2 Are Better Than 1: Endocyte Uses Diagnostics To Complements Its Drugs

In an age where only about 20% of drugs are FDA approved, drug development companies have the odds stacked against them. Therefore, they must develop a drug that is: 1) selective and 2) efficacious. In other words, the drug must target a cell of interest and produce an intended result. In oncology, a drug that targets and kills a cancer cell is highly desired. However, targeting and killing a cancer cell is only half the battle. The drug must also be given to the right patient. If not, the drug will not work no matter how selective and efficacious it might be. It is like giving an antitumor drug to a patient with the flu: the drug will not work.

Endocyte (ECYT) is a drug development company that seeks to develop small molecule drug candidates (SMDCs) for cancer and other diseases. SMDCs like vintafolide (EC145) are drugs linked to targeting ligands. Targeting ligands are like keys. When they are inserted into the proper lock on a tumor cell, they selectively deliver antitumor compounds. Interestingly, ECYT also develops companion diagnostics in which it links an imaging agent to the same ligand to identify patients likely to respond its therapy. The imaging agent is like a flashlight. It illuminates the lock (tumor cell) to identify the patient as a candidate for drug therapy.

EC145 is ECYT's leading drug candidate in clinical development. EC145 is a vinca chemotherapy that targets the folate receptor (the lock) found on tumor cells. It preferentially kills tumor cells by disrupting cell division. In phase 2a clinical trials, EC145 demonstrated a favorable safety profile in ovarian cancer and non-small cell lung carcinoma (NSCLC). Using its companion diagnostic (Etarfolatide) in combination with EC145 resulted in a survival benefit to ovarian cancer patients whose cancers had folate receptor (compared to those who did not have folate receptor). Therefore, they were able to validate their drug approach in which they were able to identify patients who would respond to therapy.

! According to ECYT, most cases of ovarian cancer (>85%) and NSCLC (>80%) are folate receptor positive. When you consider the incidence and mortality of both of these cancers, there is a highly unmet medical need: 22,240 women will be diagnosed with and more than half will die of ovarian cancer in 2013 alone; many more people will be diagnosed and die of NSCLC. Therefore, ECYT is attempting to address a large market, one it estimates at >1 million folate receptor positive cancer patients in the United States, Europe, and Japan, should EC145 prove efficacious.

In a phase 2b trial, platinum-resistant ovarian cancer patients were given EC145 in combination with pegylated liposomal doxorubicin (PLD). Compared to patients who received PLD only, those who received combination therapy had a longer progression-free survival (5.5 months vs 1.5 months). However, it is important to note that patients whose tumors expressed folate receptor (100%) did not demonstrate an overall survival benefit (hazard ratio 1.097). While the patients treated with combination therapy had, on average, an additional four months before the disease got worse, they ultimately died after the same period of time as patients treated with PLD only, indicating combination treatment did not improve survival outcome. Nonetheless, a phase 3 trial was started in platinum-resistant ovarian cancer patients who will be randomized to receive either EC145 and PLD or placebo and PLD. Results are expected in mid 2015.

Besides ovarian cancer, EC145 is also being pursued in NSCLC as a second line therapy or one used after first line treatment failure. However, its important to point out that a standard therapy (docetaxel) already exists to treat second line NSCLC, which could limit EC145's market penetrance. Thus, a phase 2b trial was recently started to compare EC145 and docetaxel in folate receptor positive (100%) NSCLC patients who failed one prior therapeutic regimen. Enrollment is complete and results are anticipate! d in 2014! .

In the meantime, ECYT is also advancing EC0652 to better diagnose prostate cancer. EC0652 is an imaging agent, which targets prostate-specific membrane antigen found on malignant (and normal) prostate tissue. EC1719, an agent that combines tubulysin and PMSA, has demonstrated significant in vivo activity. Likely, these agents will be used in combination to identify and treat prostate cancer.

In addition, ECYT is developing EC1456 to overcome vintafolide resistance. In vitro and animal models using EC0531, which is an earlier version of EC1456, have demonstrated superior activity to EC146. ECYT is also developing EC1669 to treat autoimmune diseases characterized by inflammation like rheumatoid arthritis. EC1669 targets macrophages, which secrete pro-inflammatory molecules.

In combining a companion diagnostic that uses the same targeting ligand as its small molecule drug candidate, ECYT has a novel drug-diagnostic strategy that will enable identification of patients likely to respond to therapy. If its science were not enough to entice the biotech investor, one may not need to look further than the deal ECYT signed with Merck last year. According to terms of the agreement in which Merck gained worldwide rights to develop and commercialize EC145, Endocyte received $120 million in an upfront payment and is eligible to receive up to $880 million in milestone payments. While the milestone payments are far from guaranteed, the agreement makes ECYT financial viable. For the full year 2012, ECYT had an ending cash balance of $201.4 million enabling it to continue to develop its preclinical program.

Source: 2 Are Better Than 1: Endocyte Uses Diagnostics To Complements Its Drugs

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

Oracle Corporation (ORCL): Is Larry Ellison Being Overpaid?

The team of Larry Ellison, the founder and Chief Executive of Oracle Corporation (NASDAQ:ORCL), may have won the thirty-fourth America's Cup. However, it could be difficult for Ellison's corporate team to escape the discontent from shareholders, who are against higher pay packages for Oracle executives amid mixed results.

The shareholder angst comes as Oracle has reduced the compensation of all the key executives including Ellison who even turned down a bonus of $1.2 million for the past year as Oracle's growth missed expectations

The key reason for the shareholder displeasure stems from the stock option awards. They argue that Ellison, who beneficially owns a quarter of the company's shares, continues to receive tens of millions of dollars of stock options every year, despite Oracle's mixed financial performance. They could show their discontent at the business software maker's Oct. 31 annual meeting.

Oracle's first quarter profit rose 8 percent to $2.19 billion, or 53 cents ex-items and trumped analysts' estimates, but adjusted revenue of $8.38 billion fell short of expectations of $8.48 billion.

The CEOs of America benefit from exercised stock options and vested stock awards that normally account for more than 50 percent of executive pay. Those components of compensation are the reason these CEOs are on the list of highest-paid.

For the fiscal year that ended in May, Ellison got a compensation of $79.6 million, which includes a base salary of $1, bonus of $1,126 and stock options worth $76.9 million. The compensation represents a drop of 21 percent from $96.1 million he received last year. Despite the drop, Ellison is still one of the highest-paid CEOs in the U.S.

Safra Catz, President and Chief Financial Officer, received $44.3 million as compensation, a 17 percent decrease from $51.7 million last year. The package includes basic salary of $950 thousand, option awards worth $42.6 million and bonus of $717.2 thousand.

Even in 2012, Oracle suffered a defea! t over executive pay practices in 2012 and managed only a narrow win in 2011 despite Elliot's huge stake. Opponents included BlackRock Inc. and Vanguard Group Inc. Fifty-nine percent of shareholders rejected the company's pay practices at the last annual meeting in November.

The Compensation Committee and the rest of the Board were disappointed with the results of the fiscal 2012 Say-on-Pay vote. The company said the Compensation Committee believes Oracle's executive compensation philosophy and program achieve this goal in a manner that is appropriate for Oracle (and not necessarily other companies) and that significant changes to its executive compensation program were not warranted.

