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Stocks to consider this week
The following are stocks Im considering for near term based on technicals. Target is the area I will sell, and SL is the stop loss area.
ARIA – target 23… SL 20
DSW – target 65… SL 61
CCOI – Buy Target 22.50
IP – Buy target 37
PM – Buy target 88.5
GCI – buy target 18
Disclosure – I may initiate a position in the following at anytime. Im currently long ARIA.
Chinese Stocks Heat Up – Voice of the People
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Chinese Stocks Heat Up
Chinese stocks are flourishing today after the Shanghai Index jumped to 2347.53, +57.04 (+2.43%). This pop set the China solar stocks on fire with Trina Solar Limited (ADR) (TSL) trading at $9.00, +0.80 (+9.76%). Others like JA Solar Holdings Co., Ltd. (ADR) (JASO) and Suntech Power Holdings Co., Ltd. (ADR) (STP) are also having a big day.
Some Chinese small caps are still at or near their 52 week lows despite the market rally in January 2012. These are catching fire. Sino Clean Energy Inc. (SCEI) is surging today, trading at $1.44, +0.09 (+6.67%).
The key is to look for Chinese stocks that are still trading at or near their chart lows. These may be the next explosive movers. There are not many stocks that are still cheap in this market, and speculative money is searching for the next big mover. Any small cap trading near its lows is a candidate, especially Chinese plays.
Gareth Soloway
InTheMoneyStocks.com
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Read the full analyst report on TSL
Read the full analyst report on JASO
Read the full analyst report on STP
Read the full analyst report on SCEI
Agriculture Stocks Still Stuck in the Mud – Voice of the People
This morning, all of the major stock market indexes are trading sharply higher. For the most part, the rally is broad based as most important stock sectors are climbing. The one sector that is struggling and continuing to show weak relative strength is the agriculture sector. Many of the leading stocks in this sector are actually trading lower as the major stock indexes climb.
Potash Corp (POT) is considered the leading agriculture stock in the market. POT stock is trading lower by 0.74 cents to $40.18 a share. The stock has some short term intra-day support around the $39.65 area which is a double bottom support area on the daily chart. Should this level fail to hold up the stock is vulnerable to further declines. The daily chart should have very good support around the $36.00 level on the daily chart.
Other leading agriculture stocks that are not participating in today’s early morning stock rally are Mosaic Co (MOS), Agrium Inc (AGU) and CF Industries Holdings Inc (CF). All of these agricultural leading stocks still remain weak on the daily charts. These stocks are all trading below the important daily chart 50, and 200 moving averages which put these stocks in a weak technical position. Traders should wait for a better daily chart pattern before committing to these names.
Nicholas Santiago
Best Stocks for Disinflation
For 26 years, I’ve been out there hunting the big yields and bringing them home to my readers.
The Federal Reserve’s $2.3 trillion quantitative easing policy — consisting of part 1 ($1.7 trillion) and part 2 ($600 billion) – has stoked fears of rampant money-printing and out-of-control inflation. But not everyone sees it that way. As I wrote last October in Stock Market Volatility: You Ain’t Seen Nothing Yet, Money manager and economics Ph.D John Hussman has persuasively argued that increasing the monetary base may lower long-term interest rates and creates asset bubbles, but it doesn’t spur loan demand, money supply, or economic growth. The most recent inflation figures seem to bear this out, with the Economic Cycle Research Institute’s (ECRI) Future Inflation Gauge (FIG) recently hitting a seven-month low.
According to Hussman and others, the real cause of inflation comes from the demand side, either in the form of government spending or population growth. One of the biggest proponents of using demographics to predict inflation is Wall Street veteran and economic consultant Richard Hokenson. In a recent article entitled The Race to Zero, Hokenson argues that the world faces “negative demand shocks” that are causing interest rates and equity returns around the globe to race towards zero.
These negative shocks are being caused by a population implosion – fewer and fewer countries are reproducing at a rate necessary to keep their population levels constant, let alone growing. This implosion results in aging populations, lower consumption, and increased saving, all of which ultimately cause disinflation – the opposite of inflation.
Interestingly, Hokenson says that the United States is the only developed economy that still has a growing population – a birth rate of 2.1 children per woman. Even some countries in high-growth Asia face negative demographics: Japan, China, South Korea, Taiwan, and Singapore. Emerging markets that are still growing their populations include most of Latin America (e.g., Mexico, Brazil), second-tier Asian countries like the Philippines, Malaysia, and Indonesia, and virtually all of Africa.
Because aging economies have weak demand, they export more than they import causing their currencies to appreciate. The one area where aging economies are spending is in “experiences,” which includes cruises and air travel.
Weak foreign demand is why the U.S. dollar has been so weak against these foreign currencies, not because of profligate U.S. import spending. Hokenson sees this phenomenon continuing and thus doesn’t see a secular turnaround in the U.S. dollar for another 15 to 20 years. The silver lining to a weak greenback is that firms are starting to in-source jobs back to the U.S because it is becoming cheaper in dollar terms to produce here.
The bottom line is that negative-demand shocks are here to stay and will keep both interest rates and stock market returns muted for many years to come. Hokenson believes that the companies likely to outperform in a disinflationary economy are those skilled at reducing costs and able to make a profit in low-price environments. Companies with strong balance sheets (i.e., low debt) will also do better because they’ll be able to withstand lower revenues resulting from periodic economic slowdowns without the pressure of making debt payments.
Below are five stocks that should benefit from a disinflationary environment:
Family Dollar Stores (NYSE: FDO)
Ctrip.com Int’l (NasdaqGS: CTRP)
Provides travel services in Asia. Such “experience” services are one of the few things aging Asians are paying for.
Cost-containment services to combat runaway health-care spending.
Low-cost producer of steel. China is a big customer.
In a disinflationary world, yield is a rare and valuable commodity. For double-digit yields, check out Big Yield Hunting, the high-yield investment service from Roger Conrad and David Dittman. Roger and David take an “income plus” approach to their recommendations. High yield alone is not enough; they demand high yield “plus” a healthy and growing business:
High yields without strong businesses behind them will be at perpetual risk of devastating dividend cuts. And they have no chance of growing either, so they’re guaranteed losers if inflation emerges.
In contrast, only growing and healthy companies will continue to pay their distributions. If we see more inflation, growth is our best chance of keeping pace. Adopting an “income-plus” strategy won’t save your portfolio from all volatility if credit or inflation conditions worsen. But it remains the best approach.
An “income plus” investment standard disqualifies many high-yield companies from Roger and David’s consideration. So far, Big Yield Hunting has recommended two Canadian income trusts, three telecommunications companies, a master limited partnership (MLP), and a fascinating stock/bond hybrid security. All of these top-notch stocks sport very high yields that are stable and sustainable.
Give Big Yield Hunting a try today!
Jim Fink is the senior online editor for Investing Daily and is also chief investment strategist for Jim Fink’s Options for Income. He has traded options for more than 20 years and generated personal profits of more than $5 million. When not trading options, he writes the “Stocks to Watch” daily column that provides readers with timely insight into current events and their potential impact on publicly listed companies.
Hopelessly overeducated, Jim holds a bachelor’s degree from Yale University, a master’s degree from Harvard’s Kennedy School of Government, a law degree from Columbia University, and an MBA from the University of Virginia’s Darden School of Business. For good measure, he has been a member of the Illinois and D.C. bars and is a CFA charterholder.
Prior to joining Investing Daily, and when not incurring student loans hiding out in academe, Jim practiced telecommunications regulatory law for nine years until he realized that he made more money trading stock options than writing briefs. After attending business school, Jim switched gears to the investment realm full-time, working for a university endowment, a private wealth management firm, an insurance and financial planning company, and as a Senior Analyst for an online investment newsletter service that encourages the wearing of funny hats.
