Tune Out The Retail Doomsayers… These Firms Could Bust This Season’s Trend
December 3, 2008
Tuesday, December 2, 2008: Issue #579
by Martin Denholm, Managing Editor, The Smart Profits Report
It was no surprise to see last Friday’s newscasts feature the rather desperate, “running of the bulls” scenes, as herds of bargain-hungry consumers bulldozed into stores in search of hot deals.
And boy, the U.S. economy could certainly use the sales stimulation.
In contrast to consumers’ zest, the economy isn’t bulldozing anything… it’s staggering through a recession instead - one that started a year ago, according to the National Bureau of Economic Research.
The group says employment and income peaked in December 2007, with sales topping out in June. It said the deteriorating job market is a key cause of the recession, as the U.S. shed 1.2 million jobs through the first 10 months of 2008 - with 325,000 more layoffs projected for November.
So what does that mean for the already beleaguered retail sector this season - and are there any firms that could prosper? Here are a couple to consider…
Do Your Patriotic Duty: Spend Like A Champ!
‘Tis the season to… well, spend. And in a credit-oriented nation, Americans again proved that they do that better than the rest. The National Retail Federation (NRF) says 172 million consumers hit the malls or logged on to buy goods over the extended Thanksgiving weekend - a 17% jump from the same period in 2007. And ShopperTrak says “Black Friday” sales rose 3% to $10.6 billion over “B.F. 2007,” with the average consumer spending $372 - up 7.2% from a year ago.
Granted, a 3% sales rise isn’t spectacular, but it’s not terrible for a nation with a pathetic savings rate, a 3.7% year-over-year inflation rate in October, and 1.2 million job losses. I’m sure America’s battered banks are wondering exactly where these guys are getting their money from - and whether they can pay it back.
Retailers are doing their best to help - and potentially at their own expense…
The Retail Sector’s Vicious Cycle
Many still predict a rough time for retailers, with the NRF predicting a measly 2.2% rise in holiday shopping sales - the lowest since 2002. Retailers are compelled to offer eye-popping deals to cash-strapped consumers, but they can’t sustain the bargains forever, for risk of eroding their profit margins too much.
That could result in flat sales and profit growth, with some analysts suggesting that it could also lead to more bankruptcies, following electronics giant Circuit City, Linens n’ Things, and The Sharper Image. In turn, that could drive unemployment even higher.
Already, a major online trend is providing some clues…
When High Traffic Meets Falling Sales
The good news: Online traffic on “Cyber Monday” (the Monday following Thanksgiving, which traditionally kicks off the online shopping season) climbed by 10% over the same day in 2007, according to Pricegrabber.com. Other firms have also reported heavy activity, with Target (NYSE: TGT) expecting its web traffic to jump 40% this season.
The bad news: Online research firm comScore says web sales are down 4% so far this season and will remain the same as last year throughout the November-December compared at $29.2 billion. That’s prime evidence that deep discounts could squash profit margins. But essentially, retailers have little choice.
But what choices do investors have?
“It’s Wal-Mart Time”
A few weeks ago, my colleague Marc Lichtenfeld gave you three companies that could be set to buck the gloomy retail trend this season.
One of them was sector bellwether Wal-Mart (NYSE: WMT), whose CEO Lee Scott proudly proclaims, “It’s Wal-Mart time. This is the kind of environment that Sam Walton built this company for.”
He’s right. As consumers go all-out to dig up value, Wal-Mart is among those discount-oriented firms set up to not only weather this season’s storm, but to profit from it. Check out Marc’s article for more details, plus his thoughts on Kohl’s (KSS) and Dollar Tree (Nasdaq: DLTR).
I’m going to throw another one into the mix - The TJX Companies (NYSE: TJX) - a company I actually highlighted here a year ago…
The Outlook For TJX
At the time, the stock traded around $28.50 and bounced to $32 by early February 2008, followed by a 52-week high of $37.52 in August.
Since then, however, shares have sunk back to the $20 area, as a combination of high oil prices at the time stifled consumer spending, while the U.S. dollar (the company also operates overseas, including Britain and Ireland), economy and stock market slumped.
Despite this, though, the firm reported a 4% and 3% sales rise in August and September respectively, compared with August-September 2007. That’s a testament to its business model - the company offers fashionable, quality goods (some of which it buys from other higher-end retailers’ excess inventory) at attractive prices.
However, total third quarter profit came in at $235.8 million ($0.54 per share), compared with $249.5 million ($0.54 per share) in Q3 2007 - a 5.5% drop, due to the negative economic climate and an exchange rate hit. Over the first nine months of 2008, though, TJX earned $629.9 million ($1.42 per share) over the $470.6 million ($1.00 per share) from January-September 2007.
TJX pegs fourth quarter EPS between $0.58 and $0.62 - lower than the $0.67 in Q4 2007 and the $0.72 estimates, but $2.07 to $2.11 per share in fiscal 2009, compared with $1.68 for this year.
Also, the company’s T.J. Maxx and Marshall’s stores could be prominent destinations for bargain-hunting shoppers this season. The fact that The Gap (NYSE: GPS) posted better than expected third quarter results could bode well for TJX. Other positive factors include the U.S. dollar strengthening a little and Card Activation Technologies settling its litigation against TJX.
Ultimately, fourth-quarter retail earnings will tell the full story of this holiday period
And while the overall gloom shrouding the retail sector could drag successful, bargain-oriented companies down with the pack in the short-term, provided their business models lure in discount-hungry consumers this season, they could end up having the final word.
Best regards,
Martin Denholm
 Today’s Smart Profits Notes ~ With the U.S. economy having been in recession for a year, according to the NBER, it’s already one of the longest downturns since the Great Depression era in the 1930s. Only two of the previous 10 post-Depression recessions lasted as long as a year. ~ Staples (Nasdaq: SPLS), the world’s largest office supply store, just released its third quarter report, which shows mixed results. While its net income fell to $156.7 million down from $274.5 million in Q3 2007, the company still beat profit expectations. It came as revenue fell by as much as 8% in North American stores, but Staples is staying in the game by reducing capital spending and taking on Dutch distributor Corporate Express NV, which it hopes will eventually counter lower sales in the U.S. and Canada. Related Articles at: www.smartprofitsreport.com: Black Friday 2007: Here’s A Retailer That Could Profit From The Madness Of The Holiday Season Circuit City Blows A Fuse… But Here’s Why Its Bankruptcy Doesn’t Spell Holiday Doom For Retailers |
With “Black Friday” Just Hours Away, Here Are Some Retailers You Can Put In Your Portfolio
November 27, 2008
Thursday, November 27, 2008: Special Thanksgiving Day Edition
by The Smart Profits Report TeamÂ
Well, how do you feel?
