dividend
Market Risk Rising; Where to Invest for the Best Potential Return
By George Leong for Daily Gains Letter | Sep 24, 2014
Don’t let the new records by the Dow Jones Industrial Average and S&P 500 trick you into thinking everything is fine in the stock market.
Just take a look…
We have the rising military actions against ISIS in Syria and Iraq that involve five Arab countries, which could really increase the geopolitical risk worldwide.
China is continuing to deliver muted economic results and suggested there would be no additional monetary stimulus at this time. Meanwhile, the slowing in the eurozone and Europe, given the economic sanctions on Russia, will impact the demand for Chinese-made goods.
And while the domestic economy is holding, the Organisation for Economic Co-operation and Development (OECD) recently cut its gross domestic product (GDP) growth estimates for the United States to below two percent this year.
The Federal Reserve is helping to support the stock market via the likely extension of its near-zero interest rate policy into mid- or late 2016, but this will help only so much.
The stock market risk is evident on the charts.
Technology and small-cap stocks are attracting the most selling, with investors dumping high-beta stocks as overall stock market risk rises.
The small-cap Russell 2000 lost 1.6%, moving back below its 50-day and 200-day moving averages (MAs) on Monday. The index is now down nearly four percent in September. Considering the risk, I would be careful when looking at small-cap stocks in the stock market at this time.
Technology is also at risk in the stock market despite the NASDAQ continuing to lead the major indices this year with an advance of close to nine percent. Higher-beta stocks are generally the … Read More
Why You Don’t Need Bonds for Income Right Now
By George Leong for Daily Gains Letter | May 21, 2014
The flow of capital into the stock market continues to be directed toward lower-beta large-cap stocks and blue chips, and far less into growth and technology stocks.
The comparative performance of the large-cap versus smaller-cap stocks also exhibits a movement of capital into bigger companies as the stock market adopts a more defensive structure. The risk in growth stocks is continuing to grip the overall stock market.
With the move to safety, we are also seeing some capital flow into the bond market as the yield on the 10-year bond approaches the critical three-percent threshold. The higher the yield, the more enticing it is for investors to move some capital out of the stock market.
Yet while bonds are gaining some traction, I still prefer the capital appreciation component associated with the stock market versus that of bonds.
The demand for yield is even more prevalent if you are a senior seeking income or a conservative stock market investor who doesn’t like the current higher risk.
Instead of bonds, I’d prefer to take a look at some dividend paying stocks.
Consider that only the S&P 500 is in the plus this year. The Dow Jones Industrial Average entered into positive territory a few sessions earlier but has since fallen back.
The attraction of the DOW stocks is not only the capital appreciation potential, but also the dividend income stream, with the average dividend yield on the 30 DOW blue chips currently sitting near 2.72%. (Source: “Dividend Yield for Stocks in the Dow Jones Industrial Average,” indexArb web site, last updated May 19, 2014.)
The move into dividend paying stocks is … Read More
Time to Ditch Swinging Cyclicals?
By George Leong for Daily Gains Letter | Apr 4, 2014
The stock market appears to be getting somewhat top-heavy. Scanning through my screens, I am quite amazed to find that the majority of S&P 500 stocks are well above their respective 200-day moving averages, which makes opportunities much more difficult to come by for the average investor who might look at their portfolio once a week or month.
But the buying in the stock market has still largely been with the technology, growth, and small-cap stocks, due to the higher potential to make quick money versus investing in blue chips or industrial companies.
In 2013, we saw staggering upside moves in some of the momentum stocks, such as Google Inc. (NASDAQ/GOOG), priceline.com Incorporated (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Chipotle Mexican Grill, Inc. (NYSE/CMG). These are the top players in their respective areas.
But that was then. Now, we are seeing a renewed interest in some of the safer names in the stock market, which is why the Dow Jones and S&P 500 outperformed in March.
My view is that while there will still be money to be made in some of the more speculative and momentum plays in the stock market, we could also see a pause for investors to digest the gains made.
Cyclical stocks, or those companies that swing with the economy, are still worth a look, but should the economic renewal stall and jobs creation dry up, it might be time to look elsewhere. Here I’m talking about those sectors such as auto, furniture, retail, travel, and restaurants.
Everyone is spending when all is good and people are making money on the stock market, but spending will … Read More
Depressed Copper Prices Presenting Perfect Buy-Low, Sell-High Opportunity?
By Moe Zulfiqar for Daily Gains Letter | Mar 26, 2014
By now, you have probably noticed one phenomenon: the speculations regarding China’s growth are increasing each day. Turning on the TV or flipping through the pages of the newspaper, you’ll likely hear and read all about how the second-biggest economic hub in the global economy will tumble.
No doubt, the arguments backing this argument are very credible. The Chinese economy is seeing an economic slowdown and troubles in that country continue to gain strength. For example, the Chinese manufacturing sector is stalling. In March, the HSBC Flash China Manufacturing Purchasing Mangers’ Index (PMI) declined to its lowest level in eight months. The output index declined to an 18-month low. (Source: “HSBC Purchasing Managers’ Index Press Release; Output contract at quickest pace in 18 months during March,” Markit, March 24, 2014.)
We have seen a few companies in the Chinese economy default on their bonds, and there are fears that more will soon fall. The widespread speculation is that the government might not come to the aid of those companies that are in trouble.
With this, investors are panicking. One of the hardest-hit asset classes due to this panic is copper. Please take a look at the chart of copper prices below.
Chart courtesy of www.StockCharts.com
Since the beginning of the year, copper prices are down more than 13% and investors believe demand for the red metal will continue to decrease due to the decline in manufacturing. During the past decade, China was building massive infrastructure and a significant amount of copper was needed as a result. This is not the case anymore.
Copper prices have broken below a key level—$3.00—and … Read More
Two Underlying Factors You Need to Consider Before Buying Stocks
By Sasha Cekerevac for Daily Gains Letter | Mar 21, 2014
When many investors think of blue chip stocks, a common name that pops up is McDonalds Corporation (NYSE/MCD).
A blue chip stock is traditionally a well-established company generating stable corporate earnings and usually paying out an attractive dividend yield. McDonald’s certainly hits the bull’s-eye on these blue chip metrics, which is especially attractive in today’s low-interest-rates world with its forward dividend yield of approximately 3.3%.
The real question to ask is what is McDonald’s potential for corporate earnings growth over the next few years?
There are two underlying factors that I would like to bring to your attention for consideration: 1) the financial health of the company’s primary customers, and 2) the cost of inputs.
While McDonald’s may keep its blue chip status, the growth of corporate earnings remains in doubt. As we all know, both the U.S. and global economy are becoming increasingly split between higher income and lower income people. As we know, neither the U.S. nor the global economy is firing on all cylinders, as seen by the still significantly high unemployment levels.
Wages remain stagnant, and while companies can increase corporate earnings through share buybacks, at some point, revenues must accelerate.
The problem for McDonald’s that could really impact corporate earnings growth is that the costs of inputs, specifically for beef, are rising substantially. The price of beef in February had the largest monthly increase since November of 2003. (Source: “CPI – Item Beef,” United States Department of Labor web site, last accessed March 19, 2014.)
McDonald’s is already struggling with its one-dollar menu. The company has begun shifting its marketing strategy away from the “McDouble” … Read More
Three Stocks for Celebrating the Bull Market’s Fifth Anniversary
By John Whitefoot for Daily Gains Letter | Mar 12, 2014
Normally, an anniversary is worth celebrating. But with the S&P 500 having recently celebrated the fifth anniversary of its bull market run, there are many economic reasons to question its longevity. Considering the economic data of the last five years, it may make more sense to question how the bull market ever got to this point.
On March 9, 2009, the S&P 500 hit bottom, closing at 676.53 and capping a 16-month sell-off that saw the S&P 500 shed more than half of its value. Over the last five years, the S&P 500 has more than made up for the loss, climbing almost 180%. The average American has not fared quite as well.
For starters, the S&P 500 is only as strong as the stocks that make up the index. And because those stocks are a reflection of the U.S. economy, they should (one would think) run in step with the economic data. But this hasn’t been the case.
Over the last five years, the U.S. has been saddled with high unemployment, stagnant wages, high consumer debt levels, weak durable goods numbers, a temperamental housing market, waning consumer confidence levels, and a growing disparity between the rich and the poor.
In an effort to appease shareholders, businesses implemented a form of financial engineering, masking weak earnings and revenues with cost-cutting measures and unprecedented share repurchase programs. In fact, in 2013, share buybacks amounted to $460 billion—the highest level since 2007.