A possible but unlikely descendant of legendary brawler and boatman Mike Fink, Jim defies his heritage, believing that investing success requires patience and analysis, not swashbuckling bravado. Besides his passion for analyzing and writing about stocks, Jim likes to hike in the desert Southwest, vacation in Las Vegas, play tennis, and feed his toddler son cheerios.
S&P 500 Declines Five Consecutive Weeks: Negative Sign for Stocks?
HomeS&P 500 Declines Five Consecutive Weeks: Negative Sign for Stocks?
For 26 years, I’ve been out there hunting the big yields and bringing them home to my readers.
Last week, both the Dow Jones Industrial Average and the S&P 500 index dropped for the fifth consecutive week, which is relatively rare. In fact, for the S&P it was the first time since July 2008 and the first time for the Dow since July 2004. Furthermore, the drop last week was the worst of the five and the worst overall for the stock market since August 2010.
Is this the beginning of a waterfall decline and recession like in 2008, or more like the “up and down market” of 2004? I’m leaning more towards a pause that refreshes like in 2004. Sure, some stocks with poor earnings have gapped down, but there are just as many stocks rising — e.g., Global Crossing (Nasdaq: GLBC), Dominos Pizza (NYSE: DPZ), Red Robin Gourmet Burgers (NasdaqGS: RRGB), and Dean Foods (NYSE: DF). In fact, despite suffering the worst week since last August, the New York Stock Exchange managed to produce 295 stocks hitting 52-week highs and only 77 stocks hitting 52-week lows. This was a better “new high/new low” ratio than the week before (233 highs and 86 lows).
Let’s look at historical precedent: how has the stock market performed subsequent to having fallen for five consecutive weeks? The answer is above average! Since 1980, there have been 24 instances where the S&P 500 has fallen for five consecutive weeks. Over the next five weeks the S&P has gone up 62.5% of the time and averaged a median gain of 2.32%, much higher than the average gain for any five-week period of only 0.68%. The odds favor a rebound, not a further decline.
But here’s the thing: even if the market were to fall further, owners of high-yielding stocks with strong underlying businesses should welcome it! As I wrote in The Best Stocks are Dividend Stocks, market declines are an income investor’s best friend. During the Great Depression of the 1930s the Dow Jones Industrial Average reached its peak price on September 3, 1929 and didn’t hit that level again until November 24, 1954 – more than 25 years later. Zero price appreciation for 25 years.
Stocks were the worst place to be during this period, right? No way. An investor who bought the stocks in the index at the peak in September 1929 and reinvested dividends actually made more than four times his money — a positive return of more than 6% per year during this 25-year period! This is more than twice what an investor who sold stocks in 1929 and bought bonds made and four times what an owner of treasury bills made.
Not only did stock investors make good money during one of the worst periods in stock market history, but the bear market of the Great Depression actually accelerated an investor’s returns. Wharton finance professor Jeremy Siegel explained this phenomenon in his investment classic, The Future For Investors:
Although dividends declined a whopping 55 percent from their peak in 1929 to their trough in 1933, stock prices fell even more. As a result, the dividend yield on stocks, which is critical to an investor’s total return, actually rose. $1,000 invested at the market peak would have turned into only $2,720 in November 1954 if the Great Depression had never occurred. This is 60 percent less than what investors actually accumulated as a result of this economic catastrophe.
For similar reasons, Roger Conrad, co-editor of the high-yield investment service Big Yield Hunting, advises his subscribers not to “play the game” of Wall Street which advocates selling during market downdrafts and buying during market ascents. In fact, he is a true value investor who believes in buying low and selling high:
We can use the volatility caused by stock market short-termism to buy low, and even sell high when the price is right. When you buy stocks, you’re buying volatility that can be caused by almost anything. In the end, however, these ups and downs are meaningless to your returns, unless you act on them.
The main reason I focus so strongly on company earnings is the numbers always provide the best clues to dividend safety and growth potential. When a company I own demonstrates in its results that it’s healthy and growing, odds are I’m going to keep holding. A stock with a growing dividend will ratchet higher over time to reflect that higher payout.
Whether the market continues to fall or rebounds, income investors shouldn’t care because reinvested dividends will create substantial wealth either way.
For double-digit yields, check out Big Yield Hunting, the high-yield investment service from Roger Conrad and David Dittman. Roger and David take an “income plus” approach to their recommendations. High yield alone is not enough; they demand high yield “plus” a healthy and growing business:
High yields without strong businesses behind them will be at perpetual risk of devastating dividend cuts. And they have no chance of growing either, so they’re guaranteed losers if inflation emerges.
In contrast, only growing and healthy companies will continue to pay their distributions. If we see more inflation, growth is our best chance of keeping pace. Adopting an “income-plus” strategy won’t save your portfolio from all volatility if credit or inflation conditions worsen. But it remains the best approach.
An “income plus” investment standard disqualifies many high-yield companies from Roger and David’s consideration. So far, Big Yield Hunting has recommended two Canadian income trusts, three telecommunications companies, a master limited partnership (MLP), and a fascinating stock/bond hybrid security. All of these top-notch stocks sport very high yields that are stable and sustainable.
Give Big Yield Hunting a try today!
Jim Fink is the senior online editor for Investing Daily and is also chief investment strategist for Jim Fink’s Options for Income. He has traded options for more than 20 years and generated personal profits of more than $5 million. When not trading options, he writes the “Stocks to Watch” daily column that provides readers with timely insight into current events and their potential impact on publicly listed companies.
Hopelessly overeducated, Jim holds a bachelor’s degree from Yale University, a master’s degree from Harvard’s Kennedy School of Government, a law degree from Columbia University, and an MBA from the University of Virginia’s Darden School of Business. For good measure, he has been a member of the Illinois and D.C. bars and is a CFA charterholder.
Prior to joining Investing Daily, and when not incurring student loans hiding out in academe, Jim practiced telecommunications regulatory law for nine years until he realized that he made more money trading stock options than writing briefs. After attending business school, Jim switched gears to the investment realm full-time, working for a university endowment, a private wealth management firm, an insurance and financial planning company, and as a Senior Analyst for an online investment newsletter service that encourages the wearing of funny hats.
A possible but unlikely descendant of legendary brawler and boatman Mike Fink, Jim defies his heritage, believing that investing success requires patience and analysis, not swashbuckling bravado. Besides his passion for analyzing and writing about stocks, Jim likes to hike in the desert Southwest, vacation in Las Vegas, play tennis, and feed his toddler son cheerios.
High-Yield Canadian Stocks after a High-Yield Election
HomeHigh-Yield Canadian Stocks after a High-Yield Election
There were multiple historic outcomes when all the ballots were counted after Monday’s election in Canada, to the upside for Prime Minister Stephen Harper and New Democratic Party (NDP) leader Jack Layton. As for the Liberal Party of Canada, it’s searching for a new message, a new leader and a path back to relevance, while the Bloc Quebecois are a separatist party where serious desire for independence no longer seems to exist.
What all this means for the American investor looking for high yields in Canada is, as was the lead up to the election, tertiary. The primary driver of Canada’s long-term upside will be what we now refer to as “emerging” markets, led by China and India. The secondary factor from an economic perspective is what happens in the US, still the other half of what remains the largest bilateral trade relationship on the planet.
Mr. Harper’s Conservative Party of Canada surpassed the most favorable final poll numbers and the fondest hopes of its supporters on its way to winning 167 seats in the House of Commons, 13 more than the 154 needed to claim a majority. Mr. Harper led the way with a 63-point victory in his own riding, as the Tories won 39.7 percent of the national vote. He’ll form his first majority government in the next couple weeks and settle in for a fixed, four-year term.
The NDP turned big swaths of the Great White north orange during this five-week campaign, benefitting from the perhaps final collapse of the Bloc to win 58 seats in Quebec and 30.6 percent of the national vote. The affable Mr. Layton’s leftist troupe will form a more definite official opposition party, as it surged to 101 seats from just 36 at dissolution of the 40th Parliament to overtake the Liberals.
