Surface Pro 3: Microsoft gets most things right

NEW YORK — Microsoft had Apple in the cross hairs when it introduced the Surface Pro 3 tablet last week. Every one of Apple's tablet rivals has iPad-envy after all. What was unexpected was the degree to which Microsoft hammered its claim that the newest Surface also is meant to duke it out against Apple's popular MacBook Air laptop as well. Left unsaid was that Surface Pro 3 might also slug it out against any number of Ultrabook computers though Microsoft was understandably reluctant to utter such a thing out loud since Windows software is the lifeblood of Ultrabooks.

There's hardly a guarantee that Surface Pro 3 will hit big with the productivity-minded customers Microsoft has in mind, but based on my tests it's a strong tablet that doubles, with some limitations, as a strong laptop alternative. Microsoft has designed a handsomely sleek, business-first Windows 8.1 hybrid that is easy to fall for.

No it isn't appropriate for all comers. The storage, especially on the entry level $799 Surface Pro 3 model, is limited — 64 GB comes with the system, but only 37GB is available to the user. You can bolster capacity through a hidden microSD card slot or online via Microsoft's OneDrive.

And good as the optional $129.99 magnetic Surface Pro Type Cover accessory is — the Qwerty keyboard has more "travel" than before, the keys are now backlit, and the touchpad is vastly improved — it is still not quite the same as having a topnotch keyboard built in.

Attention laptop user: the Type Cover is a must. And the fact that it's still an option is a shame, because a keyboard is a key ingredient for a laptop. Consider $928.99 the true entry price.

Most hybrid computers I've seen have been compromised. In tablet mode they don't generally perform as well as a standalone slate, nor are they superior in laptop mode to a standalone laptop.

Microsoft's machine holds its own on both counts. Start with the high-resolution (2160 x 1440), 12-inch multitouch display. It's lovely. There's ple! nty of screen real estate for displaying two open Windows simultaneously — Word and Internet Explorer, say — which Windows 8.1 lets you do. Earlier Surface models (still in Microsoft's lineup) have 10.6-inch screens.

USA TODAY's Ed Baig talks to Micrsoft exec Panos Panay about the new Surface Pro 3.

The fourth generation Intel Core i3, i5 or i7 processors inside Surface Pro 3 are state of the art for now (though more power efficient Intel chips are coming). Surface 3 also has a full-size USB 3.0 port and Mini DisplayPort. The stereo speakers sound good. There are front and rear-facing 5-megapixel cameras.

Meanwhile, Surface 3 weighs less than 1.8 pounds, heavier than the 1-pound iPad Air, but more than a pound lighter than a MacBook Air with a 13.3-inch display. The weight with the Type Cover keyboard is about 2.4-pounds, same as the smaller 11-inch MacBook Air.

The nine hours of battery life for surfing the Web that Microsoft is claiming — I didn't run a formal battery test —stacks up well too, though it is less than what Apple claims for the iPad Air and 13.3-inch MacBook Air.

Microsoft can't compete with the iPad in terms of tablet apps, of course, but the flip side is that since Surface is a fully compliant laptop it runs virtually all of the Windows programs that your desktop PC can, from Photoshop to Quicken to Microsoft's own Office suite.

For the fuller PC treatment, you'll have to wait until later in the summer to add a $199.99 dock connector with extra ports and connectors.

One way I tested Surface Pro 3 as a true laptop replacement was to write this column in Word on my lap. (I used my Office 365 subscription to install Word; unlike Surface computers based on the Windows RT variant, Surface Pro 3 doesn't pre-install Word, Excel or PowerPoint.)

Earlier Surface models had a portable kickstand but you could only prop up the machine at two distinct angles. The major achievement here is that you can raise or lower the Surface Pro 3 kickstand to any angle. That is a bigger deal than you might first think. You can also fold up the very top edge of the Type Cover keyboard to prop it up at an easier to type on angle, also a big deal.

Yet another plus is the use of a special pressure-sensitive pen that will let you draw on the screen, jot n! otes and so on. Clicking the top of the pen launches Microsoft's One Note note-taking app, a handy (pun intended) touch. Alas, I fret about losing (or forgetting) the pen because there's no place on the tablet to stow it.

Microsoft has redesigned the proprietary AC adapter so your earlier brick won't work with this model. As before, a USB port on the power brick lets you charge your phone at the same time.

