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Sharpen Your Pencil – And Put These Three Stocks on Your "Shopping List"

Ask any of our gurus for advice on how to survive a stock-market sell-off – or even a whipsaw period like the one we’re navigating now – and you’ll get a surprising answer.

Keep a shopping list ready, they’ll tell you…

  • ETFs

  • The Top Emerging Market ETFs of 2014

    Investors have been running from emerging markets in 2014, but two emerging market ETFs have pulled in double-digit gains this year.

    More than $7 billion has been withdrawn from emerging market exchange-traded funds in 2014. As a result, funds like the iShares MSCI Brazil Capped Index Fund (NYSE: EWZ) and Global X FTSE Argentina 20 ETF (NYSE: ARGT) have dropped 10.3% and 9.4%, respectively.

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  • Small-Cap Stocks to Buy as the Little Guys Crush the Big Boys

    When it comes to stocks, it's easy to equate size with quality.

    But over the past year, smaller has been better, which means you need to be looking for small-cap stocks to buy.

    In fact, the market's practically screaming that you should be putting some chips to work in the small-cap arena.

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  • The Best Place to Look For Income Today It's a good rule of thumb: when stocks yield more than bonds, stocks are the better buy because of the potential for growth.

    Believe it or not, before the financial crisis in 2008 that was hardly the case. Going all the way back to 1958, bond yields always outpaced those of stocks.

    But thanks to Ben Bernanke and friends, bond yields have been driven into the basement. What's more, the central banks of the world are doing everything in the power to keep them there.

    That's why investors are increasingly turning to exchange-traded funds that specialize in dividend stocks as vehicles for income.

    This makes good sense for a couple of reasons. First, bond markets aren't very transparent, which makes bond prices difficult to come by, so ordinary investors get ripped off if they buy corporate bonds directly.

    Second, in today's markets you will do better in a high-dividend stock ETF--especially one with an international portfolio, than you will in a bond ETF.

    Let me show you why that is...

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  • Investing in ETFs: Check Out These Three for 2012 Since exchange-traded funds (ETFs) made their U.S. debut in 1993, they have grown to a market of more than $1 trillion.

    Those investing in ETFs enjoy it because ETFs provide diversification to portfolios, are tax-efficient, come at a low cost, and are readily available.

    ETFs are also appealing because you can find them at any time: they're bought and sold from brokerage firms and they trade on exchanges similar to stocks.

    Another attractive aspect to ETF investors is when they exit the product, the shares are sold to an investor; the fund doesn't have to sell assets.

    One investment adviser and decade-long ETF user, Mark Armbruster, told The Wall Street Journal, "From my perspective, it is the most compelling reason to use ETFs. If they're managed appropriately, there should never be capital-gains distributions."

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  • How to Buy Penny Stocks Of all the investment vehicles out there, few offer greater potential than penny stocks. Yet penny stocks are not for the faint of heart.

    That's why a clear understanding of how to buy penny stocks is essential before diving in to the market.

    You see, behind the potential for large gains is the indisputable fact that many of today's most dynamic companies were once little more than penny issues themselves.

    That means that at least a few of tomorrow's market leaders are currently lurking among stocks listed on the Over-the-Counter Bulletin Board (OTCBB) or the so-called "Pink Sheets."

    Penny Stocks That Hit it Big

    As proof, consider just three examples.

    These are companies that have risen from true penny status to positions of prominence handing early and enduring investors almost unimaginable profits:

    • Green Valley Coffee Roasters Inc. (Nasdaq: GMCR) - Thanks to four splits, 100 shares purchased in October 1998 at $4.62 a share ($462) is now 2,700 shares priced at $20.45 a share, worth $55,215. But the stock actually hit $107.99 in September 2011, making it then worth $291,573.
    • Bally Technologies Inc. (NYSE: BYI) - Two splits turned 100 shares of this gaming-machine maker purchased at $1.69 a share ($169) in May 2000 into 400 shares, now priced at $45.98 and worth $18,392.
    • Jos. A Bank Clothiers Inc. (Nasdaq: JOSB) - You could have purchased 100 shares of this clothing retailer in November 1999 at $2.78 a share ($278). After four splits, that position has turned into 351 shares now priced at $41.29, worth $14,492.79. At the height in May 2011 those shares were $56.05 each, worth a total of $19,673.
    These are just a few of the better-known companies on a long list of stocks that have gone from micro-cap levels to mid- or large-cap valuations.

    It doesn't include the many penny mining stocks that exploded upward with skyrocketing resource prices or "fallen angels" like Bank of America (NYSE: BAC). A complete listing of such stocks would go on for pages.

    Of course, a listing of stocks that have gone from penny status - defined by the Securities and Exchange Commission (SEC) as "a very small company priced below $5.00 per share" - down to zero would be far, far longer. That's why these stocks are among the riskiest on the board.