The Grits no longer can claim to be Canada’s “natural governing party.” Michael Ignatieff, the former Harvard academic who returned home after 27 years abroad as a sort of savior, has already resigned his post as leader of the Liberals after losing his seat in Parliament. The party is headlong into its ritual soul searching, this one the most serious yet. In their eyes a chasm has opened up between Tories and the NDP, to be filled, naturally, by their “centrism.”
The Bloc Quebecois got wiped out. Gilles Duceppe lost the seat in Parliament he’d held since winning a by-election in 1990 and immediately resigned as leader of the party. Founded more than 20 years ago, the Bloc had become the federal voice of those within Quebec who pushed for independence. Under Mr. Duceppe’s leadership the Bloc peaked at 42 seats in Parliament after the 2006 election, but a slide that began in 2008 is now complete.
There’s great potential for high drama based on a new calculus that looks a lot simpler, a lot more like the binary, zero sum game we enjoy in the US. But there’s likely to be little heat, as the Prime Minister simply doesn’t need the help of any his vanquished foes. And excluding Quebec’s 75 seats from the equation Mr. Harper won 49.7 percent of the vote and 161 of the 233 available seats, as close to a mandate as is possible in Canadian politics these days.
Despite his dramatic surge, Mr. Layton still must provide responsible opposition, and he must do so with a caucus full of neophytes and socialists. Mr. Harper’s major challenge is a dual one. He must keep his own caucus together while avoiding any movement toward partisan excess. Leading minority governments for five years, when getting legislation passed depends, as a matter of mechanics, on getting other parties to sign on, has given him valuable experience.
What we’re guaranteed is that Mr. Harper and his Conservatives now have four years to govern without the constant threat of being toppled. A program of corporate tax reduction will run its course, taking Canada’s down to 15 percent by Jan. 1, 2012, lowest among the Group of Seven. A budget tabled in March will likely be passed with only minor adjustments, and a fiscal plan to get back to surplus by 2014-15 will continue.
Canada is unlikely to pursue carbon regulation without movement on same by the US; the new Conservative majority is, however, likely to continue to support the build-out of renewable capacity as a means of attacking the global warming problem. Another way to look at it is that oil and gas producers won’t face the hostility an NDP/Liberal coalition would have meant and they don’t have to deal with corresponding cost uncertainties.
What we have here is one of the world’s most stable, investor-friendly environments. That would have been the case had Mr. Layton and his social democrats won enough seats to establish a government, because the policy differences on the major issues aren’t that stark–the NDP said it would simply stop, not roll back, corporate tax reductions, and it, too, is committed to a budget plan that restores Canada to balance by 2015.
The country is well positioned to benefit from a return to normal economic growth in the US and as more and more emerging market consumers join the global middle class, with all the implications for consumption of natural resources that this implies. The commitment to the Canadian form of universal health care is strong across the parties; but so, too, is the commitment to responsible exploitation of the country’s hard and soft commodities.
The market’s reaction to what was probably the best possible outcome from an investor’s perspective–a resounding win by the Conservatives, a majority government formed by Mr. Harper of energy-rich Alberta–reflects the fact that the domestic situation is of lesser importance than external factors. Oil, sensitive to global growth metrics as well as geopolitics, was down, and so was the S&P/Toronto Stock Exchange Index.
Canada has done well, however, to trust the investor-friendly Mr. Harper and the Tories with a majority government for four years. It’s good news for the Canadian dollar. It’s good news for energy producers. It’s good news, too, for wireless competition, as the Conservatives favor loosening rules to allow greater foreign investment in the domestic telecom industry and therefore the funding of new market participants.
This has been called an unnecessary election, here and in more august quarters. But its outcome has clarified the Canadian political situation and leaves the country on a stable policy course. We’ll have more on how to play the election’s aftermath and how to build wealth with high-yielding Canadian stocks in the May Canadian Edge, available for subscribers at http://www.CanadianEdge.com on Friday afternoon.David Dittman is Editorial Director of Investing Daily, overseeing a world-class team of editors and analysts who share a common goal: providing individual investors with sound advice and market intelligence across a wide range of sectors. Whether the focus is on opportunities in emerging markets or energy and utilities markets, David makes sure that all of our publications fulfill this goal and meet our readers’ high expectations.
David is also co-editor of Big Yield Hunting and associate editor of Roger Conrad’s Canadian Edge, where his valuable contributions on economic, regulatory and legislative changes north of the border help subscribers make informed decisions about investing in high dividend-paying Canadian royalty trusts. He also serves as co-editor of Maple Leaf Memo, a free e-zine that provides regular updates on Canadian market conditions.
David earned a bachelor’s degree from the University of California, San Diego, and a juris doctor from Villanova University.
Beware the False Breakout in Stocks
Marc Faber?s May Outlook: Beware the False Breakout in Stocks
by Nathaniel CrawfordWall Street Pit
Swiss investor Marc Faber has just released his latest issue of the Gloom, Boom, and Doom Report where he discussed his outlook for the stock market, gold, emerging markets, and other financial topics. Here are a few highlights from the report:1. Equity Markets – The markets may be giddy about stocks hitting new highs, but contrarian investor Marc Faber is having nothing of this. He is concerned that stocks will fall sharply in May and that the recent breakout in stocks will prove to be trap for the bulls. The markets are due for a correction and the technicals point to a weak market. In particular, Faber points to the decline in new 52 week highs as evidence of an unhealthy internal market. Right now, Faber would stay away from cyclicals, tech stocks, and banks. If you have to own stocks make sure it is something safe like consumer staples (MO, JNJ, PEP, KO, etc).2. Gold & Silver – Still likes gold as a long-term investment and recommends dollar cost averaging every month regardless of the price. However, when it comes to silver, Faber is more cautious, noting the recent run-up in the price. He expects a 20%+ correction in the metals complex because the inflation trade has become too crowded.
Read the rest of the articleMay 5, 2011© 2011 Beacon EquityDr. Marc Faber [send him mail] lives in Chiangmai, Thailand and is the author of Tomorrow’s Gold.The Best of Marc FaberBest Mexican Stocks for Cinco de Mayo
China is now home to the world’s third-largest soft drink market in terms of volume, after the US and Mexico.
— Yiannis Mostrous, Cocktail StocksMexico faces serious problems from its murderous drug cartels who effectively control large swaths of the country, but the fact remains that the Mexican economy is the 12th largest in the world and grew 5% in real terms last year. It accounts for 12% of U.S. imports and 5% of Canadian imports. It also is the home of Carlos Slim Helu, the world’s richest man with a $74 billion fortune. Brazilian mining billionaire Eike Batista boasts that he will surpass Carlos Slim soon, but I doubt it. Batista only has a pitiful $27 billion fortune. What a loser.
Being the hedonist that I am, the thing I most appreciate about Mexico is that it brought us the Cinco de Mayo holiday. On May 5, 1862 a small and ill-equipped group of Mexicans defeated a much-larger invasion force of 8,000 French soldiers. Apparently, the Mexican government had defaulted on a large debt owed to the French imperial government of Napoleon III. Waging war to collect a debt isn’t the best motivation and the French army paid the price.
Ironically, Cinco de Mayo is more widely celebrated in the United States than in Mexico. Mexicans care much more about September 16th, which commemorates their independence from Spain in 1810. Mexicans probably “dis” Cinco de Mayo because the 1862 French defeat at the hands of Mexico was only temporary; the French army returned with an overwhelming force of 30,000 soldiers that succeeded in conquering Mexico. Oh well. But the delay in conquering Mexico was important for the Union army in the United States.