Having moved here from England in 2000, this will be my 9th Thanksgiving (boy, time flies when you’re writing about finance and investing) and if the previous eight are any indication, I can safely say that I’ll be in a turkey-stuffed, wine-induced haze.
Here’s hoping this message finds you enjoying time with the people you love and taking a well-earned break from the rigors of everyday life.
Before heading out of the office for the holiday, the team and I spent some time thinking about the most important issues and events facing Americans at the moment. And given that you’ve hopefully got a few days respite from your regular routine, we decided to compile a few of our most important messages for you, so you can use this time to position yourself for the next few weeks and months.
And at this time of year, one topic immediately sprang to mind…
Hours Away From The Official Start Of The Retail Bloodbath?
So much for a “Recovery Day.”
In just a few hours, many Americans will scoff at the idea of using their extra day off to sleep in, or recover at all. Instead, they’ll decide to do something quite mad: Wake up in the middle of the night and head out to their local mall.
They’ll do so in hopes of grabbing so-called “doorbuster” deals and special offers to kick off “Black Friday.”
It’s a term used to describe the day on which retailers hope to move their balance sheets “into the black” and marks the start of a critical holiday shopping period that typically accounts for about half their annual revenues.
But retailers are set for an almighty struggle this year. The beaten-up economy, battered stock market portfolios, soaring unemployment, and higher inflation have sent fearful consumers reeling. Many have suddenly become very budget-conscious, which doesn’t bode well for retailers - particularly higher-end ones.
It’s a subject that our Senior Analyst Marc Lichtenfeld wrote about recently - and tipped readers off to three retailers that could buck the trend this season. Check it out below…
We’ve covered a lot of important ground in the Smart Profits Report over the past few months, focusing on the economic fallout from the financial crisis and the fragile state of the stock market. In case you missed any of it, we’ve also compiled a few of our other most popular articles for you, which focus on ways to get ahead of the competition and highlight the best opportunities to buy quality investments for deeply discounted prices.
It’s our way of saying “Happy Thanksgiving” to you - and thanks for sticking with us throughout these turbulent times. We also invite you to kick things up a notch, too…so be sure to check out our “Profit Opportunity” and “Premium Content” below.
Enjoy the rest of your holiday.
 Martin Denholm
Managing Editor, Smart Profits Report
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Since the market hit the skids, I’ve been a big advocate of compiling stock watchlists to keep on your radar. That way, when it’s time to pull the trigger, you’ll have all the resources and information right there at your fingertips.
All you’ll need to do is take a deep breath and fire. So with that in mind, here are some retailers you might want to start thinking about… Full Story
 * * * * *
U.S. Stocks Will Be A Worthwhile Steal
Despite the seemingly bleak outlook on U.S. stocks at the moment, you don’t need to buy shares of Accra Brewery Company, Tunisair, or Diner’s Club del Ecuador to have a prayer of making a profit. Instead, look for stocks that could rebound in 2009.
There are so many that have suffered a beating, the list could be extensive. And when you do, first look at the biggest and best companies in their fields - ones who’ve experienced market downturns before and have stood the test of time… Full Story
 * * * * *
 Gold Is Ready To Run Again… Make Sure You Watch This Indicator And Get On Board
The market always anticipates the future. So while the economy may be heading south for a while, and the Grinch will doubtless make multiple visits this holiday season, the market has already discounted this to some extent.
 But with gold, Christmas has come early. You’ll know what to expect when the market retests its low - and if you see the VIX jump to over 65, let that gold bug roam free… Full Story
 Profit Opportunity: Speaking of gold, if you’re ready to take your investing in this area to a higher level, check this out…
As the article above mentions, precious metals are very undervalued at the moment. This is unusual, given that gold and silver typically thrive when the economy is struggling.
Don’t be fooled, though… they won’t stay that way for much longer. As with the rest of the market, we have what’s likely to be a once-in-a-lifetime opportunity on tap…
One of the top researchers with our colleagues at The Oxford Club has just unearthed an extraordinary find: $12.5 billion in silver that has literally been abandoned for the past 15 years. Given silver’s value as “real money,” this could be a wealth-saving discovery for investors seeking safety from the worldwide financial meltdown. And that’s just for starters. Click here to read the full story
* * * * *
How To Find Good Stocks To Invest In
Wouldn’t it be wonderful if there were a simple investment formula such as, “Buy any stock with a price-to-earnings ratio under X or a price-to-book under Y?” Alas, nothing worthwhile in life is that easy. But there is one number you can look at that will help you find good stocks selling at discount prices. It’s called the Price-to-Cash-Flow and it’s one of my favorite ratios to examine. And there’s a simple reason I like to use it. Full Story
Sphere: Related ContentWith A Changing Of The Political Guard, Now Is The Time To Harness The Profit Potential Of Wind Power
November 26, 2008
Tuesday, November 25, 2008: Issue #578Â
Guest Editorial by Andy Obermueller, The Street Authority
Editor’s Note: Today, we invite our friends from The Street Authority back for a guest editorial. With President-elect Barack Obama poised to take office, many believe that it could herald a fresh round of political support and funding for renewable energy resources. One of the most prominent is wind power. I’ll let Andy Obermueller fill you in on all the enlightening details - and how to profit from this potentially lucrative natural resource. Have a great Thanksgiving holiday.
Martin Denholm, Managing Editor, Smart Profits Report
Windy Ways
The winds of change are coming…
Not only does that include Barack Obama taking office in a little under two months time, it could also include a natural energy resource receiving an increasing amount of attention.
Last year was a breakthrough year for the U.S. wind industry, with total wind-power capacity rising by 45%. That accounted for 30% of all new power production.
And if you think wind made impressive advances when an oilman was in the White House, just wait until President Barack Obama takes office.
During the presidential election, Obama made renewable and alternative energy a key campaign issue, sounding off controversially against the continued use of coal-fired power plants.
“If somebody wants to build a coal-powered plant, they can,” he said during the campaign. “It’s just that it will bankrupt them.”
Global… And Growing At An Accelerated Pace
Recent legislation mandates that at least 15% of U.S. electricity come from green sources by 2020. But under the Obama administration, if all goes according to plan, expect to see calls for 10% of our electricity to come from green sources by 2012 and 25% by 2025. (This tracks with recent legislation mandating 15% by 2020).
