Friday, September 28, 2012

Does Quantitative Easing Really Equal Higher Stock Prices?

Everyone who follows the financial markets knows that in the past several weeks, central banks in Europe and the U.S. have made widely publicized moves to add liquidity to the financial markets, a move known as “quantitative easing” (QE).

In the U.S. version, the Federal Open Market Committee pledged to buy $40 billion of mortgage-backed bonds monthly, with no defined “end date” for the program. This has led pundits to dub this round of quantitative easing “QE Infinity” or “QE Eternity.”

With the backdrop of an equities bull market that has more than doubled stock prices since the market bottomed in 2009, the question on the minds of many investors and traders is, “Will QE3 add fuel to the stock market bull?”

While QE3 was designed to help reduce unemployment (based on a convoluted thought process that we’ll have to save for another day), Fed Chairman Ben Bernanke has been outspoken in his use of the stock market as a barometer for U.S. economic health. Will this new influx of money lead to higher stock prices? Let’s take a look at some data to see if we can arrive at a useful expectation.

Does Fed Easing = Higher Stock Prices?

Many pundits roll out a chart similar to the one below to show how stock prices rose as the Federal Reserve amassed assets over the past three years:

The chart is from an excellent QE3 debunking blog post by former analyst and money manager Denis Ouellet. Merely looking at this chart and jumping to the conclusion that previous QE efforts are the reason for the three-year stock market bull run is actually a logical fallacy known as “questionable cause.”

Dr. Sheldon Cooper, the fictional lead character in the hit TV show “The Big Bang Theory” (played wonderfully by actor Jim Parsons) is known for giving the Latin version of this fallacy: “Post hoc, ergo propter hoc,” which translates as, “after this, therefore because of this.” It’s also sometimes referred to as “Rooster Syndrome,” because it’s akin to believing that the sun rises because the rooster crows.

But correlation does not imply causation. The fact that two lines are heading up simultaneously doesn’t necessarily mean that the movement in one is causing movement in the other. Could there have been some other cause? What else could have driven stock prices up over the past three years? The rebound from a severe recession and debt crisis is definitely one possibility. Certainly one of the most time-honored drivers of stock price is corporate earnings, so let’s look S&P 500 price and an earnings-per-share trend for the same period:

One of the pillars of fundamental analysis is that earnings drive stock prices. That being the case, this earnings chart is perhaps an even more plausible explanation for the rise in stock prices. Furthermore, most analysts would agree that the main driver for this three-year earnings improvement was prudent cost cutting, not revenue growth. In other words, QE provided little help for the revenue side of the earnings equation.

Equity Pricing and Beyond

The tendrils of quantitative easing pervade many areas of current financial debate. In our next article, we’ll further explore the earnings vs. liquidity argument and see what other areas are being affected by the massive infusions of capital.

Wednesday, September 26, 2012

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Tuesday, September 25, 2012

Forex Signals by Trading What You See

Today is about discussing the concept of “Trading What You See”. This sounds like a fairly simple concept to understand but in reality can be very difficult to implement. In the most simple terms, “Trading What You See” means that you only make your decisions upon the evidence seen on the charts, which can be as good as using the best forex signals. Trading just what you see can be very difficult because we tend to place our own personal bias on our trades. We look for what we want to see happen and ignore what is actually occurring on the charts. We need to recognize that this can be a negative trait that we develop and look for ways to avoid it. Take a look at the chart below and notice the trend that it is in. Most would say that the trend is moving down. Because of this bias we might be looking to short this as it triggers into a trade.

But, as we step back and take a larger look we notice that this is actually just a pull back within a longer term down trend. So with the limited view of this single chart we are making the determination with only a small amount of information. If we don’t realize that we need to see more, we may make the incorrect assumption that the trend is down.

Now, take a look at the longer term chart and you will see that the trend looks a lot different. In the chart below you can see the red line which indicates the area of the top chart. As we look at the big picture we can see that the trend is clearly moving up. If we don’t look at the full picture, or if we become to myopic in our view we can miss seeing what is really happening.

The other issue with “Trading What We See” is that once we enter a trade we do not want to be wrong so we end up holding positions regardless of what is actually happening on the charts. Knowing that it is OK to be wrong can help us exit quicker when things go against our trade. By looking at what is actually happening and making the decision to close a trade based off of the evidence we are doing the correct thing. Unfortunately this is difficult for many traders. Our emotions and psychological desire to be correct make us want to avoid what is actually happening on the charts and we start trading on our hopes and desires.

By learning how to trade what we see we can avoid the poor decision making that comes when we trade from our emotional side. In order to avoid this problem we need to be able to recognize when we are beginning to trade off of hope instead of the evidence we see on the charts. Again, this is easier said than done but something that you need to practice and learn to avoid. By trading the evidence we are trading like the professionals do and are able to make the decisions based off of the facts. Take time to review what you are doing and make sure you are not trading with your emotions.

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Monday, September 24, 2012

Historical Low Price-to-Book Stock Picks

Stock Picks This Week

Like the P/E and P/S ratios, the P/B ratio is a metric used to determine the relative value of a stock. It is calculated by dividing a company’s share price by its book value per share in the latest quarter. Book value is defined as total assets minus intangible assets and liabilities. A stock with a book value under 1 means that it is trading for less than its book value per share, and a book value over 1 means it is trading for greater than its book value per share.

A low P/B ratio may mean a stock is undervalued and is a good jumping off point for further analysis. It is limited when valuing companies who have a significant portion of non-physical assets, such as intellectual property, or capital-intensive companies. It can also be distorted by negative factors like high debt levels, or others.

These are the stocks trading closest to their historical low P/B ratios, according to GuruFocus list of Historical Low P/B stocks: Ecolab Inc. (ECL), Global Sources (GSOL) and PetroChina Company (PTR).

Ecolab Inc. (ECL)

Ecolab Inc is traded at a P/B ratio of 3.3, close to its 10-year low of 3.3. It is owned by 11 Gurus.

Ecolab Inc. is the global leader in cleaning, sanitizing, food safety and infection control products and services. Ecolab Inc. has a market cap of $19.09 billion; its shares were traded at around $63.815 with a P/E ratio of 24.4 and P/S ratio of 2.8. The dividend yield of Ecolab Inc. stocks is 1.2%. Ecolab Inc. had an annual average earnings growth of 10.1% over the past 10 years. GuruFocus rated Ecolab Inc. the business predictability rank of 2-star.

In the fourth quarter of 2011, Ecolab’s book value per share jumped to $19.11 from $9.19 the previous year, and it has increased to $19.52 at the end of the second quarter 2012. In 2011, the company’s assets ballooned due to higher cash and cash equivalents and inventory. Its debt also increased – from $1.4 billion in 2010 to $9.3 billion by the fourth quarter of 2011.

The fourth quarter was also the quarter that the company closed its merger with Nalco, the world’s leading water treatment and process improvement company, which added $11.3 billion to its total assets. The increase in cash on its balance sheet was mostly used to redeem Nalco’s outstanding senior notes in January 2012. The majority of the debt was assumed as part of the Nalco merger, and addition debt issued to fund the cash portion of the merger and share repurchases.

In the last year, Ecolab’s share price has increased 27%.

Global Sources (GSOL)

Global Sources Ltd. is traded at a P/B ratio of 1.3, close to its 10-year low of 1.3. It is owned by four Gurus.

Global Sources Ltd. is one of the world's largest and most trusted neutral enablers of global merchandise trade. Global Sources Ltd. (Bermuda) has a market cap of $196.1 million; its shares were traded at around $6.39 with a P/E ratio of 6.8 and P/S ratio of 0.9. Global Sources Ltd. had an annual average earnings growth of 15.7% over the past 10 years. GuruFocus rated Global Sources Ltd. the business predictability rank of 3.5-star.

Global Sources’ P/B is 1.3, but has remained around that level since the beginning of the year. In the last ten years, the company has had a prodigious book value per share growth rate of 30.1%. Its total assets have also steadily increased, faster than liabilities.

In the last 12 months, the company’s book value grew 17.1%, while the stock price declined almost 13%.

