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Barchart.com's Chart of the Day - Power Solutions International (PSIX) for Nov 12, 20
The Chart of the Day is Power Solutions International (PSIX). The stock was right near the top of the New High List when I sorted for its 346.20+ Weighted Alpha. Since the last Trend Spotter buy signal on 10/29 the stock has gained 18.41%.
They are engaged in producing and distributing power solutions for original equipment manufacturers of off-highway industrial equipment in the United States. The Company sells engines for stationary generators, oil and gas equipment, forklifts, aerial work platforms, industrial sweepers, arbor equipment, agricultural and turf equipment. They also offer low-emission standard fuel and hybrid power solutions, and diesel power systems.
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Hot Links: Worst of Both Worlds
Stuff I?m Reading this Morning?
Investing advice for the average investor from one of history?s most above-average investors ? here?s what Ray Dalio thinks you should do: (TheTell)
Everybody?s re-doing their ladders to get shorter: ?Investors yanked $61.8 billion from intermediate-maturity debt funds in the first nine months of the year,while pouring $46.2 billion into bonds maturing in less than three years? (Bloomberg)
The S&P 500 has now spent a full year above its 200-day moving average. Hope you didn?t spend all this time trying to short it. (CrossingWallStreet)
?buying IPO shares on the open market when they start trading ? represents the worst of both worlds, simultaneously paying the maximum price for the shares, and investing in a company that doesn?t even get the full benefit of its own IPO value.? (NerdsEyeView)
Barry: The recovery?s great if you were rich already. (Bloomberg)
Is Netflix?s new user interface really the future of TV? (Wired)
Is stock market efficiency actually hurting the economy? (Fortune)
When I hear ?Hedge Fund Trading Coach?, why do I think of Will Ferrell and Andy Dick doing an MTV Awards skit? (DealBook)
Will institutions ever starve the hedge fund beast? (FT)
This is like an Onion article ? economists just now realize that the poor behave differently than the rich in the real world. (BusinessWeek)
Dougie?s 10 Laws of Stock Market Bubbles is a great read. (TheStreet)
Cullen Roche: To detect bubbles, focus on fundamentals relative to people?s behavior. (PragCap)
Steve Ballmer has earned a cool $1.7 billion since firing himself. I may try this? (Quartz)
How?s this for a social experiment ? Switzerland is going to start paying every citizen a salary just for being alive. (NYT)
Evoking online trust. (SethsBlog)
These are the five best steakhouses in New York City. Let the riots commence as we all fight over this list ? to the death. (NYP)
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Where The Economist ?Big Mac? Index Finds Currency Value
My former employer, The Economist, once the ever tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its ?Big Mac? index of international currency valuations.
Although initially launched by an imaginative journalist as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.
The index counts the cost of McDonald?s (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.
What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai Baht are cheap. I couldn?t agree more with many of these conclusions. It?s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.
I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool, than a speedy lunch.
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November 13, 2013 ? Quote of the Day
?It always sounds smarter to be bearish than bullish,? said Ron Baron, CEO of Baron Capital Group.
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This Risky Sector Now Offers Ample Reward
As the market continues to flirt with all-time highs, a considerable amount of churn is taking place beneath the surface. Investors are increasingly flocking to companies that are seemingly big and safe, while shedding exposure to smaller and riskier names.
It's a logical move, considering the current bull market is getting along in years. Indeed, I extolled the virtues of mega-cap stocks back in August, and you can still find some great bargains among America's largest companies.
Yet if the market is going in this direction, it also means that smaller stocks are falling to levels that hold real appeal. And in no sector is this divergence more apparent than in biotechs. The biggest biotech stocks appear fully priced -- while their smaller brethren are now far from their 52-week highs.
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Tap Into This Unexpected Chinese Market For 25% Upside
One of the most underappreciated areas of health care is also instrumental for human development. Baby formula isn't exactly a market that many investors would consider a growth industry -- but that could be about to change.
The United Nations estimates that the world's population could hit 11 billion by 2100, up from a current 7 billion. That's many more mouths to feed. One of the biggest markets for baby formula is China: With 1.3 billion people and a birth rate of 1.2%, that's 15.6 million babies a year.
The baby formula market is huge and growing -- so what's the best way to invest in it?
Mead Johnson Nutrition (NYSE: MJN) is the only pure-play pediatric nutrition company, and one that has a strong presence in China, to boot.
Mead covers all stages of pediatric development, from newborns to 5-year-olds. It generates over 75% of its revenue from outside the U.S., most notably from China, which accounts for over 25% of its revenue. Infant formula makes up around 60% of revenues, with children's nutrition accounting for the other 40%. Mead's major products are sold under the Enfa brand.
Mead was spun off from Bristol-Myers Squibb (NYSE: BMY) in 2009. It hasn't been easy for Mead investors over the past couple of years, but things may be about to change: A cycling out of bad news could lead to a relief rally, while a rising middle class in China is driving long-term growth.
MJN has been on a roller-coaster ride over the past few years, with the latest pressure coming from a U.S. inquiry into Mead's China business.
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Dave Landry's Market in a Minute - Tuesday, 11/12/13
Random Thoughts
It never ceases to amaze me that a market can be off to the races on one day and then have a shoulder shrug on the following day.
The Ps went straight up last Friday but on Monday they just sat there. They were able to tack on a smidge, and at these levels, that's enough to keep them just shy of all-time highs.
As I preach, you should never take an index at face value. However, unless there are a plethora of internal clues suggesting otherwise, you also shouldn't argue with a market that is at or very near all-time highs.
As I have been saying, there has been some internal weakness such as the recently mentioned debacle de jours. For the most part though, most sectors remain in uptrends and, like the market, many also remain at or near new highs.
With last Thursday's shakeout/fakeout behind us (in the spirit of a Double Top Trend Knockout, email me if you need the pattern), I still think this we could be seeing new highs on the horizon. You know the routine though, continue to take things one-day-at-a-time. In markets, you often get a big up day, a pause day, then upside follow through. So, hopefully, Monday's action was just the "pause that refreshes."
Bonds continued to slide but with somewhat less vigor. They appear to be returning to the bottom of their trading range-near the August/September. Hopefully, they stay in this range. A Goldilocks environment with stable rates and stocks rising would be awesome.
So what do we do? Although the buy signal in the Q's is still valid, to my surprise I'm still not seeing a whole lot of new meaningful setups. As I have been saying, this is probably a good thing. This could be the database telling us to continue to let things shake out a bit. Considering this focus mostly on the management of existing positions. As usual, honor your stops. As I've been discussing, stops can help to adjust your portfolio. If we continue higher, your shorts will stop out and all you'll be left with is longs.
Futures are soft pre-market.
Click here to watch today's Market in a Minute.
Best of luck with your trading today!
Dave
omgmachines.com/ericx
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Expert swing trader Dave Landry comments on the charts for the major markets, indexes and sectors for the upcoming trading day in his daily one-minute video.
