economic and financial history...

The Second World War transformed the United States in many ways. Never before had the entire engine of American productivity been so completely tuned to warfare. Such single-minded focus required more than the contribution of existing defense contractors. It demanded the enlistment of America's greatest manufacturers: the auto industry. That's why, on Jan. 31, 1942, not long after the bombing of Pearl Harbor, the U.S. War Production Board banned the production of all civilian cars and light trucks. The great manufacturing plants of Ford (NYSE: F  ) , General Motors, Chrysler, and smaller companies would be converted to war production until the German and Japanese threats were finally nullified.

The Big Three became popularly known as the Arsenal of Democracy during the war. A single massive Ford plant at Willow Run, Mich., produced more than 300,000 military aircraft. GM's Chevrolet division churned out half a million trucks, 8 million artillery shells, and 60,000 Pratt & Whitney aircraft engines. Chrysler produced more than 22,000 tanks and 400,000 military trucks, as well as a tremendous amount of aircraft parts and munitions. Over the course of the war, the auto industry produced $29 billion worth of war goods, which included 12.5 billion rounds of small-arms ammunition and 245 million shells, in addition to all the planes, tanks, and trucks it was already constructing.

Take that, Sputnik!
About four months after the Soviet Union launched Sputnik, the world's first satellite, America answered with a satellite of its own. On Jan. 31, 1958, Explorer 1 was launched into space atop a Juno rocket booster, officially beginning the Space Race that would have profound implications for humanity. The small, rocket-shaped satellite stayed in orbit for more than 12 years, although it ceased transmitting in mid-May of 1958. By the end of 1958, the U.S. would launch the world's first communications satellite, which led to a new era of telecommunications on Earth.

Would you like fries with that, comrade?
The first pillars of American capitalism were erected behind the crumbling Iron Curtain less than two months after the Berlin Wall fell. On Jan. 31, 1990, the first McDonald's (NYSE: MCD) opened in Moscow, and eager Muscovites swarmed the Golden Arches to sample the long-forbidden delicacies of America. The pleasant workers and clean, efficient operation came as a surprise to many customers who had been so used to dealing with surly shopkeeps and gross inefficiencies under the Soviet regime. More than 30,000 customers ordered Big Macs, fries, Chicken McNuggets, and more on that first day.

Less than two years later, the Soviet Union was gone -- but McDonald's stayed. That first Moscow restaurant remains the busiest McDonald's in the world, and in 15 years it served more than 100 million customers. On the 15th anniversary of that opening, McDonald's celebrated its 127 Russian restaurants, which served half a million customers each day, totaling more than one billion across all locations dating back to the first Moscow restaurant.

After making investors rich in 2011, McDonald's has been one of the worst-performing blue-chip stocks of 2012. Our top analyst on the company will tell you whether you should be worried by this trend, and he'll shed light on whether McDonald's is a buy at today's prices. Click here now to read our premium research report on the company.

Rebuilding Ma Bell
AT&T (NYSE: T  ) was broken apart by an antitrust crusade in 1984. On Jan. 31, 2005, two of the largest post-divestiture members of the former Bell System announced their intentions to get back together again. That day, SBC Communications, formerly Southwestern Bell, made a cash-and-stock offer of $16 billion for AT&T, its former parent, and also agreed to assume $6 billion of AT&T's debt.

After two decades of separation, SBC had become far larger than AT&T, which struggled in its core long-distance telephone market as online services and cellphones made landlines increasingly irrelevant. According to a CNNMoney report on the deal, SBC was then valued at $78.3 billion, with 163,000 employees and $41 billion in revenue, not counting its 60% stake in Cingular Wireless. AT&T was only worth $15.7 billion at the time, with $31 billion in revenue and 47,000 employees.

This deal came less than nine months after AT&T had been dumped from the Dow Jones Industrial Average (DJINDICES: ^DJI  ) for Verizon, ending what had been an unbroken 65-year streak of index membership. SBC had been part of the Dow since 1999, so AT&T's streak technically continued as a result of the acquisition, particularly after SBC decided to maintain the AT&T name for the combined company. Analysts were skeptical of the deal, questioning the value of AT&T's enterprise customers and the value of AT&T itself, which received no premium and saw shares fall by 7% after the news broke.

The deal closed that November after news had broken that Verizon and MCI would also be combining. The new AT&T's stock growth accelerated into 2007 but was cut short (as was everything else) by the 2008 financial crisis. However, from the day of the merger to its fifth-year anniversary in early 2010, the new AT&T handily bested the Dow, gaining 28% to the index's 6% loss.

Prop up that peso
On Jan. 31, 1995, with the value of the Mexican peso at an all-time low, President Bill Clinton used his executive power to end-run an earlier Congressional rejection by providing Mexico with a $20 billion loan. The loan was to be made through the Exchange Stabilization Fund -- the first time that fund had been used to support a foreign currency. Congress had turned down a $50 billion loan proposal, but Clinton claimed that a Mexican collapse would lead to a flood of illegal immigration and a weakened trade situation that would disrupt the American economy.

Critics were angered by the apparent rescue of a failed state and the Wall Street bankers that had made significant investments in Mexican bonds. However, by 1997, Mexico had paid off the loan with $500 million in interest on top. In the decade following Clinton's bailout, the size of Mexico's economy expanded by 400%.

Bankrupt is the head that wears the crown
The Spanish Empire was once the most powerful in the world. Much of this power was supported by borrowing to the tune of millions of ducats each year. Unfortunately, expansion, wars, and general fiscal irresponsibility caused the Spanish crown to declare bankruptcy several times at the height of its power. One of the most devastating such bankruptcies occurred on Jan. 31, 1627, as the Spanish economy was in full meltdown.

Spain was then in the midst of the Thirty Years' War, a series of conflicts between most of the major European powers. The monarchy specifically sought to conquer the Netherlands at this time as a result of that nation's greatly expanded influence in the 17th century following its creation of the Dutch East India Company, which now posed a serious threat to Spanish hegemony. The war was undone -- as prior wars had been -- by the collapse of the Spanish economy. Currency devaluation led to such a severe inflationary crisis that parts of the nation reverted to bartering for years. Unable to collect taxes to fund its wars, Spain defaulted on its debts and forced larger creditors to accept an agreement under which they would receive royal lands and titles in exchange for a lesser payment on the nation's outstanding obligations.

The Spanish Empire continued on in a weakened state, but the fragility of its finances eventually brought about its decline. By 1643, an embarrassing defeat -- after financial difficulties forced the Spanish army to stop short of a major victory in 1636 -- made Spain's greatly feared military finally appear mortal, and it fell in influence among the major European powers. Had the Spanish crown not been so bad at managing its finances, the world might look very different indeed.

That's a lot of money for a bunch of blue aliens
On Jan. 31, 2010, James Cameron's Avatar became the first film in history to gross more than $2 billion. The film, distributed by�News Corp.'s 20th Century Fox, had broken Cameron's previous record for Titanic, which went on to break the $2 billion mark as well during a second run two years later. Avatar single-handedly revived interest in the 3-D blockbuster, leading to a rush of films employing the technology -- with mixed results. The film finished its run with a $2.8 billion total take, far ahead of any other film in history.

Canada hot stocks: RIM, Guyana Goldfields, Potash

Among the companies whose shares are making notable moves in Thursday's session are Research In Motion Ltd. RIMM , Potash Corp. of Saskatchewan POT and Guyana Goldfields Inc. .

Research In Motion ($12.72, down 7.7%), soon to be known as BlackBerry, continues to see its shares slide a day after launching the first two BlackBerrys that will run on its new BlackBerry 10 operating system. Shares fell 12% Wednesday as investors reacted with disappointment to news that the first of the devices won't be available in the crucial U.S. market until mid-March.

Potash Corp. (C$42.33, down 2.0%) said its fourth-quarter profit fell 38% and sales were down 12%, hurt by a global slowdown in potash demand. Results missed analyst expectations.

Guyana Goldfields (C$3.37, down 8.6%) said it plans to sell 29.4 million shares at C$3.40 each to raise C$100 million.

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Top Stocks For 1/31/2013-2

TaxMasters, Inc. (TAXS.OB), the IRS tax relief company and a leading provider of tax representation services, recently completed shooting a new television ad that will begin airing this fall.

