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Archive for July, 2010

20
Jul
2010

Best deflation stocks and sectors

by Fred Mason

As the pendulum swings from fear of inflation to fear of deflation, investors will begin reassessing their portfolios to find good deflationary hedges. In general, dividend paying stocks are safest place to be – particularly since you’ll be earning relatively more on your dividends than you would if the inflation rate was normal or high.

Here are a few high-yielding dividend stocks (REITs) that could be of interest as deflationary plays:

  • Chimera Investment Corporation (NYSE:CIM), Current Yield: 18.53%
  • American Capital Agency Corp. (NASDAQ:AGNC), Current Yield: 20.79%

Disclosure: I’m currently invested in both of the above stocks.

Since deflation slowly erodes a company’s earnings power, it often creates a tepid environment for stocks. Inverse ETFs give investors a quick and dirty way to profit from down markets. Here are a few to research more when things get hairy:

  • ProShares UltraShort Russell2000 (NYSE:TWM), seeks twice the inverse of the daily performance of the Russell 2000 Index
  • ProShares UltraShort Dow30 (NYSE:DXD), seeks twice the inverse of the daily performance of the Dow Jones Industrial Average
  • ProShares UltraShort S&P500 (NYSE:SDS), seeks twice the inverse of the daily performance of the S&P 500 Index
  • ProShares UltraShort Financials (NYSE:SKF), seeks twice the inverse daily performance of the Dow Jones U.S. Financials Index
  • ProShares UltraShort Real Estate (NYSE:SRS), seeks twice the inverse daily performance of the Dow Jones U.S. Real Estate Index
  • ProShares UltraShort QQQ (NYSE:QID), seeks twice the inverse of the daily performance of the NASDAQ-100 Index

Note: All of the above are 2X ETFs, which mean they’re leveraged 200 percent. Small changes in the market can create huge swings in the above stocks. That could mean large profits, but it could also mean enormous lossses. Always consult a qualified professional before investing.

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Posted in ETFs, REITs | No Comments »

19
Jul
2010

Earning future looks dim for Goldman (GS) and Morgan Stanley (MS)

by Fred Mason

After some unimpressive earnings from the commercial banking giants, things don’t look great for the upcoming earnings releases from investment banks Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS).

On the commercial side, revenues were down at all three of the biggest banks:

  • Bank of America Corporation (NYSE:BAC): Revenue -40 percent
  • Citigroup Inc. (Public, NYSE:C): Revenue -26 percent
  • JPMorgan Chase & Co. (NYSE:JPM): Revenue -24 percent

The good news? The three commercial banks generally beat analysts estimates, but they did it on lower credit losses as consumers hunker down to pay off their debts (another factor that could slow the economy at large).

If the commercial banks are any indication, earnings from the biggest investment banks will be unimpressive, too. Be wary of a sell-off in shares of Goldman and Morgan Stanley. Goldman is slated to report their earnings on Tuesday, July 20, before the market open. Analysts are calling for earnings of $2.04 per share, down $2.89 from a year ago. Morgan Stanley will report earnings Wednesday, July 21, before the market open. Analysts are anticipating earnings of $0.46 per share, up $1.83 from a year ago’s loss of $1.37 per share.

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Posted in Bank stocks, trading stock | 1 Comment »

17
Jul
2010

Is now the time to be bullish on stocks?

by Ed Roven

Contrarian investing is one of the boldest and scariest things an investor can do. It involves identifying a trend in stocks, bonds or sentiment, and betting against it.

At the moment, consumer confidence isn’t great. In new numbers (from Thomson Reuters and the University of Michigan) reported Friday, consumer sentiment dropped to its lowest level since last summer. The effect was a sucker punch on the markets. The Dow Jones Industrial Average (INDEXDJX:.DJI) dropped 261 points to 10,097, and the S&P 500 (INDEXSP:.INX) fell 31 points to 1,064.

“We lost jobs and now it appears that we are losing spending,” Jack Ablin, chief investment officer for Harris Private Bank, told the Chicago Tribune. “And when you lose spending you lose profits.”

