Up 32% This Year, This Health Stock Is Set To Really Take Off

[John Thomas]

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.

Lessons

Two dozen things learned from Bill Miller and Monish Pabrai on investing. (25iq)

Ten lessons learned from ten years of investing. (Monevator)

In a world full of randomness, process matters. (Robert Seawright)

Finance

Cognitive fluency: or why investors prefer stocks with fluent stock symbols. (New Yorker)

How to talk to clients hell-bent on investing in hot IPOs. (Enterprising Investor)

An extended interview with Jack Bogle. (Motley Fool)

Economy

Are we now in a post-scarcity economy? (Pieria)

The case for a universal income. (Tim Harford)

A non-monetary explanation for inflation. (Inside Investing)

Making the case for a basic income. (FT Alphaville)

Startups

On the differences between angel investors and venture capitalists. (Points and Figures)

There is a fatal flaw with MOOCs. (Fast Company)

STEM job growth is happening in some surprising places outside of Silicon Valley. (New Geography)

Technology

Just how close are we to the self-driving car age? (New Yorker)

Now human resources is using algorithms to make better hiring decisions. (The Atlantic)

The ways in which Elon Musk and the late Steve Jobs think alike. (Fortune)

Health

The quest to end the flu. (The Atlantic)

The benefits of napping. (Fast Company)

Juice cleanses are a big waste of money. (Slate)

How to avoid getting sick. (Farnam Street)

You should (and why) brush your teeth at work. (Quartz)

How gut bacteria affect the workings of our brains. (NPR)

Food

[John Thomas]

The Chart of the Day is Repligen (RGEN). I found the stock by sorting the New High List for frequency and this stock was right at the top of the list. Since the Trend Spotter signaled a buy on 10/29 the stock gained 19.17%.

It is a life sciences company focused on the development, production and commercialization of high-value consumable products used in the process of manufacturing biological drugs. Their bioprocessing products are sold to major life sciences and biopharmaceutical companies worldwide. They are a leading manufacturer of Protei

[John Thomas]

Dividend investors crave predictability. Once they lock onto payment streams, they don't want to hear about any interruptions. And if a company dares to withhold a quarterly dividend payout, then many investors simply head to the exits.

I discussed this phenomenon recently with regard to Carl Icahn and his big stake in CVR Refining (NYSE: CVRR).

As I noted earlier this month, CVR had a big hiccup with its third-quarter dividend, but it appears positioned to pay out $3 or $4 per unit in dividends next year. Shares trading around $22 don't begin to reflect that potential income.

Amazingly, a virtually identical scenario has just played out with another oil refiner. And the setup is every bit as compelling.

A series of technical problems at a key refinery led to a sharp drop in output for Alon USA Partners (NYSE: ALDW), the master limited partnership (MLP) of Alon Energy (NYSE: ALJ). In fact, the quarterly production was so weak that Alon USA Partners didn't simply make less money -- it lost money. And though investors were bracing for a smaller than usual dividend, they got nothing. Shares of ALDW, which traded up toward the $30 mark in the spring, are now below $14.

[John Thomas]

My dad is in his early 70s. I remember when he was in his 50s and would joke that when he retired, he would be glad to take the spare bunk in my youngest son's room. Luckily, it hasn't come to that.

Like many American seniors, he and my mother, also in her early 70s, are in excellent health and extremely active. They both still work full time. They're not baby boomers. They're part of the smaller pre-boomer generation that was born at the tail end of the Great Depression and during World War II.

They have more in common with their parents than their younger boomer siblings or cousins. On the whole, they seem to be a little tougher, a little more independent and self-sufficient.

Baby boomers, on the other hand, not so much.

From the toy companies of the '50s to the Big Pharma companies of the 1990s hawking erectile dysfunction cures, corporations and their shareholders have consistently profited in a big way by catering to the perceived immediate needs of the biggest bubble of the U.S. population -- all 76 million of them, with another estimated 10,000 baby boomers turning 65 every day over the next 16 years. (My colleague Joseph Hogue wrote about this looming trend this summer in his "Graying of America" series.)

And as the boomers enter their golden years, the needs may change, but the opportunities for investors remain as lucrative as ever.

The Trend is Your Friend
One of the best investment ideas available to capture the upside of the aging Boomer trend is health care real estate investment trust (REIT) Senior Housing Properties Trust (NYSE: SNH). I've followed and recommended this stock for more than a decade.

[John Thomas]

Nose-Blowing Premiums with Kimberly Clark (KMB)

We note that this week, several big-name market hotshots openly mused about the possibility of a nose dive in the markets that could potentially lead to an end of the current global financial system.'

And while that prospect may not be news to readers of these letters ? indeed, Bourbon and Bayonets has been drumming upon that inevitability for some time now ? the fact that all these gurus chose to speak up within a week of each other has got a great many breaking out the home blood-pressure testing kits.