Microsoft gets most things right with Surface Pro 3. It's not a perfect tablet or a perfect laptop. But it's a perfectly appealing combination of the two.

THE BOTTOM LINE

Microsoft Surface Pro 3

$799 on up, www.microsoft.com/surface

Pro. Thin, light. Solid tablet/laptop combination. Capable of running Windows software. Pen. Type Cover keyboard. Kickstand.

Con. Limited storage. No place to stow pen. Keyboard cover should be included.

Email: ebaig@usatoday.com; Follow @edbaig.

Why Dicks Sporting Goods (DKS) Stock Was Downgraded By Several Analysts Today

NEW YORK (TheStreet) -- Shares of Dicks Sporting Goods Inc. (DKS) were downgraded today and cut to "neutral" at Goldman Sachs  (GS), Credit Suisse  (CS), JPMorgan  (JPM), and Piper Jaffray  (PJC), and raised at BMO Capital Markets.

The company reported adjusted earnings per share of 50 cents yesterday, compared to the Thomson Reuters consensus estimate of 52 cents a share. Revenue totaled $1.44 billion, which was short of analysts' expectations of $1.46 billion.

Dick's also expects full-year adjusted earnings per share of $2.70 to $2.85, compared to the consensus estimate of $3.08. The company expects full-year comparable-store sales to be up 1% to 3%.

In its note, JPMorgan reduced Dicks to 'neutral,' saying "while we believe the stock is oversold at its current price, we are downgrading...as the investment thesis has changed and tactically the poor back half set up is now accelerated." BMO Capital increased its rating to "market perform" from "underperform."  The stock closed down 17.98% to $43.60 yesterday, and is down 0.87% to $43.22 in pre-market trade. Must Read: Warren Buffett's 25 Favorite Growth Stocks STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.   Separately, TheStreet Ratings team rates DICKS SPORTING GOODS INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation: "We rate DICKS SPORTING GOODS INC (DKS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, attractive valuation levels, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins." Highlights from the analysis by TheStreet Ratings Team goes as follows: The revenue growth came in higher than the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 7.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. DICKS SPORTING GOODS INC has improved earnings per share by 7.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DICKS SPORTING GOODS INC increased its bottom line by earning $2.70 versus $2.31 in the prior year. This year, the market expects an improvement in earnings ($3.08 versus $2.70). Net operating cash flow has increased to $461.57 million or 30.03% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.54%. The net income growth from the same quarter one year ago has exceeded that of the Specialty Retail industry average, but is less than that of the S&P 500. The net income increased by 6.8% when compared to the same quarter one year prior, going from $129.75 million to $138.64 million. You can view the full analysis from the report here: DKS Ratings Report STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Stock quotes in this article: DKS 

Hedge Funds Hate These 5 Stocks -- Should You?

BALTIMORE (Stockpickr) -- When the "smart money" piles behind a stock, you know that things are going to get interesting. And when the opposite happens -- when they hate a stock -- it's bound to get even more interesting.

After all, it's the sell list -- the names that institutional investors hate the most -- that represents some of the biggest conviction moves. Scouring fund managers' hate list is valuable for two important reasons: it includes names you should sell too, and it includes names that they're wrong about selling.

You see, hedge funds have a problem on their hands -- they're underperforming the rest of the market in 2014. Year-to-date, the average hedge fund is up just 3.34% according to performance data from BarclayHedge. That's well shy of the S&P 500's 8.7% return so far this year. And that underperformance means that hedge funds are panicking when positions aren't working out quickly.

Pro investors aren't immune from letting their emotions get the better of their trading. And when investors get emotionally involved with the names in their portfolios, they often do the wrong thing.

As a result, in many cases, portfolio managers are leaving money on the table. So today, we're taking a closer look at the stocks they hate the most to figure out where the opportunities lie this fall.

Luckily for us, we can get a glimpse at exactly which stocks top hedge funds' hate lists by looking at 13F statements. Institutional investors with more than $100 million in assets are required to file a 13F, a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F.

So, without further ado, here's a look at five stocks fund managers hate...

Schlumberger

Most of the selling last quarter took place in the energy sector -- and within it, no single stock got sold off as hard by funds as Schlumberger (SLB). All told, funds unloaded more than 4.57 million shares of the oil field servicer, a stake that's worth close to $430 million at current price levels. So, should you sell too? Not so fast.