    That's the challenge for investors - avoiding the big losers in the penny stock market.

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  • Are Junk Bonds About to Become a Victim of Their Own Popularity? In our current low-interest-rate environment, many investors are widening their search for more income by buying junk.

    Junk bonds, that is.

    More formally known as high-yield bonds - junk bonds have been on a tear lately.

    With the Federal Reserve vowing to keep interest rates at or near zero through 2014, investors seeking higher-yield investments are eyeing junk bond exchange-traded funds (ETFs).

    Investors dumped $31 billion into high-yield bond funds during the first quarter of 2012 according to research firm EPFR Global. That's almost four times the global demand for junk-bond funds in 2011.

    Here's why.

    Junk bonds are offering generous dividends at a time when most other bond investments aren't even matching the rate of inflation.

    "Clients are essentially trying to replace the income they used to get from their government bonds," Hans Olsen, head of investment strategy in the Americas for Barclays Wealth, told Bloomberg News.

    Indeed, one of the largest junk bond exchange traded funds, the iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) is currently yielding more than 7%, while yields on the 10-year Treasury note hover just above 2%.

    But while robust demand and issuance for junk bonds is a sign of a healthy market, there are reasons for concern.

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  • Investing In ETFs: How Exchange-Traded Funds Can Save You Money High commissions and management fees, along with taxes, can really cut into your returns.

    That's where exchange-traded funds, or ETFs, come in. In today's investment world, ETFs are cheaper and more tax-friendly than mutual funds.

    The average expense ratio for U.S.-listed ETFs is 0.4%, compared with 1.42% for diversified U.S. stock funds.They also give you exposure to an entire industry or market with the click of a mouse.

    It's one of the reasons why exchange-traded funds are quickly becoming the investment of choice for investors seeking broad market exposure.

    In fact, the number of ETFs has surged over 10-fold in the last decade.

    The total number of ETFs in the market grew to 1,114 by October 2011, with assets over $1 trillion, according to the Investment Company Institute.

    And the ETF market will expand to roughly $3.1 trillion by 2016, according to projections from the Financial Research Corp. in Boston.

    So if you're looking to diversify your portfolio and save money doing it, ETFs may be the way to go.

    Here's a primer on how ETFs can work for you.

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  • The Case for Spitting into the Wind (At Least for Now) You've heard the expression "You don't spit into the wind," haven't you?

    Well, it's true when it comes to trading and investing, too. You keep the wind at your back, and you don't give up easy profits by bucking the trend.

    That's all well and good, so long as the wind is coming from a discernible direction. I prefer a warm southwest breeze myself. That's why I live where I live (in Miami).

    But we have no control over the many ill winds that blow over our investing horizons.

    The best we can do is stay aware of subtle shifts in directional changes, and watch out they don't strengthen into hurricane-force monsters.

    I've been cautiously (too cautious, I admit) bullish since October, and I remain optimistic that stocks have enough momentum to try and push through important psychological barriers - such as 13,000 on the Dow, 1,375 and 1,400 on the S&P 500, and 3,000 on Nasdaq.

    That doesn't mean we won't see a correction first. Or that last Tuesday wasn't a tiny correction in and of itself.

    But 30 years of hardcore trading, and catching every major move in that long time span (no, I hardly ever pick the exact top or bottom, but I have come close) has taught me to go with my gut, to know when I "blink" that it means something.

    And lately, I'm starting to "blink" more and more...

    I'm getting the feeling that something's wrong, and, somewhere, the eye of a terrible storm could be forming. There's nothing out there that I've read (and I read a lot), or heard, or come across in any research, either quantitative or fundamental, that articulates what this nagging feeling is that's hanging over markets.

    So, it looks like I'll have to be the one to put it out there.

    But first let me be clear. I'm not spitting into the wind here. I'm still going with the path of least resistance.

    What I am doing is presenting the backdrop of what people have lost sight of as they look front and center on the investing stage.

    Am I saying the eye of a hurricane is forming? No. I'm saying it already has formed.

    I'm saying keep buying cautiously and keep raising your stops as markets go higher, if they do. I'm saying keep watching these developments with me.

    Things change, and this brewing storm could dissipate, but it could also turn really ugly, really quickly.

    If the storm strengthens, and that's my bet, have a fail-safe plan to get out of speculative long positions, a plan to selectively add to core positions on the way down, and a plan to put on short-side positions that will make you a ton of money if I'm right.

    Okay, ready?

    Here's where the winds have shifted...

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  • Five Savvy Ways to Conquer the Wall of Worry
    If you like extreme risk and consider living on the edge to be "normal," today's column isn't for you.

    Today I'm writing to the millions of investors who are completely terrified by the prospect of what's next and who simply want their faith restored - not to mention their investments.