"The Compensation Committee realizes that certain of our stockholders may disagree with this conclusion, but the Compensation Committee believes that our executive compensation philosophy and the current structure of our executive compensation program are in the best interests of Oracle and its stockholders, and that, in the Compensation Committee's opinion, this belief has been validated by Oracle's historical financial and stock price performance over the long term," Oracle said in a recent regulatory filing.

This year investors could step up the pressure. CtW Investment Group, which works with pension funds sponsored by unions affiliated with Change to Win, is said to oppose Oracle's pay practices. CtW, which represents nearly 5.5 million members participate in Taft-Hartley plans with over $200 billion in assets, owns more than 5 million shares in Oracle via its pension funds.

The Wall Street Journal reported that CtW Investment Group, in a letter sent to Bruce Chizen, chairman of the Oracle board's compensation committee, said it would vote against the company's compensation practices and possibly seek to remove directors on the compensation committee if Oracle doesn't put caps on its options awards.

Interestingly, the CtW letter came the same day when Ellison was basking in the glory of h! is Americ! a Cup team's win. Investors and consumers alike were disappointed over the fact Ellison skipped his own keynote address at Tuesday's Oracle's annual conference for customers to cheer for Oracle Team USA.

CtW is a frequent critic of what it sees as excessive CEO pay, and its recent opposition to McKesson's (NYSE:MCK) executive pay practices is a proof of this. This time, CtW could get the support of mutual funds and institutional investors against Oracle.

A major drive by activists over Oracle's executive-pay levels will get considerable support from institutional investors this fall, the Wall Street Journal reported citing an official of one large mainstream money manager.

So, Oracle and Larry Ellison has a tough ask in front of them in getting approval for its pay practices at its annual meeting.

What’s the Best Small Cap Electronic Brokerage Stock? IBKR, MKTX & IGEX

If you have found yourself trading more as the markets become more volatile or struggling to come to terms with low interest rates, small caps like Interactive Brokers Group, Inc (NASDAQ: IBKR), MarketAxess Holdings Inc (NASDAQ: MKTX), Indo Global Exchanges PteLtd (OTCMKTS: IGEX) which are in the electronic brokerage or trading platform business would be well worth taking a closer look at. Here is what you need to know about all three:

Interactive Brokers Group. An automated global electronic broker, Interactive Brokers Group specializes in catering to financial professionals by offering state-of-the-art trading technology and a brokerage trading platform which executes and processes trades in securities, futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world. Earlier this month, Interactive Brokers Group reported 471,000 Daily Average Revenue Trades (DARTs) for August - 32% higher than August of last year and 1% higher than prior month. Back in July, Interactive Brokers Group reported second-quarter financial results as net revenue increased to $283.9 million from $260.9 million last year while income before income taxes was $134 million verses $109 million. In the earnings call (the transcript is available on Seeking Alpha here), the CFO noted that:

"Low benchmark interest rates, which continue to compress the spreads earned by our Brokerage units, have been offset by steadily higher customer credit balances in each successive period, and our aggressive lending rates have boosted customer margin borrowing."

Along with:

"Customer credit balances, which increased 23% over the year-ago quarter also continue to grow progressively, though spread compression, especially in certain foreign currencies persist in restraining interest income."

Otherwise, investors should note that Interactive Brokers Group has a trailing P/E of 23.29 and a forward P/E of 16.16 along with a forward dividend of $0.40 for a 2.1%. On Wednesday, Interactive Brokers Group fell 0.53% to $18.75 (IBKR has a 52 week trading range of $13.48 to $18.95 a share) for a market cap of $936.85 million plus the stock is up 38.3% since the start of the year, up 32.2% over the past year and down 14.7% over the past five years.

MarketAxess Holdings. Over 1,000 institutional investor and broker-dealer firms are active users of the MarketAxess Holdings' trading platform to access global liquidity in US high-grade corporate bonds, European bonds, high-yield and emerging markets bonds, agency bonds, asset-backed and preferred securities and credit default swaps. Back in July, MarketAxess Holdings reported record revenues of $65.6 million (up 34.3%), record total trading volume of $187.7 billion (up 29.6%), record estimated US high grade market share of 14.1% and record pre-tax income of $31.5 million (up 48.6%). The Chairman/CEO noted that:

"The record volumes in our three core products - high grade, high yield and emerging markets – were driven by growth in market share and led to record revenues and pre-tax income. We are also pleased with the promising momentum in our Open Trading initiatives and the positive response to our early integration efforts in Europe with Xtrakter."

In the earnings call (the transcript is available on Seeking Alpha here), the Chairman/CEO noted also that:

"The progress that we've made in EM over the last four to six quarters is primarily driven by U.S. investors that are active in emerging markets and European investors. The local markets activity is starting to tick up. And actually, in Brazil specifically, the tax on foreign investment was just removed in June. And following that change, we've seen a modest up tick in cross regional flow into Brazil local markets."

MarketAxess Holdings has a trailing P/E of 32.94 and a forward P/E of 29.70 along with a forward dividend of $0.52 for a dividend yield of 0.90%. On Wednesday, MarketAxess Holdings fell 2.41% to $59.99 (MKTX has a 52 week trading range of $27.90 to $62.26 a share) for a market cap of $2.25 billion plus the stock is up 71.9% since the start of the year, up 94.4% over the past year and up 580.9% over the past five years.

Indo Global Exchanges. Based in Indonesia with its population of 240,000,000, Indo Global Exchanges is one of the more interesting trading platform providers since its focus is on the largely untapped Asian markets plus the company aims to become one of the world's foremost online global trading platforms. Indo Global Exchanges provides comprehensive online trading platforms offering the following market access to the clients:

Over 30 global equity exchanges for trading in securities. Over 30 global equity exchanges for trading in CFD's (Euro Zone, UK, Japan, Asia, Oceania, Canada and USA). Over 180 currency pairs in spot (Cash), forwards and options. Gold and Silver trading in spot (Cash), forwards and options. Global Commodity Futures exchanges including financial futures. Indices and Commodity CFD's.

In addition, the Indo Global Exchange also uses Halifax Investment Services Pty Ltd and Australian Stock Report as its clearing and settling operation in Australia. Earlier this month, Indo Global Exchange announced the appointment of Dermot Michael Monaghan to its Board of Directors. Dermot has extensive experience in the North American and Asian financial markets from working in various capacities for the Royal Bank of Canada, RBC Capital Markets, PT Masuka, ABN AMRO (SECS) Asia, Standard Chartered Securities, ING Baring Securities and Cresvale Securities. He also currently resides in Indonesia. On Wednesday, Indo Global Exchanges rose 19.57% to $0.550 for a market cap of $39.87 million plus the stock is up 266.7% since last July.

The Bottom Line. Your next smart investment or trade might just be in a small cap electronic brokerage or trading platform stock like Interactive Brokers Group, MarketAxess Holdings or Indo Global Exchanges.

Top 10 Canadian Companies To Own In Right Now

One real estate investment trust has seen intensive insider buying during the last 30 days. Intensive insider buying can be defined by the following three criteria:

The stock is purchased by three or more insiders within one month.

The stock is sold by no insiders in the month of intensive purchasing.

At least two purchasers increase their holdings by more than 10%.