More recently, in 2013, the S&P 500 notched up 45 record closes—climbing roughly 30% year-over-year. Yet despite a year full of all-time highs, each quarter, a larger percentage of companies … Read More
Top-Yielding Stocks to Combat Low Interest Rates
By John Whitefoot for Daily Gains Letter | Feb 13, 2014
Federal Reserve Chair Janet Yellen has confirmed what most already knew. The recovery in the U.S. jobs market is far from complete. Yellen noted that the unemployment rate has improved since the Federal Reserve initiated its last round of quantitative easing in late 2012, falling from 8.1% to 6.6%. Curiously, in 2013, the U.S. economy grew just two percent.
That said, against the backdrop of a so-called improving U.S. economy, the numbers of the long-term unemployed and part-time workers are far too high. In fact, 3.6 million Americans, or 35.8% of the country’s unemployed, fall under the “long-term unemployed” umbrella—that is, those who have been out of work for more than 27 weeks. The underemployment rate (which includes those who have part-time jobs but want full-time jobs and those who have given up looking for work) remains stubbornly high at 12.7%.
The improving unemployment numbers come on the heels of two straight months of weak jobs numbers. In January, economists were expecting the U.S. to add 180,000 new jobs to the U.S. economy; instead, just 113,000 new jobs were added. In December, economists were projecting 200,000 new jobs would be added—instead, the number was an anemic 74,000.
For the head of the Federal Reserve, this translates into more money being dumped into the bond market ($65.0 billion per month) and a continuation of artificially low interest rates.
Once again, bad news for Main Street is good news for Wall Street. After Yellen’s speech, the S&P 500, NYSE, and NASDAQ responded by surging higher. Again, the Federal Reserve’s ongoing bond buying program and open-ended artificially low interest rate environment is great … Read More
Where to Find the Best Opportunities in Emerging Markets
By Moe Zulfiqar for Daily Gains Letter | Feb 13, 2014
There are a significant number of concerns regarding the emerging markets at this time. Investors are asking if emerging market stocks are a good buy right now; are the troubles over or are there still more to come?
As it stands, it seems further troubles are brewing in the emerging markets, as the Federal Reserve tapers its quantitative easing program. We have seen currencies in countries like Turkey, South Africa, Russia, and Argentina decline significantly.
You see, when the Federal Reserve first started to lower its interest rates and initiated quantitative easing; it gave birth to a trade. The idea behind this trade was simple: you borrowed money from a low-interest-rate country—the U.S.—then invested that money in a high-interest-rate-paying country—the emerging markets, like Turkey—and banked the difference. The Federal Reserve tapering its quantitative easing is drying up the liquidity—the money that went to high-interest-paying countries has to come back now. This is what’s creating troubles.
Before I go into further detail, I want to restate my opinion on the emerging markets and their stocks: in the long run, they can be very profitable. My main reason for this belief is that emerging markets need infrastructure, meaning construction companies and utilities companies will be profitable. These markets also have massive populations and the middle-class is on the rise, meaning consumer discretionary stocks and companies in the service sector will see growth as a result.
Where are the opportunities in the emerging markets now?
One rule of thumb is that when there’s a broad market sell-off, even companies with great fundamentals and solid track records get punished. Investors sell these stocks in … Read More
The Stocks That Are Most Attractive After January’s Sell-Off
By Moe Zulfiqar for Daily Gains Letter | Feb 11, 2014
The theme since 2010 has been very simple: the U.S. economy is witnessing economic growth. As a result of this, the stock market increased and broke above its previous highs made in 2007. Investor optimism soared, and those who were bearish saw their stock portfolio disappear.
As the new year, 2014, began, the theme became a little more complex: the U.S. economy is going through a period of economic growth, but it’s becoming questionable. The question asked by investors these days: is the U.S. economy headed for economic slowdown, and is the stock market—which has provided investors with great returns—about to see another downturn?
The economic data that suggested the U.S. economy is growing has started to suggest this may not be the case anymore. For example, after the financial crisis, the unemployment rate in the U.S. economy declined. It meant more people were getting jobs and they had money to spend—the kind of jobs created and if they made any impact is still up for debate. In December, we heard that only 75,000 jobs were added to the U.S. economy, and in January, this number was only 113,000. (Source: “The Employment Situation,” Bureau of Labor Statistics, February 7, 2014.) The number of jobs added to the U.S. economy has missed the market estimate by a huge margin for two months in a row, and the growth compared to the early part of 2013 isn’t very impressive.
The gross domestic product (GDP) growth rate of the U.S. economy doesn’t look so impressive, either. We have created a table to show how it has been declining. Look below:… Read More
Year
Real GDP
How to Profit from the Dow’s “Dogs”
By George Leong for Daily Gains Letter | Feb 10, 2014
Small-cap stocks are faring the worst this year and are down nearly 10% from their record-high in late 2013; many would deem this to be an official stock market correction.
Given that small-cap stocks surged upward by more than 33% in 2013, it shouldn’t be a surprise to see this group get the brunt of the selling this year.
Higher-beta stocks, such as small-cap stocks or growth stocks, tend to outperform when the stock market is moving higher, but they are more vulnerable to downside weakness. This is the risk you assume when investing in small-cap stocks.
The reality is that the associated risk of buying stocks is intensified with small-cap stocks, which is why you also need to make sure you have some proven large-cap stocks in your portfolio to help alleviate some of your overall portfolio risk.
I’m not saying that you should avoid small-cap stocks in their entirety, but I do think you should look at adding some large-cap or blue chip stocks if you are devoid in this area.
The advantage of larger companies is that we know these businesses have a proven long-term track record and will likely be around decades from now, whereas small-cap stocks are more vulnerable and may not recover during an economic and market relapse.
A large company can easily absorb several quarters or even years of underperformance but small-cap stocks would have a much more difficult time doing this because they have fewer financial resources.
A classic example of a large company struggling but managing to pull out was McDonalds Corporation (NYSE/MCD). The company faced issues in the 1970s and … Read More
Three Steps to Overcoming Losses in a Declining Market
By Moe Zulfiqar for Daily Gains Letter | Feb 6, 2014
“What should you do when the house isn’t in order?”
A good friend of mine asked this question back in 2011. At that time, key stock indices were plunging lower due to issues regarding the U.S. debt ceiling. There was uncertainty, and many wondered what would happen next. I remember this question now because the key stock indices nowadays are falling due to troubles in the emerging markets and there seems to be panic—similar to what we were experiencing when I first heard this question.
When key stock indices are declining, instead of panicking and selling every holding in their portfolio, investors have to be strategic and instead think with an open mind and a long-term perspective.
The first step investors should take is to see where the troubles are coming from and if they are exposed to it at all. For example, these days, we see problems in the emerging markets are causing panic. If investors have a massive percentage of their portfolio invested in the emerging markets, then they should simply reduce their exposure. If they continue to hold their positions, and the markets continue to decline further, their losses will get bigger and it will be much harder to recover. If investors witnessed a drawdown of 25% in their portfolio, it will have to go up by more than 33% for them to just break even. Plus, reducing exposure not only protects investors from potential loss, but it also increases their cash position.
The second step investors should take is to exercise extra caution when key stock indices are falling. Investors should carefully screen the news and … Read More
Three Stocks to Watch as Activist Investors Unlock Value
By Sasha Cekerevac for Daily Gains Letter | Feb 5, 2014
One of the most hotly debated topics these days is the role of activist investors. Some people have the impression that an activist investor is not a positive factor when it comes to long-term investing. I disagree, as many times, the investment strategy recommended by these activist investors ends up benefiting all shareholders.
Probably the most well-known, and certainly the wealthiest, activist investor is Carl Icahn. One of the things I like most about Icahn’s investment strategy is that he is willing to buy when others are selling and be vocal about his intentions.
A perfect example of his long-term investing ideology was when he stepped in to buy shares of Netflix, Inc. (NASDAQ/NFLX). If you remember a few years ago, Netflix shares were trading around $60.00 and many analysts were recommending an investment strategy to stay away from Netflix. Icahn saw an opportunity to accumulate a solid company for long-term investing purposes and has held on, making a return well in excess of 500%.
I would never recommend someone simply follow a successful activist investor like Icahn; rather, I would investigate any investment strategy he advocates to see if it matches my own risk profile. For long-term investing purposes, if I was a shareholder and he became active, I would certainly be happy.
Chart courtesy of www.StockCharts.com
His recent investment strategy in Apple Inc. (NASDAQ/AAPL) makes perfect sense. The recent sell-off, I believe, is an excellent opportunity for investors to take a look at Apple as a possible long-term investing option, since the current valuation is only 10.9X its forward price-to-earnings (P/E). That is an extremely attractive valuation for … Read More
Top Four Stocks for Income During Period of Low Interest Rates, Bond Yields
By George Leong for Daily Gains Letter | Jan 23, 2014
An interesting conversation on investments surfaced recently at a dinner party with some friends. The topic was whether it was better to buy large-cap dividend-paying stocks, such as General Electric Company (NYSE/GE) and The Procter & Gamble Company (NYSE/PG), or look at smaller dividend-paying companies.