PetroChina Company (PTR)

PetroChina Company Limited is traded at a P/B ratio of 1.2, close to its 10-year low of 1.2. It is owned by 6 Gurus.

PetroChina is engaged in a broad range of petroleum-related activities, including: the exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing, including import and export, of crude oil and petroleum products; production and sale of chemical products; and the transmission, marketing and sale of natural gas. PetroChina Company Limited (adr) has a market cap of $220.56 billion; its shares were traded at around $131.15 with a P/E ratio of 10.4 and P/S ratio of 0.7. The dividend yield of PetroChina Company Limited (adr) stocks is 5.6%. PetroChina Company Limited (adr) had an annual average earnings growth of 13.6% over the past 10 years. GuruFocus rated PetroChina Company Limited the business predictability rank of 4-star.

PetroChina’s book value has increased at a rate of 18% over the last ten years, and grew 18.4% in the last 12 months. The company’s stock gained 13% at the same period. PetroChina’s book value per share has only varied by a few tenths of a percentage point since mid 2009.

China’s weak economy has affected PetroChina’s earnings. In the second quarter, the company reported its lowest results in four quarters at $3.6 billion, compared to $6.2 billion the prior quarter.

Click here to review more stocks at their historical low P/B ratios from GuruFocus.

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Friday, September 21, 2012

US Stocks Now Above 100% of GDP

It is a great market, isn’t it? From the beginning of the year, the S&P 500 has gained 16.4%, fueled by central banks’ quantitative easing actions around the world. We thought that the stock market was overvalued already at the beginning of the year…

If the central banks’ goal is to elevate the stock prices, they have done it successfully. But if their goal is to stimulate the economy, we are not sure if they have achieved their goal. But one thing is for sure, a higher current valuation of any asset classes always increases the risks of investing in them. A higher gain in the past means a lower gain in the future.

Now for the third time since 1970 (that is when our data become available), the total market cap index is more than 100% of the GDP. The other two times were in the late 1990s to 2000 and 2006 to 2007. Both ended badly, unfortunately.

Please see the chart below, which is from our total market valuation page:

Some investors may have forgotten; others were probably too young to experience the pain. The late 1990s to 2000 stock market was after a decade of bull market and fueled by the unprecedented tech bubble. The total market index was pushed to about 150% of GDP. But the burst of the tech bubble brought the S&P 500 from around 1530 in March 2000 to 800 in October 2002, a loss of 48%. The tech-heavy NASDAQ lost almost 80%. Today, 12 years later, even after strong recoveries, it is still about 40% lower than its peak in 2000.

The 2006 to 2007 high valuation was a byproduct of the housing bubble. The total market index was above 110% of the GDP, which is much lower than its 2000 peak, but it ended even worse. The S&P 500 lost more than 56% from its peak in October 2007 to its trough in March 2009. The economic impact was much broader and it lasted much longer.

The quantitative easing programs started in 2009 definitely eased investors’ fear and pushed them back into stocks. What else could they do? In 2007 an investor could buy government bonds which yielded around 6%, or he could buy a CD with a 5% interest rate. But what can he do today? He was told that stock dividend yield is now higher than government bond yield, so stock is a better investment. Now the total market index is more than 100% of the GDP, again, the third time.

How will this one end?

At its current market valuation, though lower than it was in 2007, the implied return is actually lower than it was in 2007 because of the declined growth rate of the economy. An alternative approach, Shiller P/E, is predicting an even lower return. Please see the chart below:

The chance for the stock market to do well from this point on requires the market valuation to go even higher and stay high for long enough so that the economy can catch up. Will this happen? Well, nothing is impossible.

What should you do? The answer is it depends. If you are investing other people’s money and your goal is to beat the market average, you should invest in high-quality companies that are traded at reasonable prices, like the ones we have for our Buffett portfolio, which has gained 19% this year and beat the market index every year since inception. If you are investing your own money, you are more likely concerned about absolute returns. You don’t want to be in a situation when the market lost 40% and you “just” lost 35%. If that is the case, you may have to be patient, willing to sacrifice short-term gains and focus more on risks and long-term returns.

Either way, don’t expect too much for the stock market from this point on.

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Thursday, September 20, 2012

Obama Romney and Stock Prices

2012 USA Presidential Election Stock Market Top?

This is about the upcoming election, the presidential election, and which party or which candidate will be the best for the stock market. Or another way to say it, what will happen to the stock market if Obama or Romney is elected come November? And I’ll tell you right off the bat that my view is because of factors external or unrelated to the election per se, I believe that the stock market has a high probability of peaking out right around the election time and then falling fairly hard from there well into 2013.

Reducing the Size of Government and Debt

Now longer term, who wins the election will have a dramatic impact on the stock market, but depending on what they do. For me it’s not so much who wins the election, but rather who do you think is in the best position to reduce the size of government, get us on a glide path to a balanced budget, and start paying down the 16 trillion dollar deficit that is currently growing at a rate of over 1 trillion dollars a year? Now you don’t have to be very good at math to figure out that that kind of debt load is simply unsustainable. And if it is not addressed by the politicians now or after the election, or anytime after that, then what will happen is the dollar will continually be debased as a result, meaning it will continually lose value. That loss will accelerate the more and more we pile on the deficit. And what that’s going to do is undermine the stock market, and it certainly undermining the currency markets. We know it’s going on in Europe. Basically the same thing is going on here in the United States, except the U.S. dollar is reserve currency the world, so the United States can temporarily take on even more debt than can the countries of the European Union.

The Race to Debase Major Global Currencies

So as this currency debasement goes on, all currency, all western hard currencies are what I observe to be on the race to oblivion. And that can’t be good for any markets. That’s not good for the currency markets, it’s certainly not good for the stock market, because if the stock market is trading in dollars in the United States, and the dollar is being debased dramatically by these insane levels of debt, then who’s to say what the value of anything is? You see? So once you have a destabilized currency, you’re going to have a destabilized stock market.

After the Election Who Will Actually Lower the Debt?

So if you believe the Democrats are in the best position to manage our way out of this debt crisis and they win the election, then you can expect the stock market to recover in 2013 and move on up. If you think the Republicans on the other hand are in the best position to manage our way out of this debt crisis, then if they get elected, you can expect I think, the market to move on up later in 2013. Not initially but I think initially it’s going to fall regardless of who gets elected.

Debt Management Failure and Stock Prices

Now if whatever party gets elected, whatever candidate gets elected, if they do not effectively manage the debt crisis, then look out below. No one can predict what will happen or exactly how it will happen, but it will not be pretty. It will not end in a pretty way and it will not end in a way that anyone will like. And all you have to do is go back in history and look at what’s happened to currencies and markets going all the way back to the Roman Empire to see what’s happening here all over again. So we really need to be serious about addressing the debt picture politically. If so, there are better days ahead, better markets ahead. If not, I’m afraid we’re not going to like the outcome.

Become a Disciplined Nimble Trader Investor in These Fast News Economic Times

Last point: in the face of all that uncertainty I believe the best course of action when it comes to investing or trading is to learn how to trade in a disciplined nimble fashion. Events are occurring and unfolding at such a rapid pace that used to take years and months in the way of market trends to develop and play out now takes weeks and days. Things are happening so rapidly and so all of this is so unpredictable. The way to protect yourself and the way to even profit in the face of all this uncertainty is to learn how to become a disciplined nimble trader. It’s not that difficult, but it requires effort. It requires focus. And if you’re willing to instead of watching television for 30 minutes each evening, block out 30 minutes, block out an hour, learn how to trade. And that way you go from wondering what will happen to being in a position of control no matter what happens.

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Wednesday, September 19, 2012

Arab Spring and the Oil Price Forecast

Crude oil prices hit a four-month high this week on the back of rising tensions in the Middle East and North Africa and the unfortunate murder of the U.S. ambassador to Libya.

Added impetus on the upside was given to oil by the announcement of more money printing (QE3) by the Federal Reserve which said it would launch an open-ended commitment to purchase $40 billion of mortgage-backed securities monthly.

The global benchmark for oil, Brent crude oil, jumped to about $117 a barrel. It maintained its roughly $18 premium to U.S.-based WTI crude oil which was trading at $100 a barrel on a couple days ago.