Make sure your sound is turned up. A new browser window will open and the video will begin playing within a few seconds.
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Tuesday links: relentless pumping
Quote of the day
Andrew Huszar, ?Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.? (WSJ contra BI)
Chart of the day
The S&P 500 has spent the last year above its 200 day moving average. (Crossing Wall Street)
Markets
Ten laws of stock market bubbles. (Doug Kass)
A look at S&P 500 sector breadth. (Bespoke)
Everything you need to know about stock market crashes. (The Reformed Broker)
Strategy
When active management makes sense. (Rick Ferri)
Ray Dalio thinks you shouldn?t bother trying to generate alpha. (The Tell)
On the dangers of not knowing what you own. (research puzzle pix)
How to tidy up your financial life. (Bucks Blog)
If you don?t know how your financial advisor is compensated you may want to figure it out. (WSJ)
Congratulations David on ten years of investment writing. (Aleph Blog)
Companies
A stock to play the Bakken Shale boom. (Vitaliy Katsenelson)
Blackberry ($BBRY) needs a miracle worker. Maybe they have found it in new CEO John Chen. (Fortune)
Hedge funds
Hedge funds have turned to trading coaches to boost performance. (Dealbook)
Hedge funds have become big players in distressed muni bonds. (WSJ)
Why are institutions so tolerant of high hedge fund fees? (FT)
Finance
Corporate boards are getting coaches on how to deal with activist investors. (Dealbook)
Good luck trying to identify the victims of insider trading. (Dealbook)
Financial innovation is pretty depressing these days. (Bloomberg)
Is it time to start trying higher ticker sizes for small caps? (Term Sheet)
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7 Stocks Insiders Are Buying... With Yields Up To 11.7%
They say to never trust a skinny cook, the logic being that any chef who works in a kitchen all day and creates irresistible dishes probably can't help but overindulge and pack on a few pounds.
For much the same reason, I find it reassuring when a mutual fund manager invests their personal cash in his or her own fund. And I like it even better when CEOs and other top executives stash a sizable percentage of their net worth in their own company's stock.
Conventional wisdom says that it's a bullish sign when a company invests in itself through stock buybacks. If that's true (and in most cases it is), then what does it say when these same managers sink a few million dollars of their OWN money in the shares?
After all, board members, directors, chairmen and other upper executives know the business and the industry better than anyone else. Who understands the inner workings of Apple (Nasdaq: APPL) better than Tim Cook? Who has their finger on the pulse of online advertising quite like Google boss Larry Page?
These well-connected individuals also have access to privileged information that the rest of us don't get to see. That's not to insinuate anything underhanded; public companies don't have to disclose everything. The point is, when these people act, they do so with good authority.
Personally, I don't pay terribly much attention to insider sales. Can they be an indication of trouble ahead? Sure. But they could also mean that the seller is simply diversifying his holdings or raising cash to pay for his daughter's wedding or grandson's college education. Bottom line, sales aren't necessarily a red flag.
On the other hand, insider purchases tend to be far more instructive. You only invest in a stock for one reason: you believe it's undervalued and headed higher. And again, when a chairman or CFO is the one buying, you can bet they aren't doing it on a whim -- but have sound supporting evidence.
The numbers back this up. There have been numerous empirical studies done over the years to quantify the effect.
A recent study at the University of Illinois found that stocks receiving heavy insider support historically outperform the market by 4.8% in the year following the transactions.
These and other studies examined different groups of stocks under different methodologies. But taken together, they do point to the same conclusion: Stepped-up levels of insider buying often foreshadow market-beating returns.
If one inside buyer is a positive show of confidence, then two or three (or more) all buying in unison sends an even louder message.
With all this in mind, I went in search of stocks that had strong levels of insider ownership relative to the overall share count. And since I'm more interested with insider buying activity that has taken place over the past few weeks or months in anticipation of an upward move or positive catalyst, I screened for stocks whose insider buying volume through the third quarter had shown the biggest surge relative to the same point last year. To tighten up the results, I also looked for companies with steady earnings prospects and, of course, generous current yields (4% or better).
Here are some of the more notable stocks that made the cu
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361 Capital Weekly Research Briefing
361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.
361 Capital Weekly Research Briefing
November 12, 2013
Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA
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Dendreon (DNDN) Slashes Workforce, Boosts Stock. BP Up On Deal With Rosneft
Stocks were heading lower on Tuesday morning on fears that the Federal Reserve may began tapering off on their stimulus. The $85 billion-per-month bond buying program has been going strong, but some fear that the cutting back may begin following the recent strong jobs data and the rise in Treasury yields. The Atlanta Fed President, Dennis Lockhart, and Minneapolis President, Narayana Kocherlakota, are due to make comments later this afternoon. Richard Fisher, President of the Federal Reserve Bank of Dallas, said, ?We?ve changed and impacted the markets because of our intervention and I understand there?s a sensitivity, but markets should also bear in mind that this program cannot go on forever. The balance sheet is $4 trillion and there are limits to what the Federal Reserve can do.?
Shares of BP were up slightly higher after the company announced that they reached a fuel supply deal with Russian oil firm Rosneft. The deal totals nearly $6 billion on refined products. This deal comes on the coattails of a deal made earlier this year for BP to purchase $5.3 billion in crude oil. That deal also followed the hiring of BP?s former senior trader, Marcus Cooper, to Rosneft as head of their trading business in Geneva. In the last year, Rosneft has been selling large amounts of crude oil to trading houses like Glencore, Vitol and Trafigura. The filing that went through today said that Rosneft agreed to sell up to 3.2 million metric tons of fuel, totaling nearly $2.6 billion, to BP Singapore between November 2013 and December 2014. They will also sell 1.44 million metric tons of diesel for $1.77 billion from the Black Sea port of Tuapse. Marcus Cooper, who took over the trading operations position in Geneva at Rosneft, said, ?BP will have a bigger trading presence in the straight-run fuel oil market in China. BP is taking a view on the straight-run market next year.?
Shares of Dendreon Corp (DNDN) were up over 7% after the company announced their plans to cut nearly 15% of their workforce. The company missed analysts?s sales expectations of their prostate-cancer drug and will slash 150 jobs to eliminate operating expenses. By cutting these jobs, Dendreon will save roughly $125 million in expenses, after the company takes a $7.5 million charge tied to severance pay this quarter and the following. The prostate-cancer drug Provenge came in with third-quarter revenue around $68 million, missing the $75 million analysts?s were expecting. This was down 13% from this same time last year. Mark Schoenebaun, an analyst with ISI Group, said, ?Despite the restructuring to save cash and runway, we believe the negative sales trajectory will put pressure back on the stock today.?
That?s all for the day.
All the best,
Jack Aubrey, Oakshire Financial
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check 10 Bullish Plays For The 'Cover Story Index'
If you missed the news last week, U.S. GDP rose a reported 2.8% in the third quarter instead of the 2% economists expected. This was framed as bad news in many news stories because the jump resulted from businesses holding larger-than-expected inventories.