Of course, I spontaneously said it depended on a host of factors, including the risk appetite of the investor and the economy.
When the economy is growing, and especially as it emerges from a recession like we saw it 2008, it would be advantageous to stock up with smaller dividend-paying companies. The reason is because small companies tend to fare better when adjusting out of a slow period than larger companies, which take much more time to strategize and put a plan into effect.
Another way of looking at it is that it’s easier to steer a smaller boat versus a larger ship in calm waters, but when it gets rough out there, I would rather stay on a bigger ship. The same analogy applies to the question of small-cap versus big-cap stocks.
Now, as far as dividends are concerned, the most important thing is the underlying strength of the company and its previous and forward ability to pay dividends. You want to buy dividend-paying companies that have a valid and sustainable business—no fad stocks here.
Another major monetary benefit of small dividend-paying stocks is the much superior upside price appreciation potential that’s often associated with small-cap stocks. So while companies like General Electric and Procter & Gamble will consistently do well over decades, in the short run, adding some small dividend-paying stocks can help … Read More
Risk-Free Daily Income on Your Existing Stock Holdings?
By George Leong for Daily Gains Letter | Jan 16, 2014
We saw some decent buying on Tuesday but overall, stocks have been languishing early on in 2014, which has some traders concerned that a correction may be brewing.
However, I’m not sure that’s the case. The stock market may just be taking a breather following its superlative gains in 2013. I’m not surprised; in fact, I expected this would happen.
This year will likely be a more difficult year to make money, as the market is looking for reasons to buy. I still feel the direction of the stock market will be up, but it will be at a slower rate.
Now, if the stock market should continue to stall or gyrate in a sideways channel around record highs, you could take advantage of this without adding stocks.
You can earn daily income on your existing stock market holdings without having to pick up dividend stocks or shift capital into low-paying bonds. And my strategy is pretty easy and straightforward.
I’m referring to the use of writing covered call options on some of your key long-term core holdings to generate premium income and reduce the average cost base of your positions. By writing covered call options on your existing holdings, the premium income added could allow you to earn some daily income. But you need to be comfortable with possibly losing a holding.
For those who are not familiar with covered call options, the execution is simple: all you do is sell or write call options on one of your stock holdings, and in return, you’ll receive a premium for assuming the risk. You select the month of expiry and … Read More
Boost Your Returns with These Small-Caps
By George Leong for Daily Gains Letter | Jan 9, 2014
For most investors, the past year was about the search for higher-risk assets with the potential for achieving higher returns. This desire helped to propel the NASDAQ and Russell 2000 to returns in excess of 30%, while dividend paying stocks lagged in performance.
Now as we move along in 2014, we could see buying shift to more conservative stocks that pay a dividend to investors. The shift to these stocks could accelerate as comparative bond yields rise, making income investors choose between bonds and dividend stocks.
As an investment strategy, you can consider buying the large-cap dividend plays, such as General Electric Company (NYSE/GE) or The Procter & Gamble Company (NYSE/PG).
But while buying large-cap blue chips always makes sense to your overall portfolio strategy, you can increase your portfolio’s overall potential returns by adding small-cap dividend stocks. By doing so, you can usually add in higher capital appreciation potential.
And while there are numerous small-cap dividend plays in the financial and industrial sectors from which to select, I’d like to highlight a couple above-average stocks that you may want to examine further. As I said, these smaller companies offer dividends and higher capital appreciation potential.
In the area of investment management, a mid-cap company that looks like it may make a good addition to your portfolio is Och-Ziff Capital Management Group LLC (NYSE/OZM), which has a strong dividend yield of 6.7%. The stock has also advanced 61% to shareholders over the past 52 weeks; the S&P 500 returned just 25%. In the third quarter, Och-Ziff managed to beat the Thomson Financial consensus estimate by $0.07, reporting $0.27 per diluted … Read More
A New Year’s Resolution in Gold Bullion?
By John Whitefoot for Daily Gains Letter | Jan 7, 2014
Did gold make a New Year’s resolution? If it happened to set its sights on 2014 being better than 2013, then that might not be too hard to accomplish. For gold bugs, 2013 was abysmal. Gold bullion prices ended the year down about 28%—the biggest annual drop in more than 30 years.
Gold bullion prices experienced an unprecedented run-up after the tragic events of September 11, 2001 and soared higher in 2008 as the global economy teetered on the brink of a recession. Investors’ justifiable fears of economic turmoil and inflation sent them running to gold bullion and gold mining stocks to hedge against this economic uncertainty. Between September 2001 and September 2011, gold prices soared more than 560%.
But since then, gold prices have lost their lustre. And in June of this year, the precious metal hit a three-year low of $1,179 an ounce after the Federal Reserve hinted it would begin to taper its generous $85.0-billion-per-month quantitative easing policy. Investors took this as a sign that the U.S. economy was on solid footing.
Gold bullion prices remained weak near the end of the year after the Federal Reserve announced on December 18 that it would begin to reduce its monthly bond buying program to $75.0 billion a month starting in January. Gold bullion ended the year at $1,202.
2013 will be remembered as the year when (misguided) economic optimism helped lift the Dow Jones Industrial Average by 26%, the S&P 500 by almost 30%, and the NASDAQ by 34%. In 2013, that same optimism also shaved off half of the value of gold mining stocks.
But it could … Read More
Investing in These Collectibles a Better Bet Than Wall Street?
By John Whitefoot for Daily Gains Letter | Nov 25, 2013
Not all investing opportunities are created equal…
Thanks to Antiques Roadshow and American Pickers, everyone thinks investing in collectibles is a great idea. However, the truth is that few actually have anything worth more than the day they were first purchased.
That doesn’t prevent people from trying to guess what the next great cultural commodity is going to be. I remember (briefly) watching a home shopping channel years ago and listening to someone explain why “Beanie Babies” were the next big thing for those interested in investing in collectibles. He couldn’t guarantee they were a slam-dunk investment, but the prices on the secondary market had soared. Take that into consideration as you call in your order.
Interestingly, there is no Beanie Baby segment on any home shopping channel today.
Unlike stocks, there is no discernable way to say why, when, or if a collectible will ever increase in price; they also don’t provide a dividend. Investing in collectibles is as difficult as trying to time the stock market—it’s virtually impossible.
Collectibles can also be difficult to value, as it’s a subjective art. For example, on eBay (NASDAQ/EBAY), you can purchase a rare Princess Diana Beanie Baby bear for either $400,000 or get one from the same edition in similar condition for just $5,000. That’s quite a discrepancy for a really small target audience.
Here’s a hint: when it comes to investing in collectibles, look for the lowest-selling collectible you want, as that’s the bottom basement price no one is willing to pay. I’m not picking on Beanie Babies, I’m just using them as an example.
Investing in collectibles isn’t exactly … Read More
Wal-Mart Asking Employees to Donate Food to Fellow Employees in Need?
By John Whitefoot for Daily Gains Letter | Nov 21, 2013
The recent rise on the key stock indices might just be masking a fundamentally flawed economic recovery. Since the beginning of the year, the S&P 500 has gained 25%, the Dow Jones Industrial Average is up 21%, and the NASDAQ is 27% higher. At the same time, unemployment remains high, wages are stagnant, and our day-to-day life costs more.
With the S&P 500 on pace for the best yearly gain in a decade, well-heeled shareholders are rejoicing—at the other end of the scale, many employees aren’t.
You know it’s a touchy economic climate when Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, which reported third-quarter profits of $3.7 billion, is asking employees to donate food to fellow associates in need, so they can enjoy Thanksgiving this year.
A weak economy and stiff competition is taking a toll on Wal-Mart. While Wal-Mart reported third-quarter earnings that beat Wall Street estimates by a mere penny, revenues of $114.9 billion were shy of the $116.8-billion mark Wall Street was hoping for. Not surprisingly, perhaps, Wal-Mart said holiday sales would be flat. (Source: “Walmart reports Q3 EPS of $1.14, updates full year guidance; Aggressive holiday plans to drive sales,” Wal-Mart Stores, Inc. web site, last accessed November 14, 2013.)
In light of Wal-Mart’s recent employee Thanksgiving food drive, it’s interesting to note that third-quarter sales from Neighborhood Market, Wal-Mart’s chain of grocery stores, rose a solid 3.4%.
Where other grocery store chains have reported underwhelming third-quarter results, Wal-Mart’s grocery chain actually bucked the trend. Fourth-quarter results may be muted. Thanks to a U.S. economy that continues to look fragile, grocery store stocks are competing … Read More
Top Four Overlooked Stocks for Income-Seeking Investors
By John Whitefoot for Daily Gains Letter | Nov 15, 2013
The 2014 Winter Olympics in Sochi, Russia may be just around the corner, but when it comes to breaking records—for better or worse—Wall Street remains the gold-medal champion.
