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Stocks

Washington

You Only Wish You Could Live Like a Congressional Fat Cat

By , Money Morning - • Print | Email

Spoiled by congressional perks most Americans could only dream of, Washington lawmakers have utterly lost any sense they may have had of the true value of money.

With annual salaries more than triple that of the average American worker, short work weeks and an array of benefits that would make most CEOs jealous, it's no wonder members of Congress can't manage the nation's budget.

That's why the nation is more than $16.5 trillion in debt and needs to borrow 46 cents out of every dollar it is spending this year.

And it's a big reason why Congress can never seem to figure out how to solve any of America's most pressing fiscal problems.

Congress hasn't even passed a budget in four years, even though it is required by law to do so every year.

You won't believe how well these folks live – and every dime that pays for this lavish lifestyle comes straight out of the pockets of taxpayers.

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Your Money

This Time-Tested Strategy Could Be Your Winning Lottery Ticket

By , Executive Editor, Money Morning - • Print | Email

Every time I talk to my nephew Sam, I realize youth really is wasted on the young.

Fresh out of college, what my brother's son knows about the real world couldn't fill a thimble.

At age 22, he just doesn't know what he doesn't know yet. He's brash, idealistic, a bit hardheaded, and ends up making a lot of rookie mistakes – especially when it comes to the stock market.

Like most novice investors, he'd much rather chase the latest big momentum stock than actually work to build true wealth over time.

When I try to nudge him toward a portfolio of solid dividend-paying stocks, all he really wants to talk about are the "hot stocks," or what I call "the flavors of the month."

Even after he got absolutely roasted last year buying Groupon (NASDAQ: GRPN) shares, he still couldn't wait to load up on Facebook (Nasdaq:FB) when it debuted.

And since Facebook's astronomical P/E ratio couldn't stop him, I figured I probably couldn't either.

I just hope that after a while, some of these hard lessons will finally begin to sink in.

Trend Watch

Stocks to Buy Now: These Three Retailers Are Prime Takeover Targets

By , Money Morning - • Print | Email

The wave of deal-making on Wall Street hasn't extended to retail yet. But that's about to change.

That's because retailers make for great M&A candidates – which also makes for some stocks to buy now ahead of this takeover trend.

Takeovers provide chances for companies to cross-sell products and negotiate better with landlords and suppliers. Plus, retailers face low regulatory barriers to deals.

That's why major retailers are among a list of 71 companies Morningstar says are some of the most likely takeover targets this year.

"We think 2013 will bring an uptick of deal activity," said R.J. Hottovy, director of global consumer equity research for Morningstar. "There's no shortage of companies with available capital on their balance sheets and high operating margins, fewer organic growth opportunities and candidates with attractive valuations."

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Top News

Groupon CEO Andrew Mason Is Out; Does Stock Have a Chance?

By , Contributing Writer, Money Morning - • Print | Email

Groupon CEO Andrew Mason was ousted by the company after a horrible earnings report and steep drive in stock price.

The Groupon stock price tumbled 26% in after-hours trading Wednesday following the release of a dismal fourth-quarter earnings report, and then plunged another 24% today (Thursday).

It was announced Thursday after market close that Eric Lefkofsky and Vice Chairman Ted Leonsis have been appointed to the newly created Office of the Chief Executive, effective immediately, replacing Andrew Mason. Lefkofsky and Leonsis will serve in this role on an interim basis.

"On behalf of the entire Groupon Board, I want to thank Andrew for his leadership, his creativity and his deep loyalty to Groupon. As a founder, Andrew helped invent the daily deals space, leading Groupon to become one of the fastest growing companies in history," said Lefkofsky.

The Board will start a search for a new Chief Executive.

The mounting misery at Groupon had left many questioning Mason's fate before the announcement. 

Last year, the company's board mulled replacing him. The latest results and lackluster outlook sealed the deal for Mason at the Chicago-based company.

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Energy Investing

Stocks to Buy: Will Solar Shine This Year?

By , Money Morning - • Print | Email

Since legendary investor Warren Buffett took a liking to solar this year, investors have been wondering if it's time to revisit this beleaguered industry when looking for stocks to buy in 2013.

The solar sector has endured a beatdown for about two years, with massive oversupply of solar panels and unfavorable publicity combining to keep solar stocks down.

But two recent purchases by MidAmerican Energy Holdings Co., a subsidiary of Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), have brightened the solar stocks outlook.

MidAmerican announced a $2 billion to $2.5 billion deal to buy two California solar power projects from SunPower Corp. (Nasdaq: SPWR). MidAmerican also agreed in January to invest in what will be the world's largest solar photovoltaic operation, which is partly owned by First Solar Inc. (Nasdaq: FSLR).

Many solar stocks and solar ETFs, including Market Vectors Solar Energy (NYSE: KWT) and Claymore/MAC Global Solar Index (NYSE: TAN), have soared on the MidAmerican news. They're both up about 17% this year.

Does this mean investors should follow Buffett into solar stocks? Here's a look at the sector.

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It's as Light as a Handful of Feathers, but 200 Times Stronger than Steel

By , Money Morning - • Print | Email

It's called graphene, and it's known as a "miracle material" that will change the world.

In fact, our technology specialist Michael A. Robinson says it's the "biggest breakthrough in materials science in quite some time."

Robinson said this material is rocking the science world as researchers around the globe scramble to develop graphene-based products. The possibilities of how graphene could be used are endless – and the discoveries these scientists have already made are astonishing.

In fact, Robinson put together this video explaining exactly why graphene is such a big deal.

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The Eurozone

The Eurozone Hangs On By a Whisker

By , Money Morning - • Print | Email

Four days after the Italian elections only one thing is clear: A majority of Italian voters have rejected austerity.

The problem is their victory came up short by the slimmest of margins.

0.36%. That's the difference between a firm new government that could move Italy out of the Eurozone and the constitutional logjam Italian voters woke up to the next day.

As it is, they could roll the dice on a new election, but that could also make matters worse.

Since Italy's a big country with a chunky economy, that's likely bad news for us all.

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Dividend Stocks

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

By , Contributing Writer, Money Morning - • Print | Email

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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Trend Watch

Stocks to Buy Now Ahead of Major Bank Industry Takeovers

By , Money Morning - • Print | Email

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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Stock Market Today

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

By , Contributing Writer, Money Morning - • Print | Email

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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