Friday, November 30, 2012

Holiday Season Stock Market Forecast Outlook


Top-Down S&P 500 End-Of-Year 2012 Target

Zacks in-House: In the Thanksgiving week of November, stocks rallied for five straight sessions, all the way up to 1409. After getting down to 1360, buyers stepped up en masse, with shares rallying up to 1409.

We won’t find it surprising that bears will want to test the lower bound 1390-1400 level of the S&P 500 range. For now, it is providing solid support. However, if we see any weak U.S. economic data or any Fiscal Cliff controversy, we will likely find ourselves below that mark for a while. That is only the short term picture.

Further out, we remain modestly bullish (with a Fiscal Cliff agreement in hand) on a year-end close above the 1470 high. Always be keenly aware of the primary trend of stocks. That has been firmly bullish since March 2009 and should not be easily tossed aside. Meaning the major U.S. indexes have a long-term upward bias. To bet against that is likely unwise.

NASDAQ

We like the IT sector on valuation. After a sell-off on broad Q3 IT earnings weakness, we raise the NASDAQ-100 back to an outperform rating on valuations and on an overly pessimistic outlook for fundamentals. Foreign IT revenue growth from the Asia-Pacific region, and domestic U.S. business spending on IT have good prospects. Europe’s IT budget outlook remains OK. We would add to a position here, among stronger growing IT companies who have recently met or beaten estimates. Apple keeps things interesting, and drives the index up or down.

Intertwining Current Fed Macro Outlook with November’s Zacks Industry Ranks

(1) With rising jobs numbers and improved consumer confidence, Consumer Staples and Consumer Discretionary are presently two key sector strengths. The Consumer Finance industry is also strong.

(2) Other High Zacks Ranked goods and services industries are arriving from the building momentum in the Housing Recovery.

A housing related industry that has a very strong Zacks Industry Rank is Home Furnishing - Appliances. Building momentum in U.S. housing also helps the Financials sector. We see a strong Zacks Industry Rank for Banks & Thrifts and Real Estate.

Interestingly, Building Products and Construction & Engineering ranks took a dive in November.

(3) Fiscal Cliff tax sunsets that raise U.S. personal income tax rates or sequestration that cuts spending appear to restrain the Industrials sector outlook. We have seen weakness in capital goods spending.

Industrials weakness is apparent in poor November Zacks Ranks for Industrial Conglomerates, Metal Fabricating, and Industrial Machinery.

(4) IT weakness is a notable feature of the weak global GDP growth environment. Growing revenues is difficult for the big global IT businesses. The shift to smaller screen tablets and mobile is not helping either.

There is no highly rated IT industry. In an important ongoing signal, November saw the weakest IT Zacks Rank for the Semiconductor industry.

(5) Europe slowdown issues play out with a Market Weight rating to Energy.

(6) In addition, the China Sluggishness has notable effects to Materials and Industrial sectors. The Steel and Metals-Non-Ferrous Industries are still struggling due to these China slowdown effects, along with the Coal industry. Another element to the China slowdown is fresh weakness in Transportation industries, as weak coal shipping and prices play out.

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Thursday, November 29, 2012

Forecasting the USDJPY Last Winning Trade


Click Here to Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"

How Elliott wave analysis helps you as a forex trader with built-in, risk-defining safeguards.

Elliott wave analysis is not a crystal ball. (No market-forecasting method is.)

But here's what is remarkable: Even when your Elliott wave forecast doesn't pan out, you have built-in safeguards to alert you -- and help you manage risk. Here's a real-life example.

Going into the November 14 low, USD/JPY charts had been showing an impulsive downward Elliott wave pattern. Impulses are 5-wave moves, but on November 13-14, the pattern looked incomplete: the fifth wave down seemed to be missing.

Here's a chart our Currency Specialty Service subscribers saw early on November 13:


So, our analysis on November 13 suggested that USD/JPY would fall further. But USD/JPY just would not fall; instead, it went sideways.

That suggested to our Currency Specialty Service team that the wave (4) you see in the chart above was extending. Perhaps it was developing as another Elliott wave pattern -- maybe a contracting triangle? This chart and analysis described to subscribers that scenario:


"A bearish fourth-wave triangle is another idea that's in a position to yield new lows in wave (5). Resistance rests at 79.655/765."

Note that line: "Resistance rests at 79.655/765" -- it represents the very risk-defining safeguards I mentioned earlier.

How? Well, there are things that Elliott wave patterns just are not allowed to do. In a contracting triangle (an A-B-C-D-E formation), prices must stay within converging trendlines -- and they cannot overlap the start of wave A, the origin of the pattern. Resistance at 79.655/765 was exactly that: the price point where the contracting triangle interpretation would be invalidated.

Practical application: If you were bearish on USD/JPY on November 14, you could have used the price area of 79.655/765 to manage your position risk.

As you probably know, USD/JPY did not go sideways for long. Nor did it go down. Soon after, it went higher and breached that key resistance level:


When one Elliott wave pattern ends, another one begins. As soon as that key resistance in USD/JPY was breached, a new road map for the Japanese yen became clear.

Click Here to Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"

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Wednesday, November 28, 2012

Investing and Trading Around Stock Earnings Announcements


Did you know that we can use corporate earnings information as more or less a stock trading tip? Longer term investors are typically very concerned about what effect corporate earnings will have on currently open positions that they may have in a company that is about to announce earnings. Short term traders have similar concerns regarding short term trades they may be considering. If you are making a short term trade in a company that is just about to announce their earnings it may be a good idea to pass on that particular opportunity until the earnings announcement has been made. The reason for this of course is that analysts make their predictions about what corporate earnings will be for publicly traded companies so when those predictions are announced the market will immediately bake that information into the pricing of the company’s stock. When the earnings announcement takes place if the actual earnings that are reported by the company are significantly different from the predictions that the analysts made the market will immediately bake the new information in the price sometimes making the price of the stock move quickly and erratically.

In reality this is not a bad thing it is just the market correcting the price based on the new information but when you are a shareholder, especially if you are short term trader and the price drops quickly, it can have a devastating effect. Of course longer term investors are impacted by this to a much lesser degree because of the timeframe of their holding period but regardless of this both longer term and shorter term holders of the stock will be affected. It can go the other way too where there is a good surprise and the stock value increases but it seems that typically the surprise will be to the down side.

The most obvious way to combat this situation is to make sure that you do not trade a stock when an earnings announcement is imminent. To find out the earnings announcement schedule you can go to something like Yahoo Finance to get all of the information that you need.

Click here to review the current earnings reports that are scheduled to be released.

Just type in the information for the company you are interested in and everything you need to know will be presented.