TaxMasters television commercials are identifiable almost immediately. Featuring the founder and CEO, Patrick Cox, the typically 30-second spots deliver a direct and clear message to taxpayers who are experiencing difficulties with the IRS. The television ads have varied slightly over the years, but stick to the same core messaging delivered by the easily recognizable tax expert with a beard, Patrick Cox.

“TaxMasters has a strong presence on cable � not only because of its services, but because of its well-known spokesperson, Patrick Cox. Because it is a powerful way to reach potential clients, the company owns daytime advertising on cable for the tax representation industry,” said Roby Wilson, owner of MaXXimedia, the agency that produces TaxMasters ads and handles its media placement. “His messaging is clear and the appeal is simple. If you have a notice from the IRS, it’s serious and TaxMasters can help. The consistency of messaging has built incredible brand recognition for TaxMasters and face recognition for Patrick Cox. He can’t go anywhere without someone asking, ‘Hey, aren’t you that tax guy?’”

The new ad campaign will premier on major cable networks this fall. Wilson indicated that while the graphics and colors will change, the messaging will remain largely consistent with Cox’s original ads. MaXXimedia and TaxMasters are exploring new advertising concepts to debut in 2011.

“Since 2004, we’ve found that TV is a very effective channel for reaching our audience. Many taxpayers who find themselves in the IRS’ spotlight simply don’t know companies like TaxMasters exist until they see our ads,” said Alex Clamon, VP of Sales and Marketing with TaxMasters. “We’ll continue to reach out to them to provide a complete suite of tax relief, compliance and audit practices designed to help individuals and small businesses.”

Green Dot Corporation (NYSE: GDOT), a leading prepaid financial services company, reported financial results for its second quarter ended June 30, 2010.

“We are happy to report strong year-over-year growth, including a 48% increase in Non-GAAP Total Operating Revenues to $92.8 million and a 20% increase in Non-GAAP Net Income to $15.5 million,” said Steve Streit, Green Dot’s Chairman, President and Chief Executive Officer. “Also, as a pioneer in the prepaid market and after nearly a decade building our business, we are proud to have accomplished a successful IPO. Today, Green Dot is a well known and trusted brand to millions of Americans, having issued well over 12 million general purpose reloadable card accounts since our founding.”

On July 27, 2010, the Company completed its initial public offering of 5,241,758 shares of Class A common stock at an offering price of $36.00 per share. Since all of these shares were sold by existing stockholders, the Company did not receive any proceeds from the sale of shares.

In July 2010, the Company signed an agreement with Circle K to join the Company’s network of retail distributors. Circle K is the nation’s second largest convenience store chain and has over 3,000 company and franchised locations.

Green Dot is a leading prepaid financial services company providing simple, low-cost and convenient money management solutions to a broad base of U.S. consumers. Green Dot also owns and operates the Green Dot Network, a leading prepaid card reloading network in the United States. Consumers can access the Green Dot Network and use it for a wide variety of transactions, including cash loading onto prepaid cards and adding funds to a PayPal account through MoneyPak(R). Green Dot sells its cards and offers reload services nationwide at approximately 50,000 retail stores, including Walmart, Walgreens, CVS, Rite Aid, 7-Eleven, Kroger, Kmart, Meijer, and Radio Shack, which provide consumers convenient access to its products and services. Green Dot’s products include MasterCard and Visa branded prepaid debit cards and the Green Dot MoneyPak.

Cash Store Financial (NYSE:CSFS) is the only broker of short-term advances and provider of other financial services in Canada publicly traded on the Toronto Stock Exchange. The Company also trades on the New York Stock Exchange. Cash Store Financial operates more than 530 branches across Canada under the banners: The Cash Store and Instaloans. Cash Store Financial also operates two branches in the UK under the banner, The Cash Store.

The Cash Store and Instaloans act as brokers to facilitate short-term advances and provide other financial services to income-earning consumers who may not be able to obtain them from traditional banks. Cash Store Financial also provides a private-label debit card (the Freedom card) and a prepaid credit card (the Freedom MasterCard) as well as other financial services.

Cash Store Financial employs approximately 2,000 associates and is headquartered in Edmonton, Alberta.

Cash Store Financial recently celebrated its listing on the New York Stock Exchange by ringing the bell to open trading. Chairman and CEO, Gordon J. Reykdal, was joined in the ceremony by members of Cash Store Financial’s board of directors, executive officers and senior management team.

Pfizer, Lilly, Boston Scientific surge on earnings

LOS ANGELES (MarketWatch) � A trio of health-care companies saw their shares surge to 52-week highs Tuesday, propelled higher as they issued quarterly financial results that came in ahead of estimates.

Boston Scientific Corp. BSX , which has struggled to regain its footing after several years of difficulties, added more than 3% to $7.10. Before the bell, the company reported fourth-quarter sales came in ahead of estimates and said adjusted 2013 earnings could beat forecasts.

The company said net income was $60 million, or 4 cents a share, for the December quarter, down from $107 million or 7 cents a share in the same period during 2011. Quarterly sales eased to $1.82 billion against the prior year�s $1.85 billion.

Click to Play Do stocks prefer political gridlock?

Congress kicks the budget can, and yet stocks gain. What accounts for this? (Photo: AP)

Adjusted earnings of 11 cents a share came in on target with forecasts among analysts polled by FactSet, but sales had been expected to be lower, at $1.76 billion.

Boston Scientific also said adjusted earnings for 2013 could amount to a range of 64 cents to 70 cents a share, excluding divestiture credits, restructuring charges and amortization expense. The FactSet-compiled consensus estimate is 37 cents to 43 cents a share.

Meanwhile, Pfizer Inc. PFE �also hit the refresh button on a 52-week high when it exceeded consensus profit and sales estimates for the fourth quarter, despite patent expirations on the cholesterol medication Lipitor and the antipsychotic drug Geodon, as well as the spinoff of Zoetis.

Shares of Pfizer, part of the Dow Jones Industrial Average DJIA ,�advanced by more than 3% to $27.70.

/quotes/zigman/220154/quotes/nls/bsx BSX 7.10, +0.24, +3.50%

Pfizer said fourth-quarter net income was $6.32 billion, or 85 cents a share, compared with $1.44 billion or 19 cents a share for the same period a year ago. Sales fell to $15.1 billion against $16.1 billion in the year-earlier fourth quarter.

Adjusted earnings were 47 cents a share, up from the 44-cent consensus derived in a FactSet poll. Analysts had forecast sales of $14.4 billion.

Pfizer also projected adjusted earnings of $2.20 to $2.30 a share for 2013, while FactSet data showed the average analyst estimate at $2.29 a share.

Fellow drug maker Eli Lilly & Co. LLY �had a similar story to tell, as its shares jumped by more than 3% to $54.32. The company beat earnings and sales projections for the December quarter, and upped its 2013 forecast.

/quotes/zigman/238207/quotes/nls/pfe PFE 27.70, +0.86, +3.20%

Lilly said fourth-quarter profit came to $827.2 million, or 74 cents a share, compared with $858.2 million or 77 cents a share for the same period a year earlier. Quarterly sales were $5.96 billion against last year�s $6.05 billion.

Adjusted earnings were 85 cents a share, while analysts� consensus stood at 78 cents. Analysts had forecast sales of $5.79 billion.

Lilly says Washington�s delayed enactment of the American Taxpayer Relief Act of 2012 should yield an extra 7 cents a share in earnings for 2013, bringing its adjusted forecast up to a range of $3.82 to $3.97 a share. The consensus estimate had called for $3.73 a share.

Finally, a small-cap pharma company saw its value plunge by one-fifth when it reported results of tests on a drug used to treat toenail fungus may fall short of those by its competitor.

Anacor Pharmaceuticals Inc. ANAC �went into free fall, off 36% premarket and down more than 20% at the close to $4.11. Anacor�s tavaborole went through a phase 3 test and in the primary endpoint tests, 6.5% of patients experienced a �complete cure� with a clear nail.