Fears of deflation, joblessness, slowing economic growth and the ax that fell on unemployment benefits are all pointing toward decreased earnings for public companies, and that’s putting pressure on stocks. Contrarians might say, then, that now’s the time to buy.

Contrarian investing is particularly effective when investing in options (since 90 percent of all options bets are incorrect). Contrarian investing is significantly harder when it comes to investor sentiment. Sentiment can compound upon itself, and make things appear bleaker than they truly are. And we all know that people would rather stop the pain in their portfolios now rather than hold on for some intangible future when things might be better.

Volatility ETNs were about the only things that out-performed on Friday. The iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) surged 6.5 percent, and the more thinly traded Barclays Bank PLC ETN (NYSE:VXZ) rose 4.3 percent.

This is the sort of environment that can paralyze even experienced traders – particularly during earnings season. Sometimes then, it seems, the best solution for indecision is to do nothing and growing your cash reserves.

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Posted in ETFs | No Comments »

16
Jul
2010

Top 5 effects of the Financial Reform Bill

by Fred Mason

1) The establishment of an independent consumer bureau intended to protect borrowers against mortgage, credit card and other lending abuses.

2) The establishment of new powers for the government to shut down troubled financial companies – no matter how large or small.

3) The creation of a council of federal regulators who will be tasked with watching for threats to the financial system.

4) New governmental oversight for derivatives (including mortgage-backed derivatives, which helped contribute to the collapse of Lehman Brothers and Bear Stearns).

5) The ability for shareholders to have a bigger say in compensation for executives at public companies.

The impacts of the bill will likely impact the economy in unforeseen ways. That’s typically the way these things work. On the face of it, everything looks like it’s good for investors and bad for banks – that said, I’d be cautious of a drop in financial ETFs today; double- and triple-long financial ETFs could be significantly impacted, stocks like the 2X ProShares Ultra Financials ETF (NYSE:UYG) and Direxion Daily Financial Bull 3X Shares (NYSE:FAS).

Despite all the bills intentions, I have faith (is that the right word?) that the world’s largest and most powerful banks will find creative new ways to circumvent the Financial Reform Bill. I also believe that these new financial regulators will find creative ways to abuse the bill. Intentions and actions are two very different things.

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Posted in ETFs | No Comments »

15
Jul
2010

Benjamin Graham’s Principles in The Intelligent Investor

by Fred Mason

The Intelligent Investor by Benjamin GrahamAmong the first value investors in modern trading history, Benjamin Graham’s concepts are so fundamental to the views of most stock investors that they don’t even realize the ideas once had to be codified! Slowly and surely, Graham took a lot of the emotion out of investing in stocks, and, of course, his ideas helped spawn some of the greatest investors of all time including Warren Buffet (CEO of Berkshire Hathaway, Inc., NYSE:BRK.A).

There are five key principles that recur again and again in The Intelligent Investor. To echo Warren Buffet, here are the key elements of Benjamin Graham’s approach to investing:

1) When you buy a stock, you’re not buying a symbol or a price movement; you’re buying a stake in a real live company.

2) The market makes steady swings from overvalued to undervalued. Intelligent investors sell when the market has overvalued specific stocks and the buy when stocks are undervalued.

3) Pay attention to a stock’s current price. Future stock values are relative. If you get in when the price is high, your return will be low.

4) Give yourself a “margin of safety” when you invest. Because all stocks carry risk of loss, you can only minimize that risk by buying when prices are low, thereby creating that safety net.

5) You must invest on a principled foundation. If you can control your emotions in bear and bull markets, you can profit in either one.

Get The Intelligent Investor on Amazon.

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Posted in investment books | No Comments »

15
Jul
2010

Things looking up for SPDR Gold Trust (NYSE:GLD)?

by Fred Mason

After the close of the New York NYMEX last night, the price of spot gold started a slow climb that might have been hinted at in yesterday’s mid-day pop in gold prices. The pop is evident in this five-day SPDR Gold Trust (NYSE:GLD) chart:

The jump in pricing occurred around the time the June retail sales numbers came in. The news was bad, of course, with a 0.5% decline. Negative sentiment in Asia seemed to be pushing gold prices higher.