The U.S isn’t alone in its call to clean up the environment this way. China’s new energy plans, released in September 2007, included a push to generate 10% of its power from wind by 2010 and 15% by 2015.
And the EU has mandated that 20% of its energy comes from renewable resources like wind by 2020. In some places, such as Denmark, that goal is already a reality. And across Europe, efforts are already well under way to ensure that wind turbines account for roughly one-third of all new generating capacity installed in the next few years. That means providing electricity for 90 million people by 2010.
The wind power movement isn’t limited to large countries like China or to rich countries like the United States. It’s global.
North Africa, the Middle East and certain South American countries have all gotten into the act. The first two regions increased wind energy installations by 42% last year.
And a recent study showed that Egypt, with its strong wind activity in the Suez Gulf, could host 20,000 megawatts of wind farms.
And then there’s Brazil, which has 14 projects totaling 107 megawatts scheduled for completion by the end of the year, and another 900+ megawatts slated for 2009.
This Investment Has Both Power And Potential
And it’s not just governments that are embracing wind power. Even oil billionaire T. Boone Pickens is getting behind this alternative energy trend. He’s wagering $12 billion on an area spanning the Texas panhandle that, when finished, will be the world’s largest wind farm. He’s already ordered 667 turbines from General Electric.
Why has this legendary oil investor hitched his future to wind? Because he knows that this alternative energy source is our best shot at reducing our dependence on foreign oil. In one year, a single 3-megawatt wind turbine produces as much energy as 12,000 barrels of oil - without consuming any natural resources or emitting any pollution or greenhouse gases.
The good news, as Pickens points out, is that the United States is the Saudi Arabia of wind power.
The Great Plains is home to the greatest wind energy potential in the world, and Pickens envisions a string of wind facilities stretching from Texas to North Dakota capable of producing 20% of the nation’s electricity.
But right now, even despite these huge advances, wind power still accounts for a tiny fraction of the world’s energy needs: About 1% in the United States and 1.3% globally.
That’s all set to change, though…
Where Wind Energy Is Going Next
According to the Department of Energy, wind energy could generate 20% of U.S. electricity by 2030. Compared to today, that’s a 40-bagger industry-wide. This means that a few of the best and the brightest wind stocks could easily rise 100-to-1 before it’s all over.
You can do the math. Unless someone discovers the fountain of youth, I doubt you’ll find any industry in the world with as much growth potential.
Check out these other wind facts…
- Wind energy grew 667% between 2000 and 2008, from 2,554 megawatts of installed U.S. capacity to 19,600. In that time, in fact, the United States became the world leader in wind power generation, outpacing Germany.
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- A 2005 NASA study pegged the power of the global wind supply at 72 terawatts, or roughly five times global power consumption. That means there is virtually no limit to the degree from which the world can harness this 100% clean, 100% free and 100% renewable resource. It’s only a matter of time, and the clock is ticking.
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- The demand for wind power isn’t only strong and globally pervasive, in most nations, it’s been written into law.
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- Nearly three-dozen U.S. states that have mandated that utilities buy an increasing amount of their electricity from renewable resources. They literally have to buy wind turbines. And that legal obligation is worthwhile, too. As part of the recent $700 billion TARP bailout, Congress extended a $0.02 per kilowatt-hour production tax credit. That means the cash goes straight to their bottom line instead of to Uncle Sam. Both these factors will continue to provide a strong incentive for wind power.
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The changing of the White House guard takes place in less than two months’ time, with Obama practically vowing to turn the White House “green.” Coal power is out. Wind power is in. And the wind industry will likely be the focal point of government mandated energy initiatives for the next few decades.
We’ve pinpointed a select group of FOUR investments that will benefit the most when an unprecedented infusion of government cash is pumped into this industry.
These companies are immune to nearly all outside economic forces and have their sales orders on file in amounts that could set them - and you - up for years to come. Click here to find out how to profit from wind power.
Best regards,
Andy Obermueller
Related Articles at: www.smartprofitsreport.com:
Alternative Energy Sources Are Growing Fast
Renewable Energy Resources: How To Profit From Rising Oil Prices & A New Boom In Renewable Fuels
Alternative Energy Sources: How To Profit From The World’s Carbon Dioxide Dilemma
Sphere: Related ContentLay The Blame On Market Speculators
November 20, 2008
Thursday, November 20, 2008: Issue #577Â
by Paul Moore, Contributing Editor & Technology Specialist, Smart Profits Report
You’d expect market speculators and financial commentators to have discussed the many reasons for the stock market’s selloff lately. After all, waffling is what they do best!
The bug seems to have crept to the onlooking investing public too though, with everyone becoming an overnight expert and tossing their two cents into the mix.
But really, when it comes right down to it, alongside widespread fear, there are two main factors responsible for the moves:
- Accelerating & Decelerating Rates Of Profit Growth
- Supply & Demand
Usually, the two work in tandem because changes in fundamentals drive the demand for a stock. However, this hasn’t been the case over the last two months, as extraneous events have caused liquidations.
Market Speculators Jump On Bad News Gleefully
On Wednesday, market speculators jumped gleefully on reports that 98% of the daily volume fell on the downside as another torrent of negative data pointed towards more economic turmoil.
The latest batch of badness meant that it was no surprise to see the markets react by tumbling yet another 400 points - and crashing right down through yet another support level.
The Fed is now projecting unemployment rates of around 8.5% by the end of 2008. Of course, if that holds true, the vicious cycle of bad news will continue.
So what are the pros doing?
Quite simply, they’re taking steps to prepare for a long, drawn-out bear market. But while they’re willing to follow their own advice, few are actually willing to risk their reputations as negative sell side commentary scares investors away.
Want Someone To Blame? Blame Market Speculators And Television Yap
Market speculators, both market speculators and individual investors alike have good reasons for their nervousness, since unchecked supply is driving the market down, despite facts and data that should make a difference.
For example, take Friedman, Billings, and Ramsey’s (NYSE: FBR) announcement weeks ago that Apple (Nasdaq: AAPL) was going to have to cut its iPhone production by 40%.
This interesting piece of speculation played into the stock’s dive from $110 to $80 over the last month. The sad part was that it was merely speculation, which a Digitimes article recently refuted, highlighting that Apple expects to produce eight million iPhones this quarter. That would render production levels flat, not cut.
The problem is that such positive news isn’t going to matter until CNBC stops publishing its incessant supply of bad news. But don’t expect that to happen until the January earnings season begins.
The fear generated by this kind of commentary is creating supply instead of reporting it. In the absence of support through fundamental upside surprises, stock buybacks and mergers, it’s hard for the market to find a bottom.