A very commonly asked question around corporate earning and trading is how much emphasis should one place on earnings when making our trading decisions. I would not let earnings announcements handicap your trading but I do believe that they are something to pay close attention to. Longer term holders of stocks may be interested in corporate earnings if they are holding the stocks for their dividends but shorter term traders may want to avoid this situation altogether. Often times when dividends are paid the stock price adjusts by approximately the same amount as the dividend so in many cases there is no clear reason to intentionally trade a stock when an earnings announcement is close.

I believe that if you are watching a stock and a good setup occurs that meets all of your trading criterion you should check that specific company’s earnings schedule before making the trade. If the announcement is off into the future by a few weeks or at least out as far as your estimated trade horizon is make the trade. The main time that an earnings report hurts is when it is under the analysts expectations but regardless of if they meet expectations or not it can still work out to be a good trade. Allot of companies are very profitable but if their earnings fall short even by a little from what the market expectations are the stock price could get hurt in the short term however if it is a good and profitable company this should be of little consequence for longer term investors.

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Tuesday, November 27, 2012

Copying Winning Trades Automatically


Click to review and register for more trading webinars, seminars, workshops and events.

Last week, Casey Stubbs finally allowed access to his Investment Copier, which is his tool that allows clients to automatically copy the trades that he places in his account into their own personal accounts.

He only left access available for a few days and then closed the doors on Friday, so a lot of people missed out on taking advantage of his incredible offer.

Well, after getting a lot of feedback from people who wanted to get in, but couldn't because of the Holiday, Casey let me know that he is going to open it back up for about 24 Hours (Tuesday night until Wednesday night) to give all of those people one more chance to get in.

He already shut down the sales page, like he said he would, so the only way to get access now is to attend one of his Webinars during that 24 Hour Window...

So if you are interested in a legitimate, long term wealth building option, you have three Webinar options to attend before the special offer closes forever.

Pick the Webinar time that works for you, and take advantage of this generous re-opening for a service that is not about hype and is about real wealth-building.

Click to review and register for more trading webinars, seminars, workshops and events.

Monday, November 26, 2012

Global Entertainment Stock Pick


Zacks Investment Research reports Viacom Inc. (VIA), the media giant that controls Paramount Movie Studio and several leading cable TV channels, currently offers an attractive dividend yield of 2.2%. With a long-term earnings potential of 14.7%, this Zacks #2 Rank (Buy) also offers solid growth potential backed by an improving advertisement market, upcoming movies for the holiday season and a solid tie-up with pay-TV operators.

Solid Dividend Yield

Viacom has been paying dividends for 10 consecutive quarters. Last August, management raised its dividend rate by 10%. Currently, the company offers a lucrative dividend yield of 2.2%, significantly higher than the industry average of 1.8%.

A Mixed Quarter

On November 15, Viacom reported mixed financial results for its fiscal fourth quarter. Earnings per share of $1.21 surpassed the Zacks Consensus Estimate by 1.7% and the year-ago earnings by 14.2%. However, total revenue of $3,363 million dropped 17% year over year and fell short of the Zacks Consensus Estimate by 1.9%.

Affiliate fee (paid by pay-TV operators) revenue increased 12% in the U.S. and 11% in the international markets on a year-over-year basis. However, this strong performance was offset by a 6% decline in domestic advertising revenue and a 7% decline in international advertisement revenue. Nevertheless, operating income increased by a sharp 13% to $1,050 million from $929 million.

Earnings Estimates

Earnings estimates for Viacom have been static for the past several weeks. The Zacks Consensus Estimate for fiscal 2013 is unchanged at $4.76, while the Zacks Consensus Estimate for fiscal 2014 crept up by a penny to $5.46 in the past 7 days.

The current Zacks Consensus Estimates for 2013 and 2014 reflect estimated year-over-year gains of 13.1% and 14.7%, respectively.

Attractive Valuation

Viacom currently looks attractive with respect to several valuation metrics. The stock’s forward P/E of 10.50x indicates a huge discount of 23.2% from the peer group average of 13.67x. With respect to the forward P/S metric, the stock is currently trading at 1.9x, slightly higher than the peer group average of 1.68x. Viacom looks quite attractive given its trailing 12-month ROE of 29.5%, which is 85.5% higher than the peer group average of 15.9%.

Chart Looks Promising

Shares returned to a growth trajectory on November 15 (the day the company reported its fiscal fourth quarter results),. Going forward, there is an untapped potential locked in the stock, which is evidenced by its current long-term growth potential of 14.7%, significantly higher than the industry growth potential of 12.9%.


Based in New York, Viacom Inc. is a leading entertainment content company that operates primarily in the U.S. and Europe. The company is a global leader in the creation, promotion, and distribution of film entertainment, news, sports and music programs. Viacom offers many of the world’s best known entertainment brands. Prominent among them include MTV, MTV2, VH1, VH1 Classic, CMT, Nickelodeon, Logo, Nick at Nite, Nick Jr., Teenick, COMEDY CENTRAL, Spike TV, TV Land, BET, Rock Band, mtvU, MTV Tr3s, and Paramount Pictures. Viacom currently has a market cap of approximately $25.2 billion.

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Friday, November 23, 2012

Advice on Trading Forex During the Holiday Season


Well, the holiday season is here now starting with Thanksgiving. This is followed by a month of holiday fun ending with Christmas and New Years at the end of December. This is all good but how does it affect us as traders? There are various ways that this holiday time can impact our online trading including our emotions and our risk. These are two things I would like to discuss a bit today.

First, the holidays season seems to cause traders to leave. They like to spend time with their family and friends and take time to relax. This means that the markets can trade a bit light. With this light trading come heavy volatility in the form of the market reacting strongly to somewhat small news announcements. It can also do the opposite and cause the markets to remain a bit flat. In either situation we need to be cautious of our trading.

So how can we protect ourselves when the markets are more volatile? Well, we could simply not trade, although that is not what most traders would choose to do. We could trade as usual but that might not protect us from the increase or decrease in volatility. Most traders will choose to do something in between. One suggestion would be to simply decrease the amount you are risking. So if you normally risk 2% consider dropping it to 1%. Or if you risk 1% drop it to ½ %. This way you are still trading while adjusting for the added risk that you might encounter over the holidays.

The other issue that many traders have to deal with is there emotional side of things. The holidays can bring up emotions that don’t happen at other time during the year. It could be that we need more money to buy gifts so we become more aggressive than we should or we “check out” because we want to relax over the holiday. Whatever it may be, just make sure you check yourself before you begin trading to make sure you are emotionally read to deal with the holiday market.

