Archives for February 2013

February 2013 - Page 2 of 17 - Money Morning - Only the News You Can Profit From

Stocks to Buy: Three Small Cap Stocks for Safety & Dividend Growth

Here's how to get rich in stocks: Buy elite businesses at a good price and let the dividends compound over the years.   That's the safe, steady road to building true wealth.

The key is in selecting the right stocks to buy.

However, most investors starved for solid dividend-payers often overlook one of the safest and most lucrative sectors – small cap dividend stocks

Instead they focus on large cap businesses like Wal-Mart Stores Inc. (NYSE: WMT) or McDonald's Corp. (NYSE: MCD).

But therein lies the problem–everybody knows they are great companies. That alone can drive their share prices to dizzying heights.

So investors who limit their choices to the big blue chips can end up paying too much-while missing out on another category of stocks that could make them even more money.

In short, they miss the quality small-cap dividend-payers. Here's why that is a big mistake for most investors.  

Small Cap Stocks to Buy

Small-cap stocks can be an individual investor's best friend.

In the period between 1927 and 2009, small-cap value stocks returned 14.9% per year.
Meanwhile, returns on large-cap value stocks averaged roughly 3% less per year.

So why do these small frys outperform their larger cousins?

First of all, their small size makes them fly under the radar of many institutional investors. 

What's more, mutual funds and pension funds have billions to invest, making it nearly impossible to buy and sell small stocks without having a huge influence on the price. As a result, a fund manager may find himself chasing a stock higher as he tries to take a meaningful position simply because he's the only big buyer.

Second, because the big fish tend to attract the big bucks, small caps are often ignored by Wall Street analysts.  Most analysts simply aren't about to spend precious hours researching a company that no one follows.

So "in-the-know investors" buying small cap dividend payers face a lot less competition and can pick up shares at a good price.

Plus, many of these small cap dividend machines actually have a lot in common with their big brethren. 

Like many large-cap, dividend-paying stocks, these companies generate tons of cash flow, have great brand names and wide competitive moats in their respective industries.

More importantly, they also have a history of dividend growth. They just happen to be much smaller than giants like Coke (NYSE: KO)and Procter & Gamble (NYSE: PG).

The bottom line: Investors who are willing to accept a slightly higher degree of risk should consider investing in small-cap value stocks that pay dividends.

Three Small Cap Dividend Machines

With that in mind, here are three small caps that are members of the Russell Global Small Cap Dividend Achievers Index.  To qualify they must have raised their dividends annually for more than 10 years and meet minimum cash volumes. 

In short, these are companies that throw off plenty of cash and safe dividends.

They include:

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Stocks to Buy Now Ahead of Major Bank Industry Takeovers

There has been a lot of discussion among investors over the past few years about whether the banking industry offers any quality stocks to buy now.

The big banks brought the economy to its knees in 2008 and had to be bailed out by the federal government with taxpayer dollars. The disastrous decisions at large banks spilled over to the smaller banks and caused severe economic distress for many of them.

Many banks were forced to close with 140 banks failing in 2009 and another 157 in 2011.

Although the numbers have tapered off some we still saw more than 50 banks fail last year as a result of residual problems from the housing boom and ensuing credit crisis. This type of carnage is reflected in the price of many small banks, which are just now starting to see their balance sheets and stock price show signs of improvement.

We now face an environment much like the aftermath of the savings & loan debacle in the late 1980s and early 1990s.

You see, during the economic boom from 2001 to 2007 many new banks opened across the United Sates to take advantage of the cheap money from the Fed and the high demand for housing and home equity loans.

Now in the aftermath of the implosion of housing prices, we find ourselves with too many banks even after all the failures. We have seen some bank mergers in 2012 but this is just the start of what will be a massive wave of bank and thrift consolidation activity.

While we have seen some economic recovery, we continue to operate in a better but not good economy. Loan demand is still fairly tepid and is well below pre-crisis levels. It is difficult for many banks to gain market share and maintain profitability.

As we enter 2013 banks face new regulation and compliance costs that may further crimp operating profits. Smaller banks in particular are experiencing high levels of frustration at their inability to remain profitable and grow their franchise. Shareholders are unhappy after several years of poor share-price performance and want to see a return on their investment.

For many the best path is going to seek a suitor and sell out to a larger competitor.

For investors this creates an enormous opportunity for long-term profits, if you know the right stocks to buy now.

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Australia Shale Oil Discovery Continues the Country's "Lucky" Streak

Investors are well aware of the shale oil revolution in the United States. But the "revolution" does not end here; it is spreading globally to countries as diverse as China and Poland.

There is one country in particular though that may experience circumstances similar to the United States, if not greater.

I'm talking about Australia, which has often been called "The Lucky Country." That description was first penned in 1964 by Donald Horne and he actually meant it negatively at the time.

But in recent decades, the term has been given a positive spin thanks to Australia's abundance of natural resources and its geographical location near the world's biggest consumer of commodities – China.

And Australia may have struck luck again thanks to the recent announcement of a massive shale oil discovery.

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Stock Market Today: Apple, Bernanke, Durable Goods in Focus

The stock market today (Wednesday) opened modestly higher before staging a strong rally by mid-day.

Shortly after noon, the Dow Jones Industrial Average had jumped 133 points, or .96%, to 14,033, putting it within reach of its all-time high of 14,164, set in 2007. The Standard & Poor's 500 Index added 15.71, or 1.05%, to 1,512; and the tech-heavy Nasdaq climbed 35.18, or 1.09%, to 3,163.

Federal Reserve Chairman Ben Bernanke remains in the spotlight today. The Fed chief continues to defend the central bank's easy-money policies in his second day of testimony before Congress.