Remember, May 1862 was right in the middle of the U.S. Civil War. The decisive battle of Gettysburg that turned the war in favor of the Union would not occur for 14 more months. France was planning on supplying the Confederate army via Mexico. If the Mexicans had not delayed the French conquest by several months, the Confederate army might have received critical supplies that prevented President Lincoln and the North from winning. For this reason, Cinco de Mayo is more important to the subsequent history of the United States than of Mexico.
In the U.S., Cinco de Mayo is celebrated primarily by drinking margaritas and Corona beer. In a way, it is the Mexican version of St. Patrick’s Day. So, to commemorate the day, I present you below with some of the best Mexican stocks I could find.
It’s only fitting to start with Mexico’s largest landline telephone company, which was founded by Carlos Slim. His family is still the largest shareholder with a 59.4% controlling interest. The stock pays a nice 4.8% annual dividend, but its growth prospects are limited.
Another Carlos Slim company, this wireless telecom powerhouse was spun off from Telmex in 2001 and now is the vehicle by which Slim owns his 59.4% interest in Telmex. America Movil controls 70% of the Mexican wireless market and is the real growth company in Mexico’s telecom space. The stock has suffered recently because Mexican telecom regulators are forcing it to cut the interconnection rates it charges competing wireless networks by more than half. Still, I like America’s Movil’s long-term growth prospects.
Consumer conglomerate with three divisions: (1) a controlling 54% interest in joint venture Coca-Cola FEMSA (NYSE: KOF); (2) a chain of OXXO convenience stores; and (3) a 20% interest in Dutch global beer giant Heineken (Other OTC: HINKY.PK). First-quarter earnings were up more than 10% and it looks like 2011 will be another good year.
Largest TV broadcaster in Mexico with four of Mexico City’s 10 TV stations and a 70% market share of the prime-time audience. Last October, the company paid $1.2 billion for a 35% interest in New York-based Spanish language media company Univision. Also owns controlling stakes in cable TV and satellite TV companies.
Largest producer of cement in the world. Highly exposed to residential construction, which is very weak right now. Largest market is Europe, which accounts for 34% of annual revenue. The company is highly leveraged because of two badly-timed acqusitions prior to the housing bust: (1) $5.8 billion for Britain’s RMC Group in 2005; and (2) $14.2 billion for Australia’s Rinker Group in 2007. If housing ever comes back, Cemex should do well.
Elliott Gue, co-editor of Cocktail Stocks loves to look for catalysts; in fact, they are one of Elliott’s favorite buy triggers. As he wrote in an advisor roundtable:
When researching growth-oriented companies I look for catalysts. There’s no point in buying or selling a stock that’s just going to trade sideways or follow the broader market in lockstep.
The depreciation of the U.S. dollar is a type of catalyst that can boost the capital-appreciation prospects of companies in foreign countries like Mexico. If you are looking for a short-term trading service that can spice up your investment returns with some quick winners in three to nine months’ time, Cocktail Stocks is just what the doctor ordered.
Right now, Elliott Gue and co-editor Yiannis Mostrous are recommending six stocks – including a Latin American growth rocket — primed to deliver double-digit gains quickly. They recently recommended shorting an index primed to fall. To find out the names of their latest picks, give Cocktail Stocks a try today!
Faber: Bulls to Get Slaughtered as Stocks Plunge
Contrarian investor Marc Faber says stocks will fall sharply in May, turning the recent breakout in stocks into a trap for the bulls.
The markets are due for a correction and the technicals point to a weak market, Faber tells Wall Street Pit. In particular, he points to the decline in new 52-week highs as evidence of an unhealthy internal market.
Right now, Faber advises investors determined to buy stocks to stay away from cyclicals, tech stocks, and banks, sticking with safer plays such as consumer staples.
He’s more cautious when it comes to silver because of its recent runup in the price, and expects a 20-percent-plus correction in the metals complex because the inflation trade has become too crowded.
Faber says copper and the S&P 500 are highly correlated, and finds he fact that the stock index reached a new high while the metal didn’t is another signal that stocks could follow commodities lower in the short-term.
Faber says the U.S. housing market has another 10 percent to fall, but valuations are now attractive and housing hasn’t been this cheap since the early 1980s. In a serious inflation environment, Faber would rather own housing than paper dollars.
Faber also expects the United States will run trillion-dollar budget deficits for the next 10 years and the Federal Reserve will have to at least partially monetize this debt to keep interest rates low.
But not everyone agrees with Faber. Another notorious equities bear now says he’s bullish. David Rosenberg, senior strategist and economist at Gluskin Sheff in Toronto, is telling clients that the stock market isn’t headed for a crash.
The market has been rallying since March 2009, yet Rosenberg has been wary of the trend, defending bonds against “inflationistas” and warning that deflation remains the far greater danger, CNBC reports.
Skies seem bluer. “This is not about throwing in the towel,” Rosenberg writes in a letter to clients.
“It is an acknowledgment of what the market internals are flashing at the current time from a purely tactical and technical standpoint.”
© Moneynews. All rights reserved.
Best Stocks for the British Royal Wedding
As always, we recommend buying shares in London. Buying shares across the pond has become so easy these days with commissions – in many instances – as low as when buying domestic stocks, especially if you have a serious broker. Those who can buy directly in London will probably get better execution.
— Yiannis Mostrous, Global Investment StrategistIt’s finally over! At 11:00 AM London time (6:00 AM EDT), Prince William and Kate Middleton exchanged vows at Westminster Abbey and officially became the Duke and Duchess of Cambridge, the Earl and Countess of Strathearn, and — my personal favorite — the Baron and Baroness of Carrickfergus. Of course, besides these honorary new royal titles, William will remain Prince of Wales and Kate will become Princess William of Wales. Whatever you do, don’t call her Princess Kate because such a first-name title is reserved for a woman who was born into royalty and Kate was, well, born a mere commoner.
No doubt about it, these are strange names for a strange and archaic institution. Truth be told, I am a democrat (small d) through and through and the concept of a hereditary monarchy bugs the Hell out of me. If I were British, I would definitely be a member of the anti-monarchy Republic organization. And what’s with the snub of President Obama? He wasn’t invited to the wedding while monarchical despots like the King of Jordan, the Crown Prince of Abu Dhabi, the Sultan of Oman, the King of Bahrain, the Sultan of Brunei and the King of Saudi Arabia all were. Granted, if William was next in line for the British throne rather than his daddy Charles, royal protocol would have required Obama to be invited, but there is still something terribly wrong about Queen Elizabeth and Prince William favoring anti-democratic rulers over the leader of the free world. It makes me very glad that the British royal family is just a ceremonial figurehead devoid of any real power.
What’s fascinating to me is that the American public seems more interested in the royal wedding than the British themselves. This British indifference is perfectly understandable given the sorry state of their economy. First-quarter GDP growth came in at a very anemic 0.5% annualized rate, which puts the British economy no better off than it was in the third quarter of 2010. In the fourth quarter of 2010, the British economy actually contracted 0.5%! Of all the major world economies, the British economy is the only one to have come so close to a double-dip recession, defined as two consecutive quarters of negative growth. Combine this weak growth with inflation running at 4% annually, double the Bank of England’s 2% target, and you have the recipe for stagflation.
No wonder that the British public is not cheering on the royal family! What good has the royal family done for them lately? Oh, and don’t forget that the royal family consumes public tax dollars for their living expenses. The royals claim that they are paying for the wedding with their private money, but it is actually coming out of the $50 million per year stipend they receive from the government (i.e., U.K. taxpayers). Then there is the $8.5 million being spent directly by the government for police security and the estimated $10 million in lost economic productivity caused by the government’s decision to make this Friday a work holiday. Ugh.
It’s a lot easier to be enamored with the royals when you are not footing the bill, which may help explain the more favorable interest of Americans. But even with us, I think the interest is focused solely on Kate Middleton and not on Prince William. First and foremost, Kate is a distant descendant of our very own first president, George Washington! Second, Americans love underdogs and Kate’s ascension from commoner to royalty is a great rags-to-riches story. Kate comes from a long line of coal miners, general laborers and clerks – our kind of people!