Just over a week earlier, the U.S. Census Bureau released a report on the inventory-to-sales ratio showing inventories weren't really a problem.
When a business sees sales rising, it will often increase its inventory to meet the higher demand. The relationship between inventory and sales can be summarized in a ratio that shows how many days' worth of inventory is available based on the amount of sales recorded in a day.
The inventory-to-sales ratio was 1.29 in the most recent report, which used data from August, down from 1.3 a year ago. Inventories rose 3.1% from a year ago, while sales increased 4.2% over that time. We would expect to see inventories increase if sales are rising, and the decline in the ratio shows that sales are rising faster than inventories.
News reports seem to reflect the mood of the market, and that is the basis for the "magazine cover indicator." According to this indicator, when the media develops a consensus, the market moves the other way. In other words, popular media can be a contrary indicator of the markets.
The magazine cover indicator has been the subject of academic research that supports its efficacy. One study, a 2007 University of Richmond paper titled "Are Cover Stories Effective Contrarian Indicators?" looked at feature stories in Businessweek, Fortune and Forbes over a 20-year period to determine whether positive stories are associated with superior future performance and negative stories are associated with inferior future performance for the featured company.
The paper's authors concluded that there is "a statistically significant correlation between the appearance on the cover of one of the magazines and the subsequent performance of the company's stock."
Over the years, it has been applied not only to stocks, but to the market as a whole.
In addition to bullish cover stories, there is constant media coverage of the markets, and in our opinion, that coverage has taken on a bearish tone. The GDP report is one example. The Twitter (NYSE: TWTR) IPO is another.
Many articles compared Twitter's first day of trading to the 1999 Internet bubble. Twitter may be overvalued, but one example is not enough to demonstrate a bubble. The 1999 stock market was unique, and the media coverage of the time was uniformly bullish, as day traders became media stars. The magazine cover indicator worked in 1999 as that market turned lower while the news was bullish.
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Tapping Into The Next Generation Of Social Media With QUNI
The nature of capitalism is both competitive and evolutionary. When entrepreneurs strike upon a bold new idea like social media and begin to profit from it, it?s just a matter of time before that idea spawns legions of competitors. As that industry matures, only the fittest ultimately survive and prosper, with companies like Facebook (FB) and Twitter (TWTR) currently dominating the public equity space. Intriguingly, one small but unique over-the-counter concern, Quint Media, Inc. (QUNI) recently arrived on the social media scene with a singular goal: to render these other established social media sites obsolete.
Quint Media, Inc., operates as a digital and social media company in the United States. It focuses on connecting people with content relating to their passions, interests, and each other. The company?s Quint Media network is engineered with a digital ecosystem, matching content that is customized to user-interests. It primarily focuses on brands relating to lifestyle, entertainment, and fashion.
On Monday, Quint unveiled its flagship product, the Exley digital entertainment news platform?designed to be the ?TMZ? of smartphones worldwide. In case you?re not familiar with TMZ, it?s currently television?s premier celebrity news, gossip and video site, which also has an online presence. Exley is just the first of many entities that Quint plans to roll out as part of its strategy to become a global media network.
Specifically, Quint is aiming to get the drop on TMZ and established ?old school? social media entities by optimizing Exley?s content, along with all of the company?s subsequent social media endeavors?for smartphones. In fact, Quint management is operating under the fundamental premise that social media first-movers like YouTube and Facebook are at a fundamental disadvantage when it comes to exploiting the power and immediacy of smartphones. That?s because the smartphone revolution occurred well after these companies initially drew up their business plans?with those heavy-hitters initially focused on lap-top based advertising models.
Looking at the chart below, you don?t have to be business major or statistician to fully appreciate the remarkable growth story that smartphones have become.
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This Internet 'Dinosaur' Is Reinventing Itself -- Is It Time To Buy?
Change is the only constant in the world.
This is particularly true when it comes to the Internet. It was only in 1989 when the first commercial dial-up Internet service provider (ISP) was launched. Few realized that this ISP, named The World, would spark a radical global revolution.
Visionary companies jumped on board as the public started using the Internet as a means of shopping, information and entertainment. Many companies took to the stock markets to raise capital for a foray into the Internet frontier. If your company name included "dot-com," investment banks were probably clamoring to take it public. Companies that were little more than an idea and some rented office space were able to raise millions quickly and easily.
Not since the Dutch tulip mania of the 1600s had the world seen such an investment frenzy, but the vast majority of these companies failed to gain traction after the initial hype. Names like Webvan, eToys.com, Flooz.com and Kozmo.com, plus hundreds of others, have been relegated to the dustbin of history despite massive funding and the leadership of aggressive, intelligent entrepreneurs. Many of these firms were simply before their time, as consumers and businesses just weren't ready to use the products and services offered.
The Internet craze cumulated in the bursting of the dot-com bubble in 2000. Billions of dollars were lost by investors and the first wave of Internet companies. Most folded, never to be heard from again -- but a few survived the debacle and are with us to this day.
One of these dinosaur companies is among the earliest ISPs. Promoting itself with the relentless mailing of disks offering free Internet access trials, this company was soon part of the largest corporate merger in history.
This dinosaur, of course, is none other than AOL (NYSE: AOL).
This iconic ISP launched its IPO in 1992 at $11.50. Shares rocketed more than 680% by 1999, and after a series of acquisitions, old-school media empire Time Warner (NYSE: TWX) agreed to merge with AOL, creating the biggest media company on the planet.
Since that time, the company has struggled to find its footing. By 2003, shares of AOL Time Warner closed at just $15, and AOL now seems torn between its role as a once-leading Internet portal and its current role as a media company.
A decade later, AOL is still struggling, but the future looks bright for investors. Although net income plummeted 90% in the third quarter from a year ago, revenue increased 6%, to more than $560 million. The drop in net income was due to a write-down of AOL's troubled local news segment, Patch. AOL's shares could continue to climb higher if the company focuses on its primary competencies and cuts costs rather than throwing good money into ill-suited ventures.
One of the primary reasons for my optimism is the growth of real-time bidding and digital display advertising. Spending on automated ads is forecast to grow nearly 74% to more than $3.3 billion this year, according to eMarketer. AOL has an AdTech unit that specializes in targeting high-end, cutting-edge digital advertisers. It is this market that will serve as the catalyst to improve AOL's bottom line. The company recently launched a sell-side platform called Marketplace, which helps advertisers maximize their value. AOL has positioned itself to capture this next wave of advertising revenue.
A look at the technical picture shows shares have spiked from a low in the $33 range in mid-October to a high just above $43 before recently hitting resistance.
Risks to Consider: Despite the recent upswing, AOL is still struggling. Massive cost cutting is needed to keep the company on track for increased profits. Always use stop-loss orders and diversify when investing.
Action to Take --> I am a firm believer in the future of digital display advertising and real-time buying platforms. AOL is positioned to capture a share of this rapidly growing market. Buying on a breakout close above $43 with an 18-month target price of $65 and a $38 initial stop level makes solid technical and fundamental sense right now.
