Archives for 2012

January 2012 - Page 182 of 185 - Money Morning - Only the News You Can Profit From

Four Dividend Stocks to Put Money in Your Pocket

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Anxiety over the European debt crisis and distrust in the markets drove volatility in global stock markets to dizzying heights in 2011. The intense level of chaos, and record low bond yields, sent investors scrambling for stocks that deliver steady returns in the form of dividends.

Dividend stocks have long been regarded as "widow-and-orphan" stocks because they provide steady payouts and tend to fall less than others when times are tough. And when stock prices fall, dividend yields actually rise because they reflect a percentage of a stock's price.

In fact, investors seeking shelter from market volatility and economic cycles flocked to dividend stocks in 2011. And most held up much better than the Standard & Poor's 500 Index.

The top 100 highest-yielding stocks in the S&P 500 last year were up an average of 3.7%, before dividends, The Wall Street Journal reported. By comparison, the 100 lowest-yielding stocks were down 10% on average.

Meanwhile, some investors tapped into dividend yields of more than 4% — more than double the feeble yields of 10-year Treasuries — on the stocks of utilities, manufacturers, and telecom companies.

"The problem with going for capital growth is that you very often don't get it, and then you've got nothing – the investment just sits there," said Money Morning Global Investing Strategist and Editor of the Permanent Wealth Investor Martin Hutchinson. "Dividends are easy – you can drop them on your foot, as it were. All you have to do is figure out which companies are run by sharpies – and are paying dividends out of capital – and which companies have genuinely solid business models that aren't going away."

Still, buying dividend stocks can be tricky. Individual stocks are inherently risky because they are confined to one sector of the economy. As such, they tend to rise and fall along with the rest of their industry peers.

Many investors are solving that problem by turning to dividend exchange-traded funds (ETFs).

ETFs allow investors to capture income from a cross section of companies, without risking all of their capital on one sector. And because ETFs track broad categories of stocks rather than relying on active managers to pick securities, they provide some safeguards against loading up on the riskiest companies.

That said, here are four dividend stocks worthy of a look right now:

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Small Shale Oil Companies Make Prime Take Over Targets

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Cash-rich oil majors are set to go on an epic buying spree. In the process, they are going to create a huge investment opportunity.

Small oil companies have become attractive takeover targets because they have something that oil majors like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) want – expertise in the hydraulic fracking and horizontal drilling methods that are used to extract oil from North America's vast shale reserves.

And many of these takeover targets are companies based in North America.

"The main opportunities to profit from M&A (mergers and acquisitions) will be in the U.S. and Canadian markets," said Money Morning Global Energy Strategist Editor of theOil & Energy Investor Dr. Kent Moors.

Ironically, many of these small companies developed their expertise after buying assets the majors sold as soon as easy-to-reach deposits were tapped. Many of those assets contained shale oil, which is much harder and more expensive to extract.

But since the global price of oil is high enough to make shale oil drilling profitable, the oil majors have been seeking out smaller players to retrieve their assets and expertise.

"These shale prospects are exploration frontiers and the big international players see them as a runway to growth," Mark Hanson, an analyst at Morningstar Inc. told Bloomberg News.

Shale oil becomes profitable when global oil prices are in the $70 a barrel range. The higher the price of oil goes, the more attractive shale oil formations become.

The price of West Texas Intermediate (WTI) averaged about $95 a barrel in 2011, but will keep rising. Moors believes oil will reach $150 a barrel as early as this summer.

So the big oil companies, with billions of dollars of profits burning a hole in their deep pockets, have plenty of motivation to shop around.

For investors that means they need to stake out their positions before all the buying starts.

That's the only way to take advantage of the sudden jump in the stock price that occurs when a takeover deal is announced. Luckily, several oil sector analysts have already identified the most likely takeover targets.

According to Subash Chandra, an analyst specializing in energy stocks for Jeffries Group Inc., the stocks to watch are …

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The Madness of Crowds: How to Play Bonds, China, and Gold in 2012

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Yes, I know that markets are irrational.

I read Charles Mackay's 1841 classic, "Extraordinary Popular Delusions and the Madness of Crowds" long before it ever became fashionable.

Even so, when you think about it, 2011 must set some kind of record.