    To all of them I would say: You are not alone and you're not wrong to be apprehensive.

    Our political situation is an embarrassing train wreck, our national debt looks like a one way trip to financial hell, housing remains in the dungeon, unemployment is unacceptably high and Europe...oh Europe.

    It's nothing short of a gigantic wall of worry.

    Plus, there have been so many attempts to "fix" things that I've lost count. Throwing good money after bad is a fool's game and one that will have very real and inevitable consequences.

    So what should investors do?

    The Fed's War on Capitalism

    Here's how I see things. The "Whitewash Ministry" has basically five options:

    1. Repression
    2. Devaluation
    3. Austerity
    4. Deflation
    5. Inflation
    You can forget the double "d's" - devaluation and deflation.

    Even though both would be the proper way for free markets to bleed out the excesses of the past, they are essentially political nukes and nobody has the willpower to touch either one of them.

    The third, austerity, is being tried but only halfheartedly. Our leaders have no idea what this actually means. Since they remain completely unaccountable, there is no true incentive.

    Besides, large numbers of people have figured out it's easier to be on the dole than it is to actually work, so this is another disincentive for meaningful cuts in spending.

    As for inflation, this too is officially a non-starter as long as interest rates are held near zero. Unofficially, it's a different story. Most investors I know are feeling the heat of 12% to 15% a year in their wallets.

    That leaves option number one - repression.

    You can call it what you want, but repression is really a fancy way of saying that our government is conducting punitive monetary policy.

    While they mouth off about how they want to create jobs and take care of the middle class, in reality they're eviscerating it.

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  • The Hunt for Higher Yield: Investors Pour into Emerging Market Debt The never-ending hunt for higher yield is leading investors to bet record amounts on emerging market debt.

    In just the first two weeks of 2012, governments of undeveloped economies from Asia to Africa sold more than $30.6 billion in dollar-denominated bonds according to Bloomberg News.

    That's up from roughly $19.9 billion in the same period last year and the most since 1999, when Bloomberg began collecting data.

    Typically, investors shun emerging market bonds during times of uncertainty in favor of "safer" assets like gold and U.S. Treasuries.

    But that has started to change.

    The Big Move Into Emerging Market Debt

    In fact, investor demand is overwhelming supplies as orders have outstripped the amount of bonds being sold.

    During a recent auction, the Philippines received $12.5 billion of orders for $1.5 billion of 25-year bonds, pushing the yield down to a record-low 5%. Indonesia sold 30-year bonds at a record-low yield of 5.375% and Colombia sold $1.5 billion of 29-year bonds at 4.964%.

    Analysts say the debt crisis in Europe, along with record low yields on U.S Treasuries, has investors on the hunt.

    They are now buying the debt of undeveloped nations like Indonesia, Mexico and Brazil, even though credit-rating firms rank them as more risky than their European counterparts

    "What we're seeing is a re-evaluation of sovereign-credit risk, increasingly being driven more by fundamentals than by classifications," Eric Stein, a portfolio manager at Eaton Vance Corp. (NYSE: EV) told The Wall Street Journal.

    According to the J.P. Morgan Emerging Markets Bond Index, investment-grade sovereign emerging-market bonds are yielding an average of 4.7%.

    By contrast, Italian 30-year debt yields 7%, while Spanish 30-year debt yields 6.1%.

    One reason emerging market bonds are attracting interest is...

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  • From Rogues to Riches: How ETFs are Lining Wall Street's Pockets – While Picking Yours Maybe you didn't know that the rogue trader at UBS AG (NYSE: UBS) who lost $2.3 billion last week was trading exchange-traded funds (ETFs). Or that Jerome Kerviel, another rogue trader at Societe Generale SA (PINK ADR: SCGLY) who lost $7.2 billion in 2008, was trading ETFs.

    Maybe you didn't know that ETF trading accounts for 35% to 40% of all exchange volume, according to Morningstar Inc. (Nasdaq: MORN).

    Maybe you didn't know that the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission (CFTC), the Financial Stability Board (FSB) and the Bank of England (BOE) are each concerned that ETFs pose potential systemic risks.

    Maybe what you don't know can actually hurt you.

    ETFs: Growing Popularity, Growing Danger?

    Just when you thought that exchange-traded funds were a simple, smart and safe way to diversify out of underperforming stock-and-bond mutual funds, along comes reality.

    What these regulators and financial- stability oversight agencies are increasingly worried about is whether Wall Street's presumed good intention in creating these hugely popular investment vehicles is being undermined by unintended consequences.

    But, let's not forget, we're talking about Wall Street, where unintended consequences are a rarity. The reality is that ETFs were originally conceived - and are increasingly being engineered - to ratchet up trading for the Street's own benefit.