- David Goodboy
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Hot Links: Zombie Funds
Stuff I'm Reading this Morning...
The Japanese Bull Market turns one. (CassandraDoesTokyo)
How Wall Street sees the world in one slide. (BusinessInsider)
All of a sudden iron ore shipments to China are exploding. (Bloomberg)
John Hussman: All the classic signs of a crash are manifesting themselves, so why will this time be different? (ZeroHedge)
Greggy: If there's going to be a crash, it'll be in the Treasury market. (DragonflyCapital)
Yes, the equal-weight S&P 500 ETF generates significant alpha - but hold up, wait a minute! (IndexUniverse)
LOL, the average private equity investor merely breaks even. (FocusOnFunds)
Time to slay some of these zombie hedge funds and put them out of everyone's misery. (Hedgeweek)
Matt Levine: Financial innovation is depressing. (Bloomberg)
Just how crowded is the "low volatility anomaly" trade right now? Craig Lazarra of S&P Dow Jones Indexes weighs in. (ETFTrends)
Finra is surprisingly candid in its report on the inherent conflicts of the brokerage industry (spoiler alert: the whole f*cking thing is one giant conflict): (NerdsEyeView)
Lockheed Martin working on a terrifying new vehicle that can fly, swim and drive on land. (FloatingPath)
Meet David Merrell, the financial advisor who located his office inside a fitness gym. (WSJ)
REMINDER: Backstage Wall Street is now on Kindle!
The Reformed Broker
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Multiply Your Returns From Low-Yield Stocks With This Strategy
Income investors often set a minimum dividend yield as a requirement for their buy decisions. That eliminates a number of stocks from consideration. This requirement could also increase market risk since it tends to limit investments to just a few sectors.
A diversified portfolio should hold more than large drug companies and big-name tech stocks that are no longer growing rapidly but are paying large dividends. Covered calls can increase the number of stocks that income investors can select from and help them diversify their portfolio without sacrificing income.
A covered-call strategy involves selling call options on a stock you own. Selling calls generates instant income known as a premium.
A covered call allows you to participate in the upside of the stock, while the income will help offset any downside. This is an excellent strategy for income investors to consider, and I want to use an example of a trade I like right now to illustrate the amount of income that is possible.
Arkansas Best (Nasdaq: ABFS) is a trucking company that has been around since 1935. It operates about 3,700 tractors and 20,000 trailers in long-haul and local pickup delivery operations. Arkansas Best also provides logistics support to its customers, using its IT systems to help companies manage inventory and schedule deliveries and pickups. Additionally, it leverages its internal processes and infrastructure to provide emergency roadside assistance to other trucking companies.
Revenue grew 25% last year and 45% in the first quarter of 2013. For the full year, analysts expect 9.4% revenue growth.
The company is stable but has been unprofitable for several years. Analysts expect a return to profitability this year with earnings per share (EPS) of $0.21 and a significant jump in profits to $1.70 a share in 2014. If they are right, now would be an ideal time to invest in ABFS.
Income investors, however, might not like the low dividend of $0.12 a year, a yield of just 0.4%. But the company has demonstrated its commitment to rewarding shareholders
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Catch 15% Upside From China's Coming Housing Boom
During bull markets, often the best way to trade is to go with the momentum. That's usually the route I like to take, but there's another way to trade that can also net you big results.
That is to identify sectors that have come under fire that have the potential to move much higher -- that is, value trades. The multi-national industrial mining sector fits this bill.
One great way to invest in this sector is with iShares MSCI Global Metals & Mining Producers (NYSE: PICK). This exchange-traded fund (ETF) holds the biggest industrial mining companies, including BHP Billiton (NYSE: BHP), Freeport-McMoRan Copper & Gold (NYSE: FCX) and Rio Tinto (NYSE: RIO).
Although PICK is down 12% year to date, the fund has seen some strong buying during the past four months, rising 27% since its July 5 low.
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A Special Note on November Exercised Options
There are only 4 days left until the equity option expiration on November 15. My short dated November expiration play turned out to be wildly successful, with all nine of these trades quickly turning profitable. Including the six positions we now have on board, the last 14 consecutive Trade Alerts have been profitable, raising the success rate of our service to a stunning 85%.
The Mad Hedge Fund Trader?s model trade portfolio has three remaining positions that are deep in-the-money that expire that day. So, it is important that we tread carefully to get the full benefit.
I received a few emails from readers whose option holdings have already been exercised against them, and have asked me for advice on how best to proceed. So, here we go.
The options traded on US exchanges and referred to in my Trade Alerts are American style, meaning that they can be exercised at any time by the owner. This is in contrast to European style options, which can only be exercised on the expiration day.
The call option spreads that I have been recommending for the past year are composed of a deep out-of-the-money long strike price plus a short portion at a near money strike price.
When stocks have high dividends, there is a chance that the near money option you are short gets exercised against you by the owner. This requires you to deliver the stock equivalent of the option you are short, plus any quarterly dividends that are due. Don?t worry, because your long position perfectly hedges you against this possibility.
You usually get notice of this assignment in an email after the close. You then need to email or call your broker back immediately informing him that you want to exercise your remaining long option position to meet your assigned short position.
This is a gift, as it means that you can realize the entire maximum theoretical profit of the position without having to take the risk of running it all the way into expiration. You can either keep the cash, or pile on another short dated option spread position and make even more money.
This should completely close out your position and leave you with a nice profit. This is not an automatic process and requires action on your part!
Assignments are made on a random basis by an exchange computer, and can happen any day. Exercise means the owner of the option that you are short completely loses all of the premium on his call.
Dividends have to be pretty high to make such a move economic, usually at least over 3% on an annual rate. But these days, markets are so efficient that traders, or their machines, will exercise options for a single penny profit.
Surprise assignments create a risk for option spread owners in a couple of ways. If you don?t check your email every day after the close, you might not be aware that you have been assigned. Alternatively, such emails sometimes get lost, or hung up in local servers or spam filters, which occasionally happens to readers of my own letter.
Then, you are left with the long side deep out-of-the-money call alone, which will have a substantially higher margin requirement. This is equivalent to going outright long the stock in large size.
This is a totally unhedged position now, and suddenly, you are playing a totally different game. If the stock then rises, you could be in for a windfall profit. But if it falls, you could take a big hit. Better to completely avoid this situation at all cost and not take the chance. You are probably not set up to do this type of trading.
If you don?t have the cash in your account to cover this, you could get a margin call. If you ignore this call as well, your broker will close out your position at market without your permission.
It could produce some disconcerting communications from your broker. They generally hate issuing margin calls, and could well close your account if it is too small to bother with, as they create regulatory issues.
In order to get belt and braces coverage on this issue, it is best to call your broker and find out exactly what are their assignment policies and procedures. Believe it or not, some are still in the Stone Age, and have yet to automate the assignment process or give notice by email. An ounce of prevention could be worth a pound of cure here. You can?t believe how irresponsible some of these people can be.