So at the beginning of this holiday season, take some time to review how you will handle and trade a market that may be different than it has been the rest of the year. By being aware of these possible conditions we can take steps to avoid the negative impact the could otherwise have on your trading.

One last word of advice. With the markets trading with higher volatility and with emotions at higher levels take some time to relax and enjoy the things that are most important. This will recharge you energy and help you to prepare yourself to become a better and more focused trader.

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Wednesday, November 21, 2012

Screening Software to Pick Winning Stocks


Click Here to Review Different Stock Screening Software

I use stock screeners every day.

I cannot imagine investing in stocks without the assistance of a screener.

There are over 10,000 stocks out there and you need a quick and reliable way to sort through them all.

It's not enough to type familiar ticker symbols into a website and do a spot check on whatever items happen to be displayed.

For one, most people's universe of familiar stocks is relatively small. And that alone will limit one's investment opportunities. And two, even if your universe of familiar stocks is larger than most, nobody's is big enough to stay abreast of them all.

Nor would you want to. Many stocks should not even be considered as investments. So you don't want to clutter your mind with those tickers.

But many others are worthy of consideration, and you need a way to get those onto your radar screen.

This is important. Many investors are not seeing the kinds of returns they want in their portfolios because their universe of familiar stocks is limited.

What's interesting is that some of your best performing stocks right now were likely new to you at some point.

But there are plenty of others that could also be top performers for you if you only knew about them.

And the best way to discover new, potentially profitable stocks is to regularly scan for the best opportunities.

Wish List

Some people avoid screeners because they think it's complicated, or they don't think they know enough about stocks to look for the right things.

But you don't have to be an analyst to benefit from a screener.

For example, if you're interested in finding some new stocks for your portfolio, just ask yourself some simple questions.

Such as: Do I want stocks that will see both sales growth and earnings growth next year?

If so, plug those into the screener.

Now, only those with your desired growth rates will appear on your list. And those with negative sales growth or negative earnings growth will NOT be on that list, so you don't have to waste your time on them.

Would you prefer your stocks to have low debt levels or high debt levels?

(If you're thinking about traits you'd like your stocks to have, I'm assuming you said low debt levels.) And if that's the case, plug that into your screener as well.

Now, only stocks with your desired growth rates AND low debt will come through.

Would you want your stock to post a positive surprise or negative surprise?

If you're bullish, you probably said positive surprise.

There's no foolproof way to perfectly predict which stocks will positively surprise in the future. However, studies have shown that stocks that have surprised in the past have a tendency to surprise again in the future. So by screening for stocks that have recently posted positive surprises, you are increasing your chances that those stocks will positively surprise for you.

Just go down your wish list of characteristics you'd like your stocks to have.

Your criteria do not have to be fancy, and your screens do not have to be complex. Much of it is common sense. And the screener will help you sift through all of the garbage so you can spend your time on only those worth considering.

Inspiration

A good screener can also inspire you and introduce you to new ways to pick good stocks.

In the Research Wizard (the screener that I use daily), there are hundreds of different screening items to pick and choose from. (I can even create my own.)

And they are all organized in easy to understand categories like Growth, Valuations, Margins, etc.

But in addition to the most common and most popular screening items, there are other lesser known items available, but no less powerful.

A great example is the R-Squared Growth Rate item. I had seen that item in the screener over and over again. One day I decided to test it. I read the definition that came with it and decided to give it a try.

Long story short, I was amazed at its predictability. And I ended up creating a screen with that little known item. And I was so glad I did. Because that screen was actually UP in the bear market of 2008 while the market plunged nearly -40%!

They say when you play a sport with someone better than you, it raises your game. Or when you work with a talented person, you perform better. The same is true with the tools that you use.

By seeing what a tool is capable of, it allows you to think about what you could be capable of.

I never would have 'discovered' the R-Squared Growth Rate item (not to mention countless others) if those items hadn't been staring at me and made available in a tool that allowed me to test them.

A good stock screener can inspire you and help you pick better stocks on a consistent basis. And as traders and investors, that's what we all want.

Today's screen focuses on some of my current wish list items:

Top 50% of Zacks Ranked Industries
(The top half of Zacks Ranked Industries has outperformed the bottom half by a factor of more than 2 to 1.)

Zacks Rank equal to 1
(Over the last 26 years, the Zacks #1 Rank (Strong Buy) stocks have shown an average annual return of 26% a year.)

Positive Projected Sales and EPS Growth
(Simply put, I want my stocks to be growing on both the top and bottom lines.)

Positive Sales and EPS Surprises
(As mentioned earlier, stocks that have surprised in the past have a tendency to surprise again in the future. This increases our chances of getting into stocks that will positively surprise for us.)

Expanding Margins
(If margins are going up, that means management has a good grip on costs, which allows more of each sale to be counted as earnings.

Price to Sales Ratio less than or equal to 1
(In my testing I have found that stocks with a Price to Sales (P/S) ratio of less than 1, significantly outperforms stocks with a P/S ratio higher than that. (Over 4 demonstrated the worst average returns.)

There were 21 stocks that made it through this week's screen. Here are 5 of them:

CALM - Cal-Maine Foods
(Industry: Foods-Mics. Diversified, ranked 73 out of 265, or top 28% of Zacks Ranked Industries)

CVI - CVR Energy
(Industry: Oil Refining & Marketing, ranked 55 out of 265, or top 21% of Zacks Ranked Industries)

EEFT - Euronet Worldwide
(Industry: Financial-Misc. Services, ranked 41 out of 265, or top 15% of Zacks Ranked Industries)

LBY - Libbey
(Industry: Appliance-Household, ranked 1 out of 265, or top 1% of Zacks Ranked Industries)

THO - Thor Industries
(Industry: Building-Mobile Homes/Rec. Vehicles, ranked 41 out of 265, or top 15% of Zacks Ranked Industries)

All of these stocks meet every single one of my current wish list items, which means you can focus your time on only the top selections.

A good screener can help you save time, discover new stocks, consistently find winners and inspire you to become a better trader.

Be sure to get the rest of the stocks on this list. And make sure you sign up for a free trial to our powerful, yet easy to use, screening and backtesting program for your own stock picking inspiration.

Click Here for a Free Trial of Zacks Investment Research

Tuesday, November 20, 2012

eCommerce Stocks Forecast Outlook


The Electronic Commerce, or e-commerce, industry is one of the most progressive sectors of the economy. The industry is evolving very rapidly, so data collection and evaluation are particularly difficult. Consequently, one has to rely largely on surveys by both government and private agencies.