/quotes/zigman/232185/quotes/nls/lly LLY 54.32, +1.68, +3.19%

That fell short of the tests recently conducted by Valeant Pharmaceuticals International Inc. VRX , according to Ladenburg Thalmann analyst Juan Sanchez. He said Valeant�s treatment, known as efinaconazole 10%, resulted in a cure rate of 17.8% in its first study and 15.2% in its second.

�We believe it is unlikely the second tavaborole phase 3 clinical trial generates data superior to [Valeant�s] efinaconazole 10%,� Sanchez wrote to clients.

Top Stocks For 1/31/2013-12

GreenHouse Holdings, Inc. (OTCQB:GRHU), a San Diego, California based integrated energy solutions provider and developer of eco-friendly infrastructure, recently announced that the Company is completing the necessary steps to Up-List its shares to a senior U.S. stock exchange. In order to facilitate the transition, GreenHouse established an independent board and appointed PKF, a nationally recognized accounting firm, as their SEC auditors.

“Graduating to a senior U.S. exchange is a high priority for the company given the progress we have made in securing multiple contracts with the U.S. Military and Fortune 100 industrial customers,” said John Galt, GreenHouse Founder and Executive Chairman. “We believe transitioning to a larger exchange is the next logical step in the Company’s future growth and will allow us to gain exposure and be recognized by a broader segment of the investment community. We have witnessed that a number of companies which Up-List to national exchanges experienced impressive increases in liquidity. GreenHouse is confident that now is the appropriate time to move to a senior exchange, as our operations have increased both domestically and abroad. The Up-Listing will allow us to attract additional investors as we strive to improve shareholder value.”

The Board of Directors has now announced that they have made the following appointments in advance of the planned Up-Listing:

Sy Siegel as the Chair of the Audit Committee;
Charles Allured as the Chair of the Compensation Committee; and
General Floyd Trogden as the Chair of the Nominating Committee.

BlackRock MuniHoldings New Jersey Insured Fund, Inc. (NYSE:MUJ) announced distributions and special distributions. Several of the Funds announced dividend increases. These dividend increases take into account each Fund�s earnings potential in light of the current market environment.

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2010, BlackRock�s AUM was $3.446 trillion. BlackRock offers products that span the risk spectrum to meet clients� needs, including active, enhanced and index strategies across markets and asset classes.

Nuveen Ohio Quality Income Municipal Fund, Inc. (NYSE:NUO) a leading global provider of investment services to institutions and high-net-worth investors, announced that 114 Nuveen closed-end funds had declared regular monthly distributions. These funds represent a broad range of tax-exempt, taxable fixed and floating rate income investment strategies for investors seeking to build sophisticated and diversified long-term investment portfolios for cash flow.

Nuveen Ohio Quality Income Municipal Fund, Inc. is a closed-ended fixed income mutual fund launched by Nuveen Investments, Inc. The fund is managed by Nuveen Asset Management. It invests in the fixed income markets of Ohio. The fund invests in tax exempt municipal bonds. It employs fundamental analysis, with bottom-up stock picking approach, to create its portfolio.

National Semiconductor Corporation (NYSE:NSM) reported on December 9, 2010 sales of $390.4 million and net income of $83.5 million, or 34 cents per diluted share, for the second quarter of fiscal 2011, which ended Nov. 28, 2010. National�s second quarter sales were 5 percent lower than the $412.0 million in sales reported in the first quarter of fiscal 2011 due to lower demand from OEMs and distributors in all regions. Sales in the second quarter of fiscal 2011 were 13 percent higher than the $344.6 million reported in the second quarter of fiscal 2010. Second quarter net income of $83.5 million, or 34 cents per diluted share, was a decrease from the $88.8 million, or 36 cents per diluted share, in the first quarter of fiscal 2011. One year ago, National reported net income of $47.0 million, or 20 cents per diluted share.

National Semiconductor Corporation, a semiconductor company, designs, develops, manufactures, and markets analog and mixed-signal integrated circuits and sub-systems. The company�s product portfolio includes power management circuits, audio and operational amplifiers, analog-to-digital or digital-to-analog converters, communication interface circuits, lighting and display circuits, adaptive voltage scaling circuits, and radio frequency integrated circuits, as well as power references, regulators, and switches.

Is Actavis Going to Burn You?

There's no foolproof way to know the future for Actavis (NYSE: ACT  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can, at times, suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Actavis do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Actavis sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. Actavis's latest average DSO stands at 64.5 days, and the end-of-quarter figure is 66.2 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does Actavis look like it might miss its numbers in the next quarter or two?

Investors should watch the top line carefully during the next quarter or two. For the last fully reported fiscal quarter, Actavis's year-over-year revenue grew 18.8%, and its AR grew 32.0%. That's a yellow flag. End-of-quarter DSO increased 11.1% over the prior-year quarter. It was up 12.5% versus the prior quarter. That demands a good explanation. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

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Judge Rejects Apple Demand to Increase Award Against Samsung

SAN FRANCISCO (AP) -- A federal judge late Tuesday rejected�Apple's� (NASDAQ: AAPL  ) demand to increase the $1.05 billion in damages a jury ordered Samsung Electronics to pay its fiercest rival in the smartphone market.

U.S. District Judge Lucy Koh also rejected demands from both companies to conduct another trial on different issues over claims that Samsung unfairly used technology controlled by�Apple�to build its iPads and iPhones to market knockoff products. She also upheld the validity of the�Apple�patents at the center of the dispute.

A jury in August found that Samsung "infringed" six�Apple�patents to create and market 26 smartphones and computer tablets and ordered the $1.05 billion award. The jury found several other older Samsung products didn't infringe any�Apple�patents.

Earlier, the judge refused to block sales of the infringing products in the United States after she said Apple�failed to show consumer demand for the Samsung devices was driven by the purloined technology, including the "pinch-to-zoom" function.�Apple�is appealing that decision.

Samsung contends that only three of the 26 older-generation products are still offered for sale in the United Sates.

Apple�has filed a new lawsuit contending that Samsung's current products are also using�Apple technology. Koh scheduled trial for that matter in 2014.

In a series of four orders Tuesday night, the judge painstakingly considered each side's myriad claims that the nine-member jury wrongly considered evidence and misread complex patent law. With a few minor exceptions, the judge concluded that the jurors got it right as far as the law goes.

"Accordingly, the trial was fairly conducted, with uniform time limits and rules of evidence applied to both sides," the judge said. "A new trial would be contrary to the interests of justice."

The judge is still considering Samsung's demands to reduce the $1.05 billion award. The jurors had filled out a verdict form listing the damages Samsung owed�Apple�for each of the 26 products it found to have used infringing technology. Samsung contends that many of the line-item calculations were done incorrectly and that it was due a big reduction in the award.

Apple�spokeswoman Kristin Huguet declined to comment. A Samsung spokesperson didn't respond to emails late Tuesday.

At a hearing in December, the judge seemed inclined to rework at least a few of the jury's damages calculations, but gave no indication by what amount.

Apple�and Samsung are the top two smartphone makers and are locked in a no-holds-barred, worldwide battle for supremacy of the $346 billion annual sales market, appearing in courtrooms around the globe accusing the other of stealing technology and trade infractions.

International Data Corp. on Friday released a report showing smartphone shipments soared 36 percent worldwide in the fourth quarter as the sleek devices supplanted personal computers and other gadgets on holiday shopping lists.

Samsung Electronics Co. retained its bragging rights as the smartphone leader, shipping nearly 64 million devices for a 29 percent share of the global market.�Apple�ranked second with nearly 48 million iPhones shipped during the fourth quarter, translating into a market share of 22 percent

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The New Script for Teaching Handwriting Is No Script at All

Cursive loyalists lament the loss of cursive teaching in schools. WSJ's Andy Jordan reports from San Francisco.

RALEIGH, N.C.�Across North Carolina and in dozens of other states, teachers are committing what once would have been heresy: They are writing off cursive script.

At a growing number of schools, young students are no longer tracing curving L's and arching D's with pencil and paper, no longer pausing at the end of words to dot an i or cross a t. The common core state standards, a set of math and English goals agreed upon by 45 states and now being implemented, sends cursive the way of the quill pen, while requiring instead that students be proficient in keyboarding by fourth grade.

Cursive is optional�and, so far, few schools have opted for it.

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A student types on a laptop after finishing a cursive lesson.