Thanks to the Federal Reserve, interest rates are at record lows, and will stay there for the foreseeable future. The U.S. national debt is at a record $17.1 trillion, while at the other end of the scale, the S&P 500 and Dow Jones Industrial Average recently posted record highs.
This is in spite of economic indicators that suggest the markets should be moving in the opposite direction: high unemployment, high debt, weak consumer confidence, a record 47.6 million Americans—one-sixth of the population—receiving food stamps, etc.
Under this umbrella, the markets have been going higher, in spite of an increasingly large number of companies warning investors they are not going to meet projections—and, in fact, have been revising earnings-per-share (EPS) guidance lower all year.
In the third quarter, a record 83% of S&P 500 companies revised their EPS guidance lower. How about the fourth quarter? So far, 83.5% of reporting companies on the S&P 500 have issued negative EPS guidance. In October, analysts lowered earnings estimates by 1.5%, below the one-, five-, and 10-year averages for the first month of a quarter.
Again, in spite of the record number of S&P 500 companies revising their EPS guidance lower and weak October analyst expectations, the S&P 500 continues to notch up fabulous gains—roughly 25% year-to-date and 4.5% in October alone.
Interestingly, this marks the seventh time in the last nine quarters that earnings estimates fell while the value of the underlying index increased during … Read More
Four Ways to Profit from America’s Wealthiest Citizens
By John Whitefoot for Daily Gains Letter | Nov 7, 2013
Half of the U.S. workforce is partying like its 1998—and not in a good way. According to the Social Security Administration, the median wage in the U.S. in 2012 was $27,519.10, marginally better than 2011’s median wage of $26,965.43.
That said, the median wage remains virtually unchanged since 1998, when the median wage was $27,519.55 when adjusted for inflation. So actually, you made $0.40 less in 2012 than you did in 1998. But I digress.
The report shows that more than half of Americans earned less than $30,000 in 2012. Incredibly, 15% of working Americans took home less than $5,000, with an average amount of just $2,024.79. During 2012, the S&P 500 climbed 13%, illustrating that the majority of Americans are not benefiting from the so-called recovery we call the U.S. economy.
Fear not, for there is hope. Stagnant wages are not hindering everyone: the number of Americans pulling in more than $5.0 million a year in 2012 increased by 26.8% year-over-year to 8,982. In 2011, just 7,082 Americans earned more than $5.0 million.
These stratospheric numbers only take net earnings into consideration; they do not account for capital gains made on the stock market, dividend growth, etc. Whereas America’s wealthiest citizens turn to the stock market to pad their retirement savings, the majority of Americans rely on increasing property values, income vehicles, and pension funds to pave their way to retirement.
Thanks to a record run on the S&P 500 and Dow Jones Industrial Average, America’s wealthiest have been seeing their holdings increase significantly since the Great Recession ended in 2007. On the other hand, thanks to the artificially … Read More
Coal: The Next Great Long-Term Play?
By John Whitefoot for Daily Gains Letter | Oct 17, 2013
When it comes to global energy production, the United States will be the top dog in a few short years. Back in November, the International Energy Agency (IEA) forecasted that the U.S. would overtake Saudi Arabia as the world’s top oil producer by 2017.
Over the last week, two more reports have positioned the U.S. as an even stronger near-term energy giant. The IEA said the U.S. will surpass Russia as the biggest non-OPEC producer of oil and natural gas in 2014. (Source: Harrison, V., “U.S. to pump more oil than Russia in 2014,” CNN web site, October 11, 2013.)
Over the last two quarters, the U.S. has produced more than 10 million barrels per day—its highest output in decades. Thanks to increased production in the Bakken oil field in North Dakota and the Eagle Ford shale formation in South Texas, U.S. production of oil and natural gas liquids will exceed 11 million barrels per day by the second quarter of 2014.
Perhaps more interestingly, it was announced earlier this week that coal is expected to surpass oil as the world’s primary energy source by 2020. Despite President Obama’s best efforts to reduce U.S. carbon emissions and phase out our dependence on coal, it looks like the fossil fuel is going to continue to be a major energy source. (Source: “World Coal Consumption To Surpass Oil By 2020 Due To Rising Demand In China And India,” Huffington Post web site, October 13, 2013.)
In fact, global coal consumption is expected to rise by 25% by the end of the decade to 4,500 million tonnes of oil equivalent, surpassing oil at … Read More
How to Protect Your Portfolio Entering QE Year Five
By John Whitefoot for Daily Gains Letter | Oct 7, 2013
For the last five years, the U.S. has relied on quantitative easing, one of the most unconventional monetary policies, to kick-start its economy. By printing off trillions of dollars and increasing the money supply on the back of artificially low interest rates, the government is hoping financial institutions will increase lending and liquidity.
Will it work? Not if history is any indication.
On December 29, 1989, during the heyday of the Japanese asset price bubble, the Nikkei Index hit an intraday high of 38,957.44, capping off a decade in which the index soared more than 500%. Despite those dizzying heights, no one could see what the next 25-plus years would bring.
Over the ensuing decade, the Nikkei continued to slide. To shore up the economy, the Bank of Japan held interest rates near zero and had, for many years, claimed quantitative easing was an ineffective measure.
In March 2001, the Bank of Japan unveiled its first round of quantitative easing. It didn’t take, and since then, Japan has initiated 11 rounds of quantitative easing, dumping trillions of dollars into the markets. Instead of stimulating the economy, it has been saddled with a negative real gross domestic product (GDP) growth rate and record-low interest rates.
By late October 2008, the Nikkei hit an intraday low of 7,141—an 80% loss from its 1989 highs. While it rebounded in 2013 and is currently sitting near 14,170, it’s still down more than 63% since the halcyon days of the late 1980s.
After a quarter century, quantitative easing and record-low interest rates are a regular part of Japan’s economic diet. Thanks to uncertainty in the … Read More
Reliable Dividend Stocks You Can Count On to Combat Plunging Bond Prices
By John Whitefoot for Daily Gains Letter | Sep 17, 2013
The markets are taking a predictable breather ahead of the Federal Reserve’s meeting later this week. Analysts from every corner of the globe are weighing in on whether or not the Federal Reserve is going to begin tapering its stock market-fueling $85.0-billion-per-month bond-buying program.
Stock markets have been on a tear ever since the Federal Reserve initiated its first round of quantitative easing in late 2008. Since early 2009, the S&P 500 has climbed more than 150% and is up roughly 17.5% year-to-date.
But the Federal Reserve can’t print money and keep interest rates artificially low forever. Once the Federal Reserve sees enough data pointing to a sustained economic recovery (unemployment, housing prices, inflation, etc.), it’ll begin to taper off.
Based on so-called encouraging economic jobs data, many think the U.S. economy is strengthening. For investors, this is bad news, because it means the Federal Reserve will start tapering sooner rather than later, and a decrease in the demand for bonds will, of course, lift bond yields. This could throw income investors a serious curve-ball.
Over the last five years, quantitative easing has kept the 10-year Treasury yield near its record lows, hovering around two percent for the last two years. The record-low numbers sent income investors scurrying into dividend stocks in an effort to make up for lost ground. Over the last number of years, income investors were able to realize both significant capital gains and dividend growth.
But that could change, as investors who have been seeking financial solace in dividend stocks with yields of four percent or more are now seeing 10-year Treasury yields above three percent—the … Read More
The Alternative Asset Allocation Plan Every Investor Needs
By John Whitefoot for Daily Gains Letter | Aug 13, 2013
When it comes to investing, everyone wants to be in the best performing asset classes. Unfortunately, few, if any, are that good at consistently choosing the top performing asset classes to add to their retirement fund year after year. That’s why diversification is so important.
Riskier investments like stocks provide the best returns over the long term; they also happen to be the most volatile asset. Bonds, on the other hand, are much safer, and, as a result, offer very little when it comes to returns. By combing different types of investment strategies among different asset classes, investors can generate profit and reduce risk levels to meet their retirement goals.
To help minimize the risk of human error, emotions, and uncontrollable outside factors and to maximize long-term performance, investors concentrate on asset allocation—the art of spreading out their money in stocks, bonds, commodities, cash, and, for some, real estate.
The old asset allocation equation used to suggest people keep a percentage of bonds equal to their age in their retirement fund, with the remainder in stocks; a 40-year-old, for example, would park 40% of their investments in bonds and 60% in stocks. But since no two people have the same financial needs, it’s pretty hard to have an asset allocation strategy that works for everyone. The fact of the matter is that it’s up to each individual to find an asset allocation risk level that meets their long-term portfolio needs.
