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Barchart.com's Chart of the Day - AmerisourceBergen (ABC) for Nov 21, 2013
The Chart of the Day is AmerisourceBergen (ABC) is the Chart of the Day. I found the stock by sorting the New High List for frequency then used the flipchart feature to find the chart I liked. Since the Trend Spotter signaled a buy on 9/9 the stock has gained 18.90%.
It is a pharmaceutical services companies serving the United States, Canada and selected global markets. Servicing both pharmaceutical manufacturers and health care providers in the pharmaceutical supply channel, the Company provides drug distribution and related services designed to reduce costs and improve patient outcomes. It's service solutions range from pharmacy automation and pharmaceutical packaging to pharmacy services for skilled nursing and assisted living facilities, reimbursement and pharmaceutical consulting services, and physician education.
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The Top Stocks Share This 'Secret' Trait
$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.
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Profit From The Shale Boom With 2 REITs Yielding Up To 7.6%
One of the boldest energy predictions of the past 10 years is about to become reality.
According to the International Energy Agency, the U.S. will eclipse Russia and Saudi Arabia and become the world's top oil producer by 2015. And looking forward, that trend is going to accelerate, with the agency saying that booming production has the U.S. on track for energy independence in 20 years.
But while that bullish trend will give energy companies a big boost, it's also going to have a huge effect on local and regional economies. High-production states such as North Dakota, South Dakota and Nebraska already enjoy the lowest levels of unemployment in the country. And as energy companies continue to add tens of thousands of new employees, those strong local and regional economies will fuel record demand for temporary housing, permanent housing and commercial real estate.
That's why I'm bullish on a little-known group of real estate investment trusts (REITs) that are exclusively focused on strong regional economies in position to profit from the North American shale boom.
Not only do these REITs have the ability to produce big gains, but they also carry some of the industry's biggest yields that are more than double the yield of the 10-year Treasury.
And that is creating a big opportunity for investors.
Here are two high-yield regional REITs ready to profit from the North American shale boom.
Investors Real Estate Trust (NYSE: IRET)
Investor Real Estate Trust is a mixed bag of commercial and residential assets, owning and operating multi-family residential properties and medical, retail and industrial properties. The REIT is a direct play on some of the strongest regional economies, with operations in a dozen states across the upper Midwest and the Rockies.
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My Secret To Lasting Dividend Income
The main character in Kurt Vonnegut, Jr.'s 1965 book, God Bless You, Mr. Rosewater, is an eccentric philanthropist. He thinks it's unfair that babies don't all start with an equal playing field.
"I think it's a heartless government that will let one baby be born owning a big piece of the country, the way I was born, and let another baby be born without owning anything." To rectify this perceived injustice, he sends one share of stock to each newborn child in the country.
Wouldn't that be a nice start.
Don't get me wrong. I know a single share of stock doesn't amount to much. Even a share of $1,000-plus Google (Nasdaq: GOOG) stock wouldn't go too far if you had to live off of it.
But there is a well-known way that you can stretch your investment -- even if it starts as a single share -- to where it can more than provide for any needs you might have.
Unfortunately, it's my experience that not too many investors take advantage.
The Secret to Lasting Income
So how can you make your investment -- no matter how small initially -- turn into something that you can actually afford to live on? Simple: Reinvest its dividends.
I know. It's not groundbreaking. But are you actually doing it?
Unless you absolutely need the cash now, reinvesting is invaluable.
Dividends are one of the most powerful wealth-building tools in an investor's arsenal because of the phenomenon of compounding. By reinvesting your dividend checks (instead of cashing them), you can buy more shares, which lead to even larger dividend checks. These larger checks can then be used to buy even more shares and so on. In time, even a small stake in such stocks can grow into a tidy sum.
(Reinvesting your dividends is a cinch. In fact, many dividend payers do it automatically -- and if they don't, just give your broker a call and he'll take care of it for you in a matter of seconds.)
Take a look at my chart to see what happens to a $20,000 investment earning a 7% annual yield that's reinvested.
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Thursday links: uncomfortable valuations
Quote of the day
Aswath Damodaran, ?The more comfortable you are in valuing a company, the less point there is to doing that valuation.? (Musings on Markets)
Chart of the day
The rough year for TIPS. (WSJ also CBP)
Markets
Energy stocks have disengaged from the price of crude oil. (Charts etc.)