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Cursive alphabet

Sample cursive exercises

Entry form for handwriting contest

Tool to see words written in cursive

"We're trying to be realistic about skills that kids are going to need," says Jill Camnitz, a longtime school board member in Greenville, N.C. "You can't do everything. Something's got to go."

No matter that children will no longer be able to read the Declaration of Independence or birthday cards from their grandparents. Sending a "Dear John" letter to cursive has been one of the rare curriculum issues that states have been able to agree on, in the yearslong debate about what students must learn in elementary, middle and high school.

And getting rid of cursive is nearly unanimously popular among students. When asked whether they should have to learn cursive, 3,000 of 3,900 middle-school students surveyed by Junior Scholastic magazine in 2010 said it should be erased. "NO! OMG, 4get cursive, it's dead!"

It is hard, after all, to argue that perfect penmanship is a job requirement, even for the people whose signatures appear on the dollar bill. Jacob Lew, President Barack Obama's choice to become treasury secretary, signs his name in nine loops that look like the squiggly icing on a Hostess CupCake.

"Jack assures me that he is going to work to make at least one letter legible in order not to debase our currency," President Obama said this month when announcing Mr. Lew's nomination.

Most adults don't write in real cursive anyway, according to handwriting experts. They use a hybrid form of writing, a mix of print and cursive letters.

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A student practices a cursive lesson.

Typing doesn't help the brain develop as much as writing in longhand, a tactile means of expression with roots in scratching on cave walls, argues handwriting analyst Michelle Dresbold. With typing, the fingers make repetitive movements rather than connect shapes, she said.

"It's a very natural process to take a crayon or a rock and make symbols with your hand," Ms. Dresbold said. "It's just bringing down things from your brain." Without that, "children are not thinking as thoroughly."

Cursive instruction is no longer required as of this school year in North Carolina elementary schools, and most are no longer teaching it, according to the state's department of public instruction.

Worried that longhand was getting short shrift, Nicki Chaffier, a seventh-grade English teacher in a Charlotte, N.C., suburb, persuaded her colleagues this past fall to stage a minor revolt when students complained they couldn't read her written comments on their papers.

The teachers all wrote on the interactive smartboard in cursive. "All the kids started freaking out," Ms. Chaffier said. "They were like, 'Why are you doing this to us?' "

She responded by creating the Lake Norman Charter School Cursive Club, which meets for 40 minutes after school on Tuesdays. It isn't as cool as the art club, or even the math club, for that matter, but she is averaging 10 students a week. "We're working on letters that have hoops, letters that have humps," she said.

Where did she find the lesson plans? "I googled them," she said.

Mary Cancellieri became interested in cursive when her mother, an emergency-room nurse who works nights, left notes on a dry-erase board to stay in touch when they didn't see one another for days. "It's a blast from the past of how things were," the seventh-grader said of her reasons for signing up for the Cursive Club. Her new skills allow her to lord it over her older brothers: Her mother says she is the only one who can read the Christmas cookie recipe handed down in the family.

Anjie Carpenter of Southwest Middle School in Charlotte says she is squeezing in cursive instruction because her 16 new English speakers remember words inscribed on paper better than those typed on school-issued iPads.

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Last year her student Trinh Tran won the title of seventh-grade grand champion in the Zaner-Bloser National Handwriting Contest�the equivalent of the national spelling bee of handwriting. Miss Tran, who moved to the U.S. two years ago from Vietnam, says practicing cursive helped her learn grammar and having pretty handwriting boosted her confidence. "My favorite letter is 'T,' because my name starts with it," she said.

A handful of the 45 states, including California and Georgia, are rewriting the script, adding cursive to their core standards. Others may follow their lead. An Indiana legislative committee approved a bill earlier this month to require that it be taught in all elementary schools. State Sen. Jean Leising, the bill's sponsor, said more than 90% of the 1,000 constituents she surveyed in her rural district said they favored teaching cursive.

The handwritten thank-you notes senators received recently from their teenage legislative pages may have helped push the bill through, Ms. Leising says. Most were printed or they were a scrawled combination of block and cursive letters, and some students were so used to texting "thx" that they struggled to spell "thank you," she said.

"If you would've seen some of those notes," she said, with a sigh. "I was grateful to receive them but saddened by the quality."

It is becoming increasingly rare to even have to sign your name. By 2016, nearly half of all home loans could be closed electronically, meaning that thousands of people will buy homes without having to physically sign their names, according to a recent survey by Xerox Mortgage Services.

"Progress is not always an improvement," said Marc Aronson, president of the Pennsylvania Association of Notaries. Though a specialist in electronic notarization, he mourns the gradual disappearance of the physical signature, which he said is deliberate and easy to link to the person who made it.

"If I go to a hotel and George Washington slept there, I can still read it," he said. "If George Washington signed his name on an electronic signature pad, we'd have no idea he was there."

Calligrapher Carrie Shuping, who specializes in wedding invitations, gets many requests from brides these days for a guest's name to be written in cursive or italics but the address in block print. Invitations in cursive only make up a third of her sales, even though that form is her least expensive style, at $1.40 an envelope, she said.

The writing isn't on the wall yet for cursive, even if children don't learn it in school, she said. "I would lose sleep if I thought it was dying as an art form," she said. "But as a rudimentary part of a child's education? I'm not going to cry about that."

Write to Valerie Bauerlein at valerie.bauerlein@wsj.com

Luminex Earnings Up Next

Luminex (Nasdaq: LMNX  ) is expected to report Q4 earnings on Feb. 4. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Luminex's revenues will grow 12.9% and EPS will wane -18.2%.

The average estimate for revenue is $54.1 million. On the bottom line, the average EPS estimate is $0.09.

Revenue details
Last quarter, Luminex notched revenue of $50.0 million. GAAP reported sales were 9.9% higher than the prior-year quarter's $45.6 million.

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

EPS details
Last quarter, EPS came in at $0.04. GAAP EPS of $0.04 for Q3 were 20% lower than the prior-year quarter's $0.05 per share.

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

Recent performance
For the preceding quarter, gross margin was 70.0%, 320 basis points better than the prior-year quarter. Operating margin was 10.7%, 10 basis points better than the prior-year quarter. Net margin was 3.3%, 90 basis points worse than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $201.2 million. The average EPS estimate is $0.32.

Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 91 members out of 104 rating the stock outperform, and 13 members rating it underperform. Among 30 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 25 give Luminex a green thumbs-up, and five give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Luminex is outperform, with an average price target of $20.83.

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3 Shares Set to Beat the FTSE 100 Today

LONDON -- The FTSE 100 (FTSEINDICES: ^FTSE  ) , which closed above 6,300 for the first time yesterday, has slipped back to 6,318 as of 10:25 a.m. EST. But general optimism seems to be pretty robust at the moment, and people will surely be wondering when the index of top U.K. stocks will beat 6,400, 6,500 -- and even 7,000!

But even when the index is up, there are shares beating it. Here are three constituents of the various FTSE indexes that are rising today.

Bowleven (LSE: BLVN  )
Bowleven, the oil and gas explorer focused in Africa, saw its shares perk up by 8.7% today after it released a drilling update from its IM-5 well off the Cameroon coast. While investigating the Middle and Upper Isongo sands prospects, the exploratory well has found what might be a viable discovery. At a depth of 3,330 meters, initial indications suggest the presence of hydrocarbons. Determining type and quality will have to wait for further tests.

Bowleven investors needed a boost, as the share price was down about 20% over the past year before today's news.

Victoria (LSE: VOG  )
Victoria Oil & Gas is another explorer and producer to rise on good news today, with shares up 1.4% to 2.1 pence. Victoria's share slump has been rather more extreme, with the price having fallen by more than 40% over the past 12 months.

But today the company got a lift from an operations update that told us it now has 15 customers for the gas produced at its Logbaba operation, taking a total of 2.8 million standard cubic feet per day. We also learned that Societe Generale has agreed to a $15 million lending facility.

BP (LSE: BP  ) (NYSE: BP  )
And to keep to the oil theme, shares in BP are up a modest 0.3% to 477 pence, which may or may not be enough to beat the FTSE at the end of the day. But the important news is that the company's legal dealings with the U.S. District Court for the Eastern District of Louisiana have been concluded. In line with the previously agreed penalty of $4 billion over five years and a five-year period of probation, the court has accepted that all criminal charges concerning the Deepwater Horizon disaster have been resolved.