North American Residential Real Estate Investment Trust (TSX:MRG.UN) is an unincorporated, open-ended real estate investment trust which owns, through a limited partnership, interests in a portfolio of 14 Canadian residential apartment communities, located in Alberta and Ontario, and 30 U.S. low-rise and mid-rise, garden-style apartment communities located in Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas consisting of 12,850 residential suites.

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Top 10 Canadian Companies To Own In Right Now: Transcananda Pipelines Ltd.(TRP)

Transcanada Corporation operates as an energy infrastructure company in North America. The company operates in three segments: Natural Gas Pipelines, Oil Pipelines, and Energy. The Natural Gas Pipelines segment develops and operates energy infrastructure, including natural gas pipelines and regulated gas storage facilities. Its network of natural gas pipelines extends approximately 60,000 km tapping into gas supply basins in North America. The Oil Pipelines segment operates Keystone crude oil pipeline system, which includes completed 3,467 km Wood River/Patoka and Cushing Extension phases, and the proposed 2,673 km U.S. Gulf Coast Expansion. The Energy segment engages in the acquisition, development, construction, ownership, and operation of electrical power generation plants; the purchase and marketing of electricity; the provision of electricity account services to energy and industrial customers; and the development, construction, ownership, and operation of non-regulat ed natural gas storage in Alberta. The company was founded in 1951 and is headquartered in Calgary, Canada.

Advisors' Opinion:

• [By Chad Tracy]

  The most obvious is TransCanada (NYSE: TRP), the company that has submitted the proposal for the expansion. 

  TransCanada's cash flow is derived from natural gas (62%), oil/liquids (16%), and energy (22%), which includes natural gas storage.

Top 10 Canadian Companies To Own In Right Now: STMicroelectronics N.V.(STM)

STMicroelectronics N.V., an independent semiconductor company, engages in the design, development, manufacture, and marketing of a range of semiconductor integrated circuits and discrete devices. Its products include discrete and standard commodity components, application-specific integrated circuits, custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications. The company also offers subsystems and modules for the telecommunications, automotive, and industrial markets comprising mobile phone accessories, battery chargers, ISDN power supplies, and in-vehicle equipment for electronic toll payment, as well as provides Smartcard products. Its products are used in various microelectronic applications consisting of automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation, and control systems. The company sells its products through distributors and ret ailers. STMicroelectronics N.V. was founded in 1987 and is headquartered in Geneva, Switzerland.

Advisors' Opinion:

• [By Lee Jackson]

  STMicroelectronics NV (NYSE: STM) supplies most set-top box chips for Scientific�Atlanta, and also sells chips for disk drives that end up in DVRs; but still has less than a 10% exposure. The consensus target for the stock is $11. Investors do receive an outstanding 4.0% dividend from the company.

• [By Michael Allison]

  On Aug. 13, 2013, the company announced that shareholders of Energy Fuels overwhelmingly approved Energy Fuel's acquisition of Strathmore Minerals Corp. (STM). (See Energy Fuel's press release here.)

Top Small Cap Companies To Watch In Right Now: Banco Latinoamericano de Comercio Exterior S.A. (BLX)

Banco Latinoamericano de Comercio Exterior, S.A. provides trade financing to commercial banks, middle-market companies, and corporations primarily in Latin America and the Caribbean. The company operates in three segments: Commercial, Treasury, and Asset Management. The Commercial segment offers deposits and loans for foreign trade transactions. This segment also provides various products, services, and solutions relating to foreign trade, which include co-financing arrangements, underwriting of syndicated credit facilities, structured trade financing, asset-based financing in the form of factoring, vendor financing and leasing, and other fee-based services, such as electronic clearing services. The Treasury segment offers liquidity management and investment securities activities, including management of interest rate, liquidity, price, and currency risks. The Asset Management segment provides asset management services, including investment advisory services for funds and managed accounts. This division is involved in trading foreign exchange, interest rate swaps, and derivative products. The company was formerly known as Banco Latinoamericano de Exportaciones, S.A. and changed its name to Banco Latinoamericano de Comercio Exterior, S.A. in June 2009. Banco Latinoamericano de Comercio Exterior, S.A. was founded in 1977 and is headquartered in Panama City, the Republic of Panama.

Top 10 Canadian Companies To Own In Right Now: Potomac Electric Power Company(POM)

Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. It distributes electricity to approximately 1.8 million customers in the mid-Atlantic region and delivers natural gas to approximately 123,000 customers in Delaware. In addition, the company involves in the retail supply of electricity and natural gas; provision of energy efficiency services to federal, state, and local government customers; and designs, constructs, and operates combined heat and power and central energy plants, as well as owns and operates two oil-fired generation facilities. Further, it offers high voltage electric construction and maintenance services, low voltage electric construction and maintenance services, and streetlight construction and asset management services to utilities, municipalities, and other customers in the Washington, District of Columbia. Additionally, the company holds investments in eight cross-border energy leases. Pepco Holdings, Inc. was founded in 1896 and is based in Washington, District of Columbia.

Advisors' Opinion:

• [By Sally Jones]

  
  Highlight: Pepco Holdings Inc. (POM)

  The POM share price is currently $18.17 or 20.0% off the 52-week high of $22.72. Its yield is 5.90%.

Top 10 Canadian Companies To Own In Right Now: Nexen Inc.(NXY)

Nexen Inc. operates as an independent energy company worldwide. The company?s Conventional Oil and Gas segment explores for, develops, and produces crude oil and natural gas from conventional sources. This segment operates in the United Kingdom, Canada and the United States, and offshore West Africa, Colombia, and Yemen. Nexen?s Oil Sands segment develops and produces synthetic crude oil from the Athabasca oil sands in northern Alberta. The company?s Shale Gas segment explores for and produces unconventional gas from shale formations in northeastern British Columbia. Nexen Inc. was founded in 1971 and is headquartered in Calgary, Canada.

Top 10 Canadian Companies To Own In Right Now: PerkinElmer Inc.(PKI)

PerkinElmer, Inc. provides technology, services, and solutions to the diagnostics, research, environmental, industrial, and laboratory services markets worldwide. The company operates in two segments, Human Health and Environmental Health. The Human Health segment develops diagnostics, tools, and applications to help detect diseases earlier, as well as accelerate the discovery and development of critical new therapies. This segment provides early detection for genetic disorders from pre-conception to early childhood, as well as digital x-ray flat panel detectors and infectious disease testing for the diagnostics market. It also provides a suite of solutions, including instrumentation for automation and detection solutions, in vitro and in vivo imaging and analysis hardware and software, and a portfolio of consumable products, such as drug discovery and research reagents that enable researchers to enhance the drug discovery process. The Environmental Health segment offers t echnologies and applications to facilitate the creation of safer food and consumer products, secure surroundings, and efficient energy resources. This segment provides analytical technologies that address the quality of environment, sustainable energy development, and ensure safer food and consumer products; analytical instrumentation for the industrial market, which includes the semiconductor, chemical, petrochemical, lubricant, construction, office equipment, and quality assurance industries; and laboratory services. The company markets its products and services directly through its own sales forces and distributors for customers, including pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors, and government agencies. PerkinElmer, Inc. was founded in 1931 and is headquartered in Waltham, Massachusetts.