Non-futures investors can easily participate in the oil market through the use of exchange traded funds. The ETF which tracks Brent crude oil futures is the United States Brent Oil Fund (NYSE: BNO) and the ETF which tracks WTI crude oil futures is the United States Oil Fund (NYSE: USO).

The real story behind the story in the oil market, however, is the ongoing Arab Spring which is sweeping throughout the Middle East and North Africa, pushing aside some regimes and threatening others. The countries whose governments, such as Saudi Arabia and the other Gulf states, feel threatened by popular uprisings are where investors should put their focus.

Saudi Arabia in particular is key because it accounts for more three-quarters of the world’s spare oil production capacity. So it is very important to note that the kingdom is no longer a price ‘dove’ in OPEC as it has been for decades. It has joined Iran, Venezuela and others in being a price ‘hawk’.

The reason behind the change in attitude is simple . . . Arab Spring. Like its neighbors in the Gulf region, Saudi Arabia has gone on a public spending spree to appease its restless citizens. It has sharply increased outlays on subsidies for items like food, fuel and housing in an attempt to appease its citizens.

In 2011, the kingdom raised its domestic spending by $129 billion – the equivalent of more than half its oil revenues. Much of this increased spending will go toward upgrading the country’s infrastructure.

Take electricity, for example. Saudi Arabia has revealed plans to spend more than $100 billion dollars on power plants and distribution networks by 2020. The kingdom has also set a goal to electrify 500,000 new homes that are being built in an attempt to mollify political unrest among its population of 27 million people.

This spending spree led the International Monetary Fund and other analysts to estimate that the kingdom and other Gulf countries need oil to be selling between $80 and $85 a barrel in order for the governments to balance their budgets. This is up, in Saudi Arabia’s case, from a mere $25 a barrel a few short years ago!

Unfortunately for oil consumers, this trend looks set to continue in years ahead. According to the Institute of International Finance, by 2015 the Saudi government will only be able to balance its budget if oil prices are at $115 a barrel if current spending trends remain in place.

So in effect, with the Arab Spring forcing governments to spend more on their citizens, it has put a floor under the price of oil. OPEC will do everything in its power to keep the price above the budget breakeven points for governments in the Gulf region.

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Tuesday, September 18, 2012

Insider Buy Sell Stock Picks

Listed below are top stock buys and sells of company insiders from GuruFocus. First is four stocks with the largest CEO stock sales and below that is five of the largest insider stock buys.

According to GuruFocus Insider Data, these are the largest CEO sales during the past week: Mentor Graphics Corp, Global Cash Access Holdings Inc., Roper Industries Inc. and Vocera Communications Inc.

Mentor Graphics Corp (MENT): Chairman and CEO Walden C. Rhines sold 329,592 Shares

Chairman and CEO of Mentor Graphics Corp (MENT) Walden C. Rhines sold 329,592 shares on 09/06/2012 at an average price of $17.05. Mentor Graphics Corp designs, manufactures, markets and supports electronic design automation (EDA) software for the integrated circuit and systems design markets. Mentor Graphics Corp has a market cap of $1.87 billion; its shares were traded at around $16.94 with a P/E ratio of 13.55 and P/S ratio of 1.85.

Mentor Graphics Corp reported their 2012 second fiscal quarter results. The company reported revenue of $240.8 million and net income of $17.6 million.

Chairman and CEO Walden C. Rhines sold 329,592 shares of MENT stock on 09/06/2012 at the average price of $17.05. Director Kevin C. Mcdonough, President and COO Gregory K. Hinckley, Vice President Dean Freed, Senior Vice President L. Don Maulsby and Corporate Controller Richard Trebing sold 420,855 shares of MENT stock in June and September.

Global Cash Access Holdings Inc. (GCA): CEO Scott H Betts sold 246,937 Shares

CEO of Global Cash Access Holdings Inc. (GCA) Scott H Betts sold 246,937 shares during the past week at an average price of $7.77. Global Cash Access Inc. is a wholly owned subsidiary of Global Cash Access Holdings Inc. Global Cash Access Holdings Inc. has a market cap of $513.15 million; its shares were traded at around $8.5 with a P/E ratio of 12.98 and P/S ratio of 0.94.

Revenue and net income was $147.5 million and $7.1 million for Global Cash Access Holdings Inc.’s 2012 second quarter financial results.

CEO Scott H. Betts sold 327,746 shares of GCA stock in September. Director Geoffrey P. Judge and Executive Vice President Michael Scott Dowty sold 83,646 shares of GCA stock in April, July and September.

Roper Industries Inc. (ROP): CEO & President Brian D Jellison sold 200,000 Shares

CEO and President of Roper Industries Inc. (ROP) Brian D Jellison sold 200,000 shares on 09/13/2012 at an average price of $104.17. Roper Industries Inc. designs, manufactures and distributes specialty industrial controls, fluid handling and analytical instrumentation products worldwide, serving selected segments of a broad range of markets such as oil and gas, scientific research, medical diagnostics, semiconductor, microscopy, chemical and petrochemical processing, large diesel engine and turbine/compressor control applications, bulk-liquid trucking, power generation and agricultural irrigation industries. Roper Industries Inc. has a market cap of $10.26 billion; its shares were traded at around $105.19 with a P/E ratio of 22.84 and P/S ratio of 3.67. The dividend yield of Roper Industries Inc. stocks is 0.52%. Roper Industries Inc. had an annual average earnings growth of 16.8% over the past 10 years. GuruFocus rated Roper Industries Inc. the business predictability rank of 3-star.

Revenue was $724.9 million and net income was $114.8 million for Roper Industries Inc.’s 2012 second quarter financial results.

CEO and President Brian D. Jellison sold 200,000 shares of ROP stock on 09/13/2012 at the average price of $104.17. Executive Vice President and CFO John Humphrey sold 25,000 shares of ROP stock on 04/26/2012 at the average price of $101.2. Director Christopher Wright, Vice President and Controller Paul J. Soni, Vice President, General Counsel and Secretary David B. Liner and Director Wilbur J. Prezzano sold 1,000 shares of ROP stock in April, May and August.

Vocera Communications Inc. (VCRA): CEO Robert Zollars sold 199,597 Shares

CEO of Vocera Communications Inc. (VCRA) Robert Zollars sold 199,597 shares on 09/12/2012 at an average price of $27.24. Vocera Communications Inc. provides mobile communication solutions focused on addressing critical communication challenges facing hospitals. Vocera Communications Inc. has a market cap of $674.65 million; its shares were traded at around $31.05 with and P/S ratio of 8.49.

Vocera Communications Inc. reported their 2012 second quarter financial results. The company reported revenue of $24.9 million and net income (loss) of $1.2 million.

CEO Robert Zollars sold 199,597 shares of VCRA stock on 09/12/2012 at the average price of $27.24. General Counsel and Secretary Jay Spitzen, Senior Vice President Services Victoria A. Perkins, President and COO Brent D. Lang and Vice President Sales Robert N. Flury sold 15,342 shares of VCRA stock on 09/12/2012.

According to GuruFocus Insider Data, these are the largest insider buys during the past week: AGCO Corporation (AGCO), NuStar Energy LP (NS), Bristow Group Inc. (BRS), Halcon Resources Corp. (HK) and Francesca’s Holdings Corp. (FRAN).

AGCO Corporation (AGCO): Director Mallika Srinivasan Bought 114,079 Shares

Director of AGCO Corporation, Mallika Srinivasan, bought 114,079 shares during the past week at an average price of $47.16. AGCO Corp. is engaged in the manufacturer and distribution of farm equipment, machinery and replacement parts in the U.S. and Canada. AGCO Corporation has a market cap of $4.09 billion; its shares were traded at around $47.16 with a P/E ratio of 7.5 and P/S ratio of 0.5. AGCO Corporation had an annual average earnings growth of 11% over the past 10 years. GuruFocus rated AGCO Corporation the business predictability rank of 3-star.