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Boeing Beats on EPS But GAAP Results Lag

Boeing (NYSE: BA  ) reported earnings on Jan. 30. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Boeing met expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded and GAAP earnings per share contracted significantly.

Margins dropped across the board.

Revenue details
Boeing booked revenue of $22.30 billion. The 17 analysts polled by S&P Capital IQ hoped for a top line of $22.24 billion on the same basis. GAAP reported sales were 14% higher than the prior-year quarter's $19.56 billion.

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

EPS details
EPS came in at $1.28. The 20 earnings estimates compiled by S&P Capital IQ averaged $1.20 per share. GAAP EPS of $1.28 for Q4 were 30% lower than the prior-year quarter's $1.84 per share. (The prior-year quarter included $0.01 per share in earnings from discontinued operations.)

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

Margin details
For the quarter, gross margin was 14.6%, 220 basis points worse than the prior-year quarter. Operating margin was 7.0%, 80 basis points worse than the prior-year quarter. Net margin was 4.4%, 270 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $20.97 billion. On the bottom line, the average EPS estimate is $1.22.

Next year's average estimate for revenue is $88.09 billion. The average EPS estimate is $5.20.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 3,916 members out of 4,343 rating the stock outperform, and 427 members rating it underperform. Among 930 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 865 give Boeing a green thumbs-up, and 65 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Boeing is outperform, with an average price target of $85.52.

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Will Brunswick Earn or Burn?

Margins matter. The more Brunswick (NYSE: BC  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong Brunswick's competitive position could be.

Here's the current margin snapshot for Brunswick over the trailing 12 months: Gross margin is 25.4%, while operating margin is 7.8% and net margin is 1.3%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where Brunswick has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Brunswick over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

• Over the past five years, gross margin peaked at 25.4% and averaged 19.9%. Operating margin peaked at 7.8% and averaged 0.6%. Net margin peaked at 1.9% and averaged -7.6%.
• TTM gross margin is 25.4%, 550 basis points better than the five-year average. TTM operating margin is 7.8%, 720 basis points better than the five-year average. TTM net margin is 1.3%, 890 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Brunswick looks like it is doing fine.

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Companies Are Ready: Where Is a Carbon Tax?

With each passing year the world loses another 365.25 days to combat climate change. You may not agree on the causes of climate change, but I find it highly unlikely that an overwhelming majority of the world's scientists are involved in an epic conspiracy. Companies across the globe in every sector of the economy have adopted strict emissions diets. Why? Because reducing emissions is directly related to improving energy efficiency and lowering costs (it helps your brand's image too!).

At the same time, the world economy is suffocating under massive piles of debt and the Earth's atmosphere is reaching alarming levels of CO2 and other greenhouse gases, or GhG. Yet somehow, despite an avalanche of data, no one has the guts to kill two birds with one stone. Where is a comprehensive carbon tax?!

In protest, I have made a list of four of the world's largest companies and their respective sustainability goals. Here they are in alphabetical order:

Anheuser-Busch InBev (NYSE: BUD  ) is known for selling Budweiser, the King of Beers, but perhaps it should be known for being the King of Sustainability. The company was the top-brewer in point score and combined grade in the Carbon Disclosure Project's 2010 environmental rankings. In 2009, AB InBev announced ambitious goals of reducing energy use per hectoliter by 10%, CO2 emissions by 10%, and water use to an industry-leading 3.5 liters for every liter of product. The company also aims to increase waste and by-product recycling up to 99%. The target date for these goals? How does 2012 sound? �

Featured project: Kudos to AB InBev for including direct and indirect CO2 emissions in its reported figures. The company's facilities directly contributed 68.5% of emissions in manufacturing, while transportation and other indirect sources spewed out about 31.5%. To reduce these figures the company benchmarked its Chinese breweries to more efficient facilities scattered worldwide. Forcing this strict emissions accounting system onto its eastern facilities resulted in a staggering 13% reduction in emissions for the region from 2010 to 2011 alone. ��

Be sure to hold AB InBev to its 2012 targets when its sustainability report is published this year. In the meantime check out the 2011 report (link opens PDF).

Caterpillar (NYSE: CAT  ) �has goals to reduce absolute GhG emissions 25% by 2020. The goal, using 2.96 million metric tons of emissions in 2006 as a baseline, would give the company approximately 2.22 million metric tons of emissions in seven years. In 2011 (the one-third mark to the goal) emissions stood at 2.75 million metric tons, or one-third of the target. When you consider that Caterpillar's businesses revolve around heavy-duty equipment that's seemingly not so green, the ambitions are quite impressive. �

Featured project: In China, coke oven gas is often released into the atmosphere during the production of coal derivative chemicals. Allowing this gas to slip out of a process is pretty wasteful, as it can be burned in a turbine to generate electricity and waste heat while taking a bite out of emissions. Where Chinese officials saw a mounting pollution problem (if they could see through the smog at all)�Caterpillar�saw an opportunity. The company created the combined heat and power system that reaches 68% efficiency, consumes 26% less fuel, and lowers CO2 emissions by 40,000 metric tons annually � equivalent to removing 6,600 cars from the road. At the end of 2011, Caterpillar�had enough turbines in operation to eliminate 540,000 metric tons of CO2 from the Earth's atmosphere. �

You can read about the company's sustainability goals, such as using renewable energy to meet 20% of energy needs by 2020, in its 2011 sustainability report (link opens PDF).

Ford (NYSE: F  ) has already enjoyed tremendous success in greening its product pipeline, supply chain, and manufacturing process in the last decade. The company reduced facility CO2 emissions per vehicle by 31% between 2000 and 2010, landfill waste per vehicle by 20% from 2010 to 2011, and fleet CO2 emissions by 9% between 2007 and 2011. But why stop there? Each year every Blue Oval production facility must submit an environmental scorecard to help the company achieve its various sustainability goals, such as reducing GhG emissions 30% per vehicle by 2025 and energy consumption per vehicle by 25% from 2011 to 2016.�Newer, more-efficient vehicles and a commitment to reducing emissions and increasing efficiency ensure Ford will continue to wield a green thumb. ��

Featured project: Engineers pioneered a new painting system called "Three-Wet" that replaces stand-alone primer applications and curing oven systems. In addition to reducing GhG emissions by 40% and volatile organic compound, or VOC, emissions by 10% the new technology reduces paint processing time by 25%. Ford plans to implement the system in all global facilities as they refurbish old production platforms. The company's "fumes-to-fuel" project concentrates VOCs released during the painting process and burns them in a turbine, therefore reducing the need for natural gas and reducing CO2 emissions by up to 85%. �

You can read more about the company's sustainability initiatives by perusing its sustainability webpage.

Procter & Gamble (NYSE: PG  ) is the world's largest consumer packaged goods company, which means it has the potential to be one of the environment's biggest enemies. So investors may be surprised to learn that the company is one of the greenest and most ambitious on the third rock from the sun. By 2025, P&G wants to reduce packaging by 20% per consumer use, truck transportation by 20%, replace one-fourth of its packaging with renewable materials, and source 30% of its energy needs from renewable sources.

Featured project: P&G is working toward a long-term goal to power all of its manufacturing plants with 100% renewable energy. To my knowledge, no other global company has announced such an ambitious goal. I have toured the company's Mehoopany, Penn., facility -- its second-largest in the world -- several times and each time I�returned�I was greeted by new energy projects and production floor upgrades. So, while 100% seems like a broken promise waiting to happen, I am cautiously optimistic P&G can make it happen. Reaching such a target would have a tremendous impact on the company's GhG emissions. Consider that using 52% less energy since 2002 has resulted in a 54% cut to the company's direct CO2 emissions. �

View all of the company's social and�environmental�goals in their 2012 sustainability overview (link opens PDF).�

Foolish bottom line
Unless the world's top climate scientists hold a press conference tomorrow and unveil a massive banner that reads "Gotcha!" I will continue to invest in companies that take steps to reduce their impact on climate change. Think about what a tax of $20 per metric ton of CO2 could do for both government (always in need of revenue) and companies (always in need of incentives). Such a tax could be gradually applied to the world's economy and have profound results. The world economy would be more efficient, more robust, less wasteful, and more thoughtful of future generations. It might be seen as one of the most forward-thinking accomplishments in human history.