Advisors' Opinion:

• [By David Goodboy]

  In other bullish news, TrovaGene entered into a material agreement with multibillion-dollar diagnostics technology leader PerkinElmer (NYSE: PKI) to jointly develop a test to determine a person's risk of developing hepatocellular carcinoma (HCC). The terms have not been disclosed, but PerkinElmer will make milestone payments to TrovaGene. 

Top 10 Canadian Companies To Own In Right Now: Silver Wheaton Corp(SLW)

Silver Wheaton Corp., together with its subsidiaries, operates as a silver streaming company worldwide. The company has 14 long-term silver purchase agreements and 2 long-term precious metal purchase agreements whereby it acquires silver and gold production from the counterparties located in Mexico, the United States, Canada, Greece, Sweden, Peru, Chile, Argentina, and Portugal. Silver Wheaton Corp. is headquartered in Vancouver, Canada.

Advisors' Opinion:

• [By The Investment Doctor]

  Another, less likely possibility to raise equity is through selling a part of the precious metals in a streaming deal. I can imagine Sandstorm Gold (SAND) and Silver Wheaton (SLW) would be very interested in a substantial precious metals streaming agreement. At the current gold and silver prices NGEX wouldn't even have to sell its entire precious metals production under a streaming arrangement.

• [By Chad Tracy]

  The five largest holdings in the GDX fund make up 45% of the total portfolio. They are Goldcorp (NYSE: GG), Barrick Gold (NYSE: ABX), Newmont Mining (NYSE: NEM), Silver Wheaton (NYSE: SLW), and Randgold Resources (Nasdaq: GOLD).

Top 10 Canadian Companies To Own In Right Now: Credit Suisse Group(CS)

Credit Suisse Group AG, together with its subsidiaries, operates as a financial services company. The company operates in three segments: Private Banking, Investment Banking, and Asset Management. The Private Banking segment offers advisory services and a range of wealth management solutions, including pension planning, life insurance products, tax planning, and wealth and inheritance advice for the high-net-worth and ultra-high-net-worth individuals. This segment also supplies banking products and services to affluent, high-net-worth and ultra-high-net-worth clients, and corporates and institutions. The Investment Banking segment provides investment banking and securities products and services to corporations, governments, pension funds, and institutions. Its products and services include debt and equity underwriting, sales and trading, mergers and acquisitions advice, divestitures, corporate sales, restructuring, and investment research. The Asset Management segment offe rs integrated investment solutions and services to institutions, governments, foundations and endowments, corporations, and individuals. It provides access to a range of investment classes across alternative investment, asset allocation, and traditional investment strategies. The company operates in Switzerland, Europe, the Middle East, Africa, the Americas, and the Asia Pacific. Credit Suisse Group AG was founded in 1856 and is headquartered in Zurich, Switzerland.

Advisors' Opinion:

• [By Trefis]

  Switzerland signed an agreement late last week that will see about 100 small Swiss banks disclose hidden details about their U.S. operations and pay hefty fines for helping U.S. citizens evade taxes. [1] The agreement also gets an additional 200 Swiss local banks off the hook by giving them a clean record with U.S. authorities. [2] The accord, hence, covers all but the 14 Swiss banks which are currently being investigated by the U.S. Department of Justice (DoJ) – Credit Suisse (CS), Julius Baer and HSBC’s Swiss arm among others. The largest Swiss bank, UBS (UBS), already settled tax evasion charges with the U.S. in 2009 for $780 million.

Top 10 Canadian Companies To Own In Right Now: TotalFinaElf S.A.(TOT)

TOTAL S.A., together with its subsidiaries, operates as an integrated oil and gas company worldwide. The company operates through three segments: Upstream, Downstream, and Chemicals. The Upstream segment engages in the exploration, development, and production of oil and natural gas. It also involves in the transportation, trade, and marketing of natural gas and liquefied natural gas (LNG), as well as in LNG re-gasification and natural gas storage operations. In addition, this segment engages in the shipping and trade of liquefied petroleum gas (LPG); power generation from gas-fired power plants, nuclear, or renewable energies; production, trade, and marketing of coal, as well as in solar power systems and technology operations. As of December 31, 2010, it had combined proved reserves of 10,695 Mboe of oil and gas. The Downstream segment involves in refining, marketing, trading, and shipping crude oil and petroleum products. It also produces a range of specialty products, s uch as lubricants, LPG, jet fuel, special fluids, bitumen, marine fuels, and petrochemical feedstock. This segment holds interests in 24 refineries located in Europe, the United States, the French West Indies, Africa, and China, as well as operates a network of 17,490 service stations. The Chemicals segment produces base chemicals, including petrochemicals and fertilizers, as well as engages in rubber processing, resins, adhesives, and electroplating activities. TOTAL S.A. was founded in 1924 and is based in Paris, France.

Advisors' Opinion:

• [By David Smith]

  Bowing out of Egypt
  It's also noteworthy that Egypt shares a western border with Libya, which is a significant producer, but where chaos and contretemps also reign. Is it any wonder, then, that Chevron (NYSE: CVX  ) announced on Tuesday that it will unload its Egyptian downstream operations, including 66 service stations and a couple of oil depots, to Total (NYSE: TOT  ) ? The French company is also buying the retail assets in the land of the Sphinx from Royal Dutch Shell (NYSE: RDS-B  ) . Perhaps it knows something of which the rest of us are unaware.

• [By Tyler Crowe]

  Also, to comound these problems, there isn't a clear leader of the project that can steer its investment deicisions. ExxonMobil (NYSE: XOM  ) , Royal Dutch Shell (NYSE: RDS-A  ) , Eni (NYSE: E  ) , Total (NYSE: TOT  ) , and Kazakh national oil company KazMunaiGas each have a�16.81% working interest in the project. This has led to problems involving investment decisions and project mangement.�Both�ExxonMobil�and�Royal Dutch Shell�have been extremely�disappointed�with the results, to the point that they have threatened to pull out of the project altogether on a couple of occasions, and�ConocoPhillips� (NYSE: COP  ) did get out this year by selling its $5 billion stake in the project to China National Petroleum.

Top 10 Canadian Companies To Own In Right Now: Sensata Technologies Holding N.V.(ST)

Sensata Technologies Holding N.V., through its subsidiaries, develops, manufactures, and sells sensors and controls primarily in the Americas, the Asia Pacific, and Europe. It operates in two segments, Sensors and Controls. The Sensors segment offers pressure sensors, force sensors, temperature sensors, speed sensors, position sensors, motor protectors, and thermal and magnetic-hydraulic circuit breakers and switches. Its sensors are used in various applications, such as automotive air-conditioning, braking, transmission, air bag, heavy vehicle off-road, industrial, aerospace, defense, and data/telecom applications, as well as heating, ventilation, and air-conditioning (HVAC) applications. The Controls segment provides bimetal electromechanical controls, thermal and magnetic-hydraulic circuit breakers, power inverters, and interconnection products. This segment also offers application-specific products, including motor and compressor protectors, circuit breakers, semicondu ctor burn-in test sockets, electrical HVAC controls, power inverters, precision switches, and thermostats. Its products are used in heating and air-conditioning systems, refrigerators, aircraft, automobiles, and light industrial system applications in industrial, aerospace, military, commercial, and residential markets. The company offers its products primarily under the Sensata, Klixon, Airpax, and Dimensions brand names. It serves original equipment manufacturers and suppliers in the automotive, industrial, and commercial end-markets; and industrial and commercial manufacturers and suppliers in the climate control, appliance, semiconductor, datacomm, telecommunications, and aerospace industries, as well as motor and compressor suppliers. The company was founded in 1916 and is based in Almelo, the Netherlands. Sensata Technologies Holding N.V. is a subsidiary of Sensata Investment Company S.C.A.