We may have already seen the bottom in gasoline prices. (Time)
Is there a Friday the 13th effect in the stock market? (Priceonomics Blog)
Strategy
On finding investment ideas. (Aleph Blog)
On the appeal of autopilot investment programs. (Unexpected Returns)
Portfolio rebalancing is not a one-size-fits-all deal. (Capital Spectator)
Companies
Why Black Friday sales have leaked into the middle of November. (Daniel Gross)
To say that Brookfield Asset Management?s ($BAM) financials are complicated would be an understatement. (SIRF)
The battle over Odyssey Marine Exploration ($OMEX). (Business Insider)
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Remember Crocs? This Retailer May Suffer A Similar Fate
Years ago, as I was strolling on a beachside boardwalk, I looked around and realized I was the only person in my area not wearing Crocs (Nasdaq: CROX), the somewhat ugly plastic shoes that had become all the rage. Clearly, these folks were not alone: Sales of Crocs soared from $14 million in 2004 to $355 million in 2006.
Even though sales would rise another 139% in 2007 (to $847 million), investors who bought in while growth remained above 100% learned a terrible lesson. All fashion fads end -- sometimes very badly.
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Goldman: Four Ways to Find Value in a Fairly Valued Market
From David Kostin?s GS Portfolio Strategy Research note this morning:
Target: S&P 500 will rise 6% and reach 1900 at year-end 2014
Our forecast return reflects 8% growth in EPS to $116 coupled with an
essentially flat forward P/E multiple near 15x. Looking further ahead,
extended growth in sales, earnings, and the economy will lift the P/E to 16x
and S&P 500 will reach 2100 by year-end 2015 and 2200 by year-end 2016.
Path: Drawdown risk rising after 40% rally with no correction
S&P 500 has soared 26% YTD. The median expected drawdown equals 6%
in the next three months and 11% during the next 12 months. Drawdowns
of these magnitudes from the current level would equate to 1700 and 1600.
We estimate a 67% probability of a 10% drawdown at some point in 2014.
Fundamentals: Improving US economy and rising earnings
US GDP growth will accelerate to 3% in 2014. Fed taper will start in March.
Buybacks and dividends will grow by 25% to $960 billion and account for
45% of cash usage by S&P 500 firms in 2014, the highest share since 2007.
Four strategies for a stock market trading at fair value
(1) Russell 1000 Growth will outperform Russell 1000 Value as earnings
growth decelerates; (2) Firms with low recent capex but high ROIC that will
grow investment spending in 2014 are positioned for sustainable growth;
(3) Firms with high buyback yields will benefit as cash returns to investors;
(4) Firms with high degree of operating leverage will benefit most from
acceleration in sales growth.
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Follow Up Buffett's Bet On Big Oil With This Pairs Trade
Pairs trading, once mainly a strategy for institutions, became possible for individuals with the advent of the Internet, thus giving all traders access to a wealth of real-time information and online brokerages.
It is a market-neutral strategy that takes advantage of a certain imbalance in the stocks, funds, bonds, commodities or currencies in focus. In other words, it does not depend on the broader market making a directional move.
Pairs trading involves a long position and a short position in a pair of highly correlated assets, and the strategy is thought to lower risk because it creates a natural hedge.
Traditionally, investors would look for two stocks in the same sector, preferably in the same subsector, that showed good positive correlation. Therefore, if the two stocks were to diverge, a pairs trader would buy the stock of the underperforming company and sell short the stock of the outperforming company. The trade would be profitable if the spread between the two stocks narrowed (that is, the stocks' prices again moved closer together). Looked at this way, pairs trades are simply market bets on a mean-reversion move.
Another pairs trading strategy is to bet on the continued outperformance of one stock versus another. Today's pairs trading idea is to go long Exxon Mobil (NYSE: XOM) and short Chevron (NYSE: CVX).
Both companies operate in the same sector (energy), as well as in the same subsector (integrated oil companies). Not surprisingly, their stocks have historically moved in tandem. Looking at the weekly chart of XOM (blue) and CVX (red), we can see the positive historical correlation between the two.
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Hot Links: Tapered
Stuff I?m Reading this Morning?
Everyone?s talking about this massive Goldman forex trading loss from the no-taper Fed meeting. (ValueWalk) and (Reuters) and (WSJ)
How to play a potential bank rally as rates go higher. (ETFTrends)
Goldman?s 10 themes for 2014. (PragCap)
SAC?s employee number one under the microscope this week at the never-ending insider trading trial. (DealBook)
David Merkel peels back the curtains a bit, here?s how he generates investment ideas. (AlephBlog)
Another day, another bullshit artist with a stock-picking software system. (BrokeandBroker)
Why not tie the taper to deficit reduction? (DrEdsBlog)
The world?s most powerful computer is being wasted on Bitcoin. (Gizmodo)
Whoa ? 70% of SnapChat users are female. Wait, actually that makes sense? (Digits)
REMINDER: Backstage Wall Street is now on Kindle!
