Business & Money News

It’s not just about making money it’s about keeping it.

Doug Pyle, a managing director who heads up $850 million Excelsior Small Cap Fund, finds that most investors are more concerned about losing money than about making more.

And since just a few bad calls can sink a portfolio, he takes pains to keep blowups to a minimum.

“There are always four or five stocks that have the unique ability to corrode everything,” he said.

To reduce the chance of hitting land mines, Pyle seeks out stocks that are unfairly beaten down. Their downside already has been cut.

A company’s historical performance helps Pyle figure out whether it’s downtrodden or flying high. He looks at price-to-book value, price to sales, and the operating margins of a company. For most companies, those numbers will have a certain range over time.

“If some stock has a history of whatever price-to-book ratio, and it’s way below that, it usually can’t go down much further,” he said.

When a stock seems to have bottomed out, that is the time to buy, he says, because whatever bad news or events have pushed it down have already happened.

Pyle will pass on stocks with a debt-to-capital ratio greater than 50%. The average in the portfolio is about 20%. Stocks must also have market caps of less than $1.5 billion to be considered.

He also doesn’t like to listen to conventional wisdom. To insulate himself from that, he gathers his own information, avoiding many popular services that offer earnings estimates, for example.

That’s also what helps him get to stocks before anyone else does.

Pyle says he also looks at larger trends that might help a given stock.

A lack of market volatility was one reason to buy GFI Group, () an interdealer derivatives brokerage, last summer. It was trading at about 50 and the stock had suffered a steep price decline. It had topped out in May 2006 at about 66. By August it had bottomed out at 45.

Earnings Estimate

But Pyle looked at the book value of the company, and then at what it could earn. He came up with a figure of $4 per share per year, based on earning 20% on the book value of the company. He took a 3% position in the stock. It now makes up 3.6%.

He also noted that only a small percentage, about 5%, of brokerage transactions were hedged in any way. The equity and bond markets, up to that point, had a relatively low volatility.

GFI Group would benefit from a period of higher volatility, and a low-volatility market could not last forever, Pyle held.

As volatility in the market increased during the last half of 2007 and 2007, GFI Group’s stock went with it. It’s now trading at about 83.

Pyle will also jump on tech trends. Flir Systems () designs infrared detection equipment used in motion detectors and targeting systems. When Pyle added it to the fund in May 2006, it had suffered and was trading in the 20s.

That was largely because the earnings were depressed by a single manufacturing plant in Boston that wasn’t operating efficiently.

But Pyle thought the company would turn things around. Flir introduced new products and got supply contracts with the military.

Earnings went from a 10% decline in the second quarter of 2006 to double- or triple-digit growth for the next four quarters.

The stock has gone on a steady tear and closed Oct. 12 at just under 60, and now makes up about 3% of the fund.

Limits On Stakes

The fund holds 40-50 stocks. Pyle doesn’t let positions get past 6%. A stock stays in the fund about three years on average.

He starts positions at anywhere from 1% to 3%, the latter being as much as he will buy at once.

When Pyle decides to sell, it’s usually because the stock has reached a point above its historical price-to-book value.

He does have some price targets, though they are contingent on changes in the business and in the market conditions as a whole.

(01-06) 10:53 PST New York (AP) —

The start of 2008 has brought a harsh reality to Wall Street: The U.S. may indeed be headed toward recession.

So, after suffering punishing losses the first three trading days of the year, the stock market will be seizing on any data or forecast in the coming weeks that can help investors determine if their worst fears are coming to pass. And earnings are now part of the equation, with results from Alcoa Inc., the first of the 30 Dow Jones industrials to report fourth-quarter results, opening earnings season on Tuesday.

Analysts polled by Thomson Financial, on average, expect the aluminum producer to post a drop in per-share profit, but the company’s outlook is likely to have a bigger impact on Wall Street.

Last week’s readings showed that the economy continues to slump amid the ongoing mortgage and credit crisis, and that energy costs could have further to climb. Over the course of the week, oil prices hit the psychologically important $100-a-barrel mark, investors found out that manufacturing unexpectedly contracted in December, and Д perhaps most devastatingly Д payrolls grew less than anticipated last month, while unemployment hit a two-year high of 5 percent. When people start losing their jobs, they pare back spending and find it harder to pay their bills, a trend that would aggravate already deteriorated lending conditions.