[John Thomas]

Stocks were relatively flat on Friday after U.S. job openings reached a five-year high in September. The Labor Department announced that job postings were up 69,000 to a seasonally adjusted 3.9 million. This surpassed economist?s expectations of 3.85 million openings. Job openings have not seen this level since March 2008. Keeping in line with the positive jobs data, hiring was also up in September. Hiring increased 26,000 to 4.6 million, a level not seen since August 2008. The increase in both numbers suggests that employers are posting more jobs and actively filling the positions. The total filled positions, however, still sits below the 5 million mark, which is the average number in a healthy job market. Brian Jones, senior U.S. economist at Societe Generale, said, ?Things are genuinely getting better. I don?t think we?re at the point where people will quit without having something in hand, but hopefully we?re moving in that direction.?

Shares of Ross Stores (ROST) were dropping after the company announced that they are expecting some stiff competition throughout the holiday season. Competition is growing amongst retailers as more stores are staying open on Thanksgiving and the shopping time between Thanksgiving and Christmas is shorter than normal. Ross said they are expecting fiscal fourth-quarter profits to come in around 97 cents and $1.01 per share. This is below analyst?s expectations of $1.08 per share. They are expecting earnings between $3.83 and $3.87 per share, while analysts were predicting $3.94 per share.

The price for shares of Caterpillar (CAT) were also falling after news was released that federal investigators are beginning a probe accusations that the company has been dumping train parts into the ocean. This dump allegations are allegedly part of a scam in an effort to charge customers for parts they didn?t need. Investigators are beginning to delve in and see if Progress Rail was dumping brake parts along with other items near the Port of Long Beach, in an effort to hide evidence that they were charging owners of rail equipment for replacing parts that were still in good shape. Caterpillar acquired Progress Rail in 2006.

That?s all for the day. Have a great weekend, loyal readers.
All the best,
Jack Aubrey

Related Articles

[John Thomas]

John Authers at the Financial Times writes about a survey carried out Harvard, Columbia and NYU academics looking at the investment behavior of the ultra wealthy retail investor. They look at the period from 2000-2009, monitoring the buys, sells and holds of 115 wealthy investors with an average net worth of $90 million.

Of all the conclusions they had come to, the most interesting one is that despite all of their high-cost advisors and celebrity fund managers (there were 450 investment managers working with the families in the study) and access to the best of everything available, they still managed to lose MORE money than the market during the recent crisis.

People are people, in the end, and no one is safe from the swiftness with which overconfidence turns to panic.

Here?s Authers:

The fascinating question, however, is how they behaved under the extreme stress of the 2008 financial crisis. And they did not show up well. This was one time when rebalancing would have been a great strategy, because it would have forced them to buy stocks near their bottom in the dark months after the Lehman bankruptcy.

But on average, the stock in wealthy investors? portfolios tended to fall by more than the market during the crisis, meaning they had suspended their regular rebalancings and had instead sold even more stock. Some may have been forced to do this by calls from private equity funds for more money, which their investors were obliged to provide during the worst of the crisis.

The median wealthy investor had just as much in cash in mid-2009 as in mid-2007. There was no great move to take evasive action in the months before the disaster unfolded.

No one who?s worked on The Street for a few cycles is really surprised by this, even if it does continue to fascinate.

[John Thomas]

Arbitrage is a financial concept that's been around since the dawn of the time.

Simply put, engaging in arbitrage means buying an asset in one location where it's cheap, then immediately turning around and selling it in a place where it commands a higher price.

With globalization and international trade continuing to play a larger role in today's economy, arbitrage opportunities are getting harder to find... and even when you do spot them, chances are they won't last long.

Yet despite the rarity of these occurrences, this is exactly the kind of opportunity we're seeing in today's natural gas market...

Dave Forest - StreetAuthority's resident commodities expert and Chief Investment Strategist for Junior Resource Advisor -- is so excited about this opportunity that he recently dedicated an entire issue of his premium newsletter to covering it. Said Dave in his November issue of Junior Resource Advisor:

The current situation in natural gas markets is unique. As I write these words, U.S. and Canadian natural gas sells for a paltry $3.50 per thousand cubic feet (Mcf). And yet just across the Pacific in markets such as Japan and Korea, gas is going for nearly $16 -- as measured by the JKM Marker price for liquefied natural gas shipments to these countries.

That kind of geographic price discrepancy is unprecedented in the modern natural resources business.

Given how good people are at moving commodities to take advantage of price discrepancies, it's striking that natural gas markets could be laboring under such a massive regional disconnect. No other good today is in such a predicament. Almost all others have a price that is more or less global.

To be fair, there is a reason for the price discrepancy. Shipping natural gas is a tricky process. It needs to be liquefied and condensed before it can be transported. Then, once it arrives at the destination, it needs to be regasified so it can return to its original state.

As it stands, the United States currently lacks the infrastructure to export large volumes at an economical price. Consequently, most of the gas we produce ends up getting consumed here at home rather than packed up and shipped abroad.