The Reformed Broker
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Warren Buffett vs the Salad Oil Swindler, November 1963
The below is an amazing and true story written by Bryan Taylor, Ph.D. and Chief Economist for*Global Financial Data. I?ve asked one of the site?s proprietors, Ralph Dillon, to allow me to guest-post it here on TRB.
The tale you are about to read weaves together a fascinating and obscure financial scandal with the death of JFK, I hope you enjoy it!
- JB
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Fifty years ago, John F. Kennedy was assassinated on Friday, November 22, 1963 in Dallas, Texas. The assassination not only shocked the nation, but shook the stock market as well. However, very few people have heard about The Great Salad Oil Swindle which nearly crippled the New York Stock Exchange that weekend. Officials at the NYSE took advantage of the closure of the exchange to keep the crisis caused by the swindle from spreading further. Here is what happened at the NYSE while the nation focused on the President?s funeral.
Salad Oil, Cornered and Quartered
The Great Salad Oil Swindle was carried out by Anthony ?Tino? De Angelis, who traded vegetable oil (soybean oil) futures which was an important ingredient in salad oil. De Angelis had previously been involved in a swindle involving the National School Lunch Act and the Adolph Gobel Co. When it was discovered that he had overcharged the government and delivered over 2 million pounds of uninspected meat, he ended up bankrupt. Con-men don?t stop being cons, they just try to learn from their mistakes and make more money the next time around.
Tino de Angelis had learned that government programs were a way to make easy money, so he started the Allied Crude Vegetable Oil Refining Co. in 1955 to take advantage of the U.S. Government?s Food for Peace program. The goal of the program was to sell surplus goods to Europe at low prices. Initially, De Angelis sold massive quantities of shortening and other vegetable oil products to Europe, and when this worked, he expanded into cotton and soybeans.
By 1962, De Angelis was a large enough player in commodity markets that he thought he could corner the soybean oil market, allowing him to make even more money. Always the schemer, De Angelis?s plan was to use his large inventories of commodities as collateral to get loans from Wall Street bank and finance companies. Buying soybean oil futures would drive up the price of his vegetable oil holdings, which would increase both the value of his inventories and allow him to profit from his futures contracts. De Angelis could use these profits not only to line his own pockets, but to pay his staff, make contributions to the community, and in one case, pay the hospital bill of a government official.
American Express had recently created a new division that specialized in field warehousing, which made loans to businesses using inventories as collateral. American Express wrote De Angelis warehouse receipts for millions of pounds of vegetable oil, which he took to a broker and discounted the receipts for cash. This proved to be an easy way to get money, so De Angelis began falsifying warehouse receipts for vegetable oil he didn?t have.
American Express sent out inspectors to make sure that De Angelis had the vegetable oil that acted as collateral, but what they didn?t know is that many of the tanks were filled mostly with water with a minimum of oil floating on the top to fool the inspectors, or that some of the tanks were connected with pipes to other tanks so the oil could be transferred between tanks when the inspectors went from one tank to the other.
If American Express had done their homework, they would have realized that De Angelis?s reported vegetable oil ?holdings? were greater than the inventories of the entire United States as reported by the Department of Agriculture. Unsatisfied with the American Express loans, De Angelis was able to get additional loans from Bunge Ltd., Staley, Proctor and Gamble, and The Bank of America. By the time the swindle collapsed, De Angelis had gotten loans from a total of 51 companies.
No Salad Today
As a result of attempted bribery, delivery mistakes, and other factors, the inspectors were eventually tipped off about De Angelis?s fraud. Allied Crude was supposed to have $150 million in vegetable oil as collateral, but only had $6 million. When the inspectors found water in the tanks, and not oil, the gig was up.
The futures market crashed. Soybean oil closed at $9.875 on Friday, November 15, at $9 on Monday and $7.75 on Tuesday, November 19, wiping out the entire value of the De Angelis loans. As you might guess, De Angelis?s company had been losing money all along, and the loans were used to cover these mounting losses. De Angelis?s goal was to sell out at the top and cover all of his losses, but of course, his plan didn?t work out that way. The crash of the soybean oil market in November 1963 is shown below.