“I’m bullish for gold, with the metal seen attempting to rise as far as $1,240 in the coming week,” Hong Kong’s director of Asia commodities Wallace Ng told Bloomberg Business Week. “Still, a major breakout to another record may be difficult for the present.”

Around 11:30 p.m. last night, the metal was trading at $1,211 up from an intraday NYMEX low below $1,205. A bevy of bad economic news may put further upward pressure on gold prices. The central tendency growth forecast was lowered to a range of 3 percent to 3.5 percent, U.S. industrial production will post a drop and China’s GDP is showing signs of slowing as the government there tries to rein in growth.

All that paints a gloomy picture for stocks and a rosy one for gold. If the stimulus isn’t working, after all, we’ll likely see a bit of deflation before governments are forced to inflate currencies in a malingering economic environment.

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Posted in gold, precious metals | No Comments »

14
Jul
2010

Time to buy Apple (NASDAQ:AAPL)?

by Ed Roven

One of my favorite trading techniques is to buy a volatile stock a few days before the company’s earnings report, then sell it before that company actually reports. Traders generally like to speculate that a specific stock will beat analysts estimates, and that can push prices higher. Still, no one – not even professional analysts – know exactly how a company is going to perform in a given quarter.

Apple, Inc. (NASDAQ:AAPL) is due to report their earnings after the stock market close on Tuesday July 20, 2010, and they’re one of the exceptions to the “I-don’t-know-if-they’re-going-to-beat-estimates” rule. Apple always seems to beat estimates. In fact, they’ve done it for the past 29 quarters in a row since April of 2003! The release of the iPhone 4 and ongoing iPad sales will definitely help bolster their earnings, too. All’s rosy, right?

Not really, Apple’s stock is down 6 percent over the past month. There’s a dark cloud hanging over the company’s head with the release of a Consumer Reports blog post that cites an antennae “design flaw” in the phone. The magazine recommends consumers avoid the new iPhone due to reception problems when users cover the devices lower left corner with their hand.

Now, there are grumblings of a recall that could cost the company $1.5 billion. I’m not so sure it would cost Apple that much; particularly since a cover for the phone eliminates the reception problem, but it’s clear that the markets have been punishing the company.

In effect, I believe they’re pricing in the cost of a recall. That means that when the news hits, the stock probably won’t drop as far as a casual investor might believe. In fact, I argue that the stock will shoot up when Apple finally decides to answer for themselves — particularly if they offer a low-cost solution to the problem BEFORE they release their earnings report next week. If past performance is any indication of future results (haha), Apple WILL beat analyst earnings this quarter especially since their phone came out on June 24 and some sales should be reflected in the upcoming report. That’ll be good news for investors who buy this dip.

***

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Posted in NASDAQ | 1 Comment »

12
Jul
2010

Big Day for American Apparel (APP)

by Ed Roven

American Apparel Inc. (AMEX:APP): The cotton-happy clothing company with factories in the great U-S-of-A has had more than its fair share of troubles. They bleed cash like an ATM, and they’ve been hit hard by the Great Recession. Hipsters, after all, can’t afford high-quality cotton when they’re not getting tipped at Starbucks. The company’s had to tighten the drawstrings on their sweatpants and beg for cash (and loan extensions) over and over again. Its gotten so bad, that the stock’s right around its all-time lows. Read: people think they might go bankrupt. Analysts are predicting a loss of .22 cents per share. That’s more than $15 million. Expect lots of volatility either way. The stock was up 8 percent on Friday. If the stock beats expectations, expect a temporary pop. Sell now, and buy back in a week. No one sees a profit in their future anytime soon — and that likely means prices will remain depressed for some time to come.

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Posted in penny stocks, trading stock | No Comments »







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