A couple of weeks ago I spoke with Brinson Patrick Securities analyst, Vernon Bernardino, after reading his analyst report on NeoStem Inc (NBS). The analyst offers a very bullish outlook, but also backs up his opinions with solid fundamental and macro analysis in a project that took him many months to complete. After more than a month since his call, I finally had the opportunity to speak with him, and below is a transcript of the key points taken from that conversation.

Brian Nichols

Last year has been quite bullish for biotech companies. Do you feel the biotech space will continue its positive momentum through 2013?

Vernon Bernardino

Correct! Biotech was a huge outperformer in 2012, up 41.7% as measured by the BTK (NYSE Arca Biotechnology Index). However, last year's gains were primarily driven by gains in large-cap, and most of the gains had been seen by the end

After my article on Canadian Imperial Bank of Commerce (CBIC), Bank of Montreal (BMO) seemed to be the next popular choice.

Since the beginning of July, we have seen the Montreal Bank in news. On July 5, BMO announced the complete acquisition of the Marshall & Ilsley Corp (MI), one of the major bank holding companies based in Milwaukee. With consolidated assets worth around $50.8 billion and a total deposit of around $38.3 billion, Marshall & Ilsley is prominent in the niche of commercial banking, community banking, treasury services and wealth management. Marshall & Ilsley has been merged with the Harris Bank to form BMO Harris Bank N.A., part of BMO Financial Group.

“The acquisition will also result in an expanded U.S. private banking presence for BMO and the addition of M&I’s asset management and institutional trust businesses will increase our U.S. presence, add scale and bolster our global

Merger activity decreased last week with three new all-cash deals announced and four closing.

You can find all the active deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.

Deal Statistics:

New Deals:

1. The acquisition of Ameron International Corporation (AMN) by National Oilwell Varco (NOV) for $772 million or $85.00 per share in cash.
2. The acquisition of Immucor (BLUD) by TPG Capital for $1.973 billion or $27.00 per share in cash.
3. The acquisition of APAC Customer Services (APAC) by One Equity Partners for $470 million or $8.55 per share in cash.

Updated Deals:

Ervin Shindell co-founded Roundkeep Capital Advisors with three other partners in late 2009. Prior to founding Roundkeep, Mr. Shindell had 10 years of service at Citadel Investment Group as a trader and Senior Managing Director. During his last 5 years at Citadel, Mr. Shindell served as the head of the global event-driven team. The team's investments focused mainly on North America and Europe and placed bets for risk-arbitrage opportunities in the mergers and acquisitions area.

According to the 13F filed by Roundkeep, we see 12 securities removed and 26 new securities added to the portfolio in the first quarter of 2011. Here are the recent portfolio activities of Roundkeep:

By Neal Goodwin, Guest Editor

Today, Investment Underground takes a look at a few of Jeremy Grantham's latest buy ideas. For those wondering why one should follow the advice of Jeremy Grantham, look no further than the continuous success of his Boston-based asset management firm Grantham May Van Otterloo (GMO). GMO has had a 10 year cumulative return of 31% versus just 16.4% in the S&P (SPY). In a recent article with businessinsider.com Jeremy predicted that stocks are subject to a boost, largely due to the Presidential Cycle we find ourselves in at this time. Year 3 of the Presidential Cycle has historically been very good for stocks because the current government does everything it can to help itself get re-elected, including flooding the economy with cheap money, in turn raising the value of stocks. So, with this in mind, what has Jeremy been buying for his investors? Here is

Invesco PowerShares brought out two new and unique ETFs last Thursday (5/5/11). PowerShares S&P 500 High Beta Portfolio (SPHB) and PowerShares S&P 500 Low Volatility Portfolio (SPLV) are innovative products that employ quantitative beta-weighting and volatility-weighting as part of the underlying index construction. As with any new investment strategy, you need to understand how these new ETFs will function before putting them in your portfolio.

PowerShares S&P 500 High Beta Portfolio (SPHB overview) tracks the new S&P 500 High Beta Index, which consists of the 100 stocks from the S&P 500 with the highest sensitivity to market movements, or beta, over the past 12 months. The 100 stocks are weighted proportional to their 12-month beta coefficient at each quarterly rebalancing.