Thanks To Market Speculators, Technology Looks This Bad Even Though It Shouldn’t
Any market speculator or commentator worth his or her salt knows that late changes in profit growth expectations are what drive share prices higher or lower. And in the last quarter, despite relatively good technology results, there were enough guidance reductions to significantly alter the 10-year period profits.
A key part of the guidance reductions were due to the strengthening dollar - as I wrote about here on August 25. That, along with the confluence of the financial bankruptcies, credit crunch, and the beginning of the European rollover in demand, means there won’t be another leg down for estimate reductions.
While it would be nice to offer some magic formula to eradicate the problem, investors can’t do much to influence either supply or demand. And that means the best piece of advice I can give is to remind you that the forces at work in the near-term are not related to fundamentals. They’re simply a part of the bottoming process.
Put that aside, and you’ll be able to see that technology is as strong as ever.
Paul Moore
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Related Articles at: www.smartprofitsreport.com:
The Technology Sector Could Be A Diamond In A Rough Market
3 Safe Ways To Invest In Technology… Despite The US Economy And Fuzzy Math
The Dollar’s Gain Could Be Tech’s Loss
Sphere: Related ContentU.S. Stocks Will Be A Worthwhile Steal
November 18, 2008
Tuesday, November 18, 2008: Issue #576Â
by Marc Lichtenfeld, Senior Analyst & Healthcare Specialist, Smart Profits Report
Since the U.S. stocks as a whole peaked in October 2007, the world’s equity market capitalization has shrunk by 53%. If you’re counting at home, that’s $33 trillion.
- John Roque, Natixis Bleichroeder
They say that misery loves company, so if you’re too depressed to look at your brokerage account statements, maybe you can grab some consolation from knowing that investors all over the world share your pain.
In fact, some poor folks have it even worse. According to Bespoke Investment Group…
Iceland is down a staggering 90% this year.
Ukraine is off 76%.
Bulgaria is lower by 74%.
Over all, 51 countries have experienced worse market declines than the U.S.’s 44% tumble. So are there any winners at all amid this global mess? Actually, just three…
At First Glance, U.S. Stocks Can’t Compete With This Year’s (Very Short) List Of Winners
Only Ecuador, Tunisia and Ghana have posted gains in 2008. Which is why I’m pleased to announce my new investment service - The Ecuador, Tunisia, Ghana Trader (trademark pending).
I’m being facetious, of course. But the point is that there are investors out there who are so desperate to find a performing investment that they’re willing to consider just about everything.
At times like this, you’ll often hear folks confidently booming out the “Yeah, but this time, it’s different” line. I’ve long been an opponent of talk like this. And I’ll tell you why…
Why It Isn’t Different This Time… For U.S. Stocks Or Anywhere Else
During the dot.com era when those types of U.S. stocks were flying, I was routinely told that I “didn’t understand the new paradigm.”
And it wasn’t too long ago when the real estate market took off, and I was being called names for being so stupid for not borrowing cheap money to buy spec houses and home sites in so-called “can’t miss” places like Port St. Lucie, Florida - a city that now boasts the dubious honor of having more than 11% of the homes in the foreclosure process. Unemployment is also over 10% in the county.
But is it truly different this time?
Investors have endured and overcome a Civil War, two World Wars, and the Great Depression. But now, the government seems to be in the process of bailing out every poorly run business. In addition, we’ve got an incoming president that Wall Street knows little about yet, as well as a rapidly changing financial landscape.
U.S. Stocks Might Be Suffering, But It’s Not The First Time And It Won’t Be The Last
Don’t get me wrong; U.S. stocks are doing badly. And at first glance, the following information just seems to confirm investors’ worst fears. But read between the lines, and you should find reason for hope.
Dr. John P. Hussman, who runs the Hussman Funds, wrote a letter to shareholders explaining precisely why we’re not in uncharted territory. In fact, if the S&P 500 slides to 780, another 9% drop from current levels, the market would be in the lowest 20% of all historical market valuations. A drop to 700 on the S&P would represent the lowest 10% of historical valuations.
In other words, things are tough and could get worse, but the market has been here before. To read the whole piece, click here.
In the long run, I believe the way you will make money in the market is the way investors have done it for over 200 years - investing in businesses that grow earnings.
Don’t Pack Your Bags Just Yet… There’s Potential In U.S. Stocks Still
Despite the seemingly bleak outlook on U.S. stocks at the moment, you don’t need to buy shares of Accra Brewery Company, Tunisair, or Diner’s Club del Ecuador to have a prayer of making a profit.
Instead, look for stocks that could rebound in 2009. There are so many that have suffered a beating, the list could be extensive. And when you do, first look at the biggest and best companies in their fields - ones who’ve experienced market downturns before and have stood the test of time.
For example, consider Wells Fargo (NYSE: WFC) in the financial sector.
Take a look at biotech giant Genentech (NYSE: DNA) in the healthcare sector.
Cast your eye over Microsoft (Nasdaq: MSFT) in the technology space.
And as the economy recovers, companies that should fare well include McDonald’s (NYSE: MCD), Caterpillar (NYSE: CAT), Costco (Nasdaq: COST), and ITT Corp. (NYSE: ITT).
Don’t neglect the small-cap market either, though. Small-cap stocks have a history of leading the market out of a downturn. You just need to be careful which ones you pick, as it can still be a volatile sector - particularly in a fragile market.
Companies with revolutionary products include Accuray (Nasdaq: ARAY), a long-term position in the Xcelerated Profits Report portfolio and ViroPharma (Nasdaq: VPHM), which is part of the portfolio in my small-cap healthcare service, Access (for more information on Access, call our VIP Services Team at: 888.570.9830 (within the U.S.) or 410.454.0498 (from overseas).
It’s Almost Time To Pick Up U.S. Stocks Again, Painful As It Might Be
Yeah, U.S. stocks are experiencing whiplash as the pain train barrels down the tracks at sharp bends at full speed. And like it or not, we’re all aboard for the ride.
It’s a bumpy and uncomfortable one, for sure. But it will eventually hit the brakes and pull into the station. And when the markets calm down and things return to some sense of normality again, you’ll be glad you invested in stocks that you’re familiar with, rather than exotic investments that are often more trouble than they’re worth.
My colleagues Karim, Jim, Lee and I have all been hammering home this point for a few months now. But it’s crucial that you don’t get wrapped up in the hysteria and make poor decisions now that you’ll pay for later.
