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It goes without saying that the stock market is an extremely competitive arena. Money management firms spend millions to find profitable niches, strategies and tactics.

Where short-term trading is concerned, the advent of high-frequency trading has made speed more important than ever. This niche has become so competitive that some firms have relocated their operations to their stock exchange's facilities to get their orders to the exchange before the competition's.

Fortunately, long-term investors don't have to concern themselves with the arms race in high-frequency trading. While large firms fight it out for microsecond advantages, long-term investors can exploit time-tested niches. One such niche outperformed the S&P 500 Index by an average of 13% from January 1995 to July 2012, including a period of 45% outperformance between 2000 and 2005.

However, the success of this strategy hasn't captured investors' interest. One reason, to be frank, is that it's a little boring in comparison to other investing strategies. Another is that after the catalyst for this strategy occurs, shares often trade lower for the first month or so. A third is that this strategy was decimated during the 2008 financial crisis. These factors appear to work in unison to spook many investors despite the high returns.

This strategy is known as spin-off investing. It entails buying shares in a company that has been spun off from a larger parent firm. A parent company may have many reasons for spinning off a subsidiary, but typically, the primary goal is to increase shareholder value by jettisoning debt and slashing expenses.

Yet shareholders of the original company often dump their granted shares of the new, smaller company. This is shareholders in the parent company often have no interest in owning the spun-off company, so they sell their shares, sending the spin-off's stock lower -- at least initially. However, other investors often recognize the value in the spin-off's lower price, sending shares on an upswing.

Spin-offs are often successful, and one main reason is that the spin-off's executives are frequently given greater incentives -- in the form of stock options in the new company -- to succeed than they may have had at the parent firm. Think of a spin-off as a startup -- but one with a seasoned executive staff, an existing business model and customer base, and direct experience in the field.

You can search for pending spin-off companies on the Securities and Exchange Commission website and by keeping up with the financial news. Several of the most successful spin-offs include Hillshire Brands (NYSE: HSH), spun off from the Sara Lee Corp.; Mondelez International (Nasdaq: MDLZ), spun off from Kraft (Nasdaq: KRFT); and Phillips 66 (NYSE: PSX), spun off from ConocoPhillips (NYSE: COP).

My favorite way to invest in spin-offs is to gain diversified exposure to the best spin-off companies through the Claymore Beacon Spin-Off ETF (NYSE: CSD).

Who says that the market doesn't trade off of inside information?

The short interest in glass and fiber maker Corning (NYSE: GLW) more than doubled in the two weeks ended Oct. 31, to 83 million shares. (Data were released Nov. 11.) The short-interest surge came just days before Apple (Nasdaq: AAPL) said Nov. 5 that it was going to work with GT Advanced Technologies (Nasdaq: GTAT) in the production of touch screens at an Apple manufacturing facility.

To be sure, the deal was a great win for GTAT, as my colleague David Goodboy noted a few days ago.

But GTAT's win shouldn't be seen as a real impediment to Corning. And short sellers, even as they traded on this news early, will still likely get burned -- because Corning is shaping up to be both a deep value play and a growth play.

Merrill Lynch's Wamsi Mohan was one of the first analysts to weigh on the Apple/GTAT linkup: "This announcement does not change our opinion of the current limitations of Sapphire (or of) the price and feature advantage of Gorilla Glass. In our view the applications are likely to be more niche and Gorilla's position in the touch market relatively unchanged." He has a "buy" rating and $22 price target, representing 30% upside.

Mohan's specific concerns: The Sapphire production process is "orders of magnitude more expensive than Gorilla Glass," which would likely add $20 to the cost of each iPhone if it were used in that device. The high cost relates to low manufacturing yields and arduous production techniques, he notes, adding that "Sapphire is heavier than Gorilla and does not perform as well in drop and tumble tests." That's why Mohan expects the AAPL/GTAT linkup will likely serve a small niche product, such as the iWatch.

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.

Imagine buying a used paperback book for $5, reading the first few chapters, and then finding a $1 bill tucked neatly between two of the pages. Because the book came with a little cash, the net purchase price essentially drops to just $4.

That's essentially what we see with cash-rich companies like GPS-maker Garmin for example. The company holds $13.84 per share in cash with zero debt. So a potential acquirer that bought all the outstanding shares at the recent price of $46.25 would really only end up paying about $32.41.