On July 26, AGCO reported net sales of approximately $2.7 billion for the second quarter of 2012, an increase of approximately 14.1% compared to net sales of $2.4 billion for the second quarter of 2011. Reported and adjusted net income per share were $2.08 for the second quarter of 2012. These results compare to reported net income per share of $1.36 and adjusted net income per share of $1.35 for the second quarter of 2011. Excluding unfavorable currency translation impacts of approximately 11.2%, net sales in the second quarter of 2012 increased approximately 25.3% compared to the same period in 2011.

Last week, Director Mallika Srinivasan bought shares of AGCO stock. Director Daniel C. Ustian bought 446 shares in August. Senior Vice President and Chief Supply Chain Officer Hans Bernd Veltmaat and Director Daniel C. Ustian bought shares in May.

NuStar Energy LP (NS): Director William E. Greehey Bought 490,000 Shares

Director of NuStar Energy LP William E. Greehey bought 490,000 shares on 09/10/2012 at an average price of $49.94. Valero LP, formerly Shamrock Logistics LP, owns and operates most of Ultramar Diamond Shamrock's crude oil and refined product pipeline, terminalling, and storage assets that support the McKee, Three Rivers, and Ardmore refineries and its marketing operations located in Texas, Oklahoma, Colorado, New Mexico and Arizona. Nustar Energy LP has a market cap of $3.59 billion; its shares were traded at around $49.94 with a P/E ratio of 32.1 and P/S ratio of 0.6. The dividend yield of Nustar Energy LP stocks is 8.6%. Nustar Energy LP had an annual average earnings growth of 1.2% over the past five years.

On July 27, NuStar Energy LP announced second quarter distributable cash flow available to limited partners of $16.9 million, or $0.24 per unit, compared to 2011 second quarter distributable cash flow of $119.4 million, or $1.85 per unit. Second quarter earnings before interest, taxes, depreciation and amortization (EBITDA) was negative $161.2 million compared to second quarter 2011 EBITDA of $160.0 million. The company reported a second quarter net loss applicable to limited partners of $251.6 million, or $3.56 per unit, compared to net income applicable to limited partners of $81.8 million, or $1.27 per unit, earned in the second quarter of 2011.

This month, President and CEO Curt Anastasio, Director Jesse D. Bates, Director William E. Greehey, and Director Dan J. Hill bought shares of NS stock. Director Jesse D. Bates bought 1,000 shares in April.

Bristow Group Inc. (BRS): Senior Vice President, CFO Jonathan Baliff Bought 1,750 Shares

Senior Vice President, CFO of Bristow Group Inc. Jonathan Baliff bought 1,750 shares on 9/13/2012 at an average price of $52.35. Bristow Group Inc. is a provider of helicopter services to the worldwide energy industry. Bristow Group Inc. has a market cap of $1.68 billion; its shares were traded at around $52.35 with a P/E ratio of 13.7 and P/S ratio of 1.3. The dividend yield of Bristow Group Inc. stocks is 1.7%. Bristow Group Inc. had an annual average earnings growth of 5.4% over the past 10 years.

On August 6, Bristow Group Inc. reported net income for the June 2012 quarter of $23.7 million, or $0.65 per diluted share, compared to net income of $21.0 million, or $0.57 per diluted share, in the same period a year ago. Adjusted net income, which excludes asset dispositions and a special item, was $29.6 million, or $0.81 per diluted share, for the June 2012 quarter, an increase of$9.7 million, or $0.27 per diluted share, over the June 2011 quarter. Operating revenue for the June 2012 quarter increased 12% to $320.7 million from$286.8 million in the June 2011 quarter, with revenue growth in Europe, West Africa and North America.

Last week, Senior Vice President, CFO Jonathan Baliff bought 1,750 shares of BRS stock. Vice President Brian J. Allman, Director Thomas N. Amonett, Director Stephen .J Cannon, and President and CEO William E. Chiles sold shares this month.

Halcón Resources Corp (HK): Director James W. Christmas Bought 100,000 Shares

Director of Halcón Resources Corp (HK) James W. Christmas bought 100,000 shares on 09/13/2012 at an average price of $7.66. Halcón Resources Corporation is an energy company engaged in the acquisition, exploration and development of onshore oil and natural gas properties in the United States. Halcón Resources Corp has a market cap of $1.63 billion; its shares were traded at around $7.66 with and P/S ratio of 15.7.

On August 2, Halcón Resources Corporation announced its second quarter 2012 financial and operational results. Halcón reported net income for the quarter of $2.8 million, or $0.02 per diluted share, after adjusting for selected items, compared to net income of $2.3 million, or $0.09 per diluted share in the comparable quarter of 2011. Before adjusting for selected items, the Company reported a net loss available to common stockholders of $79.7 million, or $0.59 per diluted share for the quarter.

Last week, Director James W. Christmas bought 100,000 shares of HK stock. Vice President Investor Relations Scott M. Zuehlke, Director Tucker S. Bridwell, Executive Vice President and General Counsel David S. Elkouri, and President Stephen W. Herod bought shares in August.

Francesca's Holdings Corp (FRAN): President Neill P. Davis Bought 25,000 Shares

President of Francesca's Holdings Corp. (FRAN) Neill P. Davis bought 25,000 shares on 09/07/2012 at an average price of $31.66. Francesca's Holdings Corporation is a specialty retailer of women's apparel products. Francesca's Holdings Corp has a market cap of $1.54 billion; its shares were traded at around $31.66 with a P/E ratio of 54.4 and P/S ratio of 7.6.

On Sept. 4, Francesca's Holdings Corporation announced financial results for the fiscal second quarter ended July 28, 2012. Net sales increased $25.1 million, or 49.1%, compared with the same period in fiscal 2011. Comparable boutique sales increased 20.7% following an increase of 5.4% in the same prior year period. Gross profit as a percentage of net sales increased 205 basis points compared with last year's second quarter. The increase is primarily the result of leveraging occupancy costs.

This month, Director Richard J. Emmett and President Neill P. Davis bought shares of FRAN stock. Director Joseph Michael Scharfenberger, Executive Vice President and General Counsel Khalid Mir Malik, President and CEO Meritt John Thomas De, and Executive Vice President and CFO Gene S. Morphis sold shares in April.

Click here to review InsiderCow company insider buy sell data.

Monday, September 17, 2012

Apple iPhone 5 and Future Valuation

Apple Inc. (AAPL) is one of the most high profile stocks in the world. Regarding its valuation, people are often confused by its high price. However, even though the price is high, Apple’s valuation is significantly lower than its historical earnings growth rate, and more importantly, its forecast growth. Consequently, we believe that this high profile growth stock that has recently began paying a dividend, is undervalued at these levels.

About Apple Inc: Directly from their website:

“Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.”

Earnings Determine Market Price: The following earnings and price correlated FAST Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.

Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on Apple Inc shows a slight picture of undervaluation based upon the historical earnings growth rate of 35.9% and a current PE of 15.8. Analysts are forecasting the earnings growth to continue at about 22%, and when you look at the forecasting graph below, the stock appears undervalued (it’s outside of the value corridor of the five orange lines, based on future growth).

Apple Inc: Historical Earnings, Price, Dividends and Normal PE Since 1998

Click the images below for larger view.

Performance Table Apple Inc.

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return; capital appreciation and dividend income. However, since Apple Inc has just begun paying a dividend, we are not yet including any dividends in our performance calculation.

The following graph plots the historical PE ratio (the dark blue line) in conjunction with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 1998.

A further indication of valuation can be seen by examining a company’s current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for Apple Inc. is 4.30 which is historically normal.

Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

1. The rate of change (growth rate) of the company’s earnings

2. The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

The consensus of 46 leading analysts reporting to Capital IQ forecast Apple Inc.’s long-term earnings growth at 22% (orange circle). Apple Inc. has no long-term debt (red circle). Apple Inc. is currently trading at a P/E of 15.8, which is below the value corridor (defined by the five orange lines) of a maximum P/E of 26.4. If the earnings materialize as forecast, Apple Inc.’s True Worth™ valuation would be $2563.34 at the end of 2017 (brown circle on EYE Chart), which would be a 30.9% annual rate of return from the current price (yellow highlighting).