Simply put, get ready to buy good stocks on the cheap. I know it’s scary now. But this climate won’t last forever and normal order will be restored. That has been the case for over 200 years.
And rest assured that no matter whether times are good or bad, stick with us here and we’ll help you every step of the way. Better yet, join us at the Xcelerated Profits Report, where we’ll not only explain various situations to you, but show you exactly how to profit from them with specific recommendations, too. We’ll get through this together. Just click this link for all the details.
Meantime, thank your lucky stars that you’re not overweight in Icelandic stocks.
Marc Lichtenfeld
Sphere: Related ContentThe Best Investment Strategy For A Market Like This… The Truth About Covered Call Investing
November 14, 2008
Friday, November 14, 2008
by Karim Rahemtulla, Investment Director, Smart Profits Report
I know we don’t usually send the Smart Profits Report to you on a Friday. But with the stock market still crazier than a drunken leprechaun and this year’s economic and financial woes leaving many consumers seriously strapped for cash - just as the holiday season rolls in - I want to make sure you know one thing…
Yes, this is a tough market. No doubt about that. But far from throwing in the towel or panicking about it, in every market, there are strategies that can help you recoup losses, make money and even protect investments from future shocks.
Panic At Your Peril
Believe me, there are times I’m sure the last thing you want to hear about is the stock market. Sometimes, that’s true for me, too! And I understand that with each day that your portfolio losses grow, that’s when panic and/or depression sets in. When I was a rookie investor, I felt that way, because I didn’t think there was anything I could do.
But take it from me: At times like this, you must avoid panicking at all costs.
The thing is, markets are not one-way streets. And although it’s tough to argue that fact when we’re in a midst of an extreme correction that can only be compared to a 100-year flood, events like this can happen and we simply have to deal with it.
So this is not the time for a pity party or complaining. Here’s why…
Picking Through The Rubble For Strength And Extreme Value
While the stock market looks like a tornado has whipped through it over the past few months, lurking in the rubble are companies trading at valuations we haven’t seen for decades.
What’s more, they’re good, solid companies. True survivors that will allow you to recoup your losses as the market bounces back. And while it’s important to note that this may take some time, if you don’t have a horse in the race, you have no chance of winning, or even placing.
So where does that leave investors like you and me? What’s the best way forward?
An Investor’s Best Friend
Over the past few months, one investment strategy has risen to the top of the pack.
In fact, people whom I never thought would embrace it are now raving about its benefits. But understand that this is a strategy for those who can look beyond the hype and promise of home run, triple-digit return promises and instead towards something that many investors crave right now: Steady, consistent income.
And it’s a strategy that has taught me that there are ways to benefit from volatile and even falling markets - perfect for the current climate.
I’m referring to covered call investing.
In a nutshell, the strategy has two parts…
- You buy shares of a company.
- You sell call options against your shares.
What does this accomplish? First, it allows you to reduce your basis in the share price by collecting a special “dividend” (known as a premium) from the proceeds of the options that you sold.
In a flat or range bound market, you can do this over and over again, consistently reducing your original cost and setting yourself up for big returns in the future. Here’s how it works…
The Breakdown Of A Covered Call Trade
Let’s say you like General Electric (NYSE: GE).
You buy shares of GE at the current price around $17.
Against this position you sell GE $20 call options that expire in January 2009.
What this means is that you’re obligated to sell your GE in January at $20 if - and only if - the share price is over $20 at the time. If not, you keep your GE shares and any proceeds you received for selling the option.
If GE closes below $20 at expiration in January, you can sell another option and collect more money and continue to lower your cost. The caveat here is that if GE closes above $20, you still only get $20. The loss of the upside is the price you pay for the safety of lowering your downside.
The money you receive for selling the option(s) is called the premium. For example, if GE January $20 options are trading for $1, you will receive $1 for each share that you own and have sold an option against it.
Remember, options trade in contracts, with each contract equal to 100 shares. So if you own 100 shares of GE, you can sell one call option contracts. At $1 per contract, you will receive $100 - 1 contract x 100 shares per contract x $1.
So let’s say you sell just one call option against your 100 shares. With the $1 premium, your cost in GE is now $16 and your upside is $4 - the difference between the strike price and your cost. The extra dollar you picked up is like an extra 6% dividend ($1 divided by $16 (your cost).
But I like to put my own twist on this. It’s not exactly the conventional way of covered call investing - but it’s a big reason why my Strategic Income service has managed to notch up a 70% win rate over the past 11 years. Here’s what I do…
An Even Better Way To Trade Covered Calls
Instead of selling a call option above the price at which you buy the underlying shares, you sell it below that price.
My rationale is this: We’re essentially saying to the market that we want to own GE shares… but we want to own them at a lower price. Our price. Here’s how it works.
~ We buy GE at $17
~ We then sell the January 2009 $15 calls against the position.
For doing so, we’ll automatically get $2 back - known as the “intrinsic value” ($17 minus $15.) But we’ll get more.
For time and risk, we’ll pick up an extra $1 to make the total premium $3 ($2 intrinsic plus $1 for time and risk). That lowers our original cost in GE to $14.
So we stand to make $1 profit on the trade, as long as GE closes above $15 in January. If this happens, our return is about 7% in a couple of months - a full $2 below the current price.
You see how this works? We’re not betting that the shares are going higher… we’re actually saying that if they go nowhere or even lower, we still stand to make money as long as the shares are above our cost of $14 ($17 purchase price minus $3 premium received).
Three Chances To Win In A Market Like This? I’ll Take It!
The bottom line here is that we have three chances to win…
- If GE shares rise, we win.
- If GE remains flat, we win.
- If GE shares fall - but not under $14 - we win.
I don’t know about you, but I like those odds - especially in a market like this.
But what happens if GE slides under $14?
Well, since our cost was lower than the $17 we paid for the shares, there is an excellent chance that we’ll be able to sell more options and reduce our cost even further, while increasing our upside potential.
Do You Want To Win On 70% Of The Trades You Make?
As I said, covered call investing is an excellent strategy to use in a market like this. Even the mainstream financial media have picked up on it recently. But beware that you don’t get suckered in by one of the hyped-up, but very raw “Johnny-Come-Lately” products out there, which over-promise, but under-deliver. With the twist we put on it in my Strategic Income service, we’ve won over 70% of the time.
And even though we take the occasional defeat, the loss is usually limited since we’ve already reduced our cost so much. And in some cases - like one trade we have in our portfolio right now - we’re in the position of owning one company for absolutely nothing because we’ve sold calls against it at opportune times.