With that background, I thought it would be fun to list a few stocks that best represent the royal wedding. Some of them may actually be good investments too!
Food is my favorite subject so of course my first stock pick deals with one of the royal wedding cakes. Not the official but grotesque eight-tier fruit cake designed by Fiona Cairns. Rather, I’m interested in Prince William’s groom’s cake which is made out of cookies! Unfortunately, the McVities Rich Tea Biscuits called for in the official recipe are made by a private company called United Biscuits, so I had to go with the next best thing: General Mills’ Betty Crocker! The Betty Crocker website offers a recipe for Prince William’s Groom’s Cake that uses Betty Crocker sugar cookie mix and it looks delicious, if not totally authentic. General Mills is a consumer staples company whose stock should do well starting in May based on industry sector seasonality.
Continuing on the food theme, I was somewhat repulsed to learn that Papa Johns has created a William and Kate portrait pizza in the U.K. Does anyone really want to eat people’s faces? Apparently, some do and reports are that many Brits have emailed the company hoping to win one of these pizzas so that they can eat William and Kate. British food is so mediocre that many living there probably love Papa Johns pizza. As for me, I’m not a fan of nationwide pizza chains and prefer Chicago deep-dish from Lou Malnati’s or New Haven thin-crust from Modern Apizza.
Foreign dignitaries must fly to reach the wedding and Ryanair is one way to get to London fast. This Irish discount airline – modeled after U.S.-based Southwest Airlines – does a lot of business in the U.K., with routes as far east as Lithuania, as far south as Malta, and as far north as Oslo. The airline’s bookings are up 65% over the past month. Interestingly, just as much of this air traffic may be coming from Brits trying to flee the hoopla as it comes from tourists seeking to watch the spectacle! Ryanair doesn’t care your motivation for traveling as long as you travel.
Prince William doesn’t need to go to a jewelry store to buy a ring for Kate; he gave Kate his late mother Princess Diana’s 18-carat sapphire engagement ring. But most well-to-do future grooms go to places like Tiffany’s for their engagement ring. Who can resist that Tiffany blue box? And the 1961 film Breakfast at Tiffany’s starring Audrey Hepburn and George Peppard is a great romantic comedy.
With hundreds of years of royal protocol, I doubt William and Kate needed to consult an Internet website on how to plan a wedding, but The Knot provides great nuptials information for the rest of us. I should have consulted The Knot website before my wedding because our wedding planner was the worst in the history of mankind.
Another wedding-based website that focuses more on entertainment and voyeurism than practical planning information is WeddingCentral.com. It is run by Rainbow Entertainment, a subsidiary of New York cable operator Cablevision Systems (NYSE: CVC).
I wish William and Kate all the best in their future together.
Yiannis Mostrous, editor of the market-beating Global Investment Strategist investment service, scours the globe for the foreign stocks with the highest return potential. They could be in Europe, the Far East, Latin America, or Africa.
Right now, one of his “Top 5 Stocks to Buy Now” includes a London-based bank. To find out the name of this best-buy British bastion of wealth – along with all the foreign markets and individual foreign stocks Yiannis likes best right now — give Global Investment Strategist a try today!
MLP IPOs: Big Income from New Stocks
Few investments are better than energy-focused master limited partnerships (MLP) that boast a long history of consistently boosting its distributions to unitholders. For example, longtime Personal Finance favorite Enterprise Products Partners LP (NYSE: EPD) has generated enormous wealth for unitholders.
But older MLPs don’t necessarily offer the best distribution growth potential. In many cases, MLPs grow distributions at the fastest rate in their first two years as public companies. And there’s nothing like rapid growth in distributions to drive strong price appreciation and total returns.
For example, in Williams Partners LP’s (NYSE: WPZ) first two years as a public company, the firm boosted its quarterly payout from $0.35 to $0.575, thanks to a series of asset drop-downs from its general partner, Williams Companies (NYSE: WMB). These deals helped the stock soar 80 percent from the close on its first full day of trading.
Sunoco Logistics Partners LP (NYSE: SXL) enjoyed a similar pop. The refined products pipeline giant increased its payout 23 percent in its first eight quarters as a public company, and the stock soared 100 percent. It pays to keep a close eye on initial public offerings (IPO).
Because distribution growth attracts investors, most MLPs are set up to generate rapid growth in their early years. Of course, not all MLP IPO are winners: The investment landscape is littered with the wreckage of small MLPs that never managed to establish a sustainable business model or reach critical mass. Others expanded too quickly and took on too much leverage and commodity risk; many of the worst offenders got crushed during the 2007-09 bear market.
This week’s issue of MLP Profits examined three recent MLP IPOs, including a fertilizer company with the potential to offer an annualized yield around 11 percent this year and a play on the fast-growing market for liquefied natural gas (LNG). But the biggest MLP IPO so far this year is a company that’s leveraged to the growth of the red-hot Bakken Shale oilfield in North Dakota and Montana, Tesoro Logistics LP (NasdaqGS: TLLP). Here’s a look at that hot IPO.
Backed by Tesoro Corp (NYSE: TRO), the second-largest independent refiner in the US, Tesoro Logistics operates two businesses: an oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana, and a system of eight refined products terminals and a storage facility in the western US.
Tesoro Corp retained a majority ownership stake in Tesoro Logistics after the IPO and will continue to control its GP interests, entitling it to receive incentive distribution rights from the LP.
The Bakken Shale region of North Dakota and Montana is one of the hottest unconventional oil plays in the US right now.
What makes an oil or natural gas play unconventional? Hydrocarbons don’t occur in giant underground pools but are trapped in the pores and cracks of a reservoir rock. Conventional reservoir rocks such as sandstone feature high porosity and permeability. That is, they have many pores capable of holding hydrocarbons as well as fissures and interconnections trough which the oil or gas can travel. When a producer drills a well in a conventional field, oil and gas flow through the reservoir rock and into the well, powered mainly by geologic pressure.
Shale fields and other unconventional plays aren’t particularly permeable. In other words, these deposits contain plenty of hydrocarbons but lack channels through which the oil or gas can travel. Even in shale fields where there’s plenty of geologic pressure, the hydrocarbons are essentially locked in place.
Producers have developed and refined two major technologies in recent years to unlock the natural gas and oil trapped in shale deposits–horizontal drilling and fracturing. Horizontal wells are drilled down and sideways to expose more of the well to productive reservoir layers.
Fracturing is a process whereby producers pump a liquid into a shale reservoir under such tremendous pressure that it cracks the reservoir rock. This creates channels through which hydrocarbons can travel, improving permeability. Over the past several years US producers have perfected these techniques in a number of prolific shale gas plays. Now more and more of these exploration and production firms are applying the same techniques to a handful of established and emerging shale oil plays.
Producers are increasingly finding that long horizontal wells–“long laterals” in industry parlance–and huge multistage fracturing jobs maximize output from shale deposits. For example, in the Bakken producers routinely drill laterals that exceed 10,000 feet in length, a distance of nearly two miles. Plenty of producers do fracturing jobs in more than 30 stages, and a few are contemplating fracturing projects of 42 stages or more. As technology and drilling techniques evolve, output and efficiency continue to improve.
The results explain why exploration and production outfits have rushed to secure acreage in the most promising plays. Not only do these fields produce crude that’s often of better quality than West Texas Intermediate (the US standard that’s the basis for futures traded on the New York Mercantile Exchange), but break-even costs are also far lower than in the deepwater.
In the core of the Bakken, for example, producers need oil prices in the $35 to $40 range to earn solid returns on their drilling programs. At current oil prices, some producers enjoy internal rates of return in excess of 100 percent.