That can be difficult to do in this climate. In spite of weak economic news and high unemployment, the S&P 500 and Dow Jones Industrial Average are hitting new highs. … Read More
Retirement Post Recession: Why It’s No Longer the Golden Years
By John Whitefoot for Daily Gains Letter | Jun 14, 2013
Will your retirement mantra be, “save, save, save,” or “work, work, work?” That depends on how close to retirement you are—at least, according to a recent study published by The Pew Charitable Trusts. (Source: “Are Americans Prepared for their Golden Years?,” The Pew Charitable Trusts web site, May 16, 2013, last accessed June 13, 2013.)
When the Great Recession hit in 2007, the oldest baby boomers were just a few short years away from retirement. And, after a lifetime of economic expansion and planning for retirement, they faced the real possibility of losing a significant portion of their savings. The economic downturn also heightened retirement planning concerns facing virtually everyone else.
Many Americans who had held off saving for retirement saw their situations exacerbated by unemployment and a bleak job market. Many more also found themselves saddled to homes that were worth a lot less than they were just a few years before—though that’s a better predicament than those who discovered their houses were worth less than the mortgages they were carrying.
According to the report, early baby boomers (those born between 1946 and 1955) were heading toward retirement with enough savings to maintain their financial security. And thanks to both the “Dot-Com” boom and housing bubble, early baby boomers had higher overall wealth, net worth, and home equity than the Great Depression babies (those born between 1926 and 1935) or war babies (born between 1936 and 1945) had at the same ages.
But that doesn’t mean their retirement plans didn’t take a hit. Between 2007 and 2010, every age group experienced a significant loss of wealth. Early boomers lost … Read More
Do Low-Yield Stocks Provide Better Income Potential?
By John Whitefoot for Daily Gains Letter | Jun 4, 2013
In a high-interest environment, fixed-income assets like Treasuries, bonds, and certificates of deposit (CDs) are a staple for risk-averse investors. They provide regular investors with a stable place to park their retirement money while collecting a steady return.
By keeping interest rates artificially low, the Federal Reserve has sent income-yield-hungry investors running for the much riskier stock market. While the Federal Reserve recently hinted it might taper its $85.0-billion-per-month quantitative easing policy, investors are hardly willing to reconsider traditional fixed assets.
And why should they? Sure, it’s been six years since investors’ nerves were thrashed from the market crash and four years since the recession ended, but the economy doesn’t look or feel any different, despite the S&P 500 and Dow Jones Industrial Average touching new highs almost weekly.
For many investors nearing retirement or already retired, high-yield dividend stocks have become the new bond market. Unfortunately, some investors looking to pad their retirement account have been too heavily focused on that one solitary metric.
Not all high-yield dividend stocks are created equal. Where an investor might have avoided a stock because of red flags, today, they are considering the same stock waving the same flags, simply because they offer a strong dividend—regardless of whether or not they have enough money to do so.
Investors looking for steady capital appreciation and strong dividend growth are not usually looking for a financial roller coaster to invest in. But that’s what they’ll get if they don’t do their research.
In December 2012, Just Energy Group Inc. (NYSE/JE) was trading above $9.00 per share and paid out $1.24 annually. In February of this … Read More
Fed to Tell These Companies to Give More Money Back to Investors?
By John Whitefoot for Daily Gains Letter | May 22, 2013
The U.S. banks may have had a strong hand in the Great Recession; taxpayers may have bailed them out; and the banks may have shrugged off the scorn of a frustrated nation—but that doesn’t mean investors should turn a blind eye to their recent performance.
Thanks to the Federal Reserve’s $85.0-billion-per-month quantitative easing policies and artificially low interest rates, the Dow Jones Industrial Average and S&P 500 continue to notch healthy gains.
And, perhaps not surprisingly, the financial sector has been, for the most part, running in step, up 19.0% since the beginning of the year and 45.5% over the last 12 months. The S&P 500 is up 18.8% year-to-date and just 27.6% over the last 12 months. During the same time periods, the Dow Jones increased 17.1% and 23.3%, respectively.
While the financial sector has made significant gains, many believe there is more room to run; especially in light of the fact that banks are soaring on tepid economic growth and nearly record-low interest rates. When the U.S. economy finally rebounds (with jobs and low unemployment), bank stocks could experience a serious run.
In fact, many publicly traded U.S. banks are nowhere near their pre-Great Recession highs. A return to those levels could reward patient investors.
Later this year, the U.S. Federal Reserve will be announcing the results of its mid-year stress test. On July 5, 18 large U.S. banks will be required to submit the results of their company-run, mid-year stress tests to the Federal Reserve. (Source: Board of Governors of the Federal Reserve System web site, May 13, 2013.)
The Comprehensive Capital Analysis and Review (CCAR) and … Read More
Two Stocks to Help Your Portfolio Grow from the Ground Up?
By John Whitefoot for Daily Gains Letter | May 17, 2013
A diverse retirement portfolio should contain stocks from a number of different sectors. With America in the throes of unpredictable spring weather, now is the perfect time to consider agricultural stocks. Not just because it’s the beginning of the seasonal growing period, but also because agriculture is one of the most diverse sectors. One good reason to consider agricultural stocks is because the sector is booming, especially exports.
Between fiscal 2009 and 2012, U.S. agricultural exports increased 41% to $135.8 billion. Going forward, world trade growth is expected to climb to between four and five percent in 2013. Europe’s recession and Japan’s economic slowdown will be major factors preventing more rapid growth in 2013. At the same time, the U.S., Asian, and Latin American economies are expected to drive higher growth in 2013. (Source: “Latest U.S. Agricultural Trade Data,” United States Department of Agriculture web site, May 2, 2013, last accessed May 16, 2013.)
And 2013 is shaping up to be a record year for U.S. agriculture. Year-to-date, U.S. agricultural exports are up 10.9% at $79.2 billion versus the same period in 2012. Thanks to overall world macroeconomics, fiscal 2013 U.S. agricultural exports are forecast at a record $142 billion. (Source: “Outlook for U.S. Agricultural Trade – FY 2013 Exports Forecast at a Record $142 Billion; Imports at a Record $112.5 Billion,” United States Department of Agriculture, Cornell University Library web site, February 21, 2013, last accessed May 16, 2013.)
As one of the most diverse sectors, where should investors interested in U.S. agricultural stocks turn? The agricultural sector contains the more obvious, traditional operations—those that grow crops and raise … Read More
U.S. Retirement REIT Looks North for Extended Baby Boomer Play
By John Whitefoot for Daily Gains Letter | May 13, 2013
In 2011, the first mass of baby boomers started to retire in the United States to the tune of 10,000 per day, which will continue for the next 17 years. Making up more than one-quarter of the population, the baby boomer generation controls the largest portion of the country’s disposable income. This has opened the door to a lot of opportunities for investors looking to capitalize on the retiring baby boomer generation.
Not surprisingly, Canada is also home to its own wave of retiring baby boomers. Interestingly, the Canadian baby boomer generation began one year later (1947) and lasted two years longer (1966) than the baby boom in the U.S. (Source: Kidd, K., “Canada’s baby boom different from U.S.,” Toronto Star web site, March 9, 2013, last accessed May 10, 2013.)
For some investors, that translates into additional opportunities for growth.
In Canada, baby boomers make up 30% of the population, with seniors making up the fastest-growing segment of the Canadian population, a trend that is expected to continue for the next few decades. In 2011, an estimated five million Canadians were 65 years of age or older, a number that is expected to double through 2036. By 2051, about one in four Canadians is expected to be 65 or over. As Canadian baby boomers retire, they’re going to need somewhere to live. (Source: “Canadians in Context – Aging Population,” Human Resources and Skills Development Canada web site, last accessed May 10, 2013.)
Those lucrative factors have not gone unnoticed on Wall Street.
Health Care REIT, Inc. (NYSE/HCN) announced recently that it agreed to buy a 75% stake in Revera … Read More
How to Invest in the Housing “Bull” Market
By John Whitefoot for Daily Gains Letter | Apr 18, 2013
Not everyone thinks the U.S. economy is still in trouble. In spite of high unemployment, a decrease in consumer confidence, a drop in U.S. retail sales, and a downward revision of the U.S. gross domestic product (GDP) growth to 1.7%, there are a number of well-heeled economists predicting nothing but good times on the horizon.
According to a recent Bloomberg survey, GDP is expected to climb at an annualized rate of three percent in the first quarter, versus the projected two-percent gain in March and the 1.6% gain that was forecasted for this quarter in December. (Source: Torres, C. and Saraiva, C. “Economy Bears Turn Bulls Seeing 3% U.S. GDP Few Saw in 2012,” Bloomberg, April 12, 2013.)
Wall Street’s well-intentioned bankers are in agreement. Morgan Stanley’s chief U.S. economist, Vincent Reinhart, raised his estimate from 0.8% in December to three percent. Brian Kasman of JPMorgan Chase & Co. increased his forecast from one percent to 3.3%.