Consider all this a cost of doing business, or a frictional execution cost. In-the-money options are still a great strategy. But you should be aware of all the ins and outs to get the most benefit.
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Buy This 'Hated' Company While It's Still An Incredible Bargain
Many investors look to buy and sell stocks based solely on near-term business conditions. If management raises guidance for the next quarter, shares rally. And if management takes note of some near-term headwinds, investors flee.
A great example: Shares of insurance giant American International Group (NYSE: AIG) fell 6.5% on the day of its earnings release in late October when CEO Robert Benmosche noted that the company's property and casualty insurance businesses were far healthier than a few years ago but still not generating the returns that they should.
Investors were also disappointed that a planned asset sale of its aircraft lease finance business may not happen. AIG could instead sell part of that business in an IPO and retain a majority stake.
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Little-Known Indicator Says This Could Be the Best Year-End Trade
With stocks continuing to deliver gains week after week, the question is: Which ones should be the strongest over the short term? According to the charts, tech stocks might have an edge.
Economic News Keeps Fed on Hold
SPDR S&P 500 (NYSE: SPY) gained 0.61% last week, closing higher for the fifth week in a row. The gain was due to a 1.35% rally on Friday that reversed losses for the week.
SPY has now closed higher in 16 of the past 22 days (73%) since bottoming in early October. This is an unusually strong market. Over the past 1,000 trading days, there has been an average of 12 up closes over 22 days (54.5%). Strength in the stock market is often followed by more strength, and I expect to see more gains in the stock market in the next few weeks.
Friday's gains could show that traders are getting comfortable with economic growth. GDP could grow as it did in the third quarter while unemployment remains high, a combination that should keep Fed policy on hold. This is bullish for the stock market.
Friday's reversal came after GDP beat expectations and stock prices fell on Thursday. On Friday, the employment report showed that a strong economy will not be enough to lower unemployment and force the Federal Reserve's hand.
One of the Fed's objectives for quantitative easing is to reduce unemployment. October data showed there were a significant number of jobs created, but the percentage of the population in the workforce fell to a 35-year low. The report also showed an unusually high percentage of part-time jobs in the economy.
These two facts indicate that the unemployment rate might not drop even as thousands of jobs are created. Potential workers that have left the labor force could reenter the workforce when they believe jobs are available. Employers might also be able to expand their businesses without hiring by converting part-time jobs to full-time jobs, which will not impact the overall unemployment rate.
This is a difficult employment environment for the Fed to tackle, and it has tied the end of QE to lower unemployment.
If stocks continue higher, as they should for at least the next month or so, PowerShares QQQ (Nasdaq: QQQ) could be the leader into the end of the year.
The chart below shows QQQ with the KST indicator. This indicator was developed by Martin Pring, who explained its name as follows:
"Tired of hearing market forecasters talking about their indicators as if they were guaranteed to make the user rich, I called it the KST, because it stands for 'K'now 'S'ure 'T'hing. I've learned after all my years trading that nothing is a sure thing, but the indicator does offer a good charting rendition of the economic growth path that revolves around the business cycle."
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Ride Apple's Success With This 'Secret' Stock
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.
In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.
Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.
When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.
GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.
Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.
Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.
GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.
GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.
GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.
I think an investment in GTAT at these low levels could pay off big.
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Ride Apple's Success With This 'Secret' Stock
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.
In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.
Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.
When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.
GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.
Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.
Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.
GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.
GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.
GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.
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The Only 'Trend' Worth Following Led To A 20% Gain In 3 Months
For today's essay, it would be wise to remember the old investing adage: "The trend is your friend."
As most investors already know, investing in trends is one of surest ways to success in the stock market. But while the phrase itself is simple enough to understand, we often find that most investors don't know which trends to follow... or even worse, invest in the wrong ones.
Specifically, we generally find that investors want to focus on economic trends... things like interest rates and global debt/GDP ratios. Some investors go so far as to follow the cover model for the current year's issue of The Sports Illustrated Swimsuit Edition, believing that when the model comes from the U.S., the S&P 500 is likely to outperform.
Not to berate the homemade economists of the day, but these investors are most likely wasting their time.
The truth is, economic trends can (and should) be mostly ignored by investors.
Even economists -- people who have dedicated their entire lives to following macroeconomics -- can't accurately predict when a major economic event has (or will) occur. It took the National Bureau of Economic Research (NBER) 15 months to announce that the recession ended in 2009 was officially over.
But if not the economy, then what trends should investors focus on?
StreetAuthority analyst Michael J. Carr answers that question in his latest issue of Maximum Profit. As Michael recently told his subscribers:
As investors, it is more important to focus on trends within the stock market rather than trying to beat the experts to a recession call. As the strength of the economy changes, investors move between different sectors in the stock market. Spotting these trends can be more valuable than beating the NBER to announce when a recession starts.
As the economic cycle progresses, investors become more and less aggressive. This behavior leads to sector rotation in the stock market.
As one of the largest investment research companies in the country, our experts here at StreetAuthority have made careers out of assessing these kinds of trends. From commodities specialist Dave Forest to our resident high-yield expert Nathan Slaughter -- there isn't a corner of the investing universe that doesn't get covered by at least one of our talented analysts.
Michael J. Carr has now taken that research one step further...
A few months ago Michael developed an investing system designed to individually analyze each of the trends that the StreetAuthority analysts are covering. Using this proprietary system, Michael weeds through all the analysts' recommendations -- across all their premium newsletters -- and selects the stocks he thinks have the most potential to outperform the market in the coming months.
The results thus far have been promising...
On August 16, Michael's system identified a "buy" on Hexcel Corp. (NYSE: HXL), a $4 billion industrial manufacturing company with a focus on lightweight materials used to build airplanes and wind turbines.
Amy Calistri originally identified Hexcel in her August issue of Stock of the Month. At the time, Amy thought growing orders for airplanes would spur demand for the company's lightweight transportation materials.
Turns out she was right.
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Barchart.com's Chart of the Day - Ubiquiti Networks (UBTI) for Nov 8, 2013
The Chart of the Day is Ubiquiti Networks (UBNT). I found the stock by using Barchart to sort today's New High List for Weighted Alpha and this stock was 280.70+. You can see from the chart that there have been a series of Trend Spotter buy signals including the one on 9/26. Since then the stock is up another 18.98%.
They are engaged in the business of designing, manufacturing and selling broadband wireless solutions worldwide. Their products and solutions include radios, antennas and management tools and other applications in the unlicensed radio frequency spectrum.
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Dave Landry's Market in a Minute - Monday, 11/11/13
Random Thoughts
You have to be careful not to chase your own tail when a market is hovering around new highs.
Thursday was ugly but Friday was a do over for the Ps and Rusty.
The Quack snapped back nicely too but didn't quite erase all of Thursday's losses. Still, over a 1 ?% gain is nothing to sneeze at.