PowerShares S&P 500 Low Volatility Portfolio (SPLV overview) tracks the new S&P 500 Low Volatility Index, which consists of the 100 stocks from the S&P

In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the consensus when the consensus opinion appears to be wrong. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks and selling them after the company recovers can lead to above-average gains. As Warren Buffett says, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

The table below lists 11 bank stocks trading at book value providing potential buying opportunities due to possible oversold conditions and a discount to consensus estimates. My instincts tell me these bank stocks have been beaten down

REVIEW

The ongoing portfolio (ANTS) continues to outperform.

The aim is to generate consistent alpha, and to date, alpha generation has been approximately linear. Consequently, no change to the portfolio is required. The portfolio composition is shown below, together with the expected earnings for Q2 for reference as earnings are announced.

Alpha for the period is:

In my experience, the first month of the quarter is likely to be the most difficult for this methodology as the reaction to earnings and forward outlook statements can be disruptively large. To mitigate this risk, I have prepared an additional list of possible replacement stocks, should stocks in the ANTS portfolio falter.

PARALLEL PORTFOLIOS

I have prepared alternative stock lists with slightly differing levels of aggressiveness in historical alpha. The takeaway from this analysis is that sectors do not dominate at the moment. Stock selection does.

High Alpha

The high alpha list is:

John Paulson will never be forgotten for hedging against the US housing market prior to the house of cards falling in on itself in 2007. Paulson was making billions as many lost everything. In 2010, he replicated the returns by placing large wagers on an economic recovery, predominantly in gold.

With Paulson reinventing the wheel of success yet again, analyzing the Wall Street wizard’s thoughts, portfolio and current activities may provide insightful investment ideas. Additionally, Paulson’s preferences may be on sale due to unprecedented market conditions. Please review the following analysis of Paulson & Co. Hedge Fund for nuggets of knowledge to improve your portfolio’s performance.

John Paulson is the founder and president of Paulson & Co., an employee-owned hedge fund headquartered in New York. He earned his bachelor's degree in finance from New York University's College of Business and Public Administration (now called NYU Leonard N. Stern

Clint Carlson is the founder, president and CIO of Carlson Capital, which reported $4.8 Billion total assets in its last 13F filing. Carlson holds a bachelor's degree and an M.B.A. from Rice University, and a Doctorate of Law degree from the University of Houston. Prior to forming Carlson Capital in 1993, Carlson was the head of risk arbitrage for the investment arm of the Bass Brothers organization. Carlson Capital’s primary investment strategies include risk arbitrage, relative value arbitrage and distressed/credit arbitrage. Carlson managed approximately $6 billion across five hedge funds, including two multi-strategy and three single strategy funds as of December 31, 2010. Carlson Capital’s biggest fund, the $3.86 billion Double Black Diamond LP, was founded in 1997. The fund gained an annualized 11 percent until 2009. In 2008 McKinsey`s Ron Hulme joined Carlson Capital as CEO. Hulme was employed for 26 years with McKinsey & Co. before taking the

John Paulson is one of the world's most famous hedge fund managers, earning more than $5 Billion in 2010, including fees and capital gains. Paulson got his BA from New York University‘s College of Business and Public Administration and his MBA from Harvard Business School. In 2007, during the real estate bubble, he shorted subprime mortgages and provided enormous abnormal returns. Paulson's 2010 profit was one of the greatest returns in investment history, and one of the reasons for his fame. In 2010 Paulson won Absolute Return’s "Best Long-term Performance (over five years)" award for his Advantage Fund.

Paulson’s total assets under management are about $36 Billion, higher than his AUM in 2010, which was $32.1 Billion. Approximately, $29.3 Billion of his clients’ money is invested in U.S. securities. At the end of September, this number was $23 Billion. Currently he has 88 different stocks in his portfolio.

John Paulson is president of one of the world's most famous hedge funds. He raked in more than $5 Billion in profits for his firm, Paulson & Co., last year. Paulson got his BA from New York University‘s College of Business and Public Administration and his MBA from Harvard Business School. In 2007, during the mortgage bubble, he shorted subprime mortgages and provided enormous abnormal returns. Paulson's 2010 profit was one of the greatest returns in investment history, and one of the reasons for his fame. In 2010 Paulson won Absolute Return’s “Best Long-term Performance (over five years)” award for his Advantage Fund.