Earnings Yield Estimates

Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low-risk Treasury bonds. Comparing an investment in Apple Inc. to an equal investment in 10-year Treasury bonds, illustrates that Apple Inc.’s expected earnings would be 10 (purple circle) times that of the 10-year T-Bond interest (see EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

Summary & Conclusions

This report presented essential “fundamentals at a glance” illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it’s imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.

Disclosure: Long AAPL at the time of writing.

Click here to review more value investing stock picks from GuruFocus.

Friday, September 14, 2012

Why Use Candlestick Charts to Trade?

You've probably heard of "Japanese Candlesticks" before. After the success of Steve Nison’s first two books, they've become part of every trader's vocabulary. Japanese candlestick chart analysis, so called because the lines resemble candles, has been refined by generations of use in the Far East.

The candlestick chart phenomenon has caught fire around the world with all kinds of traders, from institutional power players to individual part-timers.

Why do candlestick charts attract so many traders serious about increasing profits and decreasing risk? Because when you know how to properly use and interpret candlestick charts, they really work in your favor. They're reliable. You can count on them.

But many traders think they need to abandon their current trading strategies if they're going to use candlestick charts.


In fact, you can actually enhance the effectiveness of your trading strategies when you combine your current methods with candlestick charts. You'll love how simple (not to mention how powerful) it is when you combine your own favorite market indicators with the proven effectiveness of candlestick charts.

Candlestick charts are like having a quick "X-Ray" of the supply and demand conditions of a market.

So, if you don't have hours of time on your hands to do extensive analysis, then candlestick charts are a perfect way to get solid information in just a few short minutes.

Today's markets are incredibly volatile. Plus, you're competing against other traders who are constantly looking for an "edge" to beat you. The market risk is very real, and can be daunting if you're not prepared. That's why you need a trading weapon that will help you in your battle of trading ... and that weapon is candlestick charts!

When I walk around the trading rooms at the premier financial institutions and even on the trading floors, I always see candlestick charts being used by the top traders and market makers.

Isn't it fascinating how sometimes the simplest concepts are also the most profound? That's how it is with candlesticks.

"But How Do Candlestick Charts Perform in Weak Markets?"

One of the great things about candlestick charts is that they work exceptionally well in any market — especially today's dangerous and volatile environment.

Please understand that not only will candlestick charting techniques help you improve your trading profits, but also they really shine when it comes to capital preservation.

They help you avoid bad trades.

Click here to review more about Steve Nison and Candlestick trading.

Wednesday, September 12, 2012

The Path to Profitable Trading

I believe that every person produces the results he or she gets in life. This is especially evident in trading: the results you get in the market are the direct and precise consequences of your choices and actions. Most traders battle the market for many years before realizing this. Conservative investors seldom get to this point—they just have too few results to ever reach this conclusion.

I know you want to produce profitable results in the markets, and I want to help make that possible for you. That's why I created my Peak Performance Home Study Course, which teaches traders how to make money in the markets as easily and painlessly as possible by developing a sound game plan and the discipline to carry it out.

I developed the Peak Performance Home Study Course Course after conducting extensive interviews with the world's best traders and most seasoned investors. During these interviews, I learned that successful traders possess certain qualities and thought processes that enable them to produce outstanding results. By applying what you learn in this home study course, you can duplicate the thinking of veteran traders and get closer to the level of success they experience.

The Path to Profitable Trading

My students tell me over and over what a bargain the course is when compared to the many thousands of dollars it saved them in trading mistakes.

Many traders lack an understanding of exactly what the Peak Performance Home Study Course is about, so today I want to share some insights with you about the course and how you can benefit from it.

In a sense, you can compare this course to physical exercise. If you exercise, you have more energy. You feel better, and you perform better. You can probably get along without exercise, but not without a significant sacrifice in the quality of your life. Exercise is physical conditioning; peak performance is mental conditioning. You can make money without it, but doing so will require more effort, and you will probably sacrifice much of your personal life.

Is the Course Material Right for You?

Van Presents Regardless of whether you see yourself as a trader or investor, this course will help your performance in the markets. Every important aspect of this course—stress management, internal conflict mastery, developing useful beliefs, goal setting, decision-making processes, psychological biases, etc.—is equally applicable to Forex day traders, conservative long-term mutual fund investors and everyone in between.

Understanding and applying these concepts will help you make a lot of money consistently. If you neglect these areas, you will probably join the crowd and lose money occasionally or regularly.

What is the Format?

The Peak Performance Home Study Course consists of five books and four audio CDs. In addition, you may purchase the Investment Psychology Inventory Profile at a special price, which will provide you a baseline profile of your psychological skills and challenges as an investor/trader. Having this report prior to starting the course will provide you with some initial insights about yourself.

The Five Books

Book 1 provides you with a basic understanding of the course content and how to use the course. The focus for Book 1 is risk and its proper role in trading. You will also explore the concepts of position sizing™ strategies and risk control and how lacking an understanding of these two areas is the downfall of so many traders. Once you understand them, you can survive the learning curve for trading and use them to prosper.

Book 2 focuses on managing your stress. Most people worry about stress because of its potential threat to their health, but you will learn that stress also has an immense effect on human performance, especially trading performance. You'll be able to evaluate the specific areas where your stress level is high, and you'll learn how to manage that stress. Stress management is important for successful trading. In most cases, stress results from internal conflict. You will learn specific techniques for resolving internal conflict in Book 3.

Book 3 deals primarily with the beliefs and attitudes necessary for successful trading. You will also learn about the unconscious internal parts or personalities that you may have. Have your thoughts ever been in conflict about a particular topic or choice? There were likely two or more parts inside of you that wanted different outcomes. Book 3 includes several methods for bringing those parts together and eliminating your internal conflicts. Having all of your parts working together is important to successful trading.

Book 4 covers ways to develop discipline. You'll learn a little-understood aspect of self-control: a technique for developing the right state of mind for the task at hand. In addition, I provide specific suggestions for dealing with compulsiveness—the deadliest problem for traders. Book 4 will help you evaluate whether compulsiveness is a challenge for you, and, if it is, what to do about it.

Book 5 details the mental strategies and decision processes for optimal trading. Making effective decisions is one key way that top traders excel. This book provides specific methods for evaluating how you make decisions and how you can improve that process. It also presents the guidelines for developing a complete game plan for trading using all of the principles you learned in the course.


Four audio CDs supplement the material in the books. Each CD has a specific purpose.

CD 1 teaches you how you think and gives you the opportunity to evaluate your capabilities in each type of thinking. It also provides an introduction to the concept of internal parts or personalities. If you listen to CD 1 regularly and follow the suggestions provided, you'll begin to better understand your parts and the messages they give you.

CD 2 is a relaxation CD. If stress is a problem for you, play CD 2 a few times to discover how easy becoming relaxed can be. If you listen to it every day for two weeks, you will discover that you can relax at will.

CD 3 will help you stop repeating mistakes. A mistake occurs when you do not follow your rules. It has nothing to do with making or losing money. Play CD 3 when you discover that you’ve made a mistake and want to avoid repeating it. Once you have a set of tested rules, you can use CD 3 as part of a daily debriefing.

CD 4 is designed to give you confidence. If you listen to it regularly, you will be able to access confidence whenever you need it. However, only certain traders need confidence. If you tend to be compulsive, do not listen to CD 4. In general, I recommend completing the course before listening to CD 4.

Save Yourself Thousands of Dollars

If you haven't made money consistently in the market, I recommend that you immediately suspend your market activity (or at least avoid opening new positions) until you've completed this course and developed a written game plan for your trading. If, on the other hand, you consistently make money and just plan to use the course for improvement, continue trading as you work through the course.

Advice for New Traders

If you are a novice to the markets and choose to go through the course prior to trading, you are truly exceptional and will probably do very well in the trading business. The vast majority of traders make mistakes and lose money first before they realize that they are the cause of those mistakes, and that they can help themselves to stop making mistakes.

Some exercises, such as the compulsive trader exercises, will not apply to you at first. Feel free to skip those and just concentrate on uncovering as many insights about yourself as you can so that you can develop an effective game plan. That game plan will help you shortcut past many mistakes, minimize losses and earn consistent profits.