According to the U.S. Census Bureau, the manufacturing sector is the largest contributor to e-commerce sales (46.4% of their total shipments), followed by merchant wholesalers (24.6% of their total sales). These two segments make up the business-to-business category.

Retailers and service providers generated just 4.4% and 2.3%, respectively of their revenues online, a slightly higher percentage than they were in the prior year. The Bureau categorizes these two segments as business-to-consumer.

This places the business-to-business category at 90% of total ecommerce sales, with the balance coming from the business-to-consumer category. The latest numbers from the Bureau suggest that the fastest-growing segments were manufacturing and retail. [All the above data from the U.S. Census Bureau relate to 2010, as published in May 2012]

A. Retail

Total retail e-commerce was 5.1% of total retail sales in the second quarter of 2012, up slightly from 4.9% in the first quarter, according to the quarterly retail trade survey by the U.S. Census Bureau. Forrester Research estimates that this share will go up to 11% by 2015.

Recent data from comScore (as compiled in the table below) indicates that this segment recovered much faster from the economic downturn and continued to grow at an accelerated rate over the last few years.


Key Drivers

Since the industry is in evolution, the drivers are changing. For instance, the initial push came from the time savings and convenience of online transactions. To this were added the benefits of comparison shopping and personal recommendations. As technology required for personalized recommendations developed, became more available and its benefits more evident, most e-tailers started adding the feature until it is now considered a must-have.

Today, the biggest driver of growth in the industry is the adoption of smartphones, tablets and other mobile Internet devices.

In fact, trends indicate that consumers prefer mobile browsers when shopping, searching and entertaining themselves, while preferring apps for navigation and acquiring information.

comScore sees global mobile Internet users increasing very rapidly and surpassing desktop Internet users by 2014. A June 2012 study by comScore on behalf of Paypal revealed that mobile ecommerce tripled from 3% in the fourth quarter of 2010 to 9% in the fourth quarter of 2011. The trend is likely to continue since 4 out of 5 smartphone owners used the devices for shopping and related activities in July (September 2012 study by comScore). Men and women in the 25 to 44-year age group are doing most of the shopping on both Android and iOS devices.

While smartphones are extremely convenient when on the move, tablets have several advantages of their own. In fact they are a boon to the ecommerce industry, since the larger screens offer better visibility of online stores and merchandise, thus facilitating purchases. This is the reason that tablets remain the device of choice for making online purchases while smartphones are the preferred devices for store location, coupon redemption and such other “ön-the-go” activities. Given the unique advantages of smartphones and tablets, it appears that they are working in conjunction to boost total online retail sales.

Around 37% of customers in the third quarter were comparison shopping on their mobile devices while in retail stores, something the industry now calls “showrooming.” Because of the resultant cost savings and convenience, this trend is likely to continue (comScore, November 2012).

Continued advancements in technology are improving navigation and customer experience on ecommerce sites, which is improving reviews and thus drawing more traffic to the sites.

The digital consumption of books, music, video and games all over the world is extending the reach of these goods and thereby boosting sales. Therefore, previously unconnected electronic goods, such as TVs and game consoles are now being modified to enable connectivity. On the other side of the fence, online versions of books, music, video and games that can be downloaded and consumed on a traditional computer or any other connected device are becoming available.

Since the shift in consumption patterns is resulting in multi-functional electronic gadgets that are no longer optimized for a particular activity, there is a great drive to develop technologies that could improve the quality of each experience.

Free shipping remains a major lure, as seen from the recent e-tailing group survey, where 85% of surveyed consumers said they intended to make use of it this holiday season.

Top-selling items

A July 2012 study by Forrester Research points to the most popular products being sold online. The 10 hottest individual product categories are women’s apparel, books, computer hardware, computer software, apparel, toys/video games, video DVDs, health and beauty, consumer electronics and music.


Apparel is a huge market and although online sales are currently under 10% of total apparel sales, the category already generates the most dollars. Selling tools, such as zoom, color swatching and configurators are helping the process. Even primarily brick-and-mortar outfits like Macy’s (M) sees that consumers purchasing through multiple channels (online and offline stores) tend to spend more. This is encouraging traditional retailers to offer an online store to supplement sales. Online sales also show better conversions since searches usually draw consumers with a prior intention to purchase.

The increase in technology purchases over the Internet is driven by not only individual consumers, but also companies and governments. The efficient and timely processing of orders, choice of payment options, subscription-selling and sales under the SaaS model are all facilitators.

The Association of American Publishers says that ebook sales in the U.S. continue at a steady rate and are likely to touch $1.5 billion this year. What is more encouraging is however the growth U.S. players are seeing in international markets (sales up 333% in 2011). Amazon (AMZN) and Apple (AAPL) are the primary channels facilitating international expansion, although Barnes & Noble (BKS), other smaller players and local companies in international markets are also playing a part.

Google’s (GOOG) Youtube remains the forerunner facilitating online video consumption, with significantly higher unique viewers (UVs) and unique streams. VEVO and AOL Media Network are in second and fourth positions, respectively in both respects. While Yahoo! (YHOO) managed to steal the third position in terms of UVs, Hulu took its place with respect to the number of streams. Highest hours of viewership however went to Netflix (NFLX), which pushed Youtube and Hulu to numbers two and three, respectively. [Nielsen estimates, September 2012]

The digital consumption of music has grown greatly since Apple announced its first iPod. Amazon and others are also seeing their business grow. Nielsen estimates that in the first three quarters of 2012, U.S. digital album sales increased 15% from the comparable period last year, with shipments on track to set a new record in 2012.

The gaming segment has suffered over the last few quarters, impacted by the economic slowdown that affected consumer spending. However, while this affected total gaming spend, it did not affect the online segment, which gained from the increasing digitization of games, the desire to play across multiple platforms and the availability of free-to-play games to draw customers. As a result, sales through online channels continue to grow at the expense of traditional retail.

Since video, games and music are often social activities, they are increasingly being marketed on social platforms such as Facebook (FB) and Pinterest.

Facebook’s SocialStore, as it is called uses MarketLive's Intelligent Commerce Platform that enables marketers to display product information, promotions/discounts, shopping carts and check-out options. Both comparative shopping and comparative pricing are possible. The basic advantages of the system that are currently being touted are that it allows easy brand building, creates meaningful commercial relationships and makes use of account-holders’ social connections to attract new buyers.

A recent study by the E-tailing Group reveals that of 100 U.S. consumer product merchants with e-commerce websites surveyed, 98 had a Facebook account. Around 90% of these redirected the user to the merchant’s own page, 96% had loaded brand-building videos, 56% had product-oriented videos, 44% had store locators and 38% had promotions.