Oil production from the Bakken region has surged in recent years. Less than five years ago, North Dakota and Montana combined produced less than 150,000 barrels of oil per day. Today that number is closer to 400,000 barrels per day. The region’s output could eclipse 750,000 barrels per day by mid-decade.
The biggest problem producers in the Bakken face isn’t getting oil out of the ground but moving that crude to market. North Dakota and Montana are sparsely populated states, so the local market is negligible. Because the region historically hasn’t been an important center of US oil production, there’s limited pipeline capacity to move oil, NGLs and other products out of the region to population centers.
Tesoro Logistics’ High Plains gathering system offers one outlet. The company has the capacity to gather about 23,000 barrels per day from the region using trucks. Tesoro Logistics also owns a 700-mile pipeline gathering system in the region that collects production from individual oil wells. All told, the MLP’s gathering system is set up to deliver up 70,000 barrels per day of oil crude to Tesoro Corp’s refinery in Mandan, N.D. The Mandan facility is one of Tesoro Corp’s smaller refineries, but the company is expanding the operation to accommodate all of the MLP’s gathering capacity. These additions are slated for completion in 2012.
The terminals and storage business is closely tied to Tesoro Corp’s refineries in the western US. Terminals typically hold refined products such as gasoline and diesel fuel and often provide fuel blending and other ancillary services. Conservative Portfolio holding Sunoco Logistics Partners also owns an extensive collection of terminal assets.
Tesoro Logistics’ cash flows are all supported by long-term contracts with Tesoro Corp. These agreements establish a minimum monthly throughput for the MLP’s gathering system and terminals, guaranteeing a certain level of cash flow that’s independent of utilization rates. For the gathering and storage infrastructure, the contract sets an inflation-indexed fee schedule that protects the MLP from rising labor and raw material costs. These contracts will be valid for 10 years from Tesoro Logistics’ IPO, though the agreements governing the crude oil trucking operation in the Bakken are good for two years.
Tesoro Logistics growth story hinges on organic expansion and asset drop-downs from its GP. Tesoro Corp contributed almost $200 million worth of terminals and logistics assets to Tesoro Logistics, but the IPO prospectus estimates that the parent company owns another $240 million worth of assets that would be suitable for the MLP. In fact, Tesoro Corp has granted Tesoro Logistics the right of first refusal on any of these assets it might like to purchase.
Over the next 12 to 24 months, Tesoro Logistics will likely raise additional capital and announce a series of drop-downs from its parent. These transactions should boost to distributions immediately.
Tesoro Logistics also has ample opportunity to grow organically. For example, Tesoro Logistics has discussed the feasibility of a rail terminal at its North Dakota refinery that would accept additional oil production from the Bakken and transport that oil to the Gulf Coast by rail. Several major producers in the Bakken already use trains to ship oil out of the region.
Tesoro Logistics’ contracts with its GP should enable the MLP to achieve its minimum quarterly distribution of $0.3375 per unit. Investors should expect the second-quarter distribution to be prorated; the MLP went public 20 days into the quarter.
Based on Tesoro Logistics’ minimum payout and the stock’s closing price on its first day of trading, the stock yields 5.7 percent. That’s in-line with the average US-traded MLP and reflects the low-risk nature of the MLP’s business.
Tesoro Logistics’ incentive distribution rights structure is set up such that fees paid to the GP begin to increase gradually once the limited partners’ quarterly distributions exceed $0.388125 per unit. Given the likelihood of drop-down transactions, the payout should exceed that level over the next 12 to 24 months, a respectable rate of distribution growth for a low-risk MLP.
Interested in hearing more about our favorite MLP IPOs? Part of the mission statement for MLP Profits is that Roger Conrad and I rate every publicly traded MLP a buy, hold or sell. That means that we monitor and evaluate every new MLP IPO, including the three IPOs that have occurred in 2011. Personal Finance Weekly readers are welcome to sign up for a free trial of MLP Profits.
Chinese Internet Stocks Up Big: Get Ready for the Facebook of China
HomeChinese Internet Stocks Up Big: Get Ready for the Facebook of China
By 2014 more than 400 million people will access the Internet solely through a mobile connection. Smartphones, which enable a broad range of data services, represent a higher margin business for network operators
— Yiannis Mostrous, Global Investment Strategist
Whenever the stock market has a big down day like yesterday (April 18th), I like to search for any stocks showing relative strength. If a stock goes up when the overall market is going down, that suggests strong upward momentum that is likely to continue. The relative strength could really skyrocket if the headwinds from the general market downtrend were to calm down.
My stock search yielded one industry group showing exceptional relative strength: Chinese Internet stocks. Look at the following table:
Shanda Interactive (NasdaqGS: SNDA)
Perfect World (NasdaqGS: PWRD)
Qihoo 360 Technology (NYSE: QIHU)
Source: BloombergChina is experiencing inflationary pressures. During the first quarter of 2011 (Jan. to Mar.), Chinese GDP rose an annualized 9.7% and inflation accelerated to an annualized 5.7%, the highest since July 2008 and above the Chinese government’s 4% target. The central bank has been forced to raise bank lending rates four times since October, the last hike to 6.31% occurring two weeks ago. The Chinese central bank has also raised bank reserve requirements four times in 2011, the last hike to 20.5% effective this Thursday (April 21st).
Higher interest rates are especially harmful to companies with large capital expenses that require continual borrowing. I think the reason that Chinese Internet companies have done so well despite China’s continual interest rate hikes is that they typically have very low debt-to-equity ratios. If there’s one place to hide during China’s rate-hike phase – which is far from over — Internet companies are it!
As I mentioned almost a year ago in Baidu Defeats Google in China, China is the largest Internet market in the world. Over the past year, China’s lead over the U.S. has only grown larger:
Source: Internet World Stats
The next big Chinese Internet IPO is Renren – the Facebook of China. It will trade on the New York Stock Exchange under the ticker symbol “RENN” and is slated for early May. U.S. Internet growth stocks are also primed to go public, with LinkedIn, Zillow, and Groupon scheduled to have IPOs this year.
Yiannis Mostrous, editor of the market-beating Global Investment Strategist investment service, has told his subscribers that investor worries about a Chinese economic slowdown are overblown:
Valuations are decreasing while the region’s strong fundamentals remain intact, this will result in attractive entry points to Asian markets this year. The Chinese market, an all-important bellwether for the region, is beginning to offer favorable entry points in several sectors. Farsighted investors will seize upon these opportunities in 2011.
To find out which Chinese Internet stocks Yiannis likes best right now, give Global Investment Strategist a try today!
Jim Fink is the senior online editor for Investing Daily and is also chief investment strategist for Jim Fink’s Options for Income. He has traded options for more than 20 years and generated personal profits of more than $5 million. When not trading options, he writes the “Stocks to Watch” daily column that provides readers with timely insight into current events and their potential impact on publicly listed companies.
Hopelessly overeducated, Jim holds a bachelor’s degree from Yale University, a master’s degree from Harvard’s Kennedy School of Government, a law degree from Columbia University, and an MBA from the University of Virginia’s Darden School of Business. For good measure, he has been a member of the Illinois and D.C. bars and is a CFA charterholder.
Prior to joining Investing Daily, and when not incurring student loans hiding out in academe, Jim practiced telecommunications regulatory law for nine years until he realized that he made more money trading stock options than writing briefs. After attending business school, Jim switched gears to the investment realm full-time, working for a university endowment, a private wealth management firm, an insurance and financial planning company, and as a Senior Analyst for an online investment newsletter service that encourages the wearing of funny hats.
A possible but unlikely descendant of legendary brawler and boatman Mike Fink, Jim defies his heritage, believing that investing success requires patience and analysis, not swashbuckling bravado. Besides his passion for analyzing and writing about stocks, Jim likes to hike in the desert Southwest, vacation in Las Vegas, play tennis, and feed his toddler son cheerios.