As I said on Friday morning: "...if, and that's a big if, the market rallies an takes out Thursday's high, I think it would be off to the races. It would suggest that Thursday's action was just a shakeout/fakeout. In fact, I'm seeing buy setups in the Q shares. They have a Double Top Knockout look to them (email me if you need the pattern).
Errata-On Friday I wrote "inverse Q shares." I meant to write "leveraged." I know, big difference.
Considering the above, now that the shakeout/fakeout is behind us, I think this we could be seeing new highs on the horizon. You know the routine though, take things one-day-at-a-time.
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check Cross Your Oils (XOM) and Open your Precious Metals
As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.
That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.
Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.
Here?s Goldman?s chart ?
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Cross Your Oils (XOM) and Open your Precious Metals
As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we?re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It?s not conventional market analysis, to be sure. But it?s also not a conventional market anymore, friends, as we?ve stated many times.
That said, we?re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we?ll be relying to determine the market?s direction.
Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It?s also the foremost financial services juggernaut in the world. And as far as we?re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we?ve reached the crux.
Here?s Goldman?s chart ?
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Monday links: a global wave
Quote of the day
Josh Brown, ?If the entities in control of trillions of dollars all want asset prices to be higher at the same time, what the hell else should you be positioning for?? (The Reformed Broker also BI)
Chart of the day
Forget IPOs. Companies are issuing bonds and secondaries at a record clip. (WSJ)
Markets
Are we in a bubble? (Crossing Wall Street)
The case for muni bonds. (The Guardian)
More signs of investor enthusiasm for equities. (FT Alphaville, WSJ)
The implied volatility on gold miners is coming down. (Focus on Funds)
Apple
Japan has become a growth market for iPhones for Apple ($AAPL). (WSJ)
On the disconnect between Apple the company and its stock. (Kevin Kelleher)
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Profit From M&A Activity On The Cheap With This Strategy
Carl Icahn, Henry Kravitz, Sumner Redstone and a host of other financial pros make their money by using complex strategies that reduce risk while maximizing potential gains. However, there is one strategy that towers above all others when it comes to minting members of the billionaires' club.
The best part is that today, every investor can participate in this strategy -- without the need for hundreds of millions of dollars, inside information, or a seat at the corporate roundtable. This strategy, which was very popular in the 1980s, has enjoyed a dramatic resurgence during the bull market of the past several years, thanks to huge corporate cash reserves, low interest rates and volatility, and the increasing importance of cutting costs and boosting growth to keep shareholders happy.
That's the funny thing about bull markets: No matter how high the market climbs or the returns earned, it's never enough to gratify investors. That's why this strategy has become so popular that more than $650 billion of transactions have taken place this year alone, with the biggest deals creating headlines around the world.
The strategy I'm talking about is mergers and acquisitions, or M&A. You may have heard of the Warren Buffett-led $23 billion takeover of Pittsburgh-based ketchup maker Heinz and the merger of airlines U.S. Airways (NYSE: LCC) and AMR Corp. Those deals and many others have taken place this year alone. Pending deals include private equity firm Cerberus Capital Management looking to buy BlackBerry (Nasdaq: BBRY) and clothier Men's Wearhouse (NYSE: MW) being pursued by rival Jos. A. Bank (Nasdaq: JOSB).
The way through which big investors -- even those not directly involved with individual M&A deals -- make fortunes is with a strategy known as merger arbitrage. In fact, you don't even have to be a big investor to use merger arbitrage, which is simply the selling of the acquiring company's shares and the concurrent buying of the acquired company's stock. The way it works is the target company's shares often sell at a discount to the value of the company doing the acquisition due to the risk of the merger not occurring or being delayed. It is the difference in price -- which becomes profit for the investor.
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This Stock May Be The Best Defense Against Inflation Fears
Apocalyptic fears have gripped the minds of Americans over the past few years, and Hollywood has capitalized on them with movies, television series and reality shows. While a zombie virus may be far-fetched, fears of inflation and market volatility are better grounded in reality.
Out of Alabama comes a story that underlines what becomes important if inflation really does get out of control. A would-be car buyer whose credit was less than exemplary made an unconventional down payment -- a shotgun.
While this is certainly more of a lesson in subprime lending standards going beyond real estate, there is a small sliver of knowledge to take away here. In a highly inflationary environment, gold becomes less important than "real" hard assets -- practical items like food, water, shelter and, of course, weapons.
Before the survivalists start sending this article to everyone they know, let's step back and take a look at the gun-making industry from a pragmatic point of view. We know that fear creates opportunities for profit, and this is reflected in the number of gun sales amid the Obama administration's position on gun control.
Shares of gun makers have soared this year: Smith & Wesson (Nasdaq: SWHC) is up 34%, and Sturm, Ruger & Co. (NYSE: RGR) is up 63%. Even after Congress rejected new restrictions on gun ownership, these companies have continued to post record gains.
Smith & Wesson has been reporting impressive numbers and yet remains undervalued by Wall Street. It has a price-to-earnings growth (PEG) ratio of just 0.3, and in its most recent quarter, earnings rose 42% from the same period last year. Margins have been climbing as well, to 42% from last year's 37%. Management is optimistic and has raised its expectations for next year, to $615 million in revenue and earnings per share (EPS) in the range of $1.30 to $1.35. The company also expects annual growth of more than 30% over the next five years.
Smith & Wesson's price-to-earnings (P/E) ratio of just 8.5 compares favorably with its largest competitor, Sturm Ruger, which trades at 15.3 times earnings. Smith & Wesson looks better from a price-to-sales standpoint as well, at 1.2 versus 2.3 for Sturm Ruger. The fact that Sturm Ruger reported EPS gains of 72% but has a forward P/E of 18 is evidence that the Street views its growth as unsustainable.
Smith & Wesson is also committed to developing better products, as seen in its increase in R&D spending, up to $1.3 million from $1.1 million in the same quarter last year. The focus on superior weapon manufacturing seems to be paying off. Recently, the company signed a five-year contract with the Los Angeles Police Department, which was impressed by the quality of its trademark M&P pistol series.
Smith & Wesson is growing at more than twice the industry's expected rate of 13%, but considering that it's trading at less than 9 times earnings, SWHC would still look like a buy if it were growing at half its expected rate. SHWC currently does not pay a dividend, but management recently announced a $15 million round of share buybacks.
The average analyst target price for this stock is about $13.50, which gives Smith & Wesson 27% upside from current price levels.
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Hot Links: The Cartel
Stuff I'm Reading this Morning...