According to comScore, Pinterest is currently the third largest social networking site. While the company is yet to get into the advertising business, its users are already making money and engagement compares favorably with Facebook.

Selling discount coupons is also helping retail. Groupon (GRPN) is the leader here, which along with its closest rival LivingSocial offer discount coupons with a very low shelf life from local players looking for sales. The company offers huge discounts to attract buyers and collects a percentage of the sales thus generated. This kind of business is very competitive, since it has very low barriers to entry.

As a result, not just Amazon and Google, but also a host of other much smaller parties have started doing some business in this format. Technology investments are also required in order to serve customer needs effectively. Considering the prospects, we don’t see the platform as a major contributor to e-commerce sales in the near term.

Market Position

comScore estimates that Amazon remains the leading Internet retailer based unique visitors (UVs), followed by eBay (EBAY), Apple, Wal-Mart Stores (WMT), Target Corp. (TGT) and Best Buy (BBY), in that order. The top 3 have a much higher penetration on both Android and iOS platforms.

B. Travel

The U.S. Commerce Department expects international travel to the U.S. to continue over the next few years. Visitor volume is currently expected to increase 6-8% a year from 2012 to 2016 leading to a 49% increase in the number of users during the period. Visitors from the Middle East are expected to be the slowest-growing (29%). South America, Asia and Oceania growth rates are expected to be comparable at 83%, 82% and 82%, respectively.

The fastest growth is expected to come from China (232%), South Korea (200%), Brazil (150%), Russian Federation (139%) and India (94%). Travel and tourism is one of the country’s strongest industries, contributing a trade surplus in each of the last 20 years.

According to research from eTrack, eMarketer and Alexa.com compiled in September 2012, Internet-based travel booking revenue has grown 73% over the last five years, with 57% of all travel reservations being made online. The bookings and revenue generated by source and category (latest estimates) are represented in the following graphs.




The top travel booking sites are Booking.com, Expedia.com, Hotels.com, Priceline.com, Kayak.com (recently acquired by Priceline), Travelocity.com, Orbitz.com and Hotwire.com. Since Booking.com and now Kayak are part of Priceline (PCLN) and both Hotels.com and Hotwire.com part of Expedia (EXPE), this narrows down the top companies in the segment to Priceline, Expedia, Orbitz Worldwide (OWW) and Travelocity.

According to a report by PricewaterhouseCoopers, the improving economy will result in a 1.8% increase in demand for hotel reservations this year, which along with a 0.5% increase in hotel supply will lead to higher occupancy rates (60.9% expected in 2012 compared to 60.1% in 2011). This will also raise hotel rates by 5.1%.

Smartphones are playing a key role in travel purchases, especially for last minute purchases. eMarketer expects smartphone travel researchers to grow from 23.7% of total online travel researchers in 2011 to 53.9% in 2016. Similarly, smartphone travel purchasers are expected to grow from 12.6% in 2011 to 32.5% in 2016.

Another report by PhocusWright mentioned that when online penetration of the travel market reached 35% in any country, growth rates were likely to slow down to single-digits. The research firm mentioned that only the U.S., U.K. and Scandinavia had reached this level of penetration and most other markets across Europe, Asia and Latin America would continue to show good growth rates.

C. Payment Systems

With practically all market research indicating solid growth in ecommerce sales over the next few years, online players are vying with each other to come out with convenient and secure payment solutions. The FIS Mobile Wallet from Fidelity National Information Services Inc. (FIS) is basically a bar code reader that feeds information related to the purchase into the user’s smartphone and uses it as a medium to transfer the information to the cloud. Online purchase of merchandise is also possible. The solution provides maximum security, since the transaction is carried out entirely in the cloud through the retailer’s and banker’s applications and personal information is not shared at the time of purchase.

While QR code payments (as the technology is called) have already been made by half the smartphone users in the U.S. (report compiled by eMarketer), the usage was mainly out of curiosity. It appears that the safety of the system comes at a price, which is the time it takes to complete a transaction. This is the reason that Google is still betting on its digital wallet.

Google’s digital wallet allows a customer to make a payment by waving his mobile phone over a POS terminal. While the near field communication (NFC) technology used in the system is already in use in some parts of Europe, the concept is relatively new to the U.S. Other than the convenience of the whole thing, the main attraction being highlighted is the security of the payment channel, since neither the customer nor the retailer would be recording the personal information related to the customer. Adoption of the device, although it is some way off, will have a remarkable effect on the volume and value of mobile transactions, since it should increase the percentage of higher-value sales.

However, the cost of POS terminals is a downside to the system that could easily turn away retail partners. This is an evolving area and much could change over the next few years.

The greatest success however is currently being enjoyed by eBay’s Paypal, which has seen some success at traditional retailers such as The Home Depot (HD) and Office Depot (ODP). One drawback that remains is that although the system is itself secure, there is always a security risk for a buyer not used to dealing with Paypal, since it requires personal information.

According to an Emphatica study, mobile banking has not picked up sufficiently in either the U.S. or Canada, due to security-related concerns. However, an analysis by Deloitte shows that mobile banking could become the most-preferred banking method by 2020. The study estimates that 20-25 million gen Y consumers will become new banking customers by 2015.

A study on banking.com shows that 48% of "Generation Y" (gen Y) consumers are already using online banking services. Moreover, their preference for online banking is so high that around 30% said they would consider switching financial institutions if they did not provide the service. Both online and mobile banking by gen Y largely consists of checking account balances and transferring funds, although they also like to pay bills on the platform.

It is believed that high smartphone penetration, higher income within this group and greater digital sophistication will drive increased demand for mobile banking services. Since mobile banking is expected to be the most cost efficient for banks, investment in technology to improve and expand mobile banking services is likely to increase.

D. Security

With online transactions expected to boom over the next few years, the topmost concern remains security. While banks will spend significantly on secure payment systems, hackers are expected to have a field day, largely targeting the flood of customers going online. Last year saw a huge increase in security breaches, something that may be expected to continue.

Alternative payment systems will continue to gain popularity. While some of these payment systems, such as eBay’s PayPal have been around for a while, other systems, such as Google’s digital wallet and the FIS Mobile Wallet are still in the making. Alternative payment systems never really gained momentum in the past because of the low volume of transactions. However, as online transactions continue to increase, many more such systems could suddenly become more available.

We expect mobile security to become a major focus area for technology companies, since this is the stumbling block to payments through the mobile platform (currently just 2% of U.S. online spending). Additionally, hackers continue to multiply and data breaching has become commonplace.