Oil Services Stocks Rally Early – Voice of the People
Zacks highlights commentary from People and Picks Member «inthemoneystocks».
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Oil Services Stocks Rally EarlyThis morning all of the major oil services stocks are trading higher during the first fifteen minutes of the day. The highly popular and traded Oil Services Holders Trust (OIH) is trading higher by $1.65 to $161.00 a share. The pattern on the daily chart remains very good as the OIH has consolidated for the past four trading sessions. Intra-day traders must watch the $161.60 and $162.00 levels for resistance. These areas could be short term intra-day pullback levels for the OIH.
Halliburton Co. (HAL – Analyst Report) is a leading oil services company that is trading higher by 0.87 cents to $46.91 a share. This stock will have intra-day resistance around the $47.00 area. Should the stock rally further traders must watch the $47.50 as the next intra-day resistance level.
Schlumberger Ltd. (SLB – Analyst Report) is rallying higher this morning by $2.00 to $88.90 a share. This leading oil services stock should meet important intra-day resistance around the $89.75 level. Should the stock trade higher the $90.25 area would be the next intra-day resistance level for the stock.
Nicholas Santiago
InTheMoneyStocks.com
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Free Stock Analysis From Zacks Includes Zacks Long-Term Recommendation and Target PricePlease login or register to post a commentAnother Opportunity to Buy Stocks
Having just eaten a big meal at Lebanese Taverna with a university friend from the UK, I was looking forward to a walk and coffee in the shopping center at Tysons II in northern Virginia. Although the meal and the company were worthwhile, the mobs of shoppers clogging the walkways and store stand out the most in my memory.
Americans engaging in the true national pastime is hardly a surprise, but this was in January 2009 when the US economy was in dire straits. The reason for the shopping frenzy was readily apparent: Stuck with reams of leftover merchandise from the dreadful 2008 shopping season, retailers had discounted goods by 50 to 80 percent. I ended up buying a designer coat for less than $100, while my friend must have exceeded the UK customs limit by at least fivefold.
People love a bargain. The same consumer behaviors apply to the stock market. How many times have you watched a stock march steadily higher, waiting for a pullback to buy? If you’re like me and most other investors, that’s happened to you more than a few times, especially during the run-up of the past two years.
One of the most common questions I receive from subscribers during strong rallies is whether it’s too late to buy the holdings in Personal Finance’s model Portfolios.
Looking through my notes, I can find far more instances where a strong stock I wanted to buy ran up 20, 30 or even 50 percent than instances where a strong stock pulled back immediately after I’d purchased it. Shopping for bargains is a great wait to get a Hugo Boss overcoat at a deeply discounted price, but it can be the most expensive strategy for buying stocks.
Market pullbacks of 5 to 10 percent are common occurrences; stocks that have posted dramatic gains are often the most vulnerable to these broader pullbacks because investors have larger profits to protect. This is not a comfortable reality for investors–pullbacks are scary events, especially with the trauma of the 2008 market meltdown looming large in many investors’ memories.
If you’re worried about a potential shakeout, consider staggering your purchase over time. For example, if you plan to invest $15,000 in a stock, consider buying that stake in three lots of $5,000 over a period of several months. That way you’ll have some exposure to further upside if the stock price continues to climb. However, if the shares pull back, this strategy also leaves you with some dry powder to boost your position.
Buy Stocks Now
That brings me to another issue that’s even more instructive in the current market environment. Many investors wait patiently for a pullback to occur, only to freeze when a normal 5 or 10 percent downdraft takes hold. The sensationalist stories that pass for reporting in the financial media are partly to blame for this fear.
Last summer, the S&P 500 and most stock market indexes pulled back sharply amid concerns about the EU sovereign debt “crisis,” a potential double-dip recession and the Macondo oil spill in the US Gulf of Mexico. The latter event meant that energy stocks, a major component of the Personal Finance Growth and Income Portfolios and the coverage focus of The Energy Strategist, were hit harder than the average stock in the S&P 500.
In both publications, I wrote that the Macondo spill would not mean the end of deepwater drilling and controversially explained why the disaster wasn’t the worst environmental catastrophe in history. I also wrote that a double-dip recession was a remote possibility, noting that the data indicated that US economic growth had only cooled–far from the outright contraction trumpeted in the financial media. Investors overreacted to these events partly because they had substantial profits to protect after the run-up from March 2009 to April 2010.
That was 10 months ago. The subsequent 10 months have been a great time to own stocks. The S&P 500 is up 18.9 percent since the end of May 2010, while the S&P 500 Energy Index is up 38.2 percent. That market pullback was an epic buying opportunity that far too many investors missed out on.
The same trends are repeating right now. The S&P 500 topped out in mid-February at 1,344.07 and recently touched a low of 1,291.99, a pullback of slightly less than 4 percent, from high to low. That barely qualifies as a correction, though some sectors and individual stocks have absorbed a harder hit.
For example, one of the best-performing groups in the market over the past year is the Philadelphia Oil Services Index (OSX). As this index up 28.4 percent over the past year alone, investors have a lot of profits to protect; not surprisingly, the OSX has pulled back more sharply than the market as a whole–roughly 10 percent between the recent intraday high and low.
Gauging the magnitude and duration of market pullbacks is a tricky business. But if you put a gun to my head, I’d guess the market has a bit more downside to come. Short-term market moves are more often driven by technical factors–support and resistance levels on the charts–rather than by fundamentals. Check out this graph of the S&P 500’s performance.
Source: Stockcharts.com
In technical analysis, support levels are areas where buyers emerge and support stocks. Resistance levels are levels where see sellers come in and push the market lower. Typically, support and resistance levels are marked in areas where the market has seen significant trading action in the past.
The first support level for the market was 1,300, both a psychologically important round number and in the neighborhood of the S7P 500’s 50-day moving average. Most graphs have both the 50 and 200-day moving average lines overlaid, and these levels routinely act as at least short-term areas of support or resistance. The market has breached 1,300; once the market begins to rally again, this inflection point will serve as a resistance point.
I’ve drawn three additional levels on this graph that investors should monitor. The first is the January 2011 low of about 1,270. A move to 1,270 would mark a 5.5 percent correction from the S&P 500’s 1,344 top–an absolutely normal and healthy retracement after the big run-up in US equities.
The next line down marks the April 2010 high as well as the high hit right around the time of last year’s midterm election. This level of 1,220 to 1,230 would mark a roughly 8 to 9 percent move for the S&P 500.
The final support level on this chart is around 1,180, a 12 percent correction from the recent 1,344 highs for the index. That’s also the S&P 500’s 200-day moving average and the index’s November 2010 low.
Given the US economy’s strong fundamentals, the averages should bottom out at either the 1,270 or 1,230–a roughly 5 to 10 percent total pullback from recent high to low.
Why This Isn’t the Big One
This recent pullback isn’t the big breakdown that the bears perennially predict because of economic fundamentals I usually write about in Persona Finance Weekly.
Specifically, US economic data continues to surprise to the upside. Unlike the pullback that occurred in late April to July 2010, the economic data hasn’t soured despite unrest in MENA and lingering concerns about credit conditions in peripheral EU countries. Friday’s retail sales report is the latest evidence.
Source: Bloomberg
This table breaks down the advance retail sales data for February by category. As you can see, total retail sales surged 1 percent in February on top of a 0.7 percent increase in January.
Sales at gasoline stations rise when the price of gasoline increases, and sales at grocery stores rise when the price of bread, beef and vegetables rises. That doesn’t tell us much about the state of the economy, which is reflected in discretionary spending.
In February, sales of nonessential items such as electronics, sporting goods and clothing soared. These aren’t what people buy when they’re worried about crude oil prices or the potential for a recession.