The news pounded stocks. In just the first three trading days of 2008, the Dow Jones industrial average lost 3.50 percent, the Standard & Poor’s 500 index fell 3.86 percent, and the Nasdaq composite index dropped 5.57 percent.

Economists and market analysts are still split on whether this year will bring recession, but virtually no one is completely discounting the possibility.

Keefe, Bruyette & Woods banking analysts are factoring into their forecasts a mild U.S. recession in 2008, and they predict the nation’s unemployment will reach 6 percent by the end of the year.

There’s hope, though: Fed rate cuts, companies continuing to find ways to make money, and ongoing growth overseas could save the U.S. economy from recession and stocks from a bear market, according to Michael Sheldon of Spencer Clarke LLC.

This week, as it has been for months now, Wall Street will be eyeing housing data Д though bad news rarely comes as a surprise now to investors who have already sold off stocks related to homebuilding or mortgage lending. On Tuesday, the National Association of Realtors releases its forward-looking index of U.S. home sales for November. Economists surveyed by Thomson Financial predict the index will slip after gaining for two straight months, despite the association’s forecast last month that sales and prices will start rising modestly next year.

KB Home’s quarterly earnings report Tuesday could offer further insight into whether the housing market is near its bottom or has much further to fall. The homebuilder is expected to post a loss.

With the job market and energy sector in focus, the Energy Department’s weekly report Wednesday on crude oil, gasoline and heating oil inventories and the Labor Department’s weekly reading Thursday on jobless claims will be closely monitored.

Comments from several Fed officials could also give investors a clearer view of where the economy is headed, and if inflation is a growing concern to the central bank, which meets Jan. 29-30 to decide whether to lower interest rates again for the fourth time in a row.

On Tuesday, Philadelphia Fed President Charles Plosser will speak in Gladwyne, Pa., on the economy, and Boston Fed President Eric Rosengren will speak in Hartford, Conn., on the economy as well. On Wednesday, St. Louis Fed President William Poole will speak in St. Louis on economic and financial literacy, and Thursday, Kansas City Fed President Thomas Hoenig speaks on the economy in Kansas City, Mo.

Lastly, on Friday, the Commerce Department reports on November’s international trade and December import prices. These two pieces of data that could indicate how the weakening dollar is helping or hurting the United States’ position in global commerce.

Merrill Lynch has rolled out a set of indexes anticipating the growth of carbon emissions markets.

Francisco Blanch, Merrill’s head of global commodities research, says the indexes track the value of carbon emissions credits.

They are designed as investment vehicles, and the firm hopes to see them used in an ETF or exchange traded note.

In the European Union, companies are given carbon credits that can be traded in a way similar to futures and options. Buying more allows for more carbon emissions, while selling off credits means a company must emit less.

Other countries have also considered cap-and-trade markets.

The base index is the MLCX Global CO2 Emissions Index. It tracks emissions under the European Union’s emissions trading scheme and the Kyoto protocol.

The MLCX Global CO2 index weights both schemes by their relevance in the global emissions markets.

Two more indexes track the European Union Allowance and Certified Emissions Reduction markets.

No Central Exchange

No central exchange exists, so the MLCX Global CO2 Emissions Index tracks only two sets of contracts.

Blanch notes that as countries outside Europe adopt carbon emissions trading, the number of contracts will go up.

Merrill isn’t the first to take a stab at trading on carbon credits.

XShares Advisors registered for an ETF called AirShares that also tracks carbon credits traded in Europe.

That ETF hasn’t come to market yet, and a spokesman for XShares wasn’t able to say when it would.

It’s another step in the appearance of green indexes and ETFs.

Several already track alternative energy as well as environment-related stocks.

Green ETFs

PowerShares has one of the larger ETFs of this kind: the $1.4 billion PowerShares WilderHill Clean Energy. ()

Most such ETFs performed strongly until the end of last year, then fell with the rest of the market.

Powershares WilderHill Clean Energy’s price rose 60% during 2007 before falling back by 28% since New Year’s.

Claymore and Van Eck have also launched environment-oriented ETFs.

Claymore S&P Global Water Index ETF () has grown to $340 million in assets since its launch in May.

Claymore’s offering tracks companies that make water treatment chemicals, pumps, motors, plumbing equipment and meters.