E. Online Advertising

The U.S. online advertising market has seen some very strong growth in the past few years, despite the recession that impacted the entire economy. 2012 numbers will benefit from the national election and the summer Olympics. eMarketer estimates that the market will grow 23.3% in 2012 to $33.8 billion, compared to the 23.0% growth in 2011.

However, growth rates are expected to drop over the next few years: 17.7% in 2013, 13.5% in 2014, 8.9% in 2015 and 7.8% in 2015. Falling growth rates notwithstanding, the share of online ad spending in total ad spending is expected to increase from 20% in 2011 to 31% in 2016. By contrast, TV ad spending is expected to drop slightly from around 38% of total ad spending in 2011 to less than 37% in 2016. Print is expected to decline even more significantly from 22.6% in 2011 to 16.4% in 2016.

The current strength in online advertising is coming primarily from the growing popularity of the display format. Of all the forms of online advertising, display (including video, banner ads, rich media and sponsorships) is expected to see the strongest growth over the next few years. Also, of all the forms of display advertising, video and banner ads are expected to grow the strongest from 2011 to 2016.

Contrary to previous expectations, it now appears that search will remain supreme throughout, although its share will give way slightly to video ad spending which will nearly double. The lower pricing of video and banner ads has made them popular with brand advertisers, so ad inventories are solid. Another factor favoring display ads is the proliferation of smartphones, where the smaller screens make display ads more effective than text ads.

Facebook was the largest player in the display ad segment with a 14% share in 2011. Google was close on its heels with 13.8%. eMarketer estimates that Facebook and Google will remain neck-to-neck this year, with Google pulling ahead in 2013 and widening the gap in 2014. Yahoo, which was in third position with 10.8% share in 2011, is expected to see a steady decline in sales and market position. Microsoft (MSFT) and AOL (AOL), while growing revenues are expected to maintain market share.

The underlying drivers of growth of the display format are the continued increase in the number of users, greater propensity of users to consume online, a growing inventory of advertisements that serve to lower advertisement prices and the push into display advertising.

Search advertising is expected to remain popular, because results are measurable, and therefore, more predictable than other media. This also makes the market more resilient in recessionary conditions, since advertisers are more confident about the results of their spending.

Investment Opportunities


As evident from the above table, online travel companies are the picks for the sector, particularly Priceline and Expedia. International expansion is a key factor driving growth for these companies and collaborative agreements with local players are helping. The ADR is something to watch here, as lower-value inventories are on the rise.

Of the retail companies, we recommend eBay (EBAY), which has an attractive growth rate and has shown solid execution over the last few quarters. Moreover, eBay’s turnaround story continues and its many initiatives to drive growth are likely to pay off. Another stock that looks attractive for longer-term investors is Zynga (ZNGA), which has a history of beating estimates and is also seeing upward revision in estimates.

Weakness

Amazon (AMZN) is currently in the investment phase and there is a great deal of uncertainty as to how long it will continue in this phase. The uncertainty is leading to repeated downward revisions to estimates, which in turn is pushing down the Zacks Rank. The largest online retailer is by no means a write-off, but short-term investors would gain little from its solid revenue growth and international investments.

We also have reservations about Groupon (GRPN), which operates in a highly competitive segment with low barriers to entry.



Monday, November 19, 2012

Lifestyle Investment Stock Pick


Zacks Investment Research reports Dillard’s Inc. (DDS) has gained significant momentum following its fiscal third-quarter results on November 8, which included an earnings surprise of 28%. Shares of this fashion, cosmetics and home furnishings retailer hit a 52-week high of $86.71 on the day of the announcement, and have now amassed a year-to-date return of 87.6%. Earnings estimates for fiscal 2012 and 2013 have been trending upward over the past week, helping DDS achieve a Zacks #1 Rank (Strong Buy) on November 13.

Fabulous Q3

Dillard’s reported fiscal third-quarter earnings of 96 cents per share last week, surpassing the Zacks Consensus Estimate of 75 cents and doubling last year’s earnings of 48 cents. This marked the ninth straight quarter with a positive earnings surprise. The performance was aided by healthy sales performances, gross margin improvement and prudent cost control measures.

Net sales (including CDI Contractors LLC or CDI) increased 4.8% year over year to $1,449.6 million from $1,382.6 million. Merchandise sales, excluding CDI, came in at $1,425 million, compared with $1,366 million. The company’s total revenue (including other income) of $1,486.3 million climbed 4.8%. Comparable store sales (comps) were up 5%. The Zacks Consensus Estimate for the quarter was $1,450 million.

Men’s apparel and accessories were the outperforming categories, followed by women’s accessories, lingerie and shoes. The category that witnessed the lowest sales was home and furniture. Dillard’s gross margin from retail operations (excluding CDI) expanded 40 basis points (bps) to 37.1%, while consolidated gross margin (including CDI) rose 30 bps to 36.6%.

Earnings Estimates Advancing

The Zacks Consensus Estimate for fiscal 2012 jumped 4.6% to $6.33 per share in the last 7 days, reflecting year-over-year growth of 50.4%. For fiscal 2013, the Zacks Consensus Estimate climbed 9.9% to $7.20 per share over the same time frame, representing a year-over-year increase of 13.7%.

Chart Echoing Strength

Barring a few occasional pull backs, shares of Dillard's have been trending upward since the beginning of the year, and are now hovering close to its 52-week high, reflecting bullish growth momentum for the rest of 2012. The stock has been consistently trading above its 200-day moving average since February 17, 2012. It has also remained above the 50-day moving average since October 31, 2012.

Volume is fairly strong, averaging roughly 443K daily. The year-to-date return for the stock is 87.6% compared with the S&P 500’s return of 6.1%.



Founded in 1938 and headquartered in Little Rock, Arkansas, Dillard's is a large department store chain, featuring fashion apparel and home furnishings. The company’s primary product categories are: women’s and junior’s apparel; shoes; accessories and lingerie; men’s clothing and accessories; cosmetics; home; and children’s clothing. Its merchandise mix consists of both branded and private-label items. As of October 27, the company operates 284 outlets and 18 clearance centers and one Internet store across 29 states. Dillard's, which primarily competes with Kohl's Corp. (KSS) and Macy's, Inc. (M), has a market cap of $3.89 billion.

Friday, November 16, 2012

Top Reasons Not to Sell Stocks


Let's change it up. Let me give you the top five reasons NOT to sell everything.

Just trying to be more constructive here.

One: We are very, very oversold and people are getting very negative. We all accept that we are going down and many are taking action.

Two: Many stocks will be impacted when we go over the fiscal cliff. Notice I said "when" because unless politicians rise above, we are going over it. But other stocks, international stocks with bases here that sell soft goods that make them buyers of commodities, will do well and they need to be bought into the weakness.

