U.S. Stocks

GM's IPO Filing Reveals Challenges That Could Discourage Investors 

When General Motors Co. filed registration papers for an initial public stock offering (IPO) on Wednesday, it also revealed the formidable challenges it faces – some of which may give pause to investors considering taking a stake in the venerable automaker. The 734-page document GM filed with the Securities Exchange Commission (SEC) paints a picture […]

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How to Pick Stocks in the 'New Normal' Economy

In today's potentially ultra-slow-growth "New Normal" economy, old stock market multiples do not apply.

In fact, investors who rely on long-held rules about Price/Earnings (P/E) ratios when they buy and sell stocks are risking a pretty big "haircut:" They may be overvaluing some of their stocks - and the stock market in general - by 17% to 20%.

Let's take a closer look...



To understand how to value stocks in the "New Normal" economy, please read on...

History Gives a Reason to Be Hopeful about U.S. Stocks

Volatility has hamstrung U.S. stocks recently, but history suggests there's a reason for hope on the horizon.

The past week and a half has been a welcome reprieve from the extreme volatility we've seen over the past few months. There have been no fewer than 19 days this year in which up or down volume has accounted for more than 90% of total volume.

The rapid up-and-down, all-or-nothing nature of the stock market has confounded even the most talented, highly paid and well informed traders. The hedge fund industry as a whole has been caught flat-footed - posting losses in each of the last two months.

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Defensive Investing: Beware of Municipal Bonds

Of the speculative excesses that misguided monetary policy and a prolonged recession has caused, the one that poses the most danger to investor wealth is the financial bubble in state and local municipal bonds.

Municipal bonds - usually referred to as "munis" - are very popular portfolio plays because of tax advantages that, in effect, enhance their rates of return. There's also an allure because of their local nature: Investors can invest in specific bond issues that provided the money for projects such as schools, highways, bridges, hospitals or housing that actually affects the community in which the investor lives. That makes them a very tangible investment.

But there's a problem.

State-and-local-government finances have taken a bigger beating during this economic downturn than during any other recession since World War II. Even worse, that beating came after the easy money available during this stretch encouraged those same governments to venture well beyond any reasonable limits in terms of their borrowing. They're now stuck with a bigger-than-warranted debt load - which can't be covered by the property tax stream that's been reduced by record-level housing defaults.

The bottom line: At the present time, "munis" may not be the benign - or even alluring - investment that they've been in the past. In fact, thanks to continued fallout from the worst financial crisis since the Great Depression, some munis may be more akin to bombs than bonds - ticking away and just waiting to blow up your portfolio.

To understand why "muni" bonds may be dangerous, please read on...

What Can 1962 Tell Us About Today's Stock Market?

We dove into market history a lot recently with studies of the 3%+ up day a couple weeks ago as well as a look at the growth rate of the index of Leading Economic Indicators. The takeaway: History suggests there are grounds for being optimistic about the stock market.

Now here's a new reason for optimism: The current situation bears a striking resemblance to the 1962 summer stock market rebound. 

Here's the scoop: In early 1962, a head-and-shoulders pattern emerged that looked very similar to the one that appeared to have taken shape in April-June this year. When the neckline of the pattern was violated in April 1962, stocks fell like a ton of bricks into a June low that was ultimately 27% lower than the January 1962 high. 

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Defensive Investing: Keeping Your Options Open with Covered Calls

Once you get beyond buying puts or calls for purely speculative purposes, no other options strategy is more popular than employing the use of covered calls - and with good reason: Few investment techniques offer more potential benefits with such a low level of risk.

Considered the most conservative of all option plays, this strategy - which basically involves selling (or "writing") one call option for each 100 shares of a stock you own - can be employed for one or more of five distinct purposes:

  1. To generate a stream of additional income - over and above dividend payments - from individual stocks in your equity portfolio.
  2. To generate a stream of income from stocks you own that pay no dividends.
  3. To reduce the effective cost basis of longer-term stock holdings by bringing in option premiums, thus recovering some of the original purchase price.
  4. To provide a limited hedge against potential losses in portfolio value as a result of overall market pullbacks or cyclical downturns in the prices of specific stocks.
  5. As an income-producing substitute for a "limit-sell order" - intended to liquidate a stock position when a specific profit target is achieved.

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With "Risk Off" Trades Waning, U.S. Stocks Could Be Ready to Reverse Course

There are new signs that institutional traders are preparing for a change in direction of the U.S. dollar and European euro that may have big implications for U.S. stocks.

For months, the winning trade was to short stocks, the euro, and commodities, while buying gold, bonds and the dollar. Commentators labeled this the "risk off" trade since gold and bonds were seen as safe-haven assets. But when crowd mentality is at work, and sentiment - not fundamentals - is driving the bids, there really isn't such a thing as a "safe" trade. It's all speculation.

Take yesterday (Tuesday), for example: After surging 131 points, or 1.4%, out of the gate, the Dow Jones Industrial Average relinquished most of its advance to close just 16 points higher at 9,702.98. Meanwhile the Standard & Poor's 500 Index, which had climbed 1.5% to 1,038 in early trading, ended the day just 0.18% higher.

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History Shows Stock Market Plunge May Just Be Par for the Course

Although the stock market plunge last week was certainly unsettling, history and a slew of positive leading indicators show that this may just be part of a normal pattern with better news ahead.

Stocks were hammered on Tuesday as a negative revision to an economic report out of China and fears over European bank funding set off a global firestorm of selling. A very weak consumer confidence report didn't help matters.