I recommend that you trade only after you go through the course step-by-step and develop a complete game plan. DO NOT ENTER THE MARKET UNTIL YOU HAVE DONE SO.

How to Use the Course

Commit to working on the course for one to two hours every day. Even with this kind of commitment, it could take several months to complete. Let’s go back to the analogy of physical exercise. How long would it take you to get in shape? If you are a bit out of shape, it can take several months to get fit through a daily conditioning program of diet and exercise. Think of this course as a daily conditioning program for your mind.

Once you've completed the course for the first time, go back to it yearly as a review. You can probably make a dramatic improvement in your trading in a few months of work, but you must continue to apply the principles. Would you expect your body to stay in shape if you stopped exercising? No. Similarly, you cannot expect your mind to perform well in trading if you stop the regular program we recommend in the course.

We also recommend that you complete the Investment Psychology Inventory Profile mentioned previously. The scores from the analysis, in combination with the first chapter of Book 1, will help guide you to the most essential elements of this course for you. Purchased separately, the Psychology Inventory costs $100.00, but if you purchase it with the home study course, you'll pay only $75.00.

I suggest that you begin the course by concentrating on the weak areas revealed by your profile results. Complete all of the exercises in those areas, then work through the remainder of the course. Once you finish the reading and exercises and develop your complete game plan, you can resume trading if you had stopped.

Keep in mind, however, that you have not completed the course once you complete your game plan. In fact, the course will have the most value for you once your game plan is in place. This is the stage at which you can apply the principles in the course most effectively. As you trade, you will discover new insights about yourself. You can use the course material to avoid repeating mistakes and increase your self-control. Traders get the most out of the course by reviewing the books regularly over time.

This course will start you on a journey of self-evaluation and self-discovery. Your objectives going through the course are to develop insight about how you produce your trading results, devise a complete game plan for making money, and continue to use the course and your game plan to improve. Although you may find some initial surprises about your current situation, if you proceed with enthusiasm and commitment to trading successfully, you will find the journey very rewarding.

Developing the necessary self-understanding and self-control for market success will also probably lead to a happier and more successful life. I base this statement on the many letters I receive from students of the course who report how much better their trading and their life overall are as a result of the coursework. That’s a wonderful by-product of this material.

We Love Our Customers

Our mission at the Van Tharp Institute is to help you transform into the kind of trader you want to be. We are proud of the customer support we provide and of our commitment to customer satisfaction; therefore, we offer you guarantees on your purchases. With the Peak Performance Home Study course, we have two levels of guarantees. You can learn more about the one-year guarantee here, but in short, you have 30 days to review the home study. If you don't feel the course is right for you, return it and we'll gladly refund your purchase amount.

We are often asked if the Peak Performance 101 workshop is the same as the home study course. The answer is no—one does not substitute for the other. Both help you learn and apply the same concepts, but the two distinct learning formats benefit students in very different ways.

Taking the time to work through the introspective home study course exercises yields numerous significant personal insights that just aren't possible to generate any other way. When people work with a coach and partners—as you do in the live workshop—they benefit from the powerful dynamics of group interaction. You could take the workshop first if you wanted to, and students do. However, completing the home study course first and then attending the live workshop is the ideal path. Plus, when you purchase the home study course, you get a coupon for an additional $200 off the workshop.

Click here to review and purchase the Peak Performance Home Study Course.

To purchase the Investment Psychology Inventory Profile with your course, be sure to add a check mark beside it in the shopping cart when you click the link above.

Good investing and trading, Van Tharp.

Tuesday, September 11, 2012

Top Dividend-Paying Basic Material Stocks

The basic material sector is a great investment field with fantastic growth potential if the economy starts to recover. The whole sector has a total market capitalization of USD210.91 trillion and summarizes 604 companies. The average dividend yield amounts to 3.23 percent and the P/E ratio is 13.51.

In order to find the best dividend paying stocks within the sector, I screened all companies with a positive dividend yield, great earnings per share growth of more than 15 percent and an operating margin over 20 percent. To get the best results in terms of low debt and high cash, the debt to equity ratio should be under 0.4. Eighteen basic material companies remained of which three yielding over three percent and sixteen are currently recommended to buy.

High Quality Dividend Paying Stocks

Vale (VALE) has a market capitalization of $92.92 billion. The company employs 70,785 people, generates revenue of $58,990.00 million and has a net income of $21,517.00 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $34,234.00 million. The EBITDA margin is 58.03 percent (operating margin 51.05 percent and net profit margin 36.48 percent).

Financial Analysis: The total debt represents 19.04 percent of the company’s assets and the total debt in relation to the equity amounts to 31.53 percent. Due to the financial situation, a return on equity of 30.99 percent was realized. Twelve trailing months earnings per share reached a value of $3.07. Last fiscal year, the company paid $1.73 in form of dividends to shareholders. The earnings per share are expected to grow by 12.70 percent for the next five years.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 5.87, P/S ratio 1.53 and P/B ratio 1.18. Dividend Yield: 6.40 percent. The beta ratio is 1.50.

Monsanto (MON) has a market capitalization of $47.64 billion. The company employs 20,600 people, generates revenue of $11,822.00 million and has a net income of $1,657.00 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $3,115.00 million. The EBITDA margin is 26.35 percent (operating margin 21.16 percent and net profit margin 14.02 percent).

Financial Analysis: The total debt represents 11.19 percent of the company’s assets and the total debt in relation to the equity amounts to 19.24 percent. Due to the financial situation, a return on equity of 14.85 percent was realized. Twelve trailing months earnings per share reached a value of $4.00. Last fiscal year, the company paid $1.14 in form of dividends to shareholders. The earnings per share are expected to grow by 11.70 percent for the next five years.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 22.37, P/S ratio 4.03 and P/B ratio 4.14. Dividend Yield: 1.68 percent. The beta ratio is 0.87.

Silver Wheaton (SLW) has a market capitalization of $12.86 billion. The company generates revenue of $730.00 million and has a net income of $550.03 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $615.63 million. The EBITDA margin is 84.33 percent (operating margin 76.49 percent and net profit margin 75.35 percent).

Financial Analysis: The total debt represents 7.29 percent of the company’s assets and the total debt in relation to the equity amounts to 7.89 percent. Due to the financial situation, a return on equity of 22.38 percent was realized. Twelve trailing months earnings per share reached a value of $1.60. Last fiscal year, the company paid $0.18 in form of dividends to shareholders. The earnings per share are expected to grow by 36.50 percent for the next five years.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 22.76, P/S ratio 17.56 and P/B ratio 4.84. Dividend Yield: 1.10 percent. The beta ratio is 1.57.

Click here to take a closer look at the full table of the best dividend paying basic material stocks.

The average price to earnings ratio (P/E ratio) amounts to 17.88 and forward P/E ratio is 13.98. The dividend yield has a value of 2.48 percent. Price to book ratio is 2.61 and price to sales ratio 4.30. The operating margin amounts to 35.13 percent and the beta ratio is 1.15. The average stock has a debt to equity ratio of 0.18.

Click here to review more value investing resources.

Monday, September 10, 2012

Gold and Silver This Week

Today we are going to look at both gold and silver and see what they have done this past week. In doing so we will see if we can get an idea of the direction that they maybe going in this upcoming week. When we evaluate a chart we are looking to identify several things. The first thing we want to evaluate is the trend that is occurring on the longer term charts, the second thing is going to be to evaluate the support and resistance levels. Once we have done this we can get a fairly good idea for what is happening with them. Let’s begin by looking at the Trend of both gold and silver. In the charts below we can see what is happening with their trends.

The one of the left is the chart for Silver while the one on the right is for gold. On this chart the 40 period SMA is on to help give us an idea of the direction things have been moving and where they may be going. A simple way to help define the trend is to look at the direction it is moving to show if it has been bullish or bearish. Notice that both of these charts have the Moving Average pointing up and the price is currently above the line. This would suggest that the movement wants to move up. If the trend is moving up that is the time we want to consider buying. If it is going down we want to consider selling. We need to be careful with just saying that we will buy if it is up and sell if it is down. In the current chart we can see some bullish direction with the trend but we would still need to have our rules tell us when to enter into a trade.