John Paulson regularly emphasizes fundamental analysis to make investments. Right now 45% of his US equity portfolio is basic materials and companies in the finance sector. Paulson’s total assets under management is about $35.9 Billion, higher than the 2010 value ($32.1 Billion). Approximately

Despite pessimistic remarks from the Fed regarding unemployment, the S&P 500 index reached its 29 month highs last Wednesday and eclipsed the 1300 mark, led by gains in tech and commodity stocks. Given the recent strong performance, we are taking a closer look at 25 best-performing companies and 25 worst-performing companies in the last 29 months. Within the list of companies with the best returns, we will provide a rating for each company to provide an outlook of which of the best performers from this rally still have some room to run and which have run out of steam.

From the list of companies with the worst returns, we have identified some potential “fallen angels”, or great businesses that have fallen in price due to some temporary setback, but should return to profitability in the near future. Just as important, we have listed some companies that contain characteristics of a

The following is a list of companies that have been identified as potential takeover candidates by various publications, including Barron's, UBS, Morningstar, Wall Street Journal, Marketwatch, TheStreet.com, and StreetInsider.

To create this list, we started with a universe of about 250 takeover targets. We then collected price and analyst target price data on these names, and ranked the list by discount to analyst target price (used as a proxy for fair value). If you want to access the complete universe of takeover targets, click here.

In other words, these are the takeover targets that analysts think are deeply undervalued.

We'll be the first to admit that this is a very naive way to find undervalued companies. Analysts don't always have the best track record, and price targets may not reflect the latest information on a stock. But the goal here is to give you a starting point for your

By Michael Rawson, CFA

Although exchange-traded funds are often thought of as passive vehicles, active investors in ETFs can still benefit from equity research. Morningstar has over 100 equity and credit analysts who conduct fundamental analysis on companies, focusing on sustainable competitive advantages and a discounted cash flow-derived fair value. Since these data can be aggregated to the fund level, we can form an estimate of the worth of the ETF, which is only worth what the constituent parts add up to.

We can use their research to form thematic ideas about which sectors appear attractive and which to avoid. ETFs are a great way to implement thematic ideas because the diversification inherent in a fund avoids the idiosyncratic risk of single stocks. While picking individual stocks offers the potential for spectacular returns, we can gain some efficiency by using sector or industry ETFs. After all, a rising tide tends

I continue to dislike almost all banking stocks. The only positive they have going for them is a large short position that could trigger a short lived spurt upward on any bullish news, but I don't believe it would be sustainable.

Banking faces large earnings headwinds and those are not all credit and spread driven issues. All banks have had to change their approach to excessive overdraft fees and now they face a dramatically smaller fee stream on debitcard transactions. Any real estate refi mini-boom is nearing an end as interest rates are rising, so the non- interest income contribution to earnings is going to be putrid.

On the interest income side of the P&L, I don't think banks can build enough reserves, through earnings, to cover past lending mistakes. They just have to keep doing what the banks and government have been trying to accomplish, and have to a

On Friday, bailed out lender Marshall & Ilsley Corporation (MI) announced that it has entered into an agreement with the Canada based Bank of Montreal (BMO) under which BMO will acquire all the shares of M&I in a stock-for-stock deal valued at $4.1 billion.

Under the terms of the deal, M&I’s shareholders will receive 0.1257 share of BMO for each share of the company. The transaction is valued at $7.75 per share or 34% premium to the closing price of the company’s share on December 16, 2010. In addition, BMO plans to raise nearly C$800 million in equity before the completion of the deal.

Additionally, BMO will procure M&I’s Troubled Asset Relief Program (TARP) shares of $1.7 billion and will repay the TARP money before the closure of the deal. BMO will also assume all the long-term liabilities of $5.4 billion and purchase the company’s remaining warrants which

Merger activity increased last week with six new deals announced and five deals closing.

You can find all the deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.

Deal Statistics:

New Deals:

1. The acquisition of Dionex Corp. (DNEX) by Thermo Fisher Scientific Inc. (TMO) for $2.1 billion or $118.50 per share in cash
2. The acquisition of Matrixx Initiatives Inc. (MTXX) by H.I.G Capital for $75.2 million or $8.00 per share in cash
3. The acquisition of Dynegy Inc. (DYN) by Icahn Enterprises LP (IEP) for $665 million or $5.50 per