Schlumberger is the biggest oil service company on the planet. The firm's revenues come from a menu of specialized field services such as seismic surveys and well drilling and positioning. In a nutshell, SLB's job is to pull oil out of the ground as efficiently as possible -- and with oil prices in freefall, SLB's value proposition matters more now than it did when crude was trading in the triple-digits. Oil firms turn to Schlumberger because the tasks they need to accomplish are too nuanced or proprietary to pull off in-house. And that gives the firm a deep economic moat.

Another part of SLB's deep moat comes from boots on the ground. Because Schlumberger is on-site at its clients' well locations, the firm is able to sell more complementary services at one time. The energy sector has gotten shellacked in the last few months, and frankly, that downward pressure isn't showing any signs of letting up. That said, SLB's revenues don't ebb and flow exactly in step with crude prices (unlike its clients), and shares look oversold here.

Chevron Corp.

One of Schlumberger's biggest partners is oil and gas supermajor Chevron Corp. (CVX). No, Chevron isn't the biggest of the oil companies, but it might just be the most attractive from a financial standpoint. Not that that helped the firm avoid fund managers' wrath last quarter -- funds unloaded more than 3.17 million shares of Chevron during the third quarter of 2014, a stake worth more than $365 million today.

Chevron's scale is huge. The firm produces 2.6 million barrels of oil equivalent a day, and sports proven reserves of 11.3 billion barrels. Chevron's outsized exposure to oil (versus the natural gas that peers have been buying up) has hurt it lately, as crude prices fell faster than natgas, no question about it. And because oil companies are basically leveraged bets on commodity prices, as crude gets closer to Chevron's cost of production, there are some real risks to long-term profitability that investors need to be thinking of.

I said earlier that CVX is the best-positioned supermajor financially. That's because the firm currently carries $16.6 billion in net cash and investments, the least-leveraged balance sheet in big energy right now. At current price levels, that net cash level is enough to cover close to 8% of Chevron's market capitalization. Even if Chevron is best-in-breed, it's best in a sketchy breed right now -- oil prices could realistically move lower, and Chevron's technical trajectory is down.

If you're yearning for energy sector exposure, Schlumberger has a more attractive risk/reward tradeoff right now.

McDonald's

Switching gears outside of the energy sector brings us to fast food chain McDonald's (MCD), another name on hedge funds' hate list. McDonald's has had a pretty tepid year in 2014, down 2.6% over a stretch when the S&P is within grabbing distance of double-digit upside. So it's not hugely surprising that fund managers don't have the patience to stick it out with MCD this fall. Funds sold 2.29 million shares of McDonald's over the course of the third quarter...

McDonald's is the biggest fast food restaurant chain in the world, with approximately 35,900 restaurant locations in 125 countries. Of those, nearly 7,000 are company-owned units. The other 80% of stores are franchised. That model has been a cash cow for MCD shareholders in the past, giving the firm claim to sticky recurring revenues supplying franchise stores with food ingredients, marketing, and employee training. Importantly, McDonald's owns the land beneath the majority of its franchisee restaurants; that huge land portfolio gives McDonald's more in common with a REIT than with the diner down the street.

The competitive nature of the fast food business means that MCD has gotten the squeeze in recent quarters as it tries to play catch up with a consumer that's moving up the "food chain" (so to speak) -- an ongoing initiative to improve food quality and make MCD more nimble should pay dividends down the road. In the meantime, McDonald's continues to execute well, especially given the discount currently on shares versus six months ago. The firm's 3.6% dividend yield should add some extra attractiveness given the prolonged low-interest rate environment that's expected to stretch well into 2015.

It looks like funds are making a mistake by selling MCD early here...

Qualcomm

Qualcomm (QCOM) is another name that's "bored" performance-focused hedge funds into selling: Qualcomm has been a laggard this year, only earning total returns of 5.5% so far in 2014. Funds sold 2.88 million shares of the wireless technology stock in the most recent quarter, a quarter-billion dollar stake at current price levels.

Qualcomm is a chipmaker that produces everything from processors to wireless communications cards. The firm's flagship Snapdragon processors provide OEMs with a completely integrated solution that can handle processing tasks, but also includes baseband features that connect to cellular networks. As handset makers continue to try to pack more features into the same device footprint, QCOM's expertise is increasingly valuable. That's why its products are found in nearly every middle to high-end smartphone on the market today.