And you’d better believe that there’s nothing quite like a feeling of owning something of value for nothing - especially in this market!
So that’s the theory behind arguably the most powerful, income-producing investment strategy on the market. If you like the sound of this - and frankly, who wouldn’t? - I’d like to personally invite you to join me and an exclusive group of smart investors who are using this strategy consistently to defy the market and pocket some steady income while most others are losing theirs.
Take a few minutes this weekend to read this report I’ve prepared for you, with more on the subject. And enjoy your weekend, too.
Best regards,
Karim Rahemtulla
Related Articles at: www.smartprofitsreport.com:
Selling Covered Calls - Getting Cash for Stocks You Already Own
The Breakdown Of A Covered Call Trade
Grandma Got Run Over By A Reindeer: How You Can Profit From The Retail Sector Bloodbath This Holiday Season
November 14, 2008
Thursday, November 13, 2008: Issue #575
by Marc Lichtenfeld, Senior Analyst & Healthcare Specialist, Smart Profits Report
Stating that the retail sector has suffered a bombardment of bad news the last few months is like saying the Atlantic Ocean is wet.
My colleague Paul Moore wrote an excellent piece on Tuesday, detailing Circuit City’s (NYSE: CC) problems. Let me first say that I agree with Paul on Circuit City and that its woes are company-specific and a result of poor management, rather than a sector wide problem.
While we may not see bankruptcies springing up everywhere, expect this holiday season to be a bloodbath for retailers.
Let’s look at what this year’s crucial shopping season has in store - and of course, the best ways to profit…
A Shift In American Shopping Philosophy
“Shop ‘Till You Drop.”
No sooner have many Americans digested their Thanksgiving turkey and got over the tryptophan-induced grogginess and bloating than they rush out to the mall, with this rallying cry ringing in their ears.
The most important factor in trying to forecast retail sales is income. And because we’re not a nation of savers, if Americans are making money, they’re usually spending it soon afterwards.
The problem right now, though, is this: Because the country has endured a widespread slump, Americans are starting to change the way they think. They’re fearful about their incomes.
Average consumers have already cut back on their spending, and will likely tighten their wallets even more as we head deeper into this overarching bear market. And with good reason, too…
The Stats Paint An Ugly Picture
- On Wednesday, Fidelity Investments started the process of laying off 1,300 workers.
- Chicago Mayor Richard Daley said Wednesday that CEOs who do business in Chicago have warned him that mass layoffs are coming this month and in December - with more on the way next year.
- According to the Bureau of Labor Statistics, over 235,000 people lost their jobs in 2,269 mass layoff events, which are described as layoffs involving at least 50 people in a single action. This was the highest total since 2001.
- Job losses on Wall Street alone are expected to total at least 45,000.
On top of that, initial jobless claims are at the highest level in eight years and we’ve got an unemployment rate of 6.5% - a figure not seen since 1994.
Those figures alone spell trouble for the retail sector, but when people suggest those numbers could climb into the double-digits, well… you can imagine the misery that would ensue.
Simply put, people are just plain scared. Retail is enduring a double-whammy. On one hand, it’s suffering because people are already getting laid off and don’t have the income to buy flat-screen TV and iPods. And following swiftly behind it is the very significant issue that existing workers, mindful of the ugly trend, are worried that the next swing of the axe will hit them.
In other words, it’s bad right now and likely to get worse. One of the biggest casualties of the whole affair will doubtlessly be the retail sector, as it gets pounded like a veal scaloppini.
Your Christmas Stock Shopping List Should Include These Three Retailers
Since the market hit the skids, I’ve been a big advocate of compiling stock watchlists to keep on your radar. That way, when it’s time to pull the trigger, you’ll have all the resources and information right there at your fingertips. All you’ll need to do is take a deep breath and fire.
So, with that happier thought in mind, here are some retailers you might want to start thinking about:
~ Kohl’s (NYSE: KSS)
Kohl’s is in an excellent position to take advantage of the bankruptcies of competitors such as Mervyns. According to Toronto-based Thomas Weisel Partners, Kohl’s has picked up 20% of Mervyn’s market share in areas where Mervyns had to exit.
Since Mervyns plans on closing another 149 stores in California, that gives Kohl’s even more room to maneuver, which should provide a holiday boost.
~ Wal-Mart (NYSE: WMT)
There’s no doubt that Wal-Mart’s core demographic is feeling the pinch in this economy, with little leeway to buy new televisions and other extravagances.
However, while they can easily cast aside those extras, they still need necessities such as food and clothing - areas where Wal-Mart excels because of its lower prices.
And speaking of lower prices, you’re likely to see Wal-Mart attracting new customers these days, too. Gone are the good old days when you could just stroll into Coach and treat yourself to a new purse or briefcase. Luxuries like that are off the table for now, so Wal-Mart options are looking better and better to many people.
As CEO Lee Scott states: “Wal-Mart has momentum as we move into the fourth quarter. At a time when our customer is feeling the pressure of a tough economy, Wal-Mart’s price leadership is more important than ever.”
One caveat, though. Despite blowing third-quarter estimates away, with profits rising 10%, Wal-Mart has trimmed its fourth-quarter profit outlook, due to economic concerns.
~ Dollar Tree (Nasdaq: DLTR)
Not surprisingly, Dollar Tree shares are up significantly this year. In fact, the company boasts the best margins in the business right now. It chalked up double-digit earnings growth over the past two quarters and consumer traffic is increasing. The stock is trading at just 1.09 times its expected 14% growth rate. We don’t advocate shoplifting, but this is a steal.
… And A Happy New Year
The retail picture isn’t pretty. But it’s not completely ruined.
There will be a time when it will be right to get back in to stocks like Whole Foods (Nasdaq: WFMI) and Tiffany’s (NYSE: TIF). And that time will be before the economy is showing signs of recovery.
Why? Because we want to buy them cheaply when nobody else wants them. But we still have time before that occurs. In the meantime, concentrate your efforts on the companies like the ones I mentioned above - ones that should thrive and emerge stronger because of the hardship.
Marc Lichtenfeld
Related Articles at: www.smartprofitsreport.com:
Circuit City Blows A Fuse… But Here’s Why Its Bankruptcy Doesn’t Spell Holiday Doom For Retailers
Retail Services: Here’s What To Expect In The Retail Sector’s Most Critical Two Months
Black Friday 2007: Here’s A Retailer That Could Profit From The Madness Of The Holiday Season
Sphere: Related ContentCircuit City Blows A Fuse… But Here’s Why Its Bankruptcy Doesn’t Spell Holiday Doom For Retailers
November 11, 2008
Tuesday, November 11, 2008: Issue #574
by Paul Moore, Contributing Editor & Technology Specialist, Smart Profits Report
So China has become the latest country to pump up its laboring economy, with a whopping $585 billion stimulus package.