Now let’s look at the charts below to determine where there may be some areas of support and resistance. In these charts the red line represents areas of resistance and the green line represents areas of support. The idea is to look at buying when we are near support and selling when we are near resistance. Currently with these charts we can see that the price is sitting near the resistance area and may not be at the ideas location to be buying.

So when we combine these two thing we get an idea of when to look to buy and sell. What we would like to see is the moving average moving higher while the price is moving up off of the support area to buy and when the moving average is going down we want the price to be coming down off of resistance to sell. In the current situation we have the moving average going up but we are sitting near resistance. This does not put us in the best situation to be looking to buy. The most likely entry for the current charts are to look for a break back up above the resistance levels to confirm a bullish breakout.

Click here to review more gold and silver resources.

Friday, September 07, 2012

Has Mario Draghi Saved the Euro?

The Euro: Saved? By Elliott Wave Currency Forecasts

At the September 6 European Central Bank meeting, the ECB president, Mario Draghi, repeated several times that, “The euro is irreversible.” That could be taken several ways, but assuming he meant unlimited support for the EU currency, here is what's interesting.

Last time Mr. Draghi said the ECB would do "whatever was needed to save the shared currency" was on June 30. Do you remember what the euro did afterwards? It fell like a rock!

Just look: On June 30, EUR/USD stood near 1.2670. By July 25, it fell to near 1.2050 -- a 600-pip drop in just three weeks. (In everyday terms, that was a 6-cent loss by the euro against the U.S. dollar.) This chart shows you the size and speed of the decline; Mr. Draghi's June 30 promise to support the euro is circled in red:

This brings up several interesting questions:

1. Why did the forex market not believe Mr. Draghi's promise on June 30?

The answer is in the chart above. As you can see from the Elliott wave labeling, on June 30, EUR/USD had only finished 4 waves of the 5-wave Elliott wave sequence. Wave 5 down was due next -- and wave 5 down we got; it took EUR/USD to 1.2052.

2. Why did EUR/USD believe Mr. Draghi this time, judging by the (tepid) 40-pip rally after the Sept. 6 statement?

To answer that, you need to see how we have labeled the rally in EUR/USD off that wave (v) low you see above. In short, on September 6 EUR/USD has had some "unfinished Elliott wave business" to the upside.

3. Will EUR/USD traders keep believing that the ECB will make good on the promise?

Well, again, your answer comes down to the type of the Elliott wave pattern EUR/USD has been "drawing" on the chart since that 1.2050 low. If the Elliott wave pattern of the rally has been impulsive, then EUR/USD has more to rally -- and Mr. Draghi's promise will look solid. But if EUR/USD's rally pattern off the July 25 low has been corrective, then it's likely that Mr. Draghi will be just as disappointed in the days and weeks ahead as he was after his June 30 promise to support the euro.

Our forex trader-focused Currency Specialty Service presents to you our latest trend analysis online right now. The answers are at your fingertips.

Click the following links to review more forex trading resources and forex buy sell signals.

Thursday, September 06, 2012

Gold Price Breakout and the Backdoor

Gold Standard to be Reinstated Through the Back Door by the Gold and Oil Guy

For the first time in over 30 years, talk of a return to the gold standard has become part of mainstream politics in the United States. Part of the official Republican policy adopted it at the recent Republican Convention and called for the commission to look at reestablishing the link between gold and the U.S. dollar. No doubt that plank was added to soothe supporters of Texas Congressman Ron Paul.

However, gold bugs holding gold bullion or even those holding gold ETFs such as the SPDR Gold Shares (NYSE: GLD) shouldn’t hold their breath in anticipation of the gold standard returning. There was a similar commission – the Gold Commission – set up in 1981 by President Ronald Reagan. After a lot of ‘commissioning’, the decision was made to go with the status quo of using fiat Federal Reserve dollars.

Any commission set up under the current president would likely come to the same conclusion. There are simply too many practical obstacles to return to a full-fledged gold standard. Even pro-gold advocates including the World Gold Council and the Gold Anti-Trust Action Committee (GATA) don’t see a gold standard returning.

The key problem would be at what price of gold would the United States peg its currency. Great Britain returned to the gold standard in 1925, after going off it in 1914, at the 1914 peg price. This was a mistake made by Winston Churchill (he called it the biggest he ever made) since it basically ignored the vast inflation in the British pound in those intervening years. The result was a vast overvaluation of the pound and deflation and high unemployment soon followed.

What price would a new Gold Commission set as the “correct” price of the U.S. dollar versus gold? $1,000? $2,000? $5,000? The answer is that there is no “correct” price. Whatever price is set will eventually be tested by the financial markets and fail much as the pegged currencies system failed. So there will be no return to the gold standard.

But that does not mean there will not be a ‘back-door’ gold standard. The move to such as a system is already underway as central banks all over the world are rebuilding their stockpiles of gold. After two decades of heavy selling, central banks became net buyers of gold in 2010 and the momentum has built since. Gold will likely end up being used as ‘good’ collateral by global central banks, as opposed to the shaky collateral sovereign bonds are turning into.

Central bank purchases, led by the emerging markets, are on track this year to hit a record high according to the World Gold Council. China alone in 2011 bought around 490 tons of gold. Other countries including Russia, Turkey and South Korea have added gold to their official holdings in recent months. This buying showed up as central bank purchases in the second quarter of 2012 were more than double the level reported a year earlier at 157.5 metric tons. If the buying continues at current levels, central banks gold purchases would total around 500 tons this year, easily surpassing last year’s 458 tons.

The bottom line for investors from the global central banks’ buying of gold? The gold standard is working its way back into the international monetary system through the back door. This should, in the long-term, put a floor under gold and help maintain it on its steady upward path.

Just last week we started to see gold bullion, silver bullion and gold miner share prices start to breakout to the upside of a 12 month consolidation pattern. This could be the start of the next major rally in precious metals as future uncertainty fears continue to rise. The large bullish technical pattern we see on the gold chart points to much higher prices over the coming 24 months. But keep in mind this is a monthly chart and it could still take months to truly breakout to new highs and start another rally.

Click here for more gold and silver trading resources.

Wednesday, September 05, 2012

Whats the Fastest Easiest Way to Wealth?

Making Money as an Investor and Trader

So what is so magical about becoming an investor? Well first and foremost, as an investor you start earning passive income, which is money that you don't have to work for! As an investor, your investments actually create your income for you. The great thing about being an investor is that money never sleeps, it never calls in sick to work, it never gets tired and it works around the clock to make you money.

And as you may know, your income from your investments is taxed at a much lower rate than the money you make as an employee or a business owner! That's why so many people in this country are upset at the rich for "not paying their fair share" of taxes. Though the rich pay more out in raw dollars than most employees, when measured as a percentage of their income, they actually pay far less than most people.

Complaining about an unfair system never made anybody rich. Learning the system and making it work to your advantage is the way to go, it's the American Way. So instead of griping about it, you should turn the tables, and just become an investor!

So why isn't everyone an investor? Good question! Believe it or not, most people don't even consider becoming an investor for a couple of reasons. One is because they don't think they have the cash to get the ball rolling, or secondly, they don't start because they feel they aren't sophisticated enough to pull it off! But in the vast majority of cases, it's simply not true, it's far easier than you might think to get started, which is why I recommend you become an investor.

Being An Investor Is The Fastest And Easiest Way To Generate Real Wealth.

Can you get rich quickly as an investor? Sometimes, but it's better to think of investing as a long-term wealth building approach. But with the magic of compound interest, you can rapidly create wealth; they key is to get started as soon as possible making a passive income.

If you're like most people I know, your problem right now is that you are behind the eight ball. Getting older, still not building any significant savings, or a significant retirement account. Does that sound familiar?

Have some people you know already 'seen the light' and become investors? Are they ahead of you? Doesn't that give you a sinking feeling, knowing that others are properly preparing for their future while you get further behind?

Many people feel that way, but don't worry, it's NOT too late thanks to the magic of compound interest and leverage, which are two critical components of my system.

Compound Interest can make you extremely rich starting with very little money, so let's take a look at that, because if you don't understand how compound interest works, and if you don't see the magic, then really you've missed the whole point and you will never, ever enjoy earning a passive income.

