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Stocks

It's Time to Bail on Bank Stocks

By , Money Morning - • Print | Email

There was a time when bank stocks actually looked like good investments. And many, having racked up big gains over the past two years, proved to be just that.

But sadly, U.S. banks no longer offer the value and profit-making potential they did immediately following the financial collapse. In fact, they're actually heading for what could be a catastrophic decline.

Let me explain.

On February 18, 2009, I wrote a piece that said bank stocks should not be written off.

I observed at the time that the best U.S. banks had huge business strengths that were not fully undermined by the financial crisis. So I advised investors buy shares of the best among them.

As it turns out, that recommendation may have been too timid.

That is, most bank stocks – including some of the weakest and least investment-worthy – have surged since my article's publication.

Even following a lukewarm second quarter and last week's market meltdown, the top six banks – Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley (NYSE: MS) – are in a relatively impressive position.

Take a look for yourself:

  • Goldman Sachs stock is up about 22%.
  • Bank of America is up 30%.
  • JPMorgan is up about 49%.
  • And Wells Fargo is up 55%.

Only Citigroup, down about 13%, and Morgan Stanley, down 20%, have seen their stock plunge.

But in light of this remarkable run up, and the disastrous pitfalls that lie ahead, now is the time to bail on bank stocks.

Margins are narrowing, government regulation is increasing, and the outlook for big deals is drying up.

In other words: The risks related to bank stocks are as present as they ever were – just the profitability is missing.

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The Google-Motorola Deal: Winners and Losers

By , Associate Editor, Money Morning • @DavidGZeiler - • Print | Email

Every tech company with a stake in mobile computing will feel the ramifications of Google Inc.'s (Nasdaq: GOOG) plan to buy Motorola Mobility Holdings Inc. (NYSE: MMI) for $12.5 billion.

Google partners could well become rivals, while the other major players in the mobile computing arena, such as Apple Inc. (Nasdaq: AAPL), Microsoft Corp. (Nasdaq: MSFT) and Research in Motion (Nasdaq: RIMM) all will be affected – some negatively, but some positively.

The new partnership also could inspire other merger and acquisition activity in the sector, between large, cash-rich companies and small, struggling ones.

Let's take a look at how the Google-Motorola deal, which was announced on Monday, will alter the mobile computing landscape, company by company:

Google: A Mixed Bag

Primarily, Google bought Motorola to acquire its vast patent portfolio to better defend its mobile operating system, Android, from a rising number of patent lawsuits.

"Motorola has a strong patent portfolio which will help protect Android from anti-competitive threats from Microsoft, Apple and other companies," Google CEO Larry Page said in Monday's conference call.

Although most of the lawsuits have been aimed at handset makers such as HTC Corp. (OTC: HTCXF), Samsung Electronics LTD (PINK: SSNLF), and Motorola, the common thread was Android. Microsoft focused on collecting licensing fees for each handset, while Apple's strategy was to halt the sale of devices competing with its own iPhone and iPad products.

The typical defense to patent lawsuits is another patent lawsuit, but you need to possess a broad portfolio to do that. Google, which had a mere 700 patents before, will add Motorola's 24,000 patents to its arsenal.

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Why It's Time to Buy Google Inc. (Nasdaq: GOOG)

By , Money Morning - • Print | Email

By announcing its plans to buy Motorola Mobility Holdings Inc. (NYSE: MMI) yesterday (Monday), Google Inc. (Nasdaq: GOOG) is forcing me to make a statement that I never thought I would make: It's time to buy Google.

The $12.5 billion deal will see Google acquire the phone-making half of the Motorola Inc. spin-off that took effect in January. Google is paying $40 a share in cash – about a 63% premium to Motorola Mobility's closing price on Friday. The deal – which Google says will help it "supercharge" its Android smartphone business – will close late this year or early in 2012.

I used to look at Google as the next Microsoft Corp. (Nasdaq: MSFT). But Google has achieved a status that Microsoft shot for – and missed: It's become an online leader and a factor in the everyday life of consumers. Google also has massive growth potential available, and hasn't quit trying to grow.

And that's a good reason – perhaps the best reason – to own Google today and into the future.

Google's purchase of Motorola Mobility will showcase this potential. It positions Google to pair Motorola smartphones with its Android software and compete against iPhone-maker Apple Inc. (Nasdaq: AAPL).

However, Google's new purchase does a lot more than dangle a bigger slice of smartphone market share – and this reason is why I finally decided Google is a "Buy." (**).

Motorola Mobility: All About the Patents

The game-changing benefit for Google in the Motorola Mobility deal is the intellectual property Google is picking up. We are talking about 17,000 patents in this purchase.

A stronger patent portfolio allows Google to reduce royalty costs by using cross-licensing agreements with handset makers. And it protects the Android smartphone market from getting slammed with patent fees (and lawsuits) as sales continue to climb.