If consumers were so worried about gasoline prices, it stands to reason they’d spend less money on cars, particularly big cars, SUVs and trucks. Exactly the opposite is true: In February, sales of autos and parts soared 2.3 percent. Earlier this month auto manufacturers reported February automobile sales of 13.38 million annualized units, well above consensus expectations and January sales of 12.54 million units. Some investors might also be surprised to learn that US car sales were up 21.8 percent year over year, while sales of light trucks and SUVs soared 33.13 percent. Gas prices have yet to prompt consumers to pump the breaks on their spending.
The economy and markets still face plenty of risks. Oil prices near $147 per barrel would shock the world economy and, if sustained for any length of time, might bring on a recession. But that’s a low-probability event despite recent protests in Saudi Arabia.
Saudi Arabia took no chances during the proposed “Day of Rage” on Thursday and Friday; a heavy police presence limited the size and number of protests, all of which occurred in the eastern provinces where Shiite Muslims outnumber Sunnis. A report that Saudi police fired into a crowd of protesters catalyzed a selloff in stocks Thursday afternoon. Saudi police claimed they fired above the protesters heads after being attacked.
The Saudi government should be able to quell unrest with cash. Last month the Saudis announced a $36 billion social spending program that includes interest-free loans for property purchases and additional unemployment assistance. The current unrest in Libya and MENA is unlikely to send oil prices to the moon, though crude oil prices between $90 and $110 per barrel won’t result in demand destruction and will ensure earnings growth for producers.
Unless economic data suddenly deteriorate, the recent pullback in the stock market is nothing to fear. Don’t waste the opportunity: This may be your last chance to buy stocks at these prices for months.
Buy Stocks as Global Markets Weaken
HomeBuy Stocks as Global Markets Weaken At the time that Elliott Gue, David Dittman, and I wrote our latest book, The Rise of the State: Profitable Investing and Geopolitics in the 21st Century, many doubted the book’s central premise. We argued that a shifting global political landscape would drastically affect the way investors allocate funds, making an already complicated investment process even more fraught with peril. The recent political developments in North Africa have confirmed that we are experiencing a true transformation of the global economy on multiple levels.
Unrest in the resource-rich countries of North Africa, as well as civil uprisings in Gulf countries such as Bahrain, have led investors and market commentators to question whether this instability could spill over into the region’s energy heavyweights–Saudi Arabia, Iran and other Gulf states.
Although Iran’s economy is relatively weak compared to those of its neighbors, the country will likely remain stable. The strength of its army and the perception among many Iranians that their country faces threats from other global powers, make social unrest unlikely for the time being.
This doesn’t mean that Iran’s sociopolitical situation is enviable or secure. But the foreign investment capital flowing into the country–mainly from China, India and Russia–will enable Iran’s government to navigate these tricky economic waters. One cannot underestimate the potential for social unrest in Iran, but at this point we see no reason for investors to be alarmed.
The Gulf states will most likely remain stable as well. The hierarchical structure of these societies, combined with the massive amounts of capital flowing into these oil-rich nations, should prevent any meaningful threat to the ruling elite. Economic studies have demonstrated that a USD10 hike in the price of a barrel of oil increases the current account and budget balances of Saudi Arabia and Kuwait by 6 to 7 percent of GDP. These are powerful numbers. Furthermore, the leaders of these Gulf countries may implement limited reforms so as to avoid the predicament that befell their counterparts in North Africa.
These governments are spending heavily to keep their citizens happy and avoid social strife. A little more than a month ago, the Emir of Kuwait ordered the distribution of USD4 billion to the emirate’s citizens as well as free essential foodstuffs for 14 months. Each citizen will receive about USD3,500 and more than a year of free food–a good deal overall.
Markets are short-term in nature and consequently unable to assess geopolitical events in advance. As a result, markets usually react to such events after they’ve begun. The same holds true for financial shocks, as the recent financial crisis has demonstrated.
We maintain our view that investors should buy stocks amid the current market weakness because global markets appear to be consolidating rather than “correcting.” However a correction could be in the cards should the S&P 500 drop decisively below 1,275. It’s not unthinkable that the index could drop to the 1,100 to 1,150 level this year. Needless to say, investors will have to monitor the situation closely.
As things stand now, the global economic recovery is still on track. Recent events in North Africa will have grave consequences for the local economies, but they won’t damage overall global economic growth.
It’s true that high oil prices could hamper growth. But as we noted in the Dec. 30, 2010, issue of Passport to Profits: “…a prolonged period of high oil prices–in the neighborhood of USD120 per barrel–can lead to serious problems for the US consumer. Although there is some threat that the price of oil will spike to between USD130 to USD140 per barrel in the short term, it’s unlikely that these prices would be sustained. Emerging-market economies are cooling down and oil supply is forecasted to be at a minor deficit.”
That assessment remains valid. Consequently investors must remain cautious and selective when picking stocks in 2011.With his experience in international market analysis and venture financing, Yiannis G. Mostrous is more than just a world traveler; he’s also an expert on identifying investment opportunities in emerging and overlooked markets—the places most of us only see on television.
As an analyst with Artemel International, Yiannis worked with developmental institutions to promote business development in the Mediterranean, while as an associate in the venture capital Finance & Investment Associates was involved in analyzing start up companies’ business plans evaluating their potential while bringing together worthy candidates and angel investor groups.
He also worked as a consultant for brokers in Intersec Securities, a brokerage firm in Athens, Greece, where he did primary research and solicited business from high net worth clients. In 2006 Yiannis coauthored a book on investment opportunities in Asia, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity. More recently, Yiannis was lead author of The Rise of the State: Profitable Investing and Geoplitics in the 21st Century.
Since joining KCI, Yiannis has dedicated himself to helping individual investors bolster their returns and give their portfolios an international flavor. In his financial advisory The Global Investment Strategist, Yiannis explains the most profitable facets of emerging global economies such as China and India. With Stocks on the Run, Yiannis teams up with fellow KCI editor Elliott Gue, seeking out opportunities for triple-digit gains in 3-9 months.
Yiannis has an MBA from Marymount University with a major in Finance and a BBA from Radford University focusing on investments in natural resource markets around the globe. He is also a veteran of the Hellenic Navy in the Landing Ships Command Office.
Ag Stocks Higher but Stall at Double Tops – Voice of the People
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Voice of the People Ag Stocks Higher but Stall at Double Tops By: inthemoneystocks February 09, 2011 | Comments: 0 Recommended this article (2) MOS | IPI Print
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Zacks’ Voice of the People Highlights user inthemoneystocks: “Ag Stocks Higher but Stall at Double Tops” from the People & Picks community.
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Ag Stocks Higher but Stall at Double Tops
Agriculture stocks are having a solid day. While the market is slightly lower, stocks like The Mosaic Company (MOS – Snapshot Report) and Intrepid Potash, Inc. (IPI – Snapshot Report) are higher. While these two stocks are higher, both ran into major double top resistance points and have stalled out.
Less than a month ago, MOS hit a 52 week high of $85.99. After hitting that high, the stock collapsed in a bloodbath, dropping to a low two days later of $71.87. After inching higher almost every day since then, the stock reached the double top today, crossing it briefly. Since crossing it, MOS has pulled back.
The same applies to Intrepid Potash. IPI topped out on January 18th, 2011 at $39.63. Within two days, it collapsed to a low of $33.90. After hitting this level, the stock rallied all the way back up to the double top high. After briefly crossing it today, it has pulled back.
This double top level should continue to be solid resistance in the short term on both stocks.
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Comment Free Stock Analysis From Zacks Includes Zacks Long-Term Recommendation and Target Price INTREPID POTASH (IPI) MOSAIC CO/THE (MOS) Disclosure / Disclaimer Link Add a Comment Please login or register to post a comment
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Rank Zacks
Rec MOS84.93$2.73
3.32 %PREMIUMPREMIUMIPI38.40$1.343.62 %PREMIUMPREMIUM 
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