As investors, that means we need to decide whether this madness will continue in 2012 and which direction to take.

Take the madness in the bond world, for instance.

Long-term bonds of a country with an out-of-control budget deficit and a worrying trade deficit are currently yielding 1.6% below inflation.

In other words, year after year, investors are willing to pay 1.6% of their capital to hold them. On top of that, investors have been so keen on this miserable asset in 2011 they have bid up its price by no less than 26%.

Conversely, China is revolutionizing the world economy.

Year after year, China puts up growth rates of 8% or more, and the latest data suggest that will continue throughout 2012.

What's more, Chinese stocks stand on a bargain-basement price-to-earnings (P/E) ratio of less than 8-times earnings. Yet, in 2011, investors shunned these bargains, giving the Chinese market a pathetic return of minus-22%.

It is Madness I Tell You

Do you see what I mean when I talk about irrational?

To a Martian, these statistics would be proof that earthly markets had lost their collective minds. That's not just a random walk – it's a deliberate stroll that will destroy your wealth.

For investors, it raises the question of how long this irrationality is going to last. Will this extreme irrationality persist in 2012, or will it reverse?

The first conclusion to be drawn is that current markets…

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What a Little-Known Market Tool Is Telling Us About U.S. Stocks in 2012

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If you're a longtime investor, you're no doubt familiar with the Price/Earnings (P/E) ratio – a common measure for valuing the stock market.

But you may not be as familiar with the more-obscure Earnings/Price (E/P) ratio, which some experts refer to as the "earnings yield" on stocks.

If you're not familiar with the earnings yield, it's time to brush up.

While it may be obscure, the E/P ratio is an important tool. It not only tells you stocks' value, it allows you to compare that value to other assets like bonds.

And right now it's telling us a lot about buying U.S. stocks this year.

Basically, the risk/reward in favor of stocks over corporate bonds has never been this high…ever.

Let's take a look.

How to Use the Earnings/Price Ratio

We can get a pretty good handle on the value of stocks if we look at the E/P ratio of the Standard & Poor's 500 Index.

In 2010, the earnings for the S&P 500 came in at $83.77. According to Standard & Poor's, the earnings estimates for 2011 are at $97.81 and will climb to $111.73 for 2012.

Taking the 2011 S&P 500 earnings estimate of $97.81 and the current S&P price of about 1,290, you come away with a multiple of 7.5% (97.81/1290). Simply put, this means that the expected earnings of the S&P 500 are 7.5% of the price of the index.

By the same token, if earnings come in at the expected $111.73 in 2012 and stock prices remain the same, the earnings yield jumps to 8.6%.

Why should you care? Because you want a higher rate of return for the risk of investing in stocks when compared to the rate of return of other asset classes.

Generally, the earnings yields of equities are higher than the yield of risk-free treasury bonds, reflecting the additional risk involved with stocks. But right now the difference is extreme, with 10-year government bonds yielding a paltry 2%. Meanwhile, corporate bonds are paying about 5%.

Now let's compare the return on stocks to the rate of inflation.

Over the past 50 years, the average earnings yield for the S&P 500 has outpaced inflation by 2.4%. When the market is above that mark, equities are considered attractive. When it's below, they're expensive.

Subtract the current core inflation rate of 1.5% from the 2011 S&P 500 earnings estimate of 7.5%, and we end up with 6% – well above the 50-year average. Even if we use the 3.4% consumer price index rate, you're left with a difference of 4.1%. Compare that to bond yields and you're still way ahead.

So that's where we are, but how about where we're headed?

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Forbes Misses the Mark, The Tech Sector Delivers Life Changing Gains

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You can stop worrying about the financial crisis.

I have a new way to help Washington make ends meet. If we were smart, we would just close the patent office.

And why not?

After all, according to some folks, all of the great inventions have already come and gone.
So, if you thought we were still on the cusp of miraculous breakthroughs in technology that are going to change the world, think again.

Despite what you may have been reading, the technology sector is actually positively dull, folks.

In fact, using innovation to cure cancer, solve world hunger, and help humans live past the age of 100 with genius-level IQs is just plain boring. Ho-hum really.

I know this because I read all about in Forbes magazine. So it must be true… right?