Despite becoming greener, or perhaps because of it, Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. The stock has recently taken off, and it appears investors have started to notice what Ford is doing right. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply�click here to get instant access to this premium report.

Why Diageo Shares Have Been Climbing

LONDON -- It looks like a busy week for�Diageo� (LSE: DGE  ) (NYSE: DEO  ) , as it is set to release its interim results on Thursday. The shares have put on almost 60 pence from when I earmarked them as�a potential buying opportunity�less than two weeks ago. Here, I look at what may have caused the recent climb.

Interim results
Diageo has always said it has been confident of delivering its medium-term goals, and this week's statement is likely to confirm that the group is performing in line with market expectations. Analyst forecasts for 2012-2013 suggest organic top-line growth of 6.5%, which would surpass the company's previous 6% target.

My Foolish colleague G.A. Chester also suggests investors might see�a first-half dividend of around 18.3 pence per share�announced, though he warns that analyst EPS forecasts of around 103 pence give an increase of 9.3%, "representing a slight miss on the company's goal of double-digit growth."

Diageo's shares have soared 32% over the past year, while the FTSE 100 has risen just 7%. Over 10 years, Diageo's shares have risen an impressive 195%.

South Africa
On Monday, Diageo also confirmed that it had entered into a�23 million pound joint-venture agreement�to acquire a 50% interest in the company that owns United National Breweries' traditional sorghum beer business in South Africa, pending consent from the South African competition authority.

The remaining 50% will be held by a company affiliated to Dr. Vijay Mallya, after announcing a "memorandum of understanding" that Diageo and Dr. Mallya would form the 50:50 joint-venture back in November.

This move presents the world's leading premium drinks business as not only a defensive share that ought to fare well during these turbulent economic times, but also as a possible play on emerging markets.�

Indeed, consumer-goods company�Unilever�is benefiting from developing countries as well, recently reporting that 55% of its turnover now comes from emerging markets. Both businesses look set to continue their fast growth overseas, which can only be beneficial for shareholders.

India
It hasn't been a completely rosy start to the week for the drinks major, though, as negotiations with the authorities in India about the 1.3 billion pound deal for a majority stake in Indian drinks giant United Spirits hit a snag over the weekend.

The authorities questioned whether a put clause in the agreement was compliant with Indian law and, as such, the deal may now be delayed until the second quarter of the year.

This development is worth watching, as some analysts believe that the deal is priced into Diageo's shares already, and any serious hiccup could harm their value should the worst arise.

Management
G.A. Chester has recently praised Diageo's CEO, Paul Walsh, one of the longest-serving FTSE 100 chief executives, stating that "continuity of leadership is a great foundation for long-term business success" and one of the�three things he loves about Diageo.

However, rumours abound in the City that Walsh may retire in 2014, which might have a detrimental effect on the share price if that is actually the case. Currently, it is only conjecture, though, and this Thursday's statement is extremely unlikely to contain any such news.

As a shareholder, I await the results eagerly and remain confident about my investment.

Other share ideas
If you're looking for�other defensive investments in the FTSE 100, I recommend the special FREE report from The Motley Fool, updated for 2013,�"8 Shares Held by Britain's Super-Investor."

The report contains the names of the blue chip companies favored by�Neil Woodford, whose track record speaks for itself, having beaten the Footsie by 200%-plus during the 15 years to October 2012 with�a collection of dependable, defensive dividend-paying FTSE 100 names.�

But hurry, all Fool reports are available for a limited time only, so simply�click here�to have your copy delivered immediately to your inbox.

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Will These Numbers from Zoltek Companies Be Good Enough for You?

Zoltek Companies (Nasdaq: ZOLT  ) is expected to report Q1 earnings around Feb. 1. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Zoltek Companies's revenues will wane -8.6% and EPS will shrink -53.6%.

The average estimate for revenue is $43.0 million. On the bottom line, the average EPS estimate is $0.13.

Revenue details
Last quarter, Zoltek Companies recorded revenue of $44.2 million. GAAP reported sales were 2.5% higher than the prior-year quarter's $43.1 million.

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

EPS details
Last quarter, EPS came in at $0.12. GAAP EPS of $0.12 for Q4 were 7.7% lower than the prior-year quarter's $0.13 per share.

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

Recent performance
For the preceding quarter, gross margin was 23.1%, 750 basis points better than the prior-year quarter. Operating margin was 12.0%, 970 basis points better than the prior-year quarter. Net margin was 9.6%, 100 basis points worse than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $171.3 million. The average EPS estimate is $0.50.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 721 members out of 763 rating the stock outperform, and 42 members rating it underperform. Among 158 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 144 give Zoltek Companies a green thumbs-up, and 14 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Zoltek Companies is outperform, with an average price target of $11.50.

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• Add Zoltek Companies to My Watchlist.

Shell and Kinder Morgan to Export LNG From the U.S.

Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) announced plans today for a partnership between one of its subsidiaries and Southern Liquefaction Co. -- a Kinder Morgan (NYSE: KMI  ) company and unit of El Paso Pipeline Partners (NYSE: EPB  ) -- to develop an export-ready natural gas liquefaction plant at a shipping terminal near�Savannah, Ga..

Using El Paso's existing pipeline and terminal infrastructure, the newly created limited liability company will further develop a facility to allow for liquefied natural gas export via ships. Kinder Morgan-owned El Paso will operate the facility and own 51% of the new company, while Shell will snag 49% and 100% of the liquefaction capacity.

�"This announcement underscores how the abundance of natural gas in the U.S. is changing the energy landscape," said Shell President Marvin Odum in a statement. "With a measured, phased approach, exports of cleaner burning natural gas can help meet the world's rising energy needs while also giving a boost to the U.S. economy."

Once completed, the project is expected to have liquefaction capacity equivalent to 2.5 million tonnes per year or 350 million cubic feet of gas per day.

According to Kinder Morgan Chairman and CEO Richard Kinder, the project has already received Free Trade Agreement approval and expects non-Free Trade Agreement approval "in due course."

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Google Maps North Korea

With the help of "citizen cartographers," Google Maps has filled in some of North Korea's streets and prison camps. The WSJ's Evan Ramstad gives a preview of some places the world's most reclusive nation would rather keep a secret.

SEOUL�For the hundreds of millions of people who use Google Inc.'s online maps, North Korea has become a bit less of a cypher.

On Tuesday, the company revised its Google Maps application to add information for North Korea�from naming streets to marking the outlines of prison camps�beginning to flesh out a national map that has been largely unannotated since Google started providing maps online and for mobile devices eight years ago.

The new information for the North Korea map was the result of a so-called crowdsourcing effort, as people interested in the country contributed names of streets, districts, buildings and landmarks as part of a Google development program called Map Maker.

The updated view on North Korea also highlights areas where the country allegedly operates gulag-like work camps, believed to be some of the largest and most inhumane prisons in the world. Brown shading stands out against the light beige background, instantly imparting to a user of Google Maps the enormous size of the prisons.

Google's Schmidt in North Korea

View Slideshow

Associated Press

Executive Chairman of Google Eric Schmidt, center, arrived at Pyongyang's airport on Jan. 7.

Digits

• Review Roundup: North Korea's Gulag System (on Google Maps)

Earlier

• Defectors Cast New Light on Korean Camps (5/30/2012)
• Gulags, Nukes and a Water Slide: Citizen Spies Lift North Korea's Veil (5/22/2009)

The release came just three weeks after Google's executive chairman, Eric Schmidt, visited North Korea in a highly publicized trip with former American diplomat Bill Richardson. Mr. Schmidt encouraged officials there to make the Internet available to its citizens and end its attempts to restrict information. A company spokesman said there was no connection between the visit and the new map.

"This data has been in Map Maker for a while now, but it commonly takes the Map Maker community a few years to generate enough high-quality data to make something that works in Google Maps," the spokesman said. He added that Google has relied on "citizen cartographers" to help it create maps in 150 countries and have made huge contributions in places where governments have done little mapping, such as Afghanistan.