Three: Everything in the end gets discounted, meaning that we can adjust to anything and when we get there any new negatives won't mean much. But a new positive or a deal will send us soaring.

Four: The new taxes and spending cuts, while draconian, will not be the end of the world for the big secular growth stories out there, including health and wellness, as well the desire for a bargain.

Five: Plenty of companies have the power to raise dividends to where even the after-tax the returns are far superior to bonds.

Am I being a Pollyanna about this with these five positives? History says that to be solely destructive is to miss an important move in the market, although we don't know where it might begin.

We also know that EVERY SINGLE TIME in every single downturn, no matter how big or small, we've had stocks that bottom before others, usually in thirds, depending upon the circumstances. Sometimes industrials bottom first because the shock that brought them down is one-time only. Sometimes it is the soft goods that hit bottom and begin to bounce because the proximate cause of the decline is a downturn in the economy. Other times it is the higher-yielding stocks that bottom because they are fixed-income alternatives.

These are givens.

In virtually no cases could you wait until the big, bad event occurred to do buying. Things always bottomed before that. In no cases did you not initially suffer losses if you stayed the course. In every case, when you blew out of everything you did poorly, especially after you look longer term. Remember that if you bought the ten most-actively-traded major-capitalization stocks the day before the 1987 crash, where we lost 508 points off a 2,260-point Dow Jones basis (arguably the dumbest day ever to buy stocks) you were up, in some cases up nicely, on all of them.

So being constructive is actually being rigorous.

But trying to time or game the cliff has become something that's somewhat hopeless. Unless you see the leaders together in a room, publicly or at a Camp David hideaway, you know they aren't feeling the pressure from their constituents to do a deal. So many don't pay much in income tax, so many don't own stocks, that the pain isn't visible for the majority of the voters. That can only change if the politicians come together out of good, which is unlikely, or out of panic because the stock market's fallen so dramatically. It is the latter that makes being constructive just so very difficult in these uncertain times.

Click Here for a Free Trial of Jim Cramers Action Alerts Plus

Top Reasons Not to Sell Stocks


Let's change it up. Let me give you the top five reasons NOT to sell everything.

Just trying to be more constructive here.

One: We are very, very oversold and people are getting very negative. We all accept that we are going down and many are taking action.

Two: Many stocks will be impacted when we go over the fiscal cliff. Notice I said "when" because unless politicians rise above, we are going over it. But other stocks, international stocks with bases here that sell soft goods that make them buyers of commodities, will do well and they need to be bought into the weakness.

Three: Everything in the end gets discounted, meaning that we can adjust to anything and when we get there any new negatives won't mean much. But a new positive or a deal will send us soaring.

Four: The new taxes and spending cuts, while draconian, will not be the end of the world for the big secular growth stories out there, including health and wellness, as well the desire for a bargain.

Five: Plenty of companies have the power to raise dividends to where even the after-tax the returns are far superior to bonds.

Am I being a Pollyanna about this with these five positives? History says that to be solely destructive is to miss an important move in the market, although we don't know where it might begin.

We also know that EVERY SINGLE TIME in every single downturn, no matter how big or small, we've had stocks that bottom before others, usually in thirds, depending upon the circumstances. Sometimes industrials bottom first because the shock that brought them down is one-time only. Sometimes it is the soft goods that hit bottom and begin to bounce because the proximate cause of the decline is a downturn in the economy. Other times it is the higher-yielding stocks that bottom because they are fixed-income alternatives.

These are givens.

In virtually no cases could you wait until the big, bad event occurred to do buying. Things always bottomed before that. In no cases did you not initially suffer losses if you stayed the course. In every case, when you blew out of everything you did poorly, especially after you look longer term. Remember that if you bought the ten most-actively-traded major-capitalization stocks the day before the 1987 crash, where we lost 508 points off a 2,260-point Dow Jones basis (arguably the dumbest day ever to buy stocks) you were up, in some cases up nicely, on all of them.

So being constructive is actually being rigorous.

But trying to time or game the cliff has become something that's somewhat hopeless. Unless you see the leaders together in a room, publicly or at a Camp David hideaway, you know they aren't feeling the pressure from their constituents to do a deal. So many don't pay much in income tax, so many don't own stocks, that the pain isn't visible for the majority of the voters. That can only change if the politicians come together out of good, which is unlikely, or out of panic because the stock market's fallen so dramatically. It is the latter that makes being constructive just so very difficult in these uncertain times.

Click Here for a Free Trial of Jim Cramers Action Alerts Plus

Top Reasons Not to Sell Stocks


Let's change it up. Let me give you the top five reasons NOT to sell everything.

Just trying to be more constructive here.

One: We are very, very oversold and people are getting very negative. We all accept that we are going down and many are taking action.

Two: Many stocks will be impacted when we go over the fiscal cliff. Notice I said "when" because unless politicians rise above, we are going over it. But other stocks, international stocks with bases here that sell soft goods that make them buyers of commodities, will do well and they need to be bought into the weakness.

Three: Everything in the end gets discounted, meaning that we can adjust to anything and when we get there any new negatives won't mean much. But a new positive or a deal will send us soaring.

Four: The new taxes and spending cuts, while draconian, will not be the end of the world for the big secular growth stories out there, including health and wellness, as well the desire for a bargain.

Five: Plenty of companies have the power to raise dividends to where even the after-tax the returns are far superior to bonds.

Am I being a Pollyanna about this with these five positives? History says that to be solely destructive is to miss an important move in the market, although we don't know where it might begin.

We also know that EVERY SINGLE TIME in every single downturn, no matter how big or small, we've had stocks that bottom before others, usually in thirds, depending upon the circumstances. Sometimes industrials bottom first because the shock that brought them down is one-time only. Sometimes it is the soft goods that hit bottom and begin to bounce because the proximate cause of the decline is a downturn in the economy. Other times it is the higher-yielding stocks that bottom because they are fixed-income alternatives.

These are givens.

In virtually no cases could you wait until the big, bad event occurred to do buying. Things always bottomed before that. In no cases did you not initially suffer losses if you stayed the course. In every case, when you blew out of everything you did poorly, especially after you look longer term. Remember that if you bought the ten most-actively-traded major-capitalization stocks the day before the 1987 crash, where we lost 508 points off a 2,260-point Dow Jones basis (arguably the dumbest day ever to buy stocks) you were up, in some cases up nicely, on all of them.

So being constructive is actually being rigorous.