Hedge funds cutting their bullish bets on gold. (Bloomberg)
"In short, it looks as if developed economies? central banks will unleash further monetary easing on their economies and hence the global economy." (BusinessInsider)
Jason Zweig: There are worse things on earth than carrying cash at a negative return in a bull market. (WSJ)
Look who's hiring and spending again! State and local governments become a tailwind. (CalculatedRisk)
For some reason, JPMorgan and other big banks may be rethinking having their traders in chatrooms with names like "The Cartel". (WSJ)
Howard Marks, Warren Buffett, Josh Harris and other value investors made the crisis their bitch. (NYT)
How many simple simon traders just got their heads blown off by that false inverse head-n-shoulders in the TLT? (PriceActionLab)
Oh no, they're writing articles about how Mom & Pop are buying stocks again! Probably a guaranteed top because we're all such clever contrarians, aren't we. (WSJ)
The secret to investing is that there is no secret to investing. (ValueWalk)
When Wall Street packages managed futures for their retail clients, the result is billions of fees paid and zero gains leftover for investors. And somehow you're surprised by this. Are you new here? (WaPo)
Vitaliy Katsenelson's favorite stock to play the Bakken Shale. (InstitutionalInvestor)
All those "smart beta" ETFs based on backtesting the last 30 years downplay how unique the environment has been. (FocusOnFunds)
Investors are using the GREK ETF to frontrun Greece's entry into MSCI's Emerging Markets indices. (ETFTrends)
Morgan Stanley wealth manager arrested for secretly filming multiple girls having sex with him. (DailyNews)
How badass is Amazon? They've just convinced the US Postal Service to begin making Sunday deliveries for them. (NYT)
I LOVE this photo series of once-great bank buildings repurposed for the McConomy. (BusinessInsider)
REMINDER: Backstage Wall Street is now on Kindle!
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Profit From Apple's Success With This 'Secret' Stock
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.
In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.
Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.
When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.
GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.
Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.
Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.
GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.
GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.
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Profit From Apple's Success With This 'Secret' Stock
Apple (Nasdaq: AAPL) is one of the great high-tech success stories. Led by the visionary, charismatic and sometimes controversial Steve Jobs until his recent untimely death, Apple has become one of the world's leading companies. After starting out as a personal computer maker, Apple is now best known for its mobile devices, which have catapulted it from a cult brand into the mainstream.
In less than five months, AAPL shares have soared from below $400 to about $520 currently. This 30% increase is impressive but well below the stock's all-time high above $700 last year. Unfortunately for many investors, Apple's success has made trading its shares difficult. You have to be swinging a big stick to be able to commit $500,000-plus to trade just 1,000 shares.
Options can be used as alternative tools to capture profits from Apple's moves, but there is another, simpler way to profit from its success -- and that is to purchase shares in companies that supply products and services to Apple.
When these products or services are a critical part of the supply chain for Apple's products, the company supplying them may ride Apple's coattails to great success. The key is to identify a supplier that is reasonably priced and has a multi-year contract with Apple, which helps to ensure the longevity of the relationship. And the lower price enables investors with practically any account size to invest in Apple's success.
GT Advanced Technologies (Nasdaq: GTAT) is one such Apple supplier that has tremendous upside potential. The New Hampshire-based company boasts a market cap of $1.2 billion and trailing 12-month revenue of $438.5 million. It specializes in crystal growth equipment for the electronic, solar and LED industries worldwide.
Apple just inked a multiyear deal to purchase sapphire material from GTAT. This will likely be the impetus to lift the share price. Apple is giving GTAT a little less than $600 million to help it get its new sapphire furnace production facility up and running in Arizona. GTAT plans on employing over 700 people in this endeavor.
Apple uses sapphire material to create scratchproof glass screens. Favored for its hardness and clarity, sapphire glass has long been used as the crystal on high-end wristwatches and in other luxury brands. GTAT beat competitor Corning (NYSE: GLW) and its Gorilla Glass for the contract.
GTAT projects that the deal will boost earnings and revenue, which is expected to ramp up to $600 million to $800 million in 2014. The sapphire segment of the company is forecasted to contribute 80% of the 2014 revenue.
GTAT has been struggling primarily due to its core solar business. Revenue in the latest quarter was just over $40 million, and net income was a loss of more than $38 million. Apple's contract should change this weak performance into a long-term winner.
GTAT is expected to pay back Apple's nearly $600 million by 2020. This fact proves that Apple has a long-term commitment to sapphire glass and GTAT. Apple's continued support of the company should lift the share price.
I think an investment in GTAT at these low levels could pay off big.
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I Am The One Who Blogs: TRB Turns Five
This month, The Reformed Broker blog turns five years old.
I'm not exactly sure which day in November of 2008 was my first day and I forgot what my first post was about. I've written more than 8,000 posts here since then, I can't say I remember each of them but my hope is that I at least remember the kernel of truth of the realization that each of them have been built around.
Because that's what this is all about, after all.
Each year on TRB's blogiversary, I do a bit of an internal inventory, taking stock of what's changed over the prior year. This has been a pretty momentous one for me.
In 2013, I became a full-time cast member of both Fast Money and the Halftime Report on CNBC, arguably the two most interesting and dynamic shows in all of financial TV, warts and all. Each day, I get to interview the world's greatest market minds as they pass through - El-Erian, Gundlach, Arnott, Gabelli, Wein, Roach, Acampora, Icahn, Bogle, Birinyi, Yamada, the list is endless - almost every day another multi-billion dollar asset manager or strategist whose brain I can pick. It's an amazing experience, I'm seeing the markets through a lens that I could never have imagined years ago.
I've surpassed 60,000 followers on Twitter and have seen millions of unique users come through the blog over the last year. I've been named to all kinds of awesome lists:
Top 140 Twitter Feeds of 2013 (TIME)
Most Innovative People Under 40 (Business Insider)
Bloomberg's Twitter A-List (Think Advisor)
Top Financial Advisors on Twitter (WSJ)
106 Finance people to Follow (Business Insider)
There are more, I'm never not blown away and grateful, especially when I respect so many of the other people on these lists. I really appreciate the members of the media and the press who continue to reference my stuff and link to the site. It means a lot to me personally.
Barry and I also launched our own firm this past year, turning our financial advisory and asset management practice into its own RIA. The preparation and hard work that went into this cannot be overstated, we killed ourselves to get every detail right from the outset - to make sure there would be minimal disruption to the clients. It worked, thank God. Everything has gone better than we could have hoped for. We owe a lot of people.
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I Am The One Who Blogs: TRB Turns Five
This month, The Reformed Broker blog turns five years old.
I'm not exactly sure which day in November of 2008 was my first day and I forgot what my first post was about. I've written more than 8,000 posts here since then, I can't say I remember each of them but my hope is that I at least remember the kernel of truth of the realization that each of them have been built around.
Because that's what this is all about, after all.
Each year on TRB's blogiversary, I do a bit of an internal inventory, taking stock of what's changed over the prior year. This has been a pretty momentous one for me.
In 2013, I became a full-time cast member of both Fast Money and the Halftime Report on CNBC, arguably the two most interesting and dynamic shows in all of financial TV, warts and all. Each day, I get to interview the world's greatest market minds as they pass through - El-Erian, Gundlach, Arnott, Gabelli, Wein, Roach, Acampora, Icahn, Bogle, Birinyi, Yamada, the list is endless - almost every day another multi-billion dollar asset manager or strategist whose brain I can pick. It's an amazing experience, I'm seeing the markets through a lens that I could never have imagined years ago.