Advisors' Opinion:

• [By Toshiro Hasegawa]

  Commonwealth Bank of Australia (CBA) fell 1.1 percent to A$73.73. Singapore Telecommunications Ltd. (ST) retreated 1.1 percent to S$3.78 today after posting earnings.

Cincinnati Financial Corp. (CINF) Dividend Stock Analysis

Best Cheap Companies To Own In Right Now

Linked here is a detailed quantitative analysis of Cincinnati Financial Corp. (CINF). Below are some highlights from the above linked analysis:

Company Description: Cincinnati Financial Corp. is an insurance holding company that primarily markets property and casualty coverage. It also conducts life insurance and asset management operations.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page 2 of the linked PDF for a detailed description):

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

CINF is trading at a discount to only 3.) above. The stock is trading at a 30.8% premium to its calculated fair value of $35.59. CINF did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics (see page 2 of the linked PDF for a detailed description):

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

CINF earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CINF earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1954 and has increased its dividend payments for 53 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treas! ury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section (see page 2 of the linked PDF for a detailed description):

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $201 is below the $500 target I look for in a stock that has increased dividends as long as CINF has. The stock's current yield of 3.55% exceeds the 3.22% estimated 20-year average MMA rate.

Memberships and Peers: CINF is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Axis Capital Holdings Ltd. (AXS) with a 2.3% yield, The Allstate Corporation (ALL) with a 2.0% yield, and The Travelers Companies Inc. (TRV) with a 2.4% yield.

Conclusion: CINF did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks CINF as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $37.49 before CINF's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 53 years of consecutive dividend increases. At that price the stock would yield 4.4%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 3.6%. This dividend growth rate is higher than the 1.2% used in this analysis, thus providing no margin of safety. CINF has a risk rating of 1.5 which classifies it as a Low risk stock.

CINF was founded by independent insurance agents in order to better service their needs by providing them preferential treatment when picking an underwriter. The company primarily sells commercial property-casualty insurance with a smaller personal lines exposure marketed through a select group! of indep! endent insurance agencies. CINF is more heavily exposed to equity risk than its peers; however management is taking steps to re-balance its investments. The company should benefit from an improving pricing environment and steps management has taken to expand its operations.

CINF currently has a FCF Payout of 44%, down from 50% in my last analysis. However, the stock is trading at a significant premium to my calculated fair value of $35.59. Based on dividend fundamentals, I am willing to buy now, but will likely wait on dips before adding to my position.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in CINF (3.5% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

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Breathalyzer App Checks Your Blood Alcohol, Calls You Cab If Needed

   

Two new apps for iPhones (AAPL) and Android (GOOG) smartphones are doing what you’d rather have done yourself than by a police officer: They quickly tests a user’s blood alcohol level — and even call the person a cab if needed.

The apps — Breathometer, for iPhones and Android smartphones, and BACtrack, for iPhones – read a person’s alcohol levels via a smartphone-connected breathalyzer.

From Reuters:

The Breathometer plugs into a smartphone’s headphone jack, and the user blows on the device. The BACtrack connects to the iPhone via Bluetooth. Both use sensors that meet U.S. Food and Drug Administration standards and can detect blood alcohol levels with accuracy within 0.01 percent, according to the companies.

10 Best Heal Care Stocks To Own Right Now

Breathometer’s breathalyzer is the size of a car key and fits into a pocket or on a key chain. The app can detect a user’s GPS location, order a cab if the user can’t drive home, and estimate how long it will take for the user to become sober.

The Breathometer app (and device) will cost $49 and debut online in October.

Both apps claim they will help cut down on the number of arrests each year for drunk driving.

Some 1.2 million people in the U.S. were arrested  in 2011 for driving under the influence, according to data compiled by the FBI.

Breathalyzers have been used by law enforcement since the 1950s.

Has Hewlett-Packard Caught A Bid?

With shares of Hewlett-Packard (NYSE:HPQ) trading around $21.27, is HPQ an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Hewlett-Packard is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the Government, health and education sectors. Its operations are organized into seven segments: the Personal Systems Group, Services, the Imaging and Printing Group, Enterprise Servers, Storage and Networking, HP Software, HP Financial Services and Corporate Investments. Hewlett-Packard’s offerings include personal computing and other access devices; multi-vendor customer services, including infrastructure technology and business process outsourcing, application development and support services, and imaging and printing-related products and services. As a leading provider of diverse software and technologies, Hewlett-Packard will see rising profits from growing companies and economies worldwide. Technology advances at explosive rates and Hewlett-Packard stands ready to provide the products and services many consumers and companies around the world require to fuel expansion.

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T = Technicals on the Stock Chart are Mixed

Hewlett-Packard stock is now attempting to recover from increased selling pressure over the last several years. The stock has put together a reasonable bounce but may need a catalyst to propel the stock higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Hewlett-Packard is trading around its key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Hewlett-Packard options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Hewlett-Packard Options	45.17%	90%	89%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
June Options	Steep	Average
July Options	Steep	Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Hewlett-Packard’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Hewlett-Packard look like and more importantly, how did the markets like these numbers?

	2012 Q4	2012 Q3	2012 Q2	2012 Q1
Earnings Growth (Y-O-Y)	-13.70%	-3060%	-582%	-23.81%
Revenue Growth (Y-O-Y)	-5.59%	-6.72%	-4.87%	-2.97%
Earnings Reaction	12.28%	-11.95%	-8.12%	3.27%

Hewlett-Packard has seen decreasing earnings and revenue figures over the last four quarters. From these figures, the markets have been a bit confused about Hewlett-Packard’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Hewlett-Packard stock done relative to its peers, Dell (NASDAQ:DELL), International Business Machines (NYSE:IBM), Accenture (NYSE:ACN), and sector?

	Hewlett-Packard	Dell	IBM	Accenture	Sector
Year-to-Date Return	49.51%	32.40%	7.60%	22.08%	19.56%

Hewlett-Packard has been a relative performance leader, year-to-date.

Conclusion

Hewlett-Packard provides essential technology products and services to growing consumer populations, companies, and countries across the globe. The is seeing a modest bounce after witnessing a few years of increased selling. Earnings and revenue have been decreasing, over the last four quarters, which has produced mixed feelings among investors. However, relative to its peers and sector, Hewlett-Packard has led in year-to-date performance. WAIT AND SEE what Hewlett-Packard does this coming quarter.

Should You Consider Caterpillar at These Prices?

With shares of Caterpillar (NYSE:CAT) trading around $84, is CAT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Caterpillar is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It operates in two segments: Machinery and Power Systems, and Financial Products. Infrastructure investment is increasing around the world, in particular, in developing countries. A global supplier of industrial equipment, like Caterpillar, is poised to see rising profits from this trend. As long as countries continue to grow and develop, Caterpillar will provide the tools essential to create this progress.

T = Technicals on the Stock Chart are Mixed

Caterpillar stock has been struggling over the last year or so as it trades in an established price range. The stock is at the low end of its range at the moment so a strong move from here may be imminent. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Caterpillar is trading slightly below its key averages which signal neutral to bearish price action in the near-term.