Also garnering attention was the Commerce Department's report that showed a 5.2% drop in orders for durable goods – products designed to last at least three years. The decline, steeper than the 3.5% decline economists had expected, came after strong gains in the previous month.

The slump shows the impact from reduced spending, ahead of sequestration, that has already taken hold.

With defense contractors feeling the effects of impending automatic spending cuts, defense capital goods orders plunged 69.5% in January, marking the steepest drop in more than a decade.

Also falling was demand for civilian aircraft, which plummeted 34%. The steep drop in this volatile category was attributed to a decline in orders at The Boeing Co. (NYSE: BA) due to battery problems in its Dreamliner 787.

The stock market today got a boost from the National Association of Realtors monthly index report of pending sales of existing U.S. homes – up 4.5% in January from the previous month, handily beating the 1.5% analysts had projected.

And providing a cushion, if not a catalyst, to markets, was an announcement from Fitch Ratings. The firm said that while sequester and a U.S. government shutdown would "erode confidence," it wouldn't prompt a downgrade of the nation's AAA credit rating.

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Ben Bernanke Testimony: We Have "Belts, Suspenders" to Unwind Balance Sheet

The two-day Ben Bernanke testimony before Congress continues today (Wednesday) as the U.S. Federal Reserve Chairman faces the House Financial Services Committee. Members will grill Bernanke for more information on the Fed's exit strategy from quantitative easing (QE) and its easy money policy.

While Bernanke did admit yesterday to the Senate Banking Committee that "there's no risk-free approach" to unwinding the $85 billion-a-month bond-buying program, he shed little light on how the QE measures would end.

In fact, Bernanke's vague answer to Sen. Richard Shelby, R-AL, when asked how the Fed will deleverage the balance sheet, was this: "In terms of exiting from our balance sheet… a couple of years ago we put out a plan; we have a set of tools. I think we have belts, suspenders – two pairs of suspenders. I think we have the technical means to unwind at the appropriate time; of course picking the exact moment to do, of course, is always difficult."

The buying is expected to continue until the Fed sees the unemployment rate fall to at least 6.5%, but Fed critics are concerned about the nearly $3 trillion balance sheet Bernanke has built up already.

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AGCO Downgraded to Neutral - Analyst Blog

On Feb 22, we downgraded our recommendation on AGCO Corporation (AGCO) from Outperform to Neutral. The leading manufacturer and distributor of agricultural equipment and related replacement parts witnessed the downgrade on soft demand for grain storage and protein production equipment, start-up issues at the Marktoberdorf plant and increased engineering expenses to meet Tier 4 requirements […]

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Buy, Sell or Hold: Is Chipotle Mexican Grill Still a Hot Growth Stock?

Since the 2008 market crisis, shares of Chipotle Mexican Grill, Inc. (NYSE: CMG) have jumped a phenomenal 677%.

As the quintessential example of growth in the quick-service restaurant industry, Chipotle has built a strong reputation for serving high-quality, locally grown, organic ingredients in its burritos, tacos and salads.

That combination has given the chain a loyal and satisfied set of customers, as well as shareholders.

But that doesn't mean you should buy Chipotle stock at these levels-no matter how much you may enjoy dining there.

Here's why.

Chipotle's shares have become more volatile over the past year and the company now seems priced for perfection with its 36 trailing P/E and 25.5 forward P/E.

What's more, Chipotle's same-store sales are in decline, food prices are on the rise, and the chain faces even more competition.

Here's why that means Chipotle's days as a hot growth stock are likely over.

This Is a Recipe for Massive Hyperinflation or Bankruptcy

Nobody was really shocked when Venezuela devalued the bolivar earlier this month from 4.3 to the dollar to 6.3.

When it comes to the currency wars, massive devaluations are simply one of the keys to this "race to the bottom" strategy.

But Venezuela's bad behavior, and that of several other countries in the region, means that several Latin American countries are now likely to suffer hyper-inflation or declare bankruptcy.

For investors in Latin America, that raises the risks for everyone, even for countries with good policies and relatively low debt.

Unfortunately, long-standing investors in this part of the world have seen this hyperinflationary pattern before.

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What You Absolutely Need to Know About Money (Part Three)

From Venetian goldsmiths issuing paper receipts, to America's first and second central banks – the Bank of North America in 1781, and the First Bank of the United States in 1791 – we arrive at the year 1836.

Chapter Two, on the beginnings of central banking, ended with: "The Second Bank (of the United States, chartered in 1817) was bitterly opposed by President Andrew Jackson, who made the existence of the Bank, and its power over the people, a central issue in his campaign… Jackson won, and in 1836 the Second Bank of the United States' charter expired, along with another central banking experiment."

So, why did Andrew Jackson, after a successful first term as President of the United States, bet a second term on breaking up the huge, monumentally successful bank?

Why, indeed.

John Meacham's biography of Andrew Jackson, American Lion, lays bare the General's very Jeffersonian fear of the power and influence of banking interests.

Jackson exercised his veto power when a bill for the Bank's recharter passed the Senate and (narrowly) the House, after a former recharter opponent, Samuel Pierce Carson, "had obtained a loan of $20,000 from the Bank, and had changed his opinion."

Jackson eventually overcame the Bank's arsenal of loans and favors by appealing directly to the voters.

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IPO Calendar 2013: Who to Watch in March

After a very quiet end to February, several high-profile deals should make the initial public offering (IPO) calendar for March 2013.

The year has gotten off to a great start with strong market performance by newly public companies. Overall there have been 20 IPOs so far this year and 17 are currently trading higher than the offering price.

One of the biggest has been Norwegian Cruise Line Holdings Ltd. (Nasdaq: NCLH) with a blistering gain of more than 50% in just a few weeks.

March will see a slow but interesting start with just two deals coming to market in the first week of the month.

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