Why the exuberance? One of the leading indicators of economic growth, they maintain, is the healthy housing market. New home construction in 2013 is expected to total 970,000, up from 780,000 in 2012 and the largest number since 2007, just before the Great Recession. Existing home prices are also up; February prices were up 11.6% year-over-year, the largest increase since November 2005. (Source “Existing-Home Sales and Prices Continue to Rise in February,” Realtor.org, March 21, 2013.)
According to a Fannie Mae study, 48% of Americans think home prices will rise in 2013; only 10% think they will slide. (Source: “Consumers’ Positive Housing Attitudes Withstand Fiscal Concerns; Many Indicators Holding At or Near All-Time … Read More
Three Ways to Have a Company Return Its Wealth to You
By John Whitefoot for Daily Gains Letter | Apr 9, 2013
When it comes to the stock market, there are three ways a profitable, publicly traded company can reward its investors: 1) pay a dividend; 2) initiate a share buyback plan; or 3) invest it back into the company. All three of these are aimed at building shareholder wealth, though some are more popular than others.
1. Dividends
Investors looking for capital gains and an income stream in today’s economic climate can’t go wrong with fundamentally strong companies with a good history of paying out quarterly or monthly dividends.
In light of low interest rates, many dividend-yielding stocks outperform the historical avenues for investment income. Most banks begrudgingly doll out just 0.5% interest, while 30-year Treasuries come in near a mere three percent.
Investors hoping to maintain a comfortable retirement need to find better income streams—and for many, it’s in high-yield dividend stocks. Consumer goods company Altria Group Inc.’s (NYSE/MO) share price is up almost 200% since the beginning of 2009, and it currently provides an annual dividend of 5.1%. And business equipment provider Pitney Bowes Inc. (NYSE/PBI) provides an annual dividend of 10.1% and is up 35.5% since the beginning of 2013.
Getting quarterly checks from a company for simply being an investor is a great way to generate additional income. But are there any downsides? Cutting or eliminating a dividend can significantly impact a company’s share price. Paying out dividends decreases the amount of money a company has, meaning it may not be able to operate as efficiently if an unforeseen situation arises—like one did in 2008, when the markets crashed. Companies that didn’t have enough cash to operate … Read More
Risk Alert: Business Cycles About to Collide
By Mitchell Clark for Daily Gains Letter | Apr 9, 2013
It’s time for all stock market investors to re-evaluate their portfolio risk.
If a new bull market happens to develop, it’s easy to jump on the bandwagon. But with so much uncertainty and risk out there—risk that is 100% beyond your control—equity investors need to be safe.
There is always room for speculation with play money, but when it comes to money being used to save for retirement or dividend income being used while in retirement, capital preservation is absolutely key.
Utility stocks immediately come to mind when I think about capital preservation and the stock market. This is a sector that is often used to generate income for those who are in retirement.
Surprisingly, some utility stocks have actually been very good wealth creators in terms of capital appreciation. Like always, which individual companies you own matters. This is why the returns from mutual funds can be so mediocre. Diversification works, but always has a cost.
Looking at utility stocks, trends are important—trends in population growth, migration, or in things like power usage from industrial customers. Just look up a utility stock index and the stock market charts of those companies. You can see which companies are the standout players, and why they are because of migration trends in demand.
Another stock market sector that offers some safety and the opportunity for capital gains and decent dividends is energy. But in the oil and gas business, size counts.
A company like Chevron Corporation (NYSE/CVX) has proven to be a reliable stock market performer and dividend payer. It is an ideal retirement stock. And even with the amazing growth taking … Read More
Three Smaller Firms with Reliable Dividends
By John Whitefoot for Daily Gains Letter | Apr 4, 2013
Just because the S&P 500 and Dow Jones Industrial Average are in record territory, that doesn’t mean the overall stock market is worth looking at. At the same time, it would be a mistake for investors to consider reducing their positions in equities in favor of cash or bonds, Treasuries, and certificates of deposit (CDs).
Banks provide interest rates barely above zero percent; bonds are near three percent, and jumbo five-year CDs yield returns of just 1.5%. In a nutshell, investors looking to buy bonds are basically saying they are happy locking their hard-earned dollar into negative inflation-adjusted returns. They’re okay using an investment vehicle that loses money.
In light of the ill-begotten euphoria on Wall Street, investors looking to increase their retirement fund nest egg just need to be more discerning when looking at stocks. It would be a mistake to think that big stocks are the only place to make solid profits. At the same time, it’s important to remember that investors cannot earn income without taking some risk.
Right now, there is an increasing number of fundamentally and technically strong smaller companies offering regular, high dividend payouts that trump the paltry interest rates offered through other investing channels.
In the past, dividend-hungry investors had to turn to big banks and utilities. But now, regular payouts are being offered by smaller companies in less conventional sectors.
The joy with some smaller companies is that they tend to outperform their larger peers during an economic recovery. And because smaller companies can experience faster growth, patient investors get paid to wait for both capital gains and a dividend yield.
On … Read More
Stock Market Flying High, but What About Risk?
By Mitchell Clark for Daily Gains Letter | Apr 4, 2013
The performance of many blue chips—consumer staples stocks, in particular—is really stunning. And looking at the shares and how much they’ve moved on the stock market, even since the beginning of the year, you really have to wonder how sustainable this stock market rally is.
I am a big believer in blue chips and investing in stocks that pay growing dividends over time. But right now, we have so many companies trading right at their all-time record highs. I wouldn’t say that the stock market is expensively priced, but realistically, other than momentum players, would individual investors be buying these stocks at their all-time record highs? I find that unlikely.
The stock market breakout really is meaningful and pronounced. Consider The Procter & Gamble Company (NYSE/PG), which has been bid up approximately 16 points since last summer. Procter & Gamble’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
The stock market is most definitely due for a break. The leadership from blue chips has been significant, but it also reveals the fragility and uncertainty in the marketplace. Institutional investors want to buy stocks, and they are; but they are buying the safest names.
For the stock market’s current momentum to continue, technology stocks are going to have to show more leadership going forward. Investors are buying in anticipation of a decent first-quarter earnings season.
Among the many blue chips that are soaring in this stock market, consider Johnson & Johnson (NYSE/JNJ). This stock has been rising consistently and strongly since the beginning of the year. Its performance is so unusual. It really is a powerhouse breakout. Johnson & Johnson’s … Read More
Take Advantage of the Housing Market Recovery; Avoid Real Estate and Homebuilders
By John Whitefoot for Daily Gains Letter | Apr 1, 2013
The Dow Jones Industrial Average continues to climb into uncharted territory, trading above 14,500. This is in spite of weak underlying economic indicators. On Main Street, unemployment remains high, consumer confidence is low, and gross domestic product (GDP) remains bleak. On Wall Street, it’s confetti, unicorns, and a raging bull.
But for how much longer? Every four to six years, the U.S. experiences an economic slowdown. It happens like clockwork. The current bull market is now in its fourth year (if you were fortunate enough to even realize we’re in a bull market).
While some investors may be sitting on the sidelines, waiting for a market correction, others are trying to figure out if they should jump in. Thanks to the economic disconnect between the Dow Jones and what the average American is feeling, it’s tough to decide whether investors should stay or go.
In this economic climate, it might be best to think about trading the market—not the economy.
One bright (but fragile) sector that has been performing well is housing (in spite of the fact that housing prices are still down 41% from their 2007 peak). In February, U.S. builders broke ground at a seasonally adjusted annual rate of 917,000. That’s up from 910,000 in January and the second-fastest pace in four-and-a-half years. (Source: “New Residential Construction in February 2013,” U.S. Census Bureau web site, March 19, 2013, last accessed March 28, 2013.)
Is this the shape of things to come? It was also announced that building permits increased 4.6% to 946,000; the most since June 2008, just a few months into the Great Recession.
Where can investors … Read More
Build a Solid Retirement Portfolio in Less Than 60 Minutes
By Mitchell Clark for Daily Gains Letter | Mar 25, 2013
Good investing doesn’t have to be complicated. If you want to save for retirement using the stock market, most individual investors would likely choose a selection of mutual funds or exchange-traded funds (ETFs).
Going forward, a lot of people are viewing the stock market as very vulnerable; unless there is another war or the euro currency really does come apart, the next big pullback is likely to be an attractive buying opportunity for those able to put away some savings for retirement.
A portfolio investment strategy is always crucial, and over the years, I’ve learned to be very conservative with equities. There’s always room for a few highfliers, but I don’t bet the farm on anything.
Putting together a stock market portfolio is easy, and you can just write it down on paper in anticipation of the next big correction.