Van Eck’s entries in the field include Market Vectors Global Alternative Energy () ETF and Market Vectors Environmental Services. ()

NEW YORK: Lehman Brothers Holdings said Monday that it would sell at least $3 billion of new shares to U.S. institutions to reassure investors that it has ample access to capital.

Lehman will offer 3 million convertible preferred shares, the company said in a statement. It did not identify the investors.

“We still maintain that we dont need capital, but weve realized that perception is the dominant issue in todays markets,” the chief financial officer, Erin Callan, said in an interview. “This is an endorsement of our balance sheet by investors.”

The U.S. securities firm has been battered by speculation that its access to capital was limited. Its smaller rival Bear Stearns collapsed during a run on the company in March.

Merrill Lynch, Citigroup and Morgan Stanley have also raised cash from outside investors after more than $200 billion of write-downs and losses tied to the collapse of the subprime mortgage market.

Lehman said on March 18 that it had $30 billion of cash and $64 billion in assets that could easily be turned into cash. The securities firm has access to an additional $200 billion from a Federal Reserve credit facility, according to Prashant Bhatia, an analyst at Citigroup.

Lehmans stock fell as much as 48 percent on March 17 on speculation that it would face the same cash shortage that broke Bear Stearns. The shares gained 46 percent the next day, when Lehman announced first-quarter earnings and its cash position.

Bhatia upgraded his recommendation for Lehman to “buy” from “neutral” last week, saying the stock price drop was overdone.

“Reality will trump fear,” Bhatia wrote on March 28. “Lehman has ample liquidity to run its business.”

The firms net income declined 57 percent in the quarter, less than analysts estimated, because of a $1.8 billion write-down on mortgage assets. Merger advisory fees jumped 34 percent, investment-management revenue surged 39 percent and equities rose 6 percent.

Bear Stearns was forced to sell itself to JPMorgan Chase at a fraction of its market value with financial support from the Fed.

Merrill Lynch raised $6.6 billion in January by selling preferred shares to a group including the Kuwaiti Investment Authority and Mizuho Financial Group of Japan.

Lehman announced the financing after the close of regulator trading on the New York Stock Exchange, where shares closed 23 cents lower at $37.64.

U.S. crude oil futures ended lower Friday, with traders reeling in some profits after prices rallied to a record $103.05. Funds poured money into commodities to hedge against inflation and a tumbling dollar.

On the New York Mercantile Exchange, April crude settled down 75 cents, or 0.73%, at $101.84 a barrel, moving from $101.36 to the record $103.05.

Prices fell for only the third session in 12. On a weekly basis, prices have risen for four weeks in a row, gaining $10.07, or 11%, over the four-week span.

In London, April Brent crude settled at $100.10 a barrel, down 80 cents, or 0.80%, dealing from $99.66 to $101.27, a record.

Nymex March heating oil expired and settled down 0.59 cent at $2.8397 a gallon, trading from $2.8975 to a record $2.8620. April ended down 1.59 cents, or 0.56%, at $2.8069.

March RBOB gasoline also expired, ending up 1.66 cents, or 0.67%, at $2.5123 a gallon, trading from $2.4559 to $2.5250. April ended down 0.18 cent, or 0.07%, at $2.6699.

RBOB hit a record $2.6169 on Feb. 19.

Turkey said Friday that its troops had returned to bases after an offensive against Kurdish rebels in northern Iraq.

Crude from Iraq’s northern oil fields to Turkey’s port of Ceyhan resumed after a technical snag was repaired, an engineer from Iraq’s Northern Oil Co. said.

The dollar fell against the euro and to a three-year low against the yen after a weaker-than-expected reading of a Midwest business activity index.

Stocks slid after a poll showed that consumer sentiment was at its lowest in 16 years and data on Midwest business conditions were the weakest in more than six years, adding to fears of a U.S. recession. A huge loss at insurer AIG added to worries.

Ecuador declared force majeure on oil exports after its main pipeline was shut a day earlier, Oil Minister Galo Chiriboga said, adding that oil exports had not been disrupted.

Ahead OPEC’s March 5 meeting in Vienna, a Reuters poll showed all 15 respondents expected the group to leave unchanged its formal output policy.

The Shell-operated SEAL pipeline resumed flowing gas into the U.K. network at Bacton after a terminal fire Thursday stopped imports.

Northeast heating oil demand was expected to be much above normal through Sunday before returning to normal Monday and below normal Tuesday, forecaster DTN Meteorlogix said.