Albert Einstein once noted that the most powerful force in the universe was the principle of compounding. In investing, this manifests itself through something called compound interest. If you are looking to grow wealth over a long period of time, compounding will definitely work in your favor and help you to achieve some exponential gains.

Put in its simplest terms, the phrase compound interest means that you begin to earn interest income on your interest income, resulting in your money growing at an ever-accelerating rate.

I like to call this the AVALANCHE, because it's as powerful as tons of snow rushing downhill at hundreds of miles per hour. It's like a growing snowball, but a million times larger and more powerful! And it's not snow, its CASH!

Compound interest is the engine that creates the Avalanche.

With enough time and a high enough interest rate, the money earned off of the interest alone will be greater than the original amount of money invested at the start.

First, click here to review a chart that shows you how long it takes to double your money given a set annual interest rate. Even at the highest rate on the chart, it still takes almost 4 years to double your money. That's not bad, but with my system, called Profit Agent, you can do significantly faster.

Good day and good wealth to you!

Tuesday, September 04, 2012

Invest like Mitt Romney

Hope you had a great Labor Day Holiday. With summer vacation over the trading volume and volatility should pick up providing more profit opportunities. Which way is the market going to move now? Up? Down? Sideways? Mondays are the usual day we'll come out with a buy or sell stock pick based on what we think is a currently low-risk high-reward price move. This week we don't have a stock pick. Instead we've got an article from Zacks Investment Research on how to invest like US Presidential candidate Mitt Rommey.

Love him or hate him, it is hard to argue that Mitt Romney has been an incredible investor over the years. With the one billion dollars that was raised in the heart of Romney’s reign (in five funds from 1984-1995), Bain Capital realized gains of roughly $4.17 billion, an impressive track record for the high-risk, high-reward private equity space.

In fact, according to a piece in the Wall Street Journal, Bain’s first five private equity funds have returned a whopping 88% per year from 1984-1999. This performance even crushed Buffett’s Berkshire Hathaway in the same time frame, as the Oracle’s stock ‘only’ added about 30% per year on average in the period.

While a contrast between the behemoth of Berkshire and the relatively nimble Bain funds may not be the best way to compare the two performers, it does show that at least during this relatively long time period, Romney was able to guide his firm to a performance that thoroughly crushed who many people consider to be the greatest investor of all-time.

So for investors who are able to put aside politics, taking a closer look at some of Mitt’s investment philosophies could be a great idea.

Unfortunately, many of these strategies aren’t exactly accessible by the average investor. Some require large investing minimums while most require capital lock-up periods or have high fees that are likely to put off many that are not in the multi-millionaire category.

Thanks to this, an Exchange Traded Funds approach could be an interesting way to tap into some of Romney’s strategies but in a cheaper, and more average investor-friendly way. After all, ETFs do not possess minimum investment levels, are easy to trade throughout the day without lockup issues, and fees for ETFs often put mutual funds, and especially private equity pools, to shame.

With this in mind, we have highlighted below three funds to invest like Mitt Romney. While these three ETFs will probably not put up the returns that investors saw with Bain, they arguably allow investors to tap into similar strategies in a low cost, and well diversified way that is easily accessible to the average investor looking to invest like Mitt Romney:

PowerShares Listed private Equity ETF (PSP)

Many of Bain’s (and Romney’s) investments during the mid 80s and 90s centered around ‘private equity’. These investments generally consisted of buying large stakes in private companies or buying out public firms and taking them private. Much of Romney’s returns stemmed from solid picks via this route, suggesting it can be a source of incredible gains for many companies.

For ETF investors, PSP can be a way to play the sector via publicly traded companies in the space. These firms use capital to invest in private firms or take public ones private, but they also trade on major exchanges, allowing investors to gain exposure to their techniques quite easily (read Do You Need a Private Equity ETF?).

This is done by following the Red Rocks Global Listed private Equity Index which is a global benchmark of private equity firms that are publically traded. The index consists of between 40 and 75 firms and the fund is rebalanced and reconstituted on a quarterly basis.

In terms of national exposure, the U.S. takes the top spot at about 40% of assets. However, from a regional perspective, Europe makes up half the portfolio, including top five weightings to the UK, Sweden, France, and Switzerland.

While many of the names on the top holdings list are unknowns, there are a couple firms that U.S. investors may be familiar with. These include a 3.8% allocation to Leucadia National LUK, and similar holdings in Blackstone BX, and KKR & Co KKR.

Unfortunately, the fund is somewhat expensive at least when compared to other ETFs. Net expenses come in at 2.55% thanks to 1.85% in acquired fund fees, however, this isn’t much compared to Bain, as the company’s new products look to have fees around 1% but also 30% of investment profits (other options include 1.5% fees and 20% in investment profits), a level that could greatly cut into total returns.

iShares MSCI EAFE Index Fund ETF (EFA)

According to a PDF from, Mitt’s blind trust has, in iShares’ EFA, at least one million dollars, but not more than five million dollars. While this is by no means a large position in Mitt’s portfolio, it is one of the few ETFs that are disclosed in the investment document, suggesting that it is one of the only ‘pure plays’ that you can make via exchange-traded funds on Romney’s investments.

The holding is also a nice compliment to what is probably a very U.S.-centric portfolio, giving Mitt’s trust broad exposure to a number of nations outside of America. However, it should also be noted that the trust has a sizable allocation to SPY as well, suggesting that Mitt has at least a small handful of ETFs in the Trust’s portfolio.

For investors seeking to make a play on EFA too, it should be noted that the product tracks the MSCI EAFE Index. This gives broad exposure to developed markets around the world outside of the U.S. and Canada, but specifically in Europe, Australiasia, and the Far East (see the Guide to the 25 Most Liquid ETFs).

This produces an impressive fund which has just over 900 stocks in its portfolio and one that does not put more than 2% in any one stock. This spread out nature is also reflected in the fund’s sector makeup, as the product has six sectors that make up at least 9% of assets.

From a country perspective, Japan takes the top spot at 20% of assets, just edging out the UK. However, much like in PSP, this fund tilts towards Europe overall, as close to two-thirds of the basket goes to the European continent.

Fees are much lower in this product—allowing investors like Romney’s trust to keep more on a yearly basis—coming in at just 34 basis points a year. Meanwhile, volume is quite robust as is total AUM for the fund, suggesting very tight bid ask spreads and low total costs for the fund as well.

UBS E-TRACS Wells Fargo Business Development Company ETN (BDCS)

For another play on the private equity side of the Romney investing style, investors have BDCS. This product targets Business Development Companies, which much like private equity, invest in illiquid or non-public firms.

However, BDCs are usually taxed as RICs which means that they generally qualify for a pass-through tax structure, so long as they pay out at least 90% of their taxable income as dividends. Thanks to this difference, BDCs are often among the highest yielders in the investment world. Furthermore, they are usually more ‘open’ products than their private equity or venture capital cousins, meaning that everyday investors can easily buy these firms on the open market.

Investors should also note that BDCS is structured as an ETN which means that it has the credit risk of UBS but does not suffer from tracking error or complicated tax treatments either. Instead, you should think of BDCS as a debt security which promises to pay out a return that is equal to the underlying index, the Wells Fargo Business Development Company Index.

This benchmark consists of about 25 companies in total, all of which have a focus on the U.S. market. The note also focuses in on pint-sized companies although it is somewhat concentrated as the top three holdings—American Capital (ACAS - Analyst Report), Ares Capital (ARCC - Snapshot Report), and Solar Senior Capital (SUNS - Snapshot Report)—combine to make up about 30% of the total assets (also check out the leveraged version in BDCL: Yield King of Leveraged ETFs).

Expenses are in the middle for this ETP as the cost comes in at about 85 basis points a year while volume is pretty light, suggesting modest bid ask spreads. However, the product does have a truly impressive yield of about 7.2%, which should help mitigate the cost issues.

This should also allow investors to earn a substantial sum at favorable tax rates, something that has also helped propel Bain’s team—and especially Romney-- into investing lore, making this fund, along with EFA and PSP, solid picks for those who are looking to invest like Mitt Romney in the near future.

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