In a blog post, Google said it determined the work on North Korea had reached a level of detail and credibility where it could be incorporated into the Google Map product.

Even so, the new effort serves to highlight how much remains unknown or unconfirmed about North Korea.

The new Google Maps version of North Korea also has far less information than files available through other private efforts using a different Google product, a satellite image program, Google Earth, which must be downloaded separately.

Enlarge Image

Close Agence France-Presse/Getty Images

Google Map image of North Korea.

Curtis Melvin, who has spent years leading a crowdsourcing effort to map North Korea using Google Earth, said he was surprised to learn of the separate work for Google Maps. "It's not even a fraction of what I've already published," he said. Mr. Melvin's work, for example, shows the outlines of what his collaborators have said are several more prison camps than are visible on the Google Maps version.

Mr. Melvin, who publishes a website called North Korean Economy Watch, recently collaborated with 38 North, a North Korea website operated by the Johns Hopkins School of Advanced International Studies, on a digital atlas of North Korea. He has relied on information provided by people who have visited the country or former citizens who defected from it.

Jayanth Mysore, a Google senior product manager, wrote in a blog post that the North Korea map is "not perfect" and added Google encourages people "to continue helping us improve the quality of these maps."

Hwang Min-woo, a 28-year-old South Korean who contributed to the North Korea map, said he began working on it after trying to use Google Maps on a trip to Laos four years ago and finding it inadequate.

"I thought if I could fill in information on North Korea, it might be useful in an emergency or a tragedy if Google can provide a map for aid agencies," Mr. Hwang said.He said he used information from maps of the North on a website run by the South Korean government.

Within hours of the release of the updated map, Internet users had begun to put their stamp on it. The Google tags for landmarks�including prison camps�began to fill with user reviews, ranging from apparently factual accounts of life in the camps to faux-glowing reviews. "After staying a week in the rather fantastic Buckchang Gulag, I had high expectations for the Hoeryong Gulag. I figured Gulag was some sort of chain," read one.

Google's content policy prohibits comments that involve "impersonation or deceptive behavior," a spokesman said. "We strive to create a platform where people can express their opinions about places both positive and negative. We understand this may occasionally yield commentary that is sarcastic or makes some people uncomfortable. We encourage users to flag content they feel is inappropriate or violates our content policy," the spokesman said.

—Amir Efrati and Matthew Lynley contributed to this article.

Write to Evan Ramstad at evan.ramstad@wsj.com

Why the Dow Ended at Five-Year Highs Today

Money is returning to equity markets in a major way. Tuesday's gains brought the Dow Jones Industrial Average (DJINDICES: ^DJI  ) to rest 6.5% higher than it opened the year, and with only two days left of trading, January looks to be quite a profitable month for Wall Street. The Dow gained 72 points, or 0.52%, to close at 13,954 today.

Leading the blue-chip index higher was pharmaceutical giant Pfizer (NYSE: PFE  ) , which added 3.2%. Pfizer forecast higher-than-expected profits for the coming year, and announced that it may consider splitting up the generic and branded parts of its business to create shareholder value. Telecom bellwether Verizon (NYSE: VZ  ) was the Dow's second-biggest gainer, adding 1.7%. On Tuesday the company announced that its network covered 94% of the "Philadelphia Tri-State Region" and 89% of the country. Current pricing of the shares has the annual dividend at an impressive 4.8%.�

Elsewhere in the Dow, shares of Hewlett-Packard (NYSE: HPQ  ) were not so impressive, stumbling 3.2% as HP claimed its spot as the top blue-chip laggard of the day. HP was denied the right to depose a number of General Motors�workers today by a Texas judge. HP suspects that the employees in question were wooed away from HP last month in an "exodus" of 18 people that may have violated non-solicitation and confidentiality agreements.�

Cisco Systems (NASDAQ: CSCO  ) , which has been gobbling up companies at an alarming pace, continued to satiate its appetite today by absorbing a Czech network security firm, Cognitive Security, for an undisclosed amount of money. Cisco's stock fell by 1.3% on news that it was contacted by the government's Computer Emergency Readiness Team for vague online safety reasons.�

Once a high-flying tech darling, Cisco is now on the radar of value-oriented dividend lovers. Get the lowdown on the routing juggernaut in The Motley Fool's�premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as its story changes, so click here now to read more.

MetLife Angling to Buy Chilean Pension Biz

On Tuesday, financial services powerhouse MetLife (NYSE: MET  ) confirmed the import of a statement issued earlier in the day by Banco Bilbao Vizcaya Argentaria, or BBVA, to the effect that MetLife is in the process of negotiating a purchase of BBVA subsidiary AFP Provida (NYSE: PVD  ) , the largest private pension fund administrator in Chile.

Shares of AFP Provida closed up 0.9% in Tuesday trading, rising to $111.53. MetLife, too, saw its shares rise -- 0.2% to $37.72 by close of trading.

Regardless, MetLife is quick to point out that "[n]o agreement has been reached and there are no assurances that an agreement will be reached."

Yahoo report to be scanned for turnaround evidence

MARKETWATCH FRONT PAGE

Yahoo is expected to report modestly higher revenue as sentiment on the stock improves and analysts for signs of the Internet portal�s turnaround under Marissa Mayer. See full story.

Orders for U.S. durable goods jump 4.6%

Orders for big-ticket items made in the U.S. soar 4.6% in December, fanned by a big batch of orders for Boeing aircraft. Demand stayed solid for other makers of durable goods, according to the Commerce Department, but business investment weakened in the last month of the year. See full story.

Land Down Under faces Europe-style downturn

Australia has been an attractive destination for investors. But the economic outlook is deteriorating. The commodity boom, predicted to go on forever, is slowing sharply, writes Satyajit Das. See full story.

Bernanke�s second term in pictures

As Federal Reserve Chairman Ben Bernanke enters what is likely to be his last year in office, the U.S. economy is still struggling in the aftermath of the financial crisis that started in 2007 and it may be that putting the economy on a path to a self-sustaining recovery remains beyond Bernanke�s grasp. Here are images of some of the highs and lows of Bernanke�s second term in office. See full story.

Reasons to buy Apple now

If you haven�t been living in a cave for the past week, you�ll know Apple�s stock price recently collapsed to $445, from a peak of $700 last year. I hesitate to disagree with the market, but in this case, I might make an exception. See full story.

MARKETWATCH PERSONAL FINANCE

If you haven�t been living in a cave for the past week, you�ll know Apple�s stock price recently collapsed to $445, from a peak of $700 last year. I hesitate to disagree with the market, but in this case, I might make an exception. See full story.

Will These Numbers from Virtusa Be Good Enough for You?

Virtusa (Nasdaq: VRTU  ) is expected to report Q3 earnings on Jan. 30. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Virtusa's revenues will expand 18.5% and EPS will grow 27.3%.

The average estimate for revenue is $85.6 million. On the bottom line, the average EPS estimate is $0.28.

Revenue details
Last quarter, Virtusa reported revenue of $80.5 million. GAAP reported sales were 15% higher than the prior-year quarter's $70.3 million.

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

EPS details
Last quarter, EPS came in at $0.23. GAAP EPS of $0.23 for Q2 were 28% higher than the prior-year quarter's $0.18 per share.

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

Recent performance
For the preceding quarter, gross margin was 34.3%, 110 basis points worse than the prior-year quarter. Operating margin was 9.2%, 140 basis points better than the prior-year quarter. Net margin was 7.2%, 50 basis points better than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $331.0 million. The average EPS estimate is $1.07.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 102 members out of 107 rating the stock outperform, and five members rating it underperform. Among 37 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 37 give Virtusa a green thumbs-up, and give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Virtusa is buy, with an average price target of $20.33.

Is Virtusa playing the right part in the new technology revolution? Computers, mobile devices, and related services are creating huge amounts of valuable data, but only for companies that can crunch the numbers and make sense of it. Meet the leader in this field in "The Only Stock You Need To Profit From the NEW Technology Revolution." Click here for instant access to this free report.

• Add Virtusa to My Watchlist.