But the arbitrage opportunity in the natural gas market is starting to garner considerable attention from American energy companies. For example, Cheniere Energy (NYSE: LNG) has been working on a natural gas export terminal in Louisiana for the past few years. Freeport LNG -- one of ConocoPhillip's (NYSE: COP) major partners -- is also working on an export terminal after it received a federal permit allowing the company to sell natural gas overseas in May.

All the efforts to move U.S. gas abroad hints at a major investment opportunity in this sector. As Dave went on to say in his issue:

In the U.S. exploration and production sector today, producers are being valued on expectations of a $4 natural gas price.
If gas were to rise to even $6 (still low by global standards), it would cause of flurry of upward revisions to valuations. (Not to mention a rush of investor excitement that could take valuations to more manic levels -- making significant profits for early-in investors.)

Now imagine if U.S. natural gas were to revert to average global prices. Maybe not the $15 we saw in 2006, but, say, $10 (which is probably around the global average for the developed world).

Such a move would represent one of the biggest price increases seen in the commodities space recently. Copper would have a hard time gaining 150% from current levels. I doubt even gold has the juice for such a move. But with natural gas, triple-digit price increases are entirely possible.

Now if you're interested in investing here, there are several ways you can play this trend. For one, you could start by buying companies with considerable investment in shale assets. These are stocks like Chesapeake Energy (NYSE: CHK) and Range Resources (NYSE: RRC) -- both of which control prime acreage in some of the country's top-producing shale fields.

But as we mentioned before, rising production costs are starting to weigh on the economic viability of companies with heavy shale exposure. Since most of these companies are already trading at lofty valuations, an uptick in natural gas prices might not be enough to offset the increase in costs.

[John Thomas]

When I was in elementary school, we called a student who got good grades, stayed out of trouble and embraced his or her position as teacher's pet "Goody Two-shoes."

With that in mind, I'd like to introduce you to a company I like to consider the Goody Two-shoes of insurance companies. It takes few risks, performs admirably and is well liked by some of the most upstanding clients around.

Founded in 1945 by two Illinois schoolteachers, Horace Mann Educators (NYSE: HMN) is an $8.5 billion national multi-line insurance company. Just about every penny comes from public K-12 teachers, administrators and their families in the U.S., a market expected to grow 14% by 2020. The auto, property and casualty segment represents 52% of Horace Mann's business, with commission-generating annuities and life insurance accounting for 39% and 9%, respectively.

About 6 million teachers, administrators and support personnel worked in K-12 in the U.S. in 2012. Another 413,000 college students are planning to become teachers, and 1.2 million are retired. That's a big, loyal, responsible, insurance-buying market that blesses Horace Mann with higher-than-average retention rates, a low rate of paid claims and steady growth of its annuity and life insurance products.

The company gets an A-plus on its third-quarter 2013 figures. Its $8.5 billion in total assets as of Sept. 30, a 4.9% year-over-year increase, is supported mainly by a 17.2% increase in annuity income and an 18.4% increase in life insurance income.

Those numbers look great, but what about competition? Horace Mann certainly has its share of general competition with the likes of Allstate (NYSE: ALL), Travelers (NYSE: TRV) and other insurers. However, Horace Mann's roots are firmly planted among teaching communities, and its competitors haven't made a concerted effort to enter its territory.

Because many former educators still active as PTA members or school board members have become independent agents for Horace Mann, they're on the grounds in more than half of the country's public schools. It's a tight-knit community of professionals who take each other's words as gospel, so Horace Mann agents are likely preaching to the choir on many occasions.

The key to keeping Horace Mann's competition at bay is the constant maintenance of close relationships with school districts and teachers organizations. No other insurance company has even tried to impede on this niche, a factor that serves Horace Mann well in the face of potential price wars from larger companies.

The fact that premiums grew 4% in third quarter 2013 on a year-over-year basis to $152.5 million is proof the strategy is working. Retention rates remain solid at 85% in auto and 89% in property. Those numbers, along with strong growth in annuities and life insurance as well as lower-than-expected paid catastrophe claims, prompted the company to increase its full-year earnings guidance from $1.95 to $2.05 a share.

[John Thomas]

$388.5 billion is a staggering figure. It's more than the entire economy of Thailand, Denmark, Colombia or the United Arab Emirates.
And it's how much operating cash flow was generated by America's top 12 companies in 2012.


Source: Thomson Reuters

Of course, the old adage "It takes money to make money" applies. Many of these companies need to spend billions of dollars in research, infrastructure and other areas to generate that cash flow, and their actual take-home pay is a lot less. Exxon Mobil (NYSE: XOM), for example, spent more than $34 billion on capital expenditures last year, sapping a considerable chunk of its $56 billion in operating cash flow.
As a bit of silver lining, these companies spend much of that on goods and services offered by other companies, creating a virtuous circle of corporate spending. Here are the top 12 capex spenders of 2013.