The number of Android-software-powered phones jumped 300% last quarter.

Motorola Mobility's patent portfolio will enable Google to move to hardware design for its Android phones. That will give Google both the phone operating system and the intellectual property to act as a gatekeeper in the mobile space.

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Kraft Foods Inc.'s (NYSE: KFT) Spin-off Strategy Will Unlock Value for Investors

By , Money Morning - • Print | Email

Kraft Foods Inc. (NYSE: KFT) is about to unlock a lot of value for patient investors.

I chose Kraft Foods as my first "Buy, Sell or Hold" pick of 2011 as a hedge against inflation. At the time the world was looking at food inflation caused by fires in Russia, rains in Australia, and droughts in China.

The move paid off. In a market that had dropped by as much as 20% in the last two weeks, Kraft is still up about 8% since my recommendation.

Kraft is the very definition of slow, stable value, and in times of fear and uncertainty, nothing is more defensive than food. That is exactly why I recommended the stock at the beginning of the year, and why I believe it's a "Hold" today.

But that's not all. A recent development has given investors yet another reason to hold on to Kraft.

Kraft Foods – which is currently the second-largest global-food company, behind only Nestle SA – announced on Aug. 4 it was going to split into two.

It's going to separate its global snacks operations from its North American grocery business, creating two independent companies.

One company will include its European and developing markets units and will hold brands like Oreo cookies and Cadbury chocolates; it will have revenue of $32 billion.

Meanwhile, the North American grocery business, with revenue of $16 billion, will include such brands as Oscar Mayer processed meats and Kraft macaroni and cheese.

The news was a surprise since Chief Executive Officer Irene Rosenfeld – who favors big companies – said just 18 months ago that "scale is a source of great competitive advantage."

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A Potential "Big Trade" That Will Put George Soros to Shame

By , Chief Investment Strategist, Money Map Report - • Print | Email

Many investors dream of making the "big trade."

Spurred on by stories of fabled investors who accumulated generations of wealth with just one big trade, they talk incessantly about what they could or should have done.

But actually doing something about it pays better.

Consider George Soros, who reportedly made $1.1 billion in a single trade against the Bank of England by shorting the British pound on September 16, 1992. Or Jessie Livermore, who reportedly made $100 million on October 24, 1929 – Black Thursday. Or how about Jay Gould, who tried to corner the gold market on September 24, 1869. Nobody knows exactly how much Gould made but he left his children $77 million when he died in 1892.

Well, if you have the guts, now is the time to make your move, because I think the next "big short" is already out there. In fact, judging from open interest I'm seeing on gold puts and VIX puts, I'd bet on it.

Right now there are literally tens of thousands of contracts open on both at various strike prices, so the odds are good that somebody – perhaps a group, a hedge fund, or another big money player – is placing highly leveraged bets that things will reverse.

With the proper structure, these trades could dwarf the bets made by Soros, Livermore, and Gould.

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How I Made 52% Off the Last Stock Crisis

By , Forex Strategist, Money Morning - • Print | Email

Man, what a week, right?

We all watched the world markets take a pretty bad beating. The Dow Jones Industrial Average plunged a horrific 635 points Monday and another 520 points on Wednesday, taking the blue-chip index to a level it hasn't seen since last September.

Markets in Europe and Asia tumbled as well, leaving investors shell-shocked.

It reminds me of how the markets reacted after the 2008 collapse of Lehman Brothers Holdings Inc. (PINK: LEHMQ).

Investors panicked. They dumped nearly everything. Stocks fell 29% in three months. Commodities fell an incredible 47% that autumn.

At the time, you couldn't turn on even the local news without hearing something negative about the markets.

But I'll let you in on a secret: I loved every minute of it.

I made a nice 52% profit in my personal forex account that fall, all thanks to the increased volatility in the markets.

Yes, the very thing that sunk stock and commodity prices caused my forex trades to soar higher and faster than ever.

It wasn't an isolated event, either. There are plenty of ways you can profit from volatile swings in the stock markets with foreign currencies.

Take now, for instance. As of this week, volatility has emerged in the markets with a vengeance. But that's exactly the kind of volatility that rewards traders. In just a moment, I'm going to show you how to use this volatility to your advantage.

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Be a Gold Digger with Compania de Minas Buenaventura SA (NYSE ADR: BVN)

By , Money Morning - • Print | Email

Compania de Minas Buenaventura SA (NYSE ADR: BVN) is the largest publicly traded precious metals company in Peru.

As such, it stands to profit handsomely from the record high gold prices we're now seeing on a daily basis.

Gold prices hit another intraday record yesterday (Wednesday) topping $1,801 on the Comex division of the New York Mercantile Exchange (NYMEX). Gold prices rose to new record highs on both Monday and Tuesday as well.