The firm also a major a major tech IP licensor. The Qualcomm's patents effectively mean that every handset maker in the world has to pay royalties if they want their phones to operate on 3G and 4G networks. That makes QCOM a great pure play on the smartphone market as a whole. Likewise, Qualcomm is in stellar financial shape, with close to $33 billion in cash and investments on its balance sheet, and no debt. That's works out to almost $20 per share in cash and investments, enough to cover a quarter of QCOM's market capitalization today.

Ex-cash, shares trade for 13.9 -- a pretty cheap multiple given the handset growth expected in emerging markets over the next few years. Don't follow funds' sale of this stock.

American Express

Last up on pro investors' hate list is American Express (AXP).

American Express is the No. 3 payment network in the world, behind Visa (V) and MasterCard (MA), positioning that gives it a front-row seat to the fast adoption of electronic payments. Because AXP's network is closed-loop (it's the issuer on the majority of its cards), it enjoys some hard-to-replicate advantages over those peers. By focusing on attracting high-spending affluent consumers and businesses with its rewards programs and benefits (instead of focusing on issuing credit in volume), the firm owns a profitable niche in its flagship charge card products. And it collects bigger fees for its trouble.

Charge card products limit AXP's exposure to credit risk, while expanding programs with third-party lenders have been growing the firm's transaction volume. While mobile payments were seen as a risk to American Express' business, the fact that the recently-launched Apple Pay platform integrates the existing networks means that mobile payments could actually help entrench AXP's share of the market.

Last quarter, funds sold off 192,000 shares of American Express, making it the single most-hated name in the financial sector. AmEx looks like another one where the funds got it wrong...

-- Written by Jonas Elmerraji in Baltimore.

At the time of publication, author had no positions in the stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji

 

Starbucks Baristas Have a Secret You Should Know

You may have heard some Internet buzz over the years about secret specialty drinks pop up at Starbucks (NASDAQ: SBUX  ) but are nowhere on the menu. What a cool factor, if you can get your hands on one -- most of us love the feeling of being a first adopter who's "in the know." However, lots of baristas hate these secret drinks.

Baristas' negative opinion of the drinks has nothing to do with the drinks themselves, which sound delicious as well as clever. With autumn upon us, they could conceivably include seasonal stealth offerings such as Candy Corn, Fall Mashup, and Perfect Pumpkin Frappuccino. Names like Cap'n Crunch and Oreo, not to mention favorite tastes Red Velvet and Cake Batter , sound fun and delicious. What about some of the treats people love, like Samoa Frappuccino, Kit Kat Frappuccino, and -- wait for it, hazelnut addicts -- the Nutella.

A site called Starbucks Secret Menu offers up the skinny on a whole slew of cool beverages like those. However, such revelation sites may actually be tantalizing us with the cool factor while doing baristas a disservice. In August, Buzzfeed named quite a list of Starbucks' secret offerings, but its structure was an Internet quiz asking "How many have you tried ?"

Sadly, these revelations and even quiz challenges may theoretically be good buzz for Starbucks, but not necessarily for baristas. There's a perfectly logical reason why some baristas hate or even despise the secret drinks.

The customer isn't always right
A few of my colleagues and I recently talked about Starbucks' awesome corporate culture. Its employees receive many great benefits that rarely show up in retail, such as health care coverage and a stake in the company called "Bean Stock." Many of Starbucks' initiatives, such as fair trade and artisan coffees, as well as increased environmental efforts, give many employees a sense of working for a company that cares about the world.

When I study companies to consider as investments, I include cultural attributes in my analysis. I loved the idea of secret, basically exclusive drinks at Starbucks. Front-line innovation is an awesome thing, and it illustrates pride in one's work as well as offering customer-pleasing products.

However, one of my colleagues, who did some time as a Starbucks barista, brought up an interesting thing most of us wouldn't suspect: many baristas hate them. Much like any art, they're usually one individual's creation that, of course, is not available in Starbucks' 10,000+ cafes. When baristas don't know the recipes to these specialized creations and turn down customer requests, it's not an "I won't" situation -- it's "I can't."

Meanwhile, customer reactions generate dread of what should be fun. Many customers become irate or even enraged if a barista can't fulfill a "secret drink" order. Examples of customers' extreme expressions of anger would shock most of us.