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Caterpillar options may help determine if investors are bullish, neutral, or bearish.

	Top 10 Undervalued Companies To Invest In 2014 Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Caterpillar Options	23.53%	73%	71%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
July Options	Steep	Average
August Options	Steep	Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Caterpillar’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Caterpillar look like and more importantly, how did the markets like these numbers?

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	-44.73%	-55.16%	48.54%	67.11%
Revenue Growth (Y-O-Y)	-17.34%	-6.77%	4.64%	22.09%
Earnings Reaction	2.83%	1.95%	1.45%	1.43%

Caterpillar has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Caterpillar’s recent earnings announcements.

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P = Poor Relative Performance Versus Peers and Sector

How has Caterpillar stock done relative to its peers, Deere (NYSE:DE), General Electric (NYSE:GE), Cummins (NYSE:CMI), and sector?

	Caterpillar	Deere	General Electric	Cummins	Sector
Year-to-Date Return	-4.94%	-1.00%	12.51%	8.34%	2.46%

Caterpillar has been a poor relative performer, year-to-date.

Conclusion

Caterpillar is a provider of construction and related industrial products and services during a time where countries around the world are seeing expansion. The stock has not done so well in the last year as it trades at the low-end of an established price range. Over the last four quarters, earnings and revenue figures have been mixed which has surprisingly sat well with investors in the company. Relative to its peers and sector, Caterpillar has been a poor year-to-date performer. WAIT AND SEE what Caterpillar does in coming quarters.

Will Macy’s Continue Its Dominance?

With shares of Macy's (NYSE:M) trading around $46, is M an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Macy's operates stores and Internet websites in the United States. It operates Macy’s and Bloomingdale’s stores and websites that sell a range of merchandise, including apparel and accessories for men, women, and children; cosmetics; home furnishings; and other consumer goods in 45 states, the District of Columbia, Guam, and Puerto Rico. As trends change, so does fashion and Macy’s is one of the companies that has remained relevant over the last several years. Consumers will continue to explore the latest styles and Macy’s and Bloomingdale’s stores stand ready to provide excellent products. Look for Macy’s to remain a leader in the industry for many years to come.

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T = Technicals on the Stock Chart are Strong

Macy's stock has seen a consistent uptrend since reaching lows during the 2008 Financial Crisis. The stock is now trading near all-time high prices and sees no signs of slowing just yet. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Macy's is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Macy's options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Macy's Options	26.98%	76%	73%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
May Options	Flat	Average
June Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Macy's’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Macy's look like and more importantly, how did the markets like these numbers?

	2012 Q4	2012 Q3	2012 Q2	2012 Q1
Earnings Growth (Y-O-Y)	4.28%	12.50%	21.82%	43.33%
Revenue Growth (Y-O-Y)	7.18%	3.79%	3.01%	4.31%
Earnings Reaction	2.77%	-2.24%	2.72%	-3.69%

Macy's has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have had mixed feelings about Macy's’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Macy's stock done relative to its peers, J.C. Penney (NYSE:JCP), Nordstrom (NYSE:JWN), Dillard’s (NYSE:DDS), and sector?

	Macy's	J.C. Penney	Nordstrom	Dillard’s	Sector
Year-to-Date Return	17.88%	-14.13%	Top Bank Companies To Watch In Right Now 8.58%	1.79%	16.75%

Macy's has been a relative performance leader, year-to-date.

Conclusion

Macy's provides highly demanded products to a wide range of consumers across the United States and other countries. The stock has been a strong performer and recent years and looks to be continuing this trend. Earnings and revenue figures have consistently risen but investors have expected a little more from the company. Relative to its peers and sector, Macy’s has been a performance leader, year-to-date. Look for Macy’s to continue to OUTPERFOR

Keating Capital: Misunderstood, With Catalysts To Come In The 2nd Half

In light of recent debates here on Seeking Alpha regarding Keating Capital (KIPO), we had the opportunity to speak with Tim Keating, the company's CEO, to receive his view of the company, as well as answer a variety of questions regarding the company's equity, portfolio, and investment philosophy. Based on our conversation with Mr. Keating, we believe that the market has misunderstood Keating Capital. With a discount to net asset value of over 20%, and with several catalysts set to materialize in the 2nd half, we believe that there is potential for double digit upside in the remainder of 2013 and 2014. Unless otherwise noted, financial statistics and managerial commentary will be sourced from Keating Capital's Q2 2013 earnings release, its Q2 2013 earnings call, its Q2 2013 earnings presentation, its latest 10-Q, or its 2012 10-K, as well as our conversation with Mr. Keating.

How is Keating Capital Different from Other Pre-IPO Investors?

Keating Capital is far from the only publicly traded pre-IPO investment company. There are several others, including GSV Capital (GSVC) and Firsthand Technology Value Fund (SVVC). Hercules Technology Growth Capital (HTGC) is also a pre-IPO fund, but with the bulk of its assets (over 92%) invested into loans to and debt of private companies, as opposed to their equity, the company's investment philosophy is different than that of these other pre-IPO funds. Unlike GSV Capital and Firsthand, Keating Capital, as a matter of policy, always purchases equity directly from portfolio companies, never from secondary markets such as SharesPost or SecondMarket. Mr. Keating outlined that this is due to the company's requirement that it be given access to all relevant financial data and managerial projections of its portfolio companies at all times, something that Mr. Keating believes is essential to being able to make informed investor decisions. We note that shares of Facebook (FB) and Twitter are conspicuously absent from Keating Capital's portfolio; the co! mpany declined to purchase shares of either company due to an inability to acquire direct financial information regarding these companies. In addition, Keating Capital has a stated goal of investing in the most senior equity securities available at each portfolio company.

Insiders & Institutions: Addressing Confidence & Perception

The first part of our conversation with Mr. Keating covered Keating Capital's insider and institutional ownership, both of which can be seen as issues of perception. Keating Capital's 10 largest (and perhaps only) institutional investors control just 3.21% of the company's outstanding shares. To some, this is seen as an issue of confidence. If investment professionals, who supposedly have far better access to research, advice, and information than ordinary investors are not putting up meaningful amounts of money into Keating Capital, why should ordinary investors? I asked Mr. Keating about this issue, and he responded that the company is taking steps to remedy the situation. Keating Capital's ability to communicate with institutional investors has been limited due to the presence of a registration statement with the Securities and Exchange Commission, which put the company into a quiet period. However, the company's registration statement was withdrawn in May 2013, freeing the company from this SEC restriction. Beginning in September, Keating Capital is planning to ramp up its communications with institutional investors, and plans to dramatically increase its participation in financial services conferences to expand awareness and broaden its potential shareholder base. Since listing on the NASDAQ in December 2011, Keating Capital's conference participation has been somewhat limited, an issue that the company will begin to rectify in September.