I've surpassed 60,000 followers on Twitter and have seen millions of unique users come through the blog over the last year. I've been named to all kinds of awesome lists:
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Sunday links: managing mistakes
Quote of the day
Todd Wenning, ?The key to managing investment mistakes, as I?ve come to learn the hard way, is to admit them quickly, correct the mistake, and use the expensive lesson to improve your investment process.? (Clear Eyes Investing via Monevator)
Chart of the day
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Chilling Signs of a Market Top
As one of the original wise men of the financial blogosphere, David Merkel has always been a crucial read for me.
In 2004, he had done a magnificent piece on the fundamentals of market tops for TheStreet.com's Real Money pay site. Thankfully, Barry excerpted the post for The Big Picture back in 2006 so it exists on the modern web, outside the catacombs. Tom Brakke unearthed it this morning and I got the chills reading it just now - all of the fundamental signs of a top that David discussed nine years ago can be observed in the markets today.
It's uncanny how things never change. Read this and tell me you don't see these exact same things playing out as we speak.
Here's David (via Barry via Tom, lol)...
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Item 1: The Investor Base Becomes Momentum-Driven
Valuation is rarely a sufficient reason to be long or short the market. Absurdity is like infinity. Twice infinity is still infinity. Twice absurd is still absurd. Absurd valuations, whether high or low, can become even more absurd if the expectations of market participants become momentum-based. Momentum investors do not care about valuation; they buy what is going up, and sell what is going down.
You?ll know a market top is probably coming when:
a) The shorts already have been killed. You don?t hear about them anymore. There is general embarrassment over investments in short-only funds.
b) Long-only managers are getting butchered for conservatism. In early 2000, we saw many eminent value investors give up around the same time. Julian Robertson, George Vanderheiden, Robert Sanborn, Gary Brinson and Stanley Druckenmiller all stepped down shortly before the market top.
c) Valuation-sensitive investors who aren?t total-return driven because of a need to justify fees to outside investors accumulate cash. Warren Buffett is an example of this. When Buffett said that he "didn?t get tech," he did not mean that he didn?t understand technology; he just couldn?t understand how technology companies would earn returns on equity justifying the capital employed on a sustainable basis.
d) The recent past performance of growth managers tends to beat that of value managers. In short, the future prospects of firms become the dominant means of setting market prices.
e) Momentum strategies are self-reinforcing due to an abundance of momentum investors. Once momentum strategies become dominant in a market, the market behaves differently. Actual price volatility increases. Trends tend to maintain themselves over longer periods. Selloffs tend to be short and sharp.
f) Markets driven by momentum favor inexperienced investors. My favorite way that this plays out is on CNBC. I gauge the age, experience and reasoning of the pundits. Near market tops, the pundits tend to be younger, newer and less rigorous. Experienced investors tend to have a greater regard for risk control, and believe in mean-reversion to a degree. Inexperienced investors tend to follow trends. They like to buy stocks that look like they are succeeding and sell those that look like they are failing.
g) Defined benefit pension plans tend to be net sellers of stock. This happens as they rebalance their funds to their target weights.
Item 2: Corporate Behavior
Corporations respond to signals that market participants give. Near market tops, capital is inexpensive, so companies take the opportunity to raise capital.
Here are ways that corporate behaviors change near a market top:
a) The quality of IPOs declines, and the dollar amount increases. By quality, I mean companies that have a sustainable competitive advantage, and that can generate ROE in excess of cost of capital within a reasonable period.
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Saturday links: personal finance for engineers
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.
Investing
Personal finance for (Twitter) engineers. Advice from Wealthfront. (Business Insider)
An interview with Michael Mauboussin author The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on the role of luck and
skill in investing. (Forbes also Inc.)
Morgan Housel talks with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. (Motley Fool)
Can Legos ever be an investment? (Monevator)
The story of Jesse Livermore, the greatest trader who ever lived. (Crossing Wall Street)
Finance
Some advice for young investment professionals. (A Dash of Insight)
David Swensen does not have nice things to say about Wall Street. (Yale Daily News via @m_c_klein)
A rave review for A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A by John Weir Close. (Economic Principals)
How to use the Heath brothers? book Switch: How To Change Things When Change Is Hard to drive client behaviors. (Nerd?s Eye View)
Economics
A dozen investors comment on the folly of macroeconomic forecasting. (25iq)
What can we learn from the Great Depression. (Free exchange)
John Kay recommends five books on ?economics in the real world? including David Landes? The Wealth and Poverty of Nations. (Five Books)
Technology
What can we learn from 37 billion dollar startups launched since 2003. (TechCrunch also A VC, Nabeel Hyatt, Version One Ventures)
The genius of Twitter ($TWTR) is that harnesses some very basic human impulses. (Businessweek)
Because of the use of autopilot, pilots are ?forgetting how to fly.? (The Atlantic)
Energy
Technology is disrupting the electric utility model. (The Atlantic)
Why diesel is more expensive than gas in the US. (Business Insider)
An excerpt from Gregory Zuckerman?s The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters. (The Atlantic)
Food
The hunt for a better egg. (WSJ)
The legacy of the late chef Charlie Trotter. (NYTimes)
Sports
Why kids are losing interest in baseball. (The Atlantic)
What would happen if baseball went to a 16-game schedule? (Joe Posnanski via kottke)
What it is like to be a minimum wage player in Major League Soccer. (BuzzFeed)
Entertainment
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Saturday links: personal finance for engineers
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.
Investing
Personal finance for (Twitter) engineers. Advice from Wealthfront. (Business Insider)
An interview with Michael Mauboussin author The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing on the role of luck and
skill in investing. (Forbes also Inc.)
Morgan Housel talks with Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. (Motley Fool)
Can Legos ever be an investment? (Monevator)
The story of Jesse Livermore, the greatest trader who ever lived. (Crossing Wall Street)
Finance
Some advice for young investment professionals. (A Dash of Insight)
David Swensen does not have nice things to say about Wall Street. (Yale Daily News via @m_c_klein)
A rave review for A Giant Cow-Tipping by Savages: The Boom, Bust, and Boom Culture of M&A by John Weir Close. (Economic Principals)
How to use the Heath brothers? book Switch: How To Change Things When Change Is Hard to drive client behaviors. (Nerd?s Eye View)
Economics
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This Busted IPO Has 50% Upside
By many measures, 2013 is shaping up to be the best year for initial public offerings (IPOs) since 2007.
The volume of new offerings has surged, and hot new issues such as FireEye (Nasdaq: FEYE), Rally Software (Nasdaq: RALY) and Epizyme (Nasdaq: EPZM) have already bagged triple-digit gains. This week's well-received IPO from Twitter (NYSE: TWTR) is merely icing on the cake.
Yet amid the good news, some IPOs have been duds. Companies with short track records or an open-ended path to operating losses have been tossed in the IPO dust bin.
But in the rubble, you can find some deep value plays -- and building products firm Ply Gem Holdings (NYSE: PGEM) is one of them. The recent IPO has traded down but now holds considerable upside.