Indeed, gold has been on a bull-run since 2007, but Standard & Poor's U.S. credit rating downgrade and the escalating sovereign debt crisis in Europe have the yellow metal continually testing new highs.

For instance, the European Central Bank (ECB) on Tuesday was forced to intervene and buy Italian and Spanish bonds as yields ticked higher. The cost for Italy to continue to issue new public debt, or even to roll its current pile, had reached the same levels that caused Greece, Ireland and Portugal to seek government support.

It's important to note that fear stemming from European and U.S. debt isn't just pushing individual investors into precious metals. It's also driving central banks around the world to flee fiat currencies for hard physical assets – especially gold.

Indeed, global gold sales are climbing as more countries stock up on the yellow metal.

South Korea spent more than $1 billion over the past two months on its first gold purchases in more than a decade, doubling its national holdings. The Bank of Korea said even though prices have already hit historic highs, it was the right time to diversify its foreign reserves.

"South Korea's central bank seems a little late to the party, but gold investors should continue to expect price support as central bankers around the world are underinvested in the yellow stuff," Sean McGillivray, head of asset allocation at Great Pacific Wealth Management, told Reuters.

You know it's bad out there when central banks are buying gold at record highs, with expectations that other central banks will be adding to their own hoards as the risk of continued devaluation of the U.S. dollar continues.

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Safety Stocks: Three Ways to Profit From Market Mayhem

By , Money Morning - • Print | Email

There's never been a better time to invest in "safety stocks."

The Dow Jones Industrial Average is down 14% since July 22 and the Standard Poor's 500 Index is down 15% in that time. The U.S. economy is grinding to a halt, and a double-dip recession could be in the offing. Meanwhile, the U.S. Federal Reserve continues to undermine the dollar with expansive monetary policy.

Indeed, with so much bad news and chaos, there's never been a better time to stock up on the essentials – gold, guns, and cheap food. These are the things people turn to when the going gets tough – and the companies that provide these bare necessities shine the brightest when everything else seems to be falling apart.

That said, here are three safety stocks that are worth a look:

  • Newmont Mining Corp. (NYSE: NEM).
  • McDonald's Corp. (NYSE: MCD).
  • And Sturm, Ruger & Co. Inc. (NYSE: RGR).

Let's examine each in a little more detail.

Newmont Mining Corp.

Gold has been the can't-miss profit play of the past three years.

The yellow metal settled at yet another record high yesterday (Tuesday), surging 1.7% to $1,743.00 an ounce on the Comex division of the New York Mercantile Exchange (NYMEX). And Money Morning Contributing Editor and global resources specialist Peter Krauth says it could more than double from there.

"I expect gold to reach $5,000 before this bull market peaks," said Krauth. "I'm very open to the possibility that gold could correct from here, but I'd expect that to be nothing more than a short-term pullback."

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How to Bank Triple-Digit Gains During a Stock-Market Sell-Off

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

Monday's stock-market sell-off was a frightening affair that sunk 94% of the stocks listed on the New York Stock Exchange (NYSE). Every single stock in the Standard & Poor's 500 Index fell, and the 635-point freefall experienced by the Dow Jones Industrial Average was its sixth-largest point drop ever.

But in the face of this bloodbath, subscribers to Shah Gilani's Capital Wave Forecast were treated to gains of 456%, 455%, 371%, and 197% on four of their holdings.

Just how did Gilani manage to engineer four triple-digit gains in the face of a near-market meltdown?

He predicted reversals in both the U.S. and Chinese financial markets, employed a "put" option strategy for insurance – and then watched as his predictions came true.

"If I'm going to buy insurance, I want the best insurance at this price," said Gilani, a retired hedge-fund manager who is also a respected expert on the global financial crisis. "Part of a good cost-structure analysis is timing, which is tough. So I polished my crystal ball and said: ‘If something bad were to happen, when would that be?' I decided August, and chose some lesser-expensive puts."

Gilani's plan paid off with these four winners:

  • A 455.56% gain from Goldman Sachs October 2011 $85 Puts (GS111022P00085000), bought June 3 for 45 cents and sold Aug. 9 for $2.50.
  • A 455.24% gain from SPY August 2011 $115 Puts (SPY110820P00115000), bought for $1.05 on June 10 and sold Aug. 8 for $5.83.
  • A 371.26% gain from FXI $40 August 2011 Puts (FXI110820P00040000), bought May 10 for 87 cents and sold Aug. 8 at $4.10.
  • And a 196.72% gain from QQQ August 2011 $50 Puts (QQQ110820P00050000), bought June 10 for 61 cents, and sold Aug. 8 for $1.81.

"The days of putting together a portfolio and sleeping on it are over," said Gilani. "You could wake up to its value cut in half. Vigilance is the order of the day."

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