The major U.S. stock indices fell through critical support levels, with the S&P 500 returning to levels first reached last August. That's almost an entire year of stock market appreciation out the window.

In the end, the Dow Jones Industrial Average lost 2.7%, the S&P 500 lost 3.1%, the NASDAQ lost 3.9%, and the Russell 2000 lost 4%. Large-cap stocks outside the United States fell 3.5%, while emerging market stocks fell 4%. Some of the European exchanges fell the most, including iShares MCSI Spain Index ETF (NYSE: EWP), down 5%, and iShares MCSI Switzerland Index Fund ETF (NYSE: EWL), down 6%.

Click here to see how the stock market plunge fits a historical pattern...

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High-Yield Hangover: Cash Pouring Into Junk-Bond Funds May Signal Stormy Seas For Stocks

Investors are plowing money into junk-bond funds, which leveraged borrowers at private equity funds are using to pay dividends to themselves and to buy out more public companies.

The huge-and-growing overhang of debt-laden portfolio companies that private-equity shops want to take public - when combined with additional leveraged deals in the pipeline - will keep a lid on U.S. stock prices and could even spark a sell-off for stocks in both the United States and Europe.

Let me explain...

To understand how this push into junk bonds is magnifying stock-market risk, please read on...

The Sovereign Debt Crisis: Bad For Europe, Good For U.S. Stocks

For several months now, we've been talking about the post-financial-crisis "new world order" that's emerged from the speculative excesses, recessionary realities and regulatory breakdowns of recent years. This new world order has created a world of lucrative new profit opportunities - that are governed by a new set of profit rules.

In terms of that whole new rules/new profit opportunities paradigm, here's one that may surprise you: The ongoing European crisis could end up as a net positive for U.S. stocks.

Let me explain...

To see how Europe's travails can aid U.S. stocks, please read on...

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Don't Give Up on U.S. Stocks Just Yet

There's no denying that bearish investors have made their case in recent weeks. They are legitimately afraid that the economies of the United States and Europe will fade so much in the next few months that they will sink back into recessions punctuated by credit blowups and a resumption of a bear market for U.S. stocks.

Still, the simple fact that there are a few economic boogey-men lurking behind each suspect piece of data doesn't mean that investors should run screaming away from stocks.

In fact, if you take the time to listen to the opposite point of view before you make up your mind about the direction the economy is headed, you might be pleasantly surprised.

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Four Factors to Consider Before Determining Your Long-Term View on U.S. Stocks

Stocks rose worldwide over the past week -- ranging from +2% in U.S. big caps to +6% in gold -- as investors swelled with sudden courage in response to positive reports on Chinese economy and glimmers of hope that European governments can get their financial houses in order.  

The week's results erased four weeks of losses, including the despairing session that ensued on June 7 after a disappointing report on U.S. employment.  Meanwhile, the result of the past 35 trading days, or seven calendar weeks, are still largely negative, ranging from a loss of 5.5% for U.S. stocks and -8.5% for Europe. Only gold stocks have eluded the smoke monster, rising 7% in the span.

The variation in one-week and one-month results illustrate perfectly how investors are showing that they are hopeful but unconvinced that recent strength in gross domestic product (GDP) growth and corporate income advances are sustainable, and therefore won't buy stocks heavily until prices are so cheap that they discount worst-case scenarios. In other words, they want a high risk premium before buying -- sort of like demanding a 72-month warranty before buying an expensive car.

To read about the four factors you should consider before investing click here.


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Buy, Sell or Hold: Cummins Inc. (NYSE: CMI) is a High-Powered Engine Maker That's Revving Up Its Revenue

Nestled in the heartland of America, Cummins Inc. (NYSE: CMI) is an icon of American manufacturing done right.  And now that it's being powered by new technology, emerging markets growth and new regulatory standards, the company is ready to book serious profits.

Founded almost 100 years ago and publicly traded since 1957, Cummins dominates the diesel truck engine market in the United States and is strongly increasing its international presence.

The high quality, efficiency and durability of the engines Cummins designs and builds are the foundation of the company's leadership. And its strong and disciplined cost controls, inventory, and receivable management are vastly superior to that of its competition.

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Bull Market Update: U.S. Stocks Are Hanging By a Thread – But It's a Tough Thread

If you ask me, the current bull market in U.S. stocks is hanging by a thread.

In fact, a decline that takes the Standard & Poor's 500 Index down below the 1,040 level - roughly 7% below where it closed yesterday (Wednesday) - would probably murder the bull-market case for stocks.

But until that decline actually occurs, don't rule the bulls out for the count.

That "thread" may be tougher than you think.

To see what's in store for U.S. stocks, please read on...

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Moribund Sentiment Is Jeopardizing the U.S. Stock Market

The U.S. stock market is really at a critical juncture right now.

I'm all for being optimistic at the prospect of a super-oversold condition amid rampant pessimism. But bulls need to take charge of the controls of this sputtering plane. But now that they failed to yank the stick higher before the February lows, the bottom is really in danger of falling out.  

Most corrosive for the major indexes' value at present are large-cap energy and bank stocks, which have fallen 7% as a group amid a hex from the BP PLC (NYSE ADR: BP) blowout and financial regulation clampdown.  

You would think that a cut in oil supply from the Gulf of Mexico would provide a strong undertow for energy, at least, but investors have been acting like industrial demand will grind to a halt in coming months.

June historically has been the second worst month of the year, after September. But after suffering through the worst May since 1940, and bearish sentiment on overdrive, it's fair to expect opportunistic investors to dive in now and take advantage of bargains.

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