The downside of creativity
Maybe Starbucks could use the idea as a business builder while making employees happier, if it's handled in some different ways.

Employees who work on extra tasks show engagement, and studies reveal that engagement with one's work boosts happiness and productivity. From the business perspective, employees can find efficient ways to do things, or take it upon themselves to delight customers in creative ways. When they're recognized and rewarded for their talents, it can be as strong or stronger an incentive than huge paychecks. Creating a product of one's own is a pretty engaging activity.

I had a few thoughts off the top of my head on how Starbucks might be able to take the situation and flip it into a positive.

Make it clear that "secret drinks" are "secret" for a reason; they may not be on the menu. For baristas' happiness and sanity, this would be the most important element. Occasionally offer some "secret" drinks in some cafes for a taste test "beta." Use chalkboards, social media, and other ways and to reveal the opportunity to taste an exclusive, secret drink; this could be an exciting store-by-store exclusive offering. Compile information and feedback from means like social media, trying to identify the most popular or promising ones. The most popular secret drinks could be rolled out on a widespread basis, with clever names and barista attribution. Take a page from many modern companies and allot some time once a month or so in which baristas are paid to work on concocting secret drinks instead of in the fray. Drinks that make it to a test phase or some other goal could yield a monetary bonus incentive.

Testing a way to reduce elements that frustrate or upset workers is a big deal, given the importance of morale. Public-facing jobs can particularly degrade morale even among the most culturally sound companies, particularly jobs that are so frantically fast paced and so close to customers. Turning the negative feelings into a positive initiative turns into a win-win-win situation.

The most important thing is to hope some angry, impatient customers can start exercising respect for baristas who work hard in a stressful job, regardless of what their complaints are. Whether this type of situation is one that Starbucks deems necessary to address, everyone has a choice as to how they treat others, and treating people poorly is a win for no one.

Your cable company is scared, but you can get rich
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Herbalife: ‘Messier Than Expected and We Had Expected Messy’

Even those who weren’t expecting great news from Herbalife appear taken aback by its results last night. Canaccord Genuity’s Scott Van Winkle and Mark Sigal, for instance, call Herbalife’s earnings “messier than expected.” They explain:

Bloomberg News

The Q3 results and guidance revisions were messier than we expected and we had expected messy. We expected that more pronounced headwinds in the US and a Venezuela devaluation could materialize and saw these items as the risks to the quarterly report. However, the negative surprise relative to our estimates wasn't confined to these two markets. Similar to Q2, China continues to drive strong growth (China was the only market to meet our revenue forecast), while underlying strength in EMEA (+15% in constant currency) is being masked by foreign exchange. Beyond these two regions, growth is modest or disrupted. The impact of the Herbalife business model debate has clearly impacted the US, but major markets outside of the US, such as Mexico and Brazil, were softer than we would have thought. The net result was a 5% miss in sales and volume points vs. us that was several percentage points worse than we expected, even after adjusting for Venezuela. Moreover, Q4/14 and F2015 guidance came in significantly softer on a volume point basis.

Van Winkle and Sigal also explain the impact of changes to Herbalife’s business that were made following allegations by Pershing Square’s Bill Ackman:

The guidance is set partly as a reflection of a phased implementation of changes to the global compensation plan (fully effective by February 2015) that are anticipated to temper near-term growth. The plan changes include a first order limitation (previously in 18 markets, now to be global), a sales leader qualification restriction whereby all volume for qualification must be purchased directly from Herbalife rather than from upline distributors (implemented November 1), and a lower threshold for supervisor qualification (4,000 volume points over a 12- month period rather than the historic 5,000-point qualification where large volume purchase were front-end loaded). The net result of these changes is greater line of sight on distributor purchases, as well as more gradual and sustained distributor participation; but of course it's a slower build. The prior roll-out of the 12-month volume point qualification program in the original market resulted in ~60% gains in distributor activity and retention for new qualifying supervisors a year later, but impacted initial volumes. Near term, these plan changes will create a sales headwind until fully anniversaried in Q1/16. But also, any compensation plan change carries disruptive risk.

Despite the disappointment, Van Winkle and Sigal maintained their Buy rating on Herbalife’s stock, though they did slash their price target to $60 from $73.

Shares of Herbalife have plunged 18% to $45.75.