Of course, buying a few shares doesn't mean you can march in and demand payment. But as a stockholder, you do have a pro-rata claim on that cash. And while you can't spend it freely like the $1 in the book, it can still be used in numerous ways to enhance shareholder value.
That money can be used to repurchase stock, to make a special dividend distribution, to pay down debt, to upgrade equipment, to fund an acquisition... you name it.

Equally important, having access to that much cash negates many of the financial worries that can cripple a stock. Expanding companies need capital, and raising it isn't always easy (or cheap). Some cash-strapped companies have no other option but to issue more common shares or borrow money at exorbitant rates.

So deep cash balances not only yield positive changes, but they can help companies avoid negative ones. Simply put, cash is the lifeblood of a business. That's why I invest just as much time analyzing the balance sheet as I do the income statement.

Here are a few more companies that have a nice stockpile of cash and a dividend yield above 3.5%

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Quote of the day

Barry Ritholtz, ?There are some people who have yet to pay their tuition to Wall Street University. They shall do that over the course of their investing lifetimes through high fees, unnecessary taxes, costs and expenses.? (Big Picture)

A steady scan of the financial headlines these days implies that it's the golden era of dividend investing.

But it's not true.

Though many companies are boosting their dividends at a solid pace, dividend yields remain far below the levels seen back in the 1970s. Back then, companies earmarked the vast majority of their profits for dividends. Today, payout ratios usually hover below 35%.

If one investment theme is surely at a high point, it's stock buybacks. As I noted two months ago, companies have bought back more than $1 trillion since 2009, and the pace of buyback activity has actually grown stronger in 2012 and 2013.

The timing is curious. The market has posted impressive gains since bottoming out more than four years ago, and many stocks are trading near all-time highs. In the past, companies would only pursue large stock buybacks when their shares were in the doghouse.

Still, it's worth tracking any buybacks plans that promise to retire 10% or even 15% of the current share count. And in the current earnings season, we've seen a fresh batch of hefty plans that fulfill that mandate. Here are a dozen companies, each sporting a market value of at least $1 billion, which have a chance to make a meaningful dent in their share counts.

Random Thoughts


Each day you look at the market carefully. You study a handful of indices, several hundred sectors/ETFs, and most importantly, a few thousand stocks.

So what did the above tell me yesterday? Well, it was a mixed day (duh implied). Some areas banged out new highs, some areas sold off, and some areas didn't do much at all.

Commodities have lost steam. Energies are now back to where they were around 2 months ago. Metals & Mining are now trading back below were they were over 3 months ago.

The Banks which had broken out nicely in October have now given up all of those gains.

Insurance which was making new highs on Monday has pulled back into its base.

Transports are just shy of all-time highs.

Retail, especially Specialty Retail, is doing well.

Drugs, which had been looking a little questionable, have been coming back as of late.

Defense and Manufacturing remain in uptrends.

I can go on and on about the good, not so good, and indifferent. Again, it is getting mixed.

As I preach, markets, like life, have to be taken one day at a time. And, each day brings a new clue. Monday's action was a lot better than Tuesday's.

The Ps are just off of all-time highs but they are also just about where they were 2 weeks ago. This action has the 10-day moving average flattening out. The Quack also hasn't made any forward progress (net net) in a few weeks. A big up day would make all the difference in the world. More flat to weak days keep us in "show me" mode.

International markets (EFA) have also lost some steam.

I still think if the Quack/Q's take out last Thursday's high they have the potential to accelerate even higher. Unfortunately, each day that passes helps to negate this signal. So, it's important for them to rally soon.

You don't want to argue with a market that is hovering around new highs but eventually, it has to make those new highs. I'd hate to have to start drawing a sideways arrow.

So what do we do? I think the database has been speaking lately. It hasn't produced a whole lot of meaningful setups in quite a while. On the surface, things still look pretty good. However, it is getting a little mixed beneath. Therefore, again, the database could be the 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 getting hit fairly hard pre-market. For the aggressive, look to play an opening gap reversal (OGRe) should it occur. If you don't know what that is, pass. Get educated. Read the articles under Education on my website.

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.

Random Thoughts


Each day you look at the market carefully. You study a handful of indices, several hundred sectors/ETFs, and most importantly, a few thousand stocks.

So what did the above tell me yesterday? Well, it was a mixed day (duh implied). Some areas banged out new highs, some areas sold off, and some areas didn't do much at all.

Commodities have lost steam. Energies are now back to where they were around 2 months ago. Metals & Mining are now trading back below were they were over 3 months ago.

The Banks which had broken out nicely in October have now given up all of those gains.

Insurance which was making new highs on Monday has pulled back into its base.