1 Great Stock for Global Growth

Caterpillar� (NYSE: CAT  ) left a lot to be desired during its recent fourth-quarter earnings call, reporting lower-than-predicted profits and providing a soft outlook for 2013. In short, there was nothing "earth-moving" about Caterpillar's segue into the new year. The company's net income fell to $697 million, or $1.04 per share, down significantly from $1.55 billion, or $2.32 per share, a year before. Meanwhile, Caterpillar is right in the middle of an internally launched accounting inquiry involving a mining equipment manufacturer it purchased last year in China. From one vantage point, Caterpillar's seemingly on shaky ground.

Nevertheless, industrials analyst Isaac Pino believes Caterpillar's stock is still relatively cheap, which limits the downside risk. As economic activity picks up, which Caterpillar predicts will happen in the latter half of the year, so should Caterpillar. Furthermore, other industrial companies have provided positive outlooks for 2013, including GE and Honeywell, and their ties to a rapidly rebounding housing market are minimal, at best. Caterpillar, meanwhile, could reveal significant upside as the year progresses.

Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in our brand-new report. Just click here to access it now.

Should I Invest in GKN?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment, and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities, and today I'm looking at�GKN� (LSE: GKN  ) , which is a global engineering company.

With the shares at 247 pence, GKN's market cap is 4,029 million pounds.

This table summarizes the company's recent financial record:

Year to December	2007	2008	2009	2010	2011
Revenue (millions of pounds)	3,869	4,376	4,223	5,084	5,746
Net cash from operations (millions of pounds)	240	259	227	33	454
Adjusted earnings per share (pence)	23.69	23.7	5.7	20.7	22.6
Dividend per share (pence)	9.11	4.5	0	5	6

GKN is an engineering group employing around 44,000 people in more than 35 countries. The firm reckons its technologies and products are at the heart of vehicles and aircraft produced by the world's leading manufacturers. Indeed, its products, such as drive shafts and axle joints, are responsible for making most of the cars around the world move.

Around 46% of revenue came from the company's Driveline division last year, 24% from Aerospace, 14% from Powder Metallurgy, 14% from Land Systems, and 2% from other sources. Europe is the most important region, producing around 47% of revenue, followed by the Americas, at 37% and 16% from the rest of the world.

It's clear from the table that GKN's markets are cyclical. In fact, the company required a dilutive 6-for-5 rights issue in 2009 that raised about 400 million pounds to pay down some of its debt and support its balance sheet. The company issued around 800 million new shares, roughly doubling the share count. It's often a good idea to hold cyclical, high-beta shares on the up-leg of economic cycles. If the current recovery proves to be enduring, GKN could offer investors decent total-return potential from here.

GKN's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:

1. Dividend cover:�free cash flow covered last year's dividend almost twice.�3/5

2. Borrowings:�net gearing is about 37% with net debt around 1.7 times earnings.�4/5

3. Growth:�growing revenue and earnings with recent good support from cash flow.�4/5

4. Price to earnings:�a forward 8 compares well with growth and yield forecasts.�4/5

5. Outlook:�satisfactory recent trading and an ambivalent outlook.�3/5

Overall, I score GKN�18�out of 25, which encourages me to believe that, given a steadily improving macroeconomic environment, the company has potential to outpace the wider market's total return going forward.

Foolish summary
Since raising more money on the stock market during 2009, GKN seems to have gotten its debt under control. Cash flow has come back from its nadir in 2010, and there's reasonable free-cash dividend cover and plenty of cash to meet interest payments. One thing noticeable from the table of results is that the business has grown beyond a mere cyclical recovery; all of revenue, profits, and cash flow now comfortably exceed the pre-crisis levels seen in 2007, although earnings-per-share figures are down because of the rights-issue dilution.�

Yes, GKN is a growing business, although the latest company guidance sees the directors speak of softening demand in some areas. Despite the fivefold share price increase since the dark days of 2009, I'm happy to put GKN on my watch list and may even buy the shares if something knocks them back.�

Generally, I'm more likely to buy shares when a company hits a spot of bother, as that's often when I find bargains. Investors tend to like bargains, as share price recovery from low levels can lead to enhanced total returns. Right now, on one selection I find myself in the company of master investor Warren Buffett. In fact, the share in question is the only publicly listed U.K. company in which the American financial wizard holds shares. You can find out why in The Motley Fool's report�"The One U.K. Share That Warren Buffett Loves."�For a limited period, the report is free, so to download your copy and find out the identity of the one U.K. share that screams "buy" to so many,�click here.

Microsoft: A Buy on Strengthening Numbers

Microsoft (NASDAQ: MSFT  ) beat analyst expectations by a penny, turning in earnings per share of $0.76, but declined�3.7%�in net income. The company finds itself in a uniquely bifurcated state of existence that is often overlooked by investors. The consumer side of its business -- the side that partnered with Nokia (NYSE: NOK  ) to bring us the Windows smartphone -- often gets the ink, but it is its stable enterprise business that often keeps the bills paid. While Microsoft has been cagey about sharing precise numbers�regarding consumer sales, it continues to impress me. After an extended "quiet" period, in which very little hype came from the software giant, it seems to be gunning for the top spot again and belongs in your core portfolio.

Microsoft's hard numbers
Revenue for the quarter came in at $21.46 billion, in line with the consensus at Zack's �but below the average of $21.56 billion compiled by Bloomberg. This revenue figure, which is up 2.7% on a year-over-year basis and 34% sequentially, resulted in the $6.38 billion of net income�mentioned above. A year ago, net income came in at $6.6 billion, meaning that despite higher revenues, profits dropped by 4% on a year-over-year basis.

Every division, except Entertainment & Devices -- which was down 11% year over year -- grew positively for the company. The Business Division was up 3.4% sequentially, but contracted 9.4%�from a year ago. Servers & Tools was up 8.7% year over year, and Online Services grew by 10.8% on the same basis. Overall, Microsoft got a favorable mix from its diversified business lines.

While Windows 8 is a central theme for the quarter, IDC analyst Bob O'Donnell points out that "[o]ne of the biggest stories in 2013 is the business transition from Windows XP to Windows 7. There are a staggering number of machines still running Windows XP. The IT guys have to pull the plug on those and upgrade, and most will do that by buying new machines." This should be good news for Microsoft as it looks to maintain the stability that its enterprise business provides.

The importance of mobile
In the simplest terms, as mobile increases in importance, it is vital that Microsoft continue to push into the mobile arena. In a recent�interview, Bloomberg's Cory Johnson summarizes this as Microsoft having a smartphone and a tablet that "doesn't suck" so that it can convince IT managers to purchase Windows 8. He acknowledges that while he is not awed by either the Nokia Lumia or the Microsoft Surface, both are solid and his preference for Apple's (NASDAQ: AAPL  ) iOS is largely one of familiarity.

However, where Microsoft is expected to take aim at the corporate space and attack Apple is with the Surface Pro. The tablet is slated to go on sale on Feb. 9 and is designed to be a fully productive tablet that also has the ability to function in the place of a laptop. The Surface Pro will be positioned to company CIOs as�as having the distinct advantage of being able to easily integrate with existing systems, run the Microsoft Office suite of software, and be adopted with minimal pain to the IT department.

Flagging PC sales and blossoming iPad sales were critical drivers in Microsoft's attack on this important part of mobile computing. If it is able to attain even a fraction of the business dominance that Office enjoys with the Surface Pro, the device could well be the game changer that Microsoft needs to catapult itself back to the forefront of the technology space. The Surface Pro is particularly important because the Windows RT-driven Surface has met only mild success�since its release.

The lukewarm reception to the initial Surface release has led some to describe the company as "struggling" in the tablet arena. I believe, however, that since many users (myself included) knew the Surface Pro would be released and would represent a significantly richer experience, they deferred their purchase until the Surface Pro's debut. If the upgraded model delivers even most of what it promises, it has the potential to be a game changer in mobile computing.

Buy early and often
The broad base success that Microsoft achieved in the most recent quarter, as illustrated by solid growth in most areas, is hugely positive for the stock. While the numbers are not the blockbusters you may be used to from Apple, they are solid and more in line with the Microsoft approach. Drawing upon this strength, and in anticipation of the Surface Pro release, the stock is an absolute buy for your portfolio.

�

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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