Whether it works or not… time will tell. But Asian and European stocks picked up on the move on Monday, grasping onto whatever seemingly positive moves they can.
Here in the U.S., the mess continues unabated. The government had to reshape its bailout for AIG, including forking over an extra $40 billion. But despite the floundering company’s fourth consecutive negative quarterly report, the markets reacted positively to the story.
That didn’t help avert the crisis other areas, as Detroit’s automakers repeated their increasingly desperate pleas for some financial muscle and Circuit City (NYSE: CC) filing for Chapter 11 bankruptcy in order to seek protection from its creditors.
This came just a week after the electronics giant announced that it will close 155 of its 1500 stores. No wonder investors aren’t showing any confidence in the markets.
The fact that a mismanaged institution like Circuit City would declare bankruptcy wouldn’t be all that disconcerting at most times of the year. But when it’s right before Christmas…
However, this news might not be as bad as it seems. Smart investors know that Circuit City is an anomaly rather than a harbinger of the retail sector’s future…
Black Friday Or Red?
Black Friday - the traditional post-Thanksgiving excuse to shop until you drop - is only a couple of weeks away. Retailers like Circuit City, which depend on the holiday season for the bulk of its annual revenues, typically capitalize on the bargain-buying hordes in a number of ways. First, it opens the doors before the birds have started their early morning wake-up call and offers free prizes for the first few customers.
Even mismanaged companies can breathe a sigh of relief during holiday season, as they know exactly what to expect: Customers and cash.
But Christmas isn’t coming early for Circuit City. Not when Hewlett-Packard (NYSE: HPQ) and Samsung reduced or canceled its lines of credit at the very time when the retailer needed it the most. Sony (NYSE: SNE) even went as far as stopping delivery trucks in transit.
Why Circuit City Can’t Compete With The Big Boys
Take a look at the chart of the three-month LIBOR trend below. It indicates that the credit markets are beginning to loosen. The cost of inter-bank lending appears to have peaked on October 8 at just under 5.4% and has trended downward since.
As far as Circuit City is concerned, its pressing need for cash unfortunately happened to coincide with the credit crisis, and peaked shortly after LIBOR began to fall.
The threat of liabilities off the balance sheet has haunted both the company and its creditors for some time now. Circuit City is tied into multi-year leases that resulted in $116 million worth of termination cost liabilities as of August 31. And last week’s announcement of 155 store closures will probably account for $183 million more.
Even if the company were able to liquidate everything, the liability related to closing stores would be devastating, as the firm’s 1,500 locations are reduced. How many other companies can say they share those same sad stats?
In A Changing World, Circuit City Lacks Foresight
To top it all off, Circuit City showed a fatal inability to evolve with its industry.
Over the past few years, the Apple (Nasdaq: AAPL) database has emerged as the central point for music purchasing, edging out the previously popular CD. And folks who still like CDs usually rely on Wal-Mart (NYSE WMT) and Internet retailers such as Tigerdirect and Buy.com, which offer lower prices compared to, say… Circuit City.
Cast the financial aspect aside for a second and chief competitor, Best Buy (NYSE: BBY) offers enviable customer service in its Geek Squad and personal shoppers. By contrast, Circuit City didn’t have the capital to capture the high-end of the market and, with pricing pressured at the low-end, the firm has quite simply languished until its cash reserves have disappeared.
Sure, the credit crisis didn’t help. But Circuit City can only blame it as a catalyst and not as a primary reason, since it’s been losing ground to Internet companies ever since iTunes made its debut.
Circuit City Had It Coming… But Its Main Rival Should Benefit
So at the risk of sounding blunt, Circuit City had this Chapter 11 coming. It’s simply a logical conclusion to six months of trouble, in which the company had to cut its dividend, lost an opportunity to be acquired due to lack of disclosure, and put plans for a new distribution facility on hold.
In this gloomy economic environment, most onlookers may see Circuit City as a prime example of what is going to happen to the rest of the retail sector, as we slide further into a recession. And with the critical holiday season around the corner, who can blame them?
A closer look, however, shows that while those fears are understandable, they’re not well-grounded. For some retailers like Best Buy, which will undoubtedly benefit from consumers not wanting to buy gift cards and extended warranties from Circuit City, this may actually be the end of the beginning rather than the beginning of the end.
Paul Moore
Related Articles at: www.smartprofitsreport.com:
Black Friday 2007: Here’s A Retailer That Could Profit From The Madness Of The Holiday Season
Retail Services: Here’s What To Expect In The Retail Sector’s Most Critical Two Months
How To Size Up Risk And Reward To Ramp Up Your Returns
Sphere: Related ContentIt Might Be Time For A Personal Investment Analysis
November 6, 2008
Thursday, November 6, 2008: Issue #573
by Marc Lichtenfeld, Senior Analyst & Healthcare Specialist, Smart Profits Report
A lot of people have had to rethink their investment analysis since late last year as they’ve watched one “sure thing” stock after another fall prey to bad management, the faltering economy or investor panic.
At the risk of sounding cavalier, my approach to this economic turmoil can be summed up with the joke about the difference between a recession and a depression…
A recession is when you lose your job. A depression is when I lose my job.
Nothing much had hit close to home. Sure, businesses are struggling and many of my friends, family and acquaintances have had to cut back. But thankfully, most people I know haven’t felt too much of an impact.
That was until I received a startling e-mail from a good friend of mine a few days ago…
Investment Analysis 101: A Harsh Reality
I already knew that this guy’s father had enjoyed a successful career as a company executive for years and was now enjoying semi-retirement, spending more time with his family, and consulting for a few clients.
He was also heavily invested in the stock market.
Too heavily, in fact.
Turns out he’d put his money in investments that were highly leveraged and was margined up to his eyeballs. As you can imagine, when the credit crisis hit, his holdings got crushed. My friend reports that his father is all but wiped out and is now driving a school bus to make ends meet.
Suffice it to say that this was a bit of a wake-up call for me. Yes, my friend’s father certainly took on more risk than he should have done. But this isn’t some anonymous person that I read about in the newspaper. This is someone who I’ve known since I was a kid. Someone who is very important to a good friend of mine.
A Critical But Opportunistic Investment Analysis
It served as a catalyst for me to take a look at my own portfolio and make my own investment analysis, assessing whether I’ve taken on more risk than I should have.