In retirement planning, it’s highly likely that capital preservation is a top priority, so a stock like The Southern Company (NYSE/SO) or another utility stock might be a good pick. The Georgia-based electric utility has a history of paying increasing dividends to shareholders and capital appreciation on the stock market.
For me, an important group to include in any retirement portfolio with equities is consumer staples. Companies like The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores, Inc. (NYSE/WMT), and PepsiCo, Inc. (NYSE/PEP), to name just a few, are well-managed dividend paying stocks that are highly likely to survive any major shocks in the global economy, and they will certainly benefit from population growth.
A pharmaceutical stock is often a good idea. There are a number of blue chips in this … Read More
Two of the Best Tax-Friendly States for Retirees
By John Whitefoot for Daily Gains Letter | Mar 19, 2013
Retiring doesn’t mean just leaving your job behind. For some retirees, it also involves packing up the house and moving to another state. Not so they can be closer to their grandchildren, warmer climes, or better golf courses; but because they want to pay fewer taxes and stretch their investment dollar.
Retiring to another state is about finding a good quality of life at a reasonable price. Why live frugally if you don’t have to?
Alaska
The largest state in the nation is also the most tax friendly. In addition to having no income tax and state tax, Alaska pays out an annual dividend from its Permanent Fund. The oil wealth savings account administered by the state is paid out annually to everyone who has lived there for at least one year.
In 2012, residents were paid $878.00, less than 2011’s payout of $1,174. The payout was less as stock market losses began to be averaged into the five-year dividend calculation formula. Over the years, the amount of the Permanent Fund check has ranged from a low of $331.29 in 1984 to a high of $2,069 in 2008. (Source: “2012 Alaska Permanent Fund dividend payout: $878,” Alaska Dispatch September 18, 2012, last accessed March 18, 2013.)
Furthermore, only 25 municipalities even levy a property tax. Of the state’s 162 municipalities, 62 impose local sales taxes of up to seven percent. There are other types of local taxes, including: hotel/motel “bed” taxes, severance taxes, liquor and tobacco taxes, gaming (pull tabs) taxes, and fuel transfer taxes. (Source: “Alaska Tax Facts,” Office of the State Assessor, Alaska web site, last accessed March … Read More
For Retirement Fund Growth, Think Like a Contrarian
By John Whitefoot for Daily Gains Letter | Mar 13, 2013
When it comes to thinking about retirement planning, the “out-of-sight, out-of-mind” mantra seems to be a favorite amongst individual investors. How else can you explain the miniscule 14% of baby boomers who are “very confident” they will have enough money to live comfortably when they retire and the 23% who say they are “not at all” confident? (Source: “The 2012 Retirement Confidence Survey; Job Insecurity, Debt Weight on Retirement Confidence, Savings,” Employee Benefit Research Institute web site, March 2012, last accessed March 12, 2013.)
Granted, the Great Recession that began in 2008 has made retirement planning that much more difficult. Unemployment is high, gross domestic product (GDP) growth is abysmal, wages are flat, and household debt is stubbornly high at $12.8 trillion, while public debt sits at $17.0 trillion. Those who are already retired and those who are nearing retirement have a reasonable explanation for not being able to find enough disposable income to pad their retirement funds. (Source: “Household Sector: Liabilities: Household Credit Market Debt Outstanding,” Federal Reserve Bank of St. Louis web site, March 7, 2013.)
What I do find odd, however, is the reason as to why so many are plunking their hard-earned dollars into underperforming assets with terrible returns, like banks at 0.5% and bonds at a paltry 3.1%. Even jumbo five-year certificates of deposit (CDs) offer a pathetic return of about 1.5%. (Source: “National High Yield Rates for CDs,” Bankrate, Inc. web site, last accessed March 11, 2013.)
Banks, bonds, and CDs are not the retirement fund-fueling workhorses that investors need right now. To build a strong retirement fund, an investor needs to make their … Read More
Save Yourself from Declining Gold Prices
By Moe Zulfiqar for Daily Gains Letter | Mar 13, 2013
Gold bullion prices have seen a slight decline since the beginning of the year—the yellow metal was trading well above $1,600 an ounce in early January, and now, gold is trading close to $1,550 an ounce.
The reason behind the sell-off in gold bullion prices is mainly due to the optimism surrounding the expected improvement in the global economy and central banks’ expected move to tighten their monetary policies—raising interest rates and halting quantitative easing activities.
On top of all this, the stock chart for gold bullion, featured below, is showing a significant presence of bearish sentiment. As gold bullion prices declined, the 200-day moving average (MA) crossed above the 50-day MA—a bearish signal called a “death cross.” This is also considered a sell signal by technical analysts.
Chart courtesy of www.StockCharts.com
As gold prices slid downward, investors fled from gold miners—selling them at a much faster rate than they had bought them. Since the beginning of the year, when gold bullion prices have decreased by roughly six percent, the gold miners have done much worse. Just consider the Market Vectors Gold Miners (NYSE/GDX) exchange-traded fund (ETF), for example. It has plummeted by about 20% in the same period.
The reason? When gold bullion prices decline, the profitability of gold miners declines with them. Think of it this way: if a gold miner is able to produce one ounce of gold bullion for a cost of $600.00 and the market price is $1,600 an ounce, then its profit would be $1,000. On the other hand, if its costs remain the same, and the price declines to $1,400 an ounce, the … Read More
It’s Never Too Late to Save for Retirement: Four Easy Retirement Steps for Late Planners
By John Whitefoot for Daily Gains Letter | Mar 5, 2013
Whether you’re on the precipice of retirement or still a few years away, it’s never too late to start saving. That said, the longer you wait, the harder it’ll be to meet your retirement goals.
What’s the best way to increase retirement wealth? While many may think the key is picking the best investments, the truth of the matter is that the best place to start is by simply saving. Regardless of where you’re at, if you start saving now and stay diligent, you can significantly improve your retirement prospects.
Savings that can have a positive impact on your retirement plans can only come from choices that affect your day-to-day life. And by saving, I don’t mean giving up your daily coffee; I mean changing your lifestyle—saving 10% of your gross income right off the top, or more if possible.
Granted, there isn’t one single path to fulfilling your retirement planning goals. However, there are certain steps everyone can take to help prepare financially for retirement.
A Little Goes a Long Way
How much of your salary should you put aside? There is no definite equation, but some experts recommend 10%–15% of your annual income, or more if you’re closer to retirement and haven’t started saving.
By living off of 70% of your salary or working a few more years, you can cut the savings levels you must reach by 10%–25%, or by even more if you save and work past the average retirement age.
How can you set aside that much from each paycheck? Again, it comes down to lifestyle choices. Cut back on everyday expenses where possible: the … Read More
Utility’s Acquisition Strategy Paves Way for Increased Profitability
By John Whitefoot for Daily Gains Letter | Mar 1, 2013
Utility stocks are companies that deliver essential services, such as gas, water, and electricity. These stocks tend to be more stable, as consumers need water, gas, and electricity, regardless of the direction the economy is headed.
Algonquin Power & Utilities Corp. (TSX/AQN) is a growing renewable-energy company that owns and operates a diversified portfolio of $3.0 billion of regulated and non-regulated utilities in North America. Algonquin Power & Utilities (APUC) actively invests in hydroelectric, wind, and solar power facilities, and sustainable utility distribution businesses (water, electricity, and natural gas) through its two operating subsidiaries: Algonquin Power Company (APCo) and Liberty Utilities.
APCo owns direct and indirect equity interests in 20 hydroelectric generating facilities, five wind-energy facilities, and seven thermal-energy facilities, with a total average power purchase agreement life of 13 years.
Liberty Utilities provides water, electricity, and gas utility services to communities across the United States, with operations in Arizona, California, Illinois, Iowa, Missouri, New Hampshire, and Texas.
APUC has a market cap of $1.5 billion, a forward price-to-earnings (P/E) ratio of 27.3, and $16.4 million in cash. The company also provides a 3.7% annual dividend.
The company announced that third-quarter revenues increased 50% year-over-year to $99.0 million. The company reported a third-quarter net loss of $200,000, or breakeven per share, compared to a net income of $19.6 million, or $0.16 per share, for the same period in 2011. (Source: “Algonquin Power & Utilities Corp. Announces Third Quarter 2012 Financial Results,” Algonquin Power & Utilities Corp. web site, November 14, 2012, last accessed February 28, 2013.)
For the nine months ended September 30, 2012, APUC reported total revenues of $229 … Read More
Top Stocks to Watch This Decade
By Mitchell Clark for Daily Gains Letter | Feb 28, 2013
There is a lot of investment risk in the global marketplace, not to mention the risk of policy action by the Federal Reserve, lack of policy action in Washington, and slow economic growth in many mature economies. Yet, with all the doom and gloom, corporations are reporting very good numbers, and many are doing great on the stock market.