Of course, I hope you'll pardon the stinging sarcasm…

But in a recent column, Rich Karlgaard of Forbes actually questioned whether the future of technology would be as bright as the past.

To be fair, Karlgaard's argument refers to a new book on the subject by a prominent college professor who claims technological progress is nowhere near where it used to be.

Or as Karlgaard argues, "doesn't quite stir the soul."

Miracle Breakthroughs

Maybe he should have talked to Barbara Campbell.

Twenty years ago, the New Yorker went blind while still in her 30s

Today, she can at least see rough shapes and enough light to make out the building she calls home. It's all courtesy of the electrodes surgeons implanted in her eyes.

They communicate wirelessly with a pair of sunglasses that sport a tiny video camera.

The LA-based developer of these "bionic eyes," Second Sight Medical Products, won approval to sell its system in Europe last year. In 2012, the privately held company hopes to finally win U.S. approval for its miraculous technology.

But whether the company goes global or not is beside the point. I predict that in as little as 20 years, human blindness will largely be a thing of the past.

And then there's the case of Matt Nagle, a Massachusetts man whose life took a turn for the worse after being paralyzed from the neck down.

To his delight, he has learned to surf the web, send emails, make a robot move its hand and play video games – all with the power of his mind.

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How Bain Capital Could Sink Mitt Romney

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Poll leader Mitt Romney is getting slammed by opponents for the 15 years he spent at private equity firm Bain Capital. To hear the opposition tell it, Romney is not the job-creator he claims to be, but rather a greedy profiteer. After winning Iowa by a narrow 0.1% margin, Romney was the New Hampshire frontrunner […]

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$200 A Barrel Oil in 2012?

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Geopolitical events out of Iran have increased the chances of oil prices spiking even higher than initially predicted in 2012. Money Morning resident energy expert Dr. Kent Moors joined Fox Business Tuesday to break down the biggest factors affecting oil prices out of Iran, Europe and the United States. Loading the player …

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China: Big Changes Coming Soon

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by Guest Author Henry S. Rowan, Senior Fellow, Hoover Institution Stanford University Global Economic Intersection Article of the Week Executive Summary Big changes are ahead for China, probably abrupt ones. The economy has grown so rapidly for many years, over 30 years at an average of nine percent a year, that its size makes it […]

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Five Stocks to Avoid Like the Plague

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There's no better time to take a good hard look at your portfolio than the beginning of a new year.

I know this may not be your first rodeo and chances are you've already done at least a little thinking about how your investments came through 2011, and what you'd like to achieve in 2012.

If not, there's no time like the present.

Especially when it comes to something I call "Ditching the Dogs," which is a variant of the well-known and very popular "Dogs of the Dow." You've probably already guessed from the name that I'm talking about unloading those investments that have underperformed, or which are likely to hold my portfolio back in the next twelve months.

Obviously this is a highly personal process and every investor is different, but here are five stocks I'd avoid like the plague right now (and the reasons why):

1. Sears Holdings Corp. (Nasdaq: SHLD) – Long a bastion of American retailing success, I've been leery of the company for a long time. In fact, I've steered clear of it since hedge fund investor Eddie Lampert used more than a little financial wizardry to create Sears Holdings. At the time, his goal was to tap into the vast real estate empire underlying Sears and subsequently K-mart when that company emerged from bankruptcy and he snapped up shares. The stock hit $190 a share in early 2007 on the assumption that it would.

Now, though, it's a very different story. With real estate in the toilet and the value of his "collateralized" debt circling the drain, he plans to fire employees, cut more than 120 stores and sell property. Same store sales are down sharply as is profitability. Fitch Ratings Inc. has cut the company's bond to junk status, and it's likely to have hundreds of millions in writedowns ahead. I think the company is going to restructure, and net income is going to fall to the tune of billions when now-litigation conscious accountants have their day.

2. Research in Motion Ltd. (Nasdaq: RIMM) – Once the darling of connectivity and a status symbol for the cognoscenti, RIMM's share of the smartphone market continues to evaporate like fog on a hot morning. I recommended shorting the company a few years back but was early to the party on several occasions; somehow the stock seemed to fight back. The stock is down 89.52% from its peak of $144.56 in early 2008 and up a creek without a paddle…and you know which creek I am talking about.

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