For a start, I never buy stocks on margin, so that isn’t an issue. And after reviewing my holdings, I was relieved to find that I have an appropriate level of risk, even during these volatile market conditions.
Throughout the current crisis, the one constant theme that we’ve repeated over and over again is this: Don’t panic and sell off with the crowd.
I know this is easier said than done when you see the stock market take another triple-digit tumble. But selling off blindly isn’t the answer to the problem. We’ve harnessed our “don’t panic” advice with the fact that the current market is presenting us with some remarkable opportunities to actually buy make substantial profits over the long run.
That said, it’s important to stay liquid and be able to sleep at night if the markets slide even lower. So I urge you to take a look at your own portfolio and assess how much risk you have. Do you buy on margin? Are you 100% invested?
Your Investment Analysis Might Prove You Can Take On More
If you do have enough cash on the sidelines and can withstand a market selloff, than I hope you’ll follow me and the rest of the editors here at Mt. Vernon Research.
While we don’t like the current crisis any more than you do, the one bright spot is that it’s offered up one of the best bargain-basement periods in a generation. It’s an opportunity not to be missed - and we’re recommending a steady stream of growth stocks that are now trading at stunningly low valuations.
For example, the blue-chip biotech company I recently picked in the Xcelerated Profits Report could post double-digit returns in just the next few months. Or the more speculative biotech that is on track for a 100% return or more by this time next year. To learn more about these picks in the Xcelerated Profits Report, click here.
On the other hand, if you’re a bit uneasy about the level of risk in your portfolio, be sensible and take it down a notch.
Like It Or Not, This Investment Analysis Is Vital
For the most part, I viewed those hardest hit by the crisis as folks who just got in over their heads - either because they were greedy or trying to keep up with the Joneses.
Don’t get me wrong… while I certainly feel for someone who gets bamboozled by a snake oil selling mortgage broker, or someone who buys a home they can actually afford, but runs into a hardship due to a health crisis, many of the foreclosed homeowners that I read about were people who simply got stuck without a chair when the music stopped. They bought homes and assumed they’d simply flip them to the next person. Problem was, they shouldn’t have been playing the game to begin with because they couldn’t afford it.
It’s rotten that sometimes we have to learn from other people’s mistakes. But ensure that you keep them to a minimum - and don’t make them in vain.
It’s very difficult to recover from a significant loss of capital, as my friend’s father will attest. So let this story serve as your own wake-up call and ensure that you don’t end up the subject of a similar startling email.
Hoping your longs go up and your shorts go down.
Marc
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Related Articles at: www.smartprofitsreport.com:
Five Reasons Why You Should Use This Powerful Strategy In Today’s Crazy Market
How To Find Good Stocks to Invest In
Sphere: Related ContentThis Bear Market and The Dividend Paying Stock Trap
October 30, 2008
Thursday, October 30, 2008: Issue #571
by Paul Moore, Contributing Editor & Technology Specialist, Smart Profits Report
On July 7, 2008, the S&P 500 crossed the threshold into bear market territory, having slid 20% from its high on October 9, 2007.
Today the S&P is trading at 935 - a 40% drop from its high of 1,565.15. If you take the 14 bear markets since the Great Depression, the average decline was 38%. At the low on October 28, the decline was 45.5%.
So are we at the bottom? Perhaps. But consider this…
The average duration of these bear markets was 18.4 months. Given that we’re in the 13th month now, that puts us relatively close to the end, right?
Not quite. Bear markets aren’t created equal and if you only take the ones that saw declines in excess of 40%, the average duration is 28.4 months.
So if the current bear plays out in this way, we aren’t even half way through. Combine this with an unemployment rate of 6.1% - with the expectation that it will rise above 7% - and it seems much less likely that we’ve reached the bottom.
What does seem certain, however, is that we’re likely in for a long recovery, which could substantially jeopardize cash flows. And that’s a key issue when it comes to investing in companies on the basis of a dividend.Â
Just Because It’s A Touted Bear Market Strategy Doesn’t Mean It’s A Good Idea
Amid the market’s mess sliding further and further into a bear market, many pundits have touted the benefits of dividend paying stocks. It’s an issue we wrote about here a couple of weeks ago.
While it’s true that dividends bring you a form of income, does it really put a floor under a stock? The argument is pretty simple. Many companies have products that are such an integral part of day-to-day life that they are…
Very unlikely to disappear.
They’ve built up balance sheets that are strong enough to survive a multi-year downturn.Â
So instead of high share price appreciation, they repay their shareholders by passing along the profits in the form of dividends.
However, as cash flows dry up, companies cannot always support their dividends and investors can suffer a second whammy as the dividend gets cut and the stock finds a new level at the same yield.
Here’s the way to do it…
The Key To Navigating Through A Bear Market With Dividend Paying Stocks
In a bear market, it becomes that much more necessary to be tactical. Buying dividend paying stocks in this type of prolonged downturn does provide a good return if the stock remains stable. But if a cash flow shock occurs, dividends could suffer and the stocks that were supported at the beginning of the bear market substantially underperform later on.
You can avoid this trap by looking at the key driver of dividend paying stocks - cash flow.
In the heat of a bear market, investors will always be concerned about how far top-line growth can drop, but good management teams can handle this by cutting expenses.
However, the fixed depreciation of hard assets that are stuck to the balance sheet can make profit look worse than cash flow. While profit may look bad in the short-term, I have never seen a company cut a dividend that was 50% of free cash flow (or less).
The bottom line is that as long as free cash flow holds up, the management team has options and the dividend will be safe.
The last thing a company with a historically stable dividend will do is cut its dividend, as it would entirely change the shareholder base by boxing out value investors that have a yield hurdle.
So when it comes to dividend-paying stocks, while revenue and earnings growth are obviously important, be more concerned with the money on the cash flow statement.
Paul Moore
Related Articles at: www.smartprofitsreport.com:
Dividend Stocks: A Great Investment Strategy For Bad Times
You Can Profit In A Miserable Market Like This - Here’s How…
How To Box Clever Against A Hostile Market And Score “Knockout” Yields Of 21.5%
Sphere: Related ContentHear It From Our Premium Members...
I sold ½ of the stock per your recommendation, which returned my original investment.
I sold the remaining stock under my regular account on 4/13/2008 for $32.19 and a gain of over $4000.
On May 21, 2008, I sold remaining shares in my IRA account at $39.75 for a gain of over $5,000.
Thanks for your recommendation on this stock."
~R. M. Raga
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