Action in the U.S. economy is going to be low and slow for the next several years. This is a pretty decent bet. It’s also a decent bet that the M2 money supply (which includes all money in circulation plus savings deposits, balances in money market mutual funds, and deposits) will continue to rise, and we’ll have artificially low interest rates and underreported inflation. But, this doesn’t mean that corporations can’t grow their earnings and because stock market valuations are reasonable, it also doesn’t mean that share prices won’t go up.
Here are several corporations that I think can serve as an example of what could make for a solid equity portfolio going forward: PepsiCo, Inc. (NYSE/PEP), Johnson & Johnson (NYSE/JNJ), Chevron Corporation (NYSE/CVX), Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL), Bank of Montreal (NYSE/BMO), The Procter & Gamble Company (NYSE/PG), and Union Pacific Corporation (NYSE/UNP).
Naturally, with the stock market at a five-year high, most of these corporations are also trading right near their highs. That’s not a problem. I think stock market investors looking to take on new positions over the coming quarters will be much better off sticking with the stock market’s existing winners, rather than trying to buy value or a turnaround opportunity.
The reason for this … Read More
Transit Company Could Drive Portfolio Growth
By John Whitefoot for Daily Gains Letter | Feb 28, 2013
During the Great Depression, America built the Hoover Dam and the Golden Gate Bridge. After World War II, it connected Americans across the country by building a system of highways.
In an effort to bolster economic growth and create jobs during the Great Recession, President Obama earmarked $74.0 billion for the Department of Transportation in the fiscal 2013 budget, a two percent increase above 2012. (Source: “Budget Highlights: Fiscal Year 2013,” U.S. Department of Transportation web site, January 24, 2012, last accessed February 27, 2013.)
The Department of Transportation budget set aside $580 million for fiscal 2013 to continue improving motor carrier safety. This represents the first year of a six-year, $4.8-billion proposal. This increase will improve the safety and security of commercial motor vehicles and buses.
That’s good news for cash-strapped municipalities. It’s great news for transit equipment makers, many of which are already reporting improving market conditions.
New Flyer Industries, Inc. (OTC/NFYEF) is the leading manufacturer of heavy-duty transit buses in the United States and Canada with over one-third of the market share. Twenty of the 25 largest transit systems in North America are New Flyer customers. (Source: “Best Bus Value and Support for Life,” New Flyer Industries, Inc. web site, last accessed February 27, 2013.)
The company offers the broadest product line in the industry, including drive systems powered by clean diesel, trolleys powered by liquid or compressed natural gas or electricity, and energy-efficient diesel-electric hybrid vehicles.
New Flyer has delivered over 30,000 heavy-duty buses in the United States and Canada and has manufacturing facilities in St. Cloud, Minnesota; Crookston, Minnesota; and Winnipeg, Manitoba, Canada. The company … Read More
Grow Your Portfolio with Consistent Dividends
By Moe Zulfiqar for Daily Gains Letter | Feb 28, 2013
The global economy seems to be in trouble—an economic
slowdown is spreading and some are calling for a global recession.
The demand in the overall global economy is decreasing, and exports
are being hurt. The countries which were the manufacturing hubs are
producing less, and the consuming countries are watching their pockets.
Before I go into any further detail, take look at the chart for the Baltic
Dry Index (BDI) below. If the index goes downward on the chart, it means the global demand for exports is decreasing. In contrast, if it goes up, it suggests improving demand for goods in the global economy.
Chart courtesy of www.StockCharts.com
Unfortunately, since the beginning of 2012, the index has plummeted, and it has stayed in stress ever since—suggesting global exports are in poor condition.
In times when exports become bleak, companies involved in transporting goods internationally usually become the victims and suffer. Not all companies can bear the storm—a decline in exports causes the volume shipped by these companies to decline, hurting their profits.
With that said, in any industry, there are always stars that have the ability to weather the turbulence and stay the course.
Nordic American Tankers Limited (NYSE/NAT) is a tanker company that owns and operates Suezmax crude oil tankers. The company is based in Hamilton, Bermuda. In the beginning of 2004, the company operated with only three vessels; by the fourth quarter of 2012, the company had a fleet of 20 vessels. (Source: “Nordic American Tankers Limited (NYSE:NAT)—NAT is well positioned to benefit as market fundamentals improve,” Nordic American Tankers Limited web site, February 11, 2013.)
The stock … Read More
How to Profit from Aging Baby Boomers and Real Estate
By John Whitefoot for Daily Gains Letter | Feb 22, 2013
A REIT (real estate investment trust) is a company that owns and, for the most part, operates income-producing real estate. REITs are a great way for individuals to invest in real estate without actually having to own real estate.
It’s also a great way to generate income from guaranteed dividends. To be a REIT, a company must by law distribute at least 90% of its taxable income to shareholders annually in the form of dividends.
REITs pay out almost all of their taxable income to shareholders, so investors have historically looked to REITs for reliable and significant dividends—which are typically four-times higher than those of other stocks, on average.
Because REITs pay out at least 100% of their taxable income to investors, they don’t pay any corporate tax. Most states also don’t require REITs to pay state or income tax. Taxes are paid by shareholders on dividends and any capital gains.
Having said that, investing in a REIT only makes sense if the real estate market is doing well. While the U.S. housing market is beginning to heat up, the rally is still young. And many investors are still justifiably wary of stepping back into real estate after seeing home values evaporate following the Great Recession.
Because REITs operate commercial properties in every major metropolitan area across the country, it’s important to find which kind of REIT is best suited to your investing needs.
Overall, REITs outperform the markets. Between 1971 and 2010, publicly traded REITs provided compound annual total returns of 12%. During that same time frame, the S&P 500 returned 10%, the NASDAQ returned 8.4%, and the Dow … Read More
Why You May Want to Increase Your Exposure to Stocks After Retirement
By John Whitefoot for Daily Gains Letter | Feb 21, 2013
Life doesn’t stop at retirement; neither should your investment strategies.
Retirement planning isn’t just about tucking money away for retirement and hoping it lasts. It’s about replacing your main source of income once you retire, with other sources of income; preferably with those that continue to generate income.
In the old days (during the 70s and 80s), the retirement rule of thumb suggested that the portion of a portfolio be weighted toward bonds is equal to the investor’s age. This means that if you were 40, 40% would be in bonds and 60% in stocks. When you hit 70, bonds would make up 70% of your portfolio—stocks, just 30%. The older you get, the more you want to have in bonds, because bonds, as the story goes, provide dependable interest.
And back in the day, it made sense to do that. At the beginning of 1979, the U.S. 10-year bond rate stood at 9.1%; at the end of the year, it had risen to 10.4%. By 1981, the rate was an astounding 15.3%. Today, U.S. 10-year bonds pay about two percent. (Source: “Historical US Treasury Bond Rates,” ForecastChart.com, last accessed February 20, 2013.)
If you had a $500,000 portfolio in 1981, you could look forward to receiving $75,000. In 2012, that same portfolio would hand you just $10,000 a year. Toss in the $1,280 a month you receive from Social Security, and you’re looking at an annual retirement income of just $25,000 a year. That’s not much retirement income for anyone to live on.
According to the Federal Reserve, in 2007 (right before the Great Recession) a $100,000 short-term certificate … Read More
How to Save for Retirement Even When You’re Buried in Debt
By John Whitefoot for Daily Gains Letter | Feb 14, 2013
It’s hard for some people to think of saving for retirement when they’re sinking in debt.
During the third quarter of 2012, total consumer debt stood at $11.3 trillion. Of the roughly 47% of American households with credit card debt, the average balance is more than $15,400. Average mortgage debt is $149,782, and average student loan debt sits at $34,703. (Source: “Quarterly Report on Household Debt and Credit,” New York Federal Reserve web site, November 2012, last accessed February 13, 2013.)
With an unemployment rate hovering near eight percent, a weak U.S. dollar, and anemic growth projected for the near future, U.S. households are trying to avoid further debt—especially high-interest debt, like credit cards. While less debt is good, a downturn in consumer spending also has the reverse effect of limiting the speed of economic recovery.
The need, or reluctance, to use credit cards for purchases also points to the fact that Americans have less money in their pockets, which does not bode well for a consumer-driven economy.
It also means that Americans have less money to set aside for retirement or a rainy day.
According to a study by the Employee Benefit Research Institute, just 14% of Americans are “very confident” they will have enough money to live comfortably when they retire; 23% say they are “not at all” confident. Many workers also noted that they have virtually no savings or investments. (Source: “The 2012 Retirement Confidence Survey; Job Insecurity, Debt Weight on Retirement Confidence, Savings,” Employee Benefit Research Institute web site, March 2012, last accessed February 13, 2013.)
Saving for retirement means investing in stocks and bonds; unfortunately, … Read More