InvestmentNews' 2012 Alternative Investments Conference, October 23, 2012Security Research Associates' 8th Annual Fall Growth Stock Conference, October 30, 2012FBR's 2012 Fall Investor Conference, November 27, 2012! LD Micro'! s 5th Annual Conference, December 5, 2012Needham's 15th Annual Growth Conference, January 16, 201325th Annual Roth Conference, March 20, 2013JMP Securities' 12th Annual Research Conference, May 13, 201314th Annual B. Riley & Co. Investor Conference, May 20, 2013

Since listing on the NASDAQ, Keating Capital has presented at just eight investor conferences, the first being almost a year after its listing. And for a company of Keating Capital's size, active investor outreach is a necessary activity. With a market capitalization of less than $58 million, and coverage from just two sell-side firms (Ascendiant Capital Markets & SeeThruEquity), Keating Capital is unlikely to be on the radar of many institutional investors, and we believe that many have simply not heard of the company, let alone passed judgment on its quality. The company's investor relations and communications campaign, once started, will also likely boost Keating Capital's daily trading volume (average daily volume over the last three months has been below 20,000 shares), enhancing the company's liquidity as well as its appeal to institutional investors. For some investors, Keating Capital's insider ownership may also present cause for concern. Per the company's 2013 proxy statement, the company's various directors and officers own a total of 167,970 shares, or 1.87% of the company's total outstanding shares. We pressed Mr. Keating on this issue, questioning the CEO if he believed that the company's insider ownership was too low, and perhaps more importantly, why company insiders have not been aggressively buying shares, given the discount they trade at to net asset value. Mr. Keating responded by noting that the company has been repurchasing shares at a fairly active pace, under its repurchase program that was launched in May 2012, authorizing the company to repurchase up to $5 million in shares. In 2013 alone, Keating Capital has repurchased over 200,000 shares of its common stock, for a total of more than $1.3 million. Mr. Keatin! g noted t! hat as a matter of policy, the company places heavy restrictions on the trading activity of its insiders (both purchases and sales) while buybacks are underway. SEC records largely confirm that this is the case, with most activity coming to a standstill. Since the company's buyback program was launched in May 2012, there have been a grand total of seven Form 4 filings at Keating Capital, often with months in-between each one, and we note that several of these are formalities, with no underlying transactions taking place. We note these 7 Form 4 filings below.

Purchase of 6,000 shares on August 1, 2013 by Director Taylor SimontonNotice of 25,123 share stake by former director Andrew Miller on June 10, 2013Notice of no stake by former CFO and Treasurer Stephen Hills on February 20, 2013Purchase of 2,000 shares on November 6, 2012 by Director Taylor SimontonPurchase of 3,500 shares on November 5 & 6, 2013 by COO, CCO, and Secretary Frederic SchweigerPurchase of 15,000 shares on August 17, 20, and 21, 2012 by COO, CCO, and Secretary Frederic SchweigerPurchase of 2,000 shares on August 17, 2012 by Director Taylor Simonton

Mr. Keating stated that the company's own worries about the issue of optics led the company to impose restrictions on insider activity, in order to prevent any appearance of conflicts of interest or impropriety. We also note that Keating Capital is not lavishing its executives with stock options that they simply turn around and cash in the very next day; with the commencement of its repurchase program, it is clear that almost all insider activity has ground to a halt, and it will almost certainly remain this way until at least November 8, 2013, when the company's repurchase program expires (although it may very well be extended, given that the company still has room to repurchase shares under it).

Valuation Methodology: Defending the Process

Keating Capital, like all other pre-IPO investment firms, cannot rely on the equity markets to ascribe a value to the privately hel! d compani! es within its portfolio, and must therefore categorize its investments as Level 3 assets. We do not believe that it is proper to question Keating Capital for merely using Level 3 valuation methodologies when its business model by definition requires it to do so. What can, and should be questioned is how rigorous and accurate the company's methods are. And in this regard, we believe that Mr. Keating has shown that the company's process is solid, both through a description of the process, as well as through historical financial statistics. The company's valuation process, as described in full detail in its latest 10-K, begins with Keating Capital holding a conference call with the management teams of its portfolio companies, alongside the provision of each company's most current financial statements, as well as management's financial projections. Each company is then compared to existing publicly traded peers, alongside various other metrics, and a discount is then applied for lack of marketability (as of the end of Q2 2013, the weighted average discount was 35% for preferred stock, and 23% for common stock). The company's valuation committee consists entirely of independent directors, and Keating Capital, as outlined in its 10-K, also enlists third-party valuation firms to review its process and results.

By their very definition, the process of valuing Level 3 assets is more art than science. Can investors ever truly be sure that the assets on Keating Capital's balance sheet are worth what the company says they are? The answer is that they cannot. However, that is something that applies to all such publicly traded investment firms. And we believe that to date, Keating Capital has shown that its valuation methodologies are fair, as evidenced in figures embedded within its current 10-Q. Through the end of Q2 2013, Keating Capital has had a total of 5 exits or IPOs of its portfolio companies, and with the exception of one company (which we will address below), each of Keating Capital's exits have been! done at ! valuations above where the company was valuing them in the quarter prior to the exit.

Keating Capital Exit Event Valuations

Company	Initial Cost	Value at Quarter Prior to Exit (IPO/Sale)	Value at Exit Event (IPO/Sale)	Prior Quarter Value as a % of Exit Event Value
NeoPhotonics (IPO)	$1,000,000	$1,550,000	$1,760,000	88.07%
Solazyme (IPO)	$999,991	$999,991	$2,032,686	49.2%
LifeLock	$5,000,000	$6,800,000	$8,500,617	79.99%
Corsair Components (SALE)	$4,000,080	$4,992,000	$4,675,397	106.77%
Tremor Video (IPO)	$4,000,001	$3,860,000	$5,999,980	64.33%

Each of the companies in Keating Capital's portfolio that have conducted IPOs have done so at valuations above the valuations ascribed to them in the quarter prior to their IPO. This track record implies that to date, Keating Capital's valuation methods have been sound. Why? The reason is due to the fact that the price at which these companies go public is beyond the control of Keating Capital. The offering price is determined by the portfolio company in conjunction with their bankers, who examine its financials, future growth rates, and the multiples ascribed to comparable publicly traded companies. If their valuation ends up being below the levels at which Keating Capital was holding the company's equity on its balance sheet, then this would be a strong implication that there are flaws in Keating Capital's valuation process. However, to date, this has not been the ! case, wit! h the exception of Corsair, which we believe is a special situation. Corsair was set to go public in May 2012, cancelled its IPO at the last minute on May 24, 2012, citing "weak equity market conditions." In reality, the cancellation of the IPO was due to the Facebook IPO debacle, which had essentially frozen the IPO market. In May 2013, Keating Capital disposed of its stake in Corsair after the sale of a majority stake by the company to private equity firm Francisco Partners. Had Corsair completed its IPO, we believe that the prior quarter value of the stake would have been lower on a percentage basis, and believe that Corsair should not be interpreted as a commentary on the overall rigor of Keating Capital's methodology, given that Corsair happened to attempt an IPO just days after that of Facebook.