    And while you may not think that affects your investing or trading of ETFs, or your portfolio-diversification plans, you'll be surprised - and maybe even alarmed - to learn that you're wrong.

    Let me explain ...

    Instruments of Diversification ... Or Disaster?

    ETFs started out as tradable alternatives to mutual funds. Initially, product portfolios consisted of stocks, or baskets of stocks, that replicated such key indexes as the Dow Jones Industrial Average, the Standard & Poor's 500, or the Nasdaq Composite Index.

    The idea was to offer products that mirrored benchmarks - and that traded all day, like stocks. The tradability of these instruments offers effective liquidity that conventional mutual funds lack , with the added benefit that ETFs would also be easy to short.

    Product offerings multiplied quickly. In addition to exchange-traded funds based on stocks, product sponsors created ETFs that replicated oil-and-gas, gold-and-silver and diversified-commodities portfolios - all of which were based on futures contracts.

    A lot of ETFs started out as a cheaper alternative to futures trading. Futures traders must cover high initial-margin deposits. And positions are marked-to-market daily, which requires immediate additional margin coverage when losses arise. The upshot: f utures trading is too expensive and too volatile for investors who are used to traditional stock market investing.

    Today, investors can find exchange-traded funds that offer exposure to all kinds of risk instruments - from currencies and bonds, to thin slices of the yield curve and volatility. And there are even "leveraged" and "inverse" ETFs that multiply risk exposure and allow traders to make all kinds of directional bets.

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  • Four Reasons to Invest in ETFs – And Five Ways to Get Started A mere 15 years ago, selecting the right exchange-traded fund (ETF) was no big challenge. That's because the first ETF wasn't introduced until 1993, and the second didn't follow until 1995. Since then, however, the growth rate among these versatile investment vehicles has been exponential - so fast, in fact, that the monitoring firm Morningstar now tracks the performance of 854 ETFs, with new funds being added almost weekly.

    So, from this mushrooming roster of new ETFs - now covering virtually every market sector, both domestic and international - how do you select the right one (or, more likely, ones) for your portfolio?

    If you're not already familiar with ETFs, here are four reasons why you should consider adding some balance to your portfolio.

  • How to Use Utilities Stocks to Pump Up Your Portfolio There was a time when the words "widows and orphans" pretty much defined utilities stocks. As well-regulated monopolies whose products were in constant and increasing demand, they provided a steady stream of income with a level of safety adequate for even the most conservative portfolios.

    Because of more competition, looser rate regulation, and slower growth, utility stocks aren't quite the safe haven they once were. But with interest rates at all-time lows and continuing economic turmoil, they still have something to offer most investors.

    Of course, the public utilities field today is considerably less broad and diverse than when your grandmother went looking for her retirement stocks.

    Following the dismantling of Ma Bell (the original AT&T), which began in 1974, regulated phone utilities gradually disappeared in all but a few rural areas, leading to today's highly competitive tangle of publicly traded telephone companies.

    Similarly, most of the smaller public water companies have been snapped up by a few big players - like American Water Works Co. Inc. (NYSE: AWK) - who run them as state-regulated subsidiaries.

    That makes energy companies the most viable options for utilities stocks. And recent numbers indicate a turnaround is brewing in that sector.

  • Investing Strategies: How to Build a Global-Investing Portfolio Using ETFs It wasn't all that long ago that global investing was an activity that was restricted to only the wealthiest U.S. investors. If you weren't one of America's ultra-rich, you weren't able to access foreign markets.

    That began to change in the 1950s, with the advent of international and global mutual funds, and access further expanded over the next three decades with the introduction of single-country closed-end funds. Today, thanks to the recent explosion in exchange-traded funds (ETFs), investing in overseas stocks is now almost as easy as targeting a given market sector here at home.

    In fact, although it has been a mere 17 years since the first ETF began trading in the United States (in 1993), the most recent count finds more than 290 international, regional and foreign-country-focused funds listed on the various U.S. exchanges - enough to entice any investor with even a modest yen for overseas portfolio exposure.

  • Special Report: How to Buy Gold As an analyst and editor who specializes in the natural-resources sector, I spend a lot of time writing about gold, gold mining, and gold investing. Those are popular - and even emotional - topics with investors, which means that the columns, essays and advisories I write tend to generate a lot of comments and questions.

    I think that's great. After all, an engaged investor tends to be a successful investor.

    Not surprisingly, one question dominates. And that's the question we're addressing in this special report.

    The question: "How do I buy gold?"

    As a service to the Money Morning readers who have asked that question, or who've had that same thought, I've put together this overview - or primer - that addresses the basic ins and outs of buying gold. In this feature, I address some of the more-common and more-timely questions that I've been getting.

    To find out how to buy gold, please read on...