The Portfolio: Another Win After the Quarter's Close

On August 15, Millennial Media (MM) announced the $225 million takeover of Jumptap, one of Keating Capital's portfolio companies, which the company invested $5 million into. As part of the takeover, Keating Capital will receive $8.75 million of Millennial Media equity (equivalent to a return of 1.75x), and we note that this is based not on Millennial Media's closing price at the time of the takeover announcement, but on its price at the closing of the deal. The exact number of shares Keating Capital will receive depends on the average closing price of Millennial Media in the 5 days prior to closing. Therefore, should shares of Millennial Media fall between now and October, when Mr. Keating estimates that the deal will close (officially, the transaction is expected to close in Q4 2013). 33% of the shares Keating Capital will receive will be eligible for resale 90 days after the takeover closes, with the remaining 66% eligible after 180 days. In addition, 10% of the shares will be held in escrow for 1 year as "partial security for potential stockholder indemnification obligations." Jumptap is Keating Capital's 6th portfolio ! exit (def! ined as either a sale or IPO). We note that in keeping with Keating Capital's valuation track record, the company's Jumptap stake was valued at $5.38 million as of the end of Q2 2013, or 61.49% of its exit value. With the removal of Jumptap from its portfolio, Keating Capital is left with a portfolio of 15 private companies, the largest of which is a $6.68 million position in SilkRoad, a provider of human resource software and services. Keating Capital invested a further $1 million into SilkRoad on August 22, 2013.

We note that Keating Capital's co-investors in many of its portfolio companies are not simply other venture capital or existing investors, but strategic investors as well. Examples include Agilyx, where Waste Management (WM) is a co-investor, BrightSource, where Chevron (CVX) and BP (BP) are co-investors, Kabam, where Google (GOOG) and Intel (INTC) are co-investors, or Tremor Video (TRMR), where Time Warner (TWX) is a co-investor. As of the end of Q2 2013, 9 (excluding Jumptap) of Keating Capital's portfolio companies had unrealized gains, with an average gain of 25.6% (again excluding Jumptap, which had unrealized gains of 8% as of the end of Q2 2013). The remaining 6 companies had an average loss of 44.46%. However, on an overall basis, Keating Capital's portfolio currently has an average unrealized gain of 2.15%. While this is not a large gain, we note that the bulk of Keating Capital's profits are realized upon exiting an investment in conjunction with the portfolio company's IPO or sale. Furthermore, portions of Keating Capital's portfolio are defended by structurally protected appreciation clauses that the company has struck with its portfolio companies, clauses that are not reflected on its balance sheet. These clauses, which are negotiated between Keating Capital and its portfolio companies, allow the company to receive shares in the portfolio company's IPO at a discount, or grant it warrants to purchase additional shares in an IPO for a nominal price. Since inception, Keating C! apital ha! s negotiated structurally protected appreciation clauses in 11 of the 20 companies it has invested in. As of the end of Q2 2013, 6 of Keating Capital's 15 portfolio companies were protected by structurally protected appreciation clauses, representing $22 million in total capital (almost 43% of the company's invested capital), thereby entitling Keating Capital to a weighted-average aggregate value of 1.9x its investment at the time of an IPO.

With $18.5 million in cash on its balance sheet, Keating Capital is poised to expand its portfolio. Our conversation with Mr. Keating covered the company's planned course of action, and he stated that Keating Capital plans to make between one and three new investments by the end of the year (exclusive of the SilkRoad investment on August 22, which was announced prior to our conversation), with the bulk of the company's existing capital going towards new companies. On a long-term basis, Mr. Keating wants the company's portfolio to be equal weighted, with a 5% allocation to 20 different companies, in contrast with the approach taken by other pre-IPO investment firms such as GSV Capital and Firsthand, where Twitter alone accounts for 15.14% and 10.5% of assets respectively.

Investment Fees: Merely Average

Much has been made over Keating Capital's fee structure, and suggestions that company executives are using it as a "personal ATM" to funnel shareholder money to Keating Investments, Keating Capital's investment adviser (Keating Capital is an externally managed business development company). However, Keating's fees are not exorbitant, at least in comparison to the industry average. Per data sourced from Triangle Capital (TCAP), the average externally managed BDC has a management fee of 1.75%-2% of gross assets, and an incentive fee of 20%. Keating Capital's fee structure includes a 2% management fee, and a 20% incentive fee, in line with the industry average. The formula below represents Keating Capital's incentive fee:

(click to enlar! ge)

We note that to date, no incentive fees have actually been paid out to Keating Investments, Keating Capital's investment manager. As the company states in its latest 10-Q,

"As of June 30, 2013, no incentive fees related to our cumulative net realized gains of $4,682,381 would be payable to the investment adviser since the total unrealized depreciation (or write-downs) of $6,893,325 exceeds our cumulative net realized gains. Accordingly, our investment adviser will not be paid an incentive fee, despite the accrual of incentive fees in our financial statements under generally accepted accounting principles, until our cumulative net realized gains exceed our total unrealized depreciation (or write-downs) and, in such case, the incentive fee would only be paid on the amount of the cumulative net realized gains in excess of our total unrealized depreciation (or write-downs)."

Per the terms of the Investment Advisory and Administrative Services Agreement signed by Keating Capital and Keating Investments, Keating Investments will not actually receive any of the incentive fees that have accrued on Keating Capital's balance sheet (a total of $1,212,038 as of June 30, 2013) until the company's net realized gains exceed its total unrealized depreciation. And we note that Keating Capital's net asset value per share of $7.79 (the company currently trades at a 22.68% discount to NAV, based on its August 29 closing price of $6.35) already accounts for accrued inventive fees, as this accrued liability is taken into account when calculating net assets. We also note that Keating Capital does not record an expense for incentive fees in every quarter. For example, in Q2 2012, Keating Capital recorded an incentive fee benefit of $9,709 on its income statement due to the fact that net unrealized appreciation decreased by $319,247 during the quarter, and net realized capital gains came in at $270,701. M! athematic! ally, 20% of the spread between those two figures is $9,709. And during Q2 2013, Keating Capital booked $266,924 in incentive fees, due to the following: a $3,065,557 decrease in net unrealized appreciation, offset by an increase in cumulative net realized gains of $4,400,178. The spread between these two figures is $1,334,621, 20% of which is $266,924, equal to the incentive fee expenditure recognized by the company in its latest quarter. Keating Capital's fee structure is not, in our view, materially different than that of many other externally managed BDCs, and we reiterate that to date, no incentive fees have "gone out the door" to Keating Investments.

Conclusions

We believe that Keating Capital is misunderstood, and that there is double digit upside potential embedded in shares of Keating Capital as its discount to net asset value begins to close. The fact that Keating Capital fell 0.3% after the takeover of Jumptap was announced speaks volumes. The company stands to make a profit of 75% on the sale of Jumptap and yet the company's shares did not react to this development. Keating Capital is under-followed in the sell-side community, and as Keating Capital begins its outreach campaign in September, the liquidity and trading volume of its common stock will likely increase. That, alongside the outreach campaign itself, will likely lead to increased institutional awareness of the company and its strategy. With one exception (the nuances of which were highly specific), Keating Capital has demonstrated the soundness of its valuation methodology, as every single portfolio company that has completed an IPO has done so at a valuation above where Keating Capital had been valuing it in the prior quarter. The company's fee structure is in line with that of the broader BDC sector, and the company has been actively repurchasing its shares. And Keating Capital's portfolio is stronger than it appears, thanks to the presence of structurally protected appreciation clauses in 6 of the company's! 15 portf! olio companies (as of the end of Q2 2013). In our view, Keating Capital is undervalued at present levels, and for risk tolerant investors, we believe that shares are worthy of consideration heading into what we believe will be a material rest of 2013 and 2014.

Source: Keating Capital: Misunderstood, With Catalysts To Come In The 2nd Half

Disclosure: I am long KIPO, GSVC, SVVC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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