But trying to time or game the cliff has become something that's somewhat hopeless. Unless you see the leaders together in a room, publicly or at a Camp David hideaway, you know they aren't feeling the pressure from their constituents to do a deal. So many don't pay much in income tax, so many don't own stocks, that the pain isn't visible for the majority of the voters. That can only change if the politicians come together out of good, which is unlikely, or out of panic because the stock market's fallen so dramatically. It is the latter that makes being constructive just so very difficult in these uncertain times.

Click Here for a Free Trial of Jim Cramers Action Alerts Plus

Top Reasons Not to Sell Stocks


Let's change it up. Let me give you the top five reasons NOT to sell everything.

Just trying to be more constructive here.

One: We are very, very oversold and people are getting very negative. We all accept that we are going down and many are taking action.

Two: Many stocks will be impacted when we go over the fiscal cliff. Notice I said "when" because unless politicians rise above, we are going over it. But other stocks, international stocks with bases here that sell soft goods that make them buyers of commodities, will do well and they need to be bought into the weakness.

Three: Everything in the end gets discounted, meaning that we can adjust to anything and when we get there any new negatives won't mean much. But a new positive or a deal will send us soaring.

Four: The new taxes and spending cuts, while draconian, will not be the end of the world for the big secular growth stories out there, including health and wellness, as well the desire for a bargain.

Five: Plenty of companies have the power to raise dividends to where even the after-tax the returns are far superior to bonds.

Am I being a Pollyanna about this with these five positives? History says that to be solely destructive is to miss an important move in the market, although we don't know where it might begin.

We also know that EVERY SINGLE TIME in every single downturn, no matter how big or small, we've had stocks that bottom before others, usually in thirds, depending upon the circumstances. Sometimes industrials bottom first because the shock that brought them down is one-time only. Sometimes it is the soft goods that hit bottom and begin to bounce because the proximate cause of the decline is a downturn in the economy. Other times it is the higher-yielding stocks that bottom because they are fixed-income alternatives.

These are givens.

In virtually no cases could you wait until the big, bad event occurred to do buying. Things always bottomed before that. In no cases did you not initially suffer losses if you stayed the course. In every case, when you blew out of everything you did poorly, especially after you look longer term. Remember that if you bought the ten most-actively-traded major-capitalization stocks the day before the 1987 crash, where we lost 508 points off a 2,260-point Dow Jones basis (arguably the dumbest day ever to buy stocks) you were up, in some cases up nicely, on all of them.

So being constructive is actually being rigorous.

But trying to time or game the cliff has become something that's somewhat hopeless. Unless you see the leaders together in a room, publicly or at a Camp David hideaway, you know they aren't feeling the pressure from their constituents to do a deal. So many don't pay much in income tax, so many don't own stocks, that the pain isn't visible for the majority of the voters. That can only change if the politicians come together out of good, which is unlikely, or out of panic because the stock market's fallen so dramatically. It is the latter that makes being constructive just so very difficult in these uncertain times.

Click Here for a Free Trial of Jim Cramers Action Alerts Plus

Thursday, November 15, 2012

Top Reasons Not to Sell Stocks


Let's change it up. Let me give you the top five reasons NOT to sell everything.

Just trying to be more constructive here.

One: We are very, very oversold and people are getting very negative. We all accept that we are going down and many are taking action.

Two: Many stocks will be impacted when we go over the fiscal cliff. Notice I said "when" because unless politicians rise above, we are going over it. But other stocks, international stocks with bases here that sell soft goods that make them buyers of commodities, will do well and they need to be bought into the weakness.

Three: Everything in the end gets discounted, meaning that we can adjust to anything and when we get there any new negatives won't mean much. But a new positive or a deal will send us soaring.

Four: The new taxes and spending cuts, while draconian, will not be the end of the world for the big secular growth stories out there, including health and wellness, as well the desire for a bargain.

Five: Plenty of companies have the power to raise dividends to where even the after-tax the returns are far superior to bonds.

Am I being a Pollyanna about this with these five positives? History says that to be solely destructive is to miss an important move in the market, although we don't know where it might begin.

We also know that EVERY SINGLE TIME in every single downturn, no matter how big or small, we've had stocks that bottom before others, usually in thirds, depending upon the circumstances. Sometimes industrials bottom first because the shock that brought them down is one-time only. Sometimes it is the soft goods that hit bottom and begin to bounce because the proximate cause of the decline is a downturn in the economy. Other times it is the higher-yielding stocks that bottom because they are fixed-income alternatives.

These are givens.

In virtually no cases could you wait until the big, bad event occurred to do buying. Things always bottomed before that. In no cases did you not initially suffer losses if you stayed the course. In every case, when you blew out of everything you did poorly, especially after you look longer term. Remember that if you bought the ten most-actively-traded major-capitalization stocks the day before the 1987 crash, where we lost 508 points off a 2,260-point Dow Jones basis (arguably the dumbest day ever to buy stocks) you were up, in some cases up nicely, on all of them.

So being constructive is actually being rigorous.

But trying to time or game the cliff has become something that's somewhat hopeless. Unless you see the leaders together in a room, publicly or at a Camp David hideaway, you know they aren't feeling the pressure from their constituents to do a deal. So many don't pay much in income tax, so many don't own stocks, that the pain isn't visible for the majority of the voters. That can only change if the politicians come together out of good, which is unlikely, or out of panic because the stock market's fallen so dramatically. It is the latter that makes being constructive just so very difficult in these uncertain times.

Click Here for a Free Trial of Jim Cramers Action Alerts Plus

Different Stocks Require Different Trading Styles



When the market is up, trading seems so easy.

When the market is down however (like now), it can seem like every stock is going down along with it.

But believe it or not, there are plenty of stocks going up right now.

Growth stocks, Value stocks, Growth & Income stocks and Momentum stocks.

Some are more conservative, while others are more aggressive.

So Which Style is the Best One?

The best style or strategy is the one that's in alignment with who you are, or want to be, as a trader.

Because if you find yourself trading a strategy that's not in alignment with who you are as a trader, or the kinds of stocks you want to be in, you're going find yourself abandoning that strategy the moment the market hits a rough patch. (And the market indeed has hit a rough patch lately.)

So let's go over what the four main trading styles are and some tips on how to use them most effectively.

Momentum Style

Momentum traders look to take advantage of upward trends (or downward trends) in a stock's price or earnings. They believe that these stocks will continue to head in the same direction because of the momentum that is already behind them.

And there's a lot of evidence to support the idea that stocks making new highs have a tendency of making even higher highs.

I know some investors shy away from stocks making new 52-week highs. If you're one of them, that's ok. Don't trade them. Remember, the best strategy is the strategy that's right for you.

The biggest concern a momentum trader will have (and probably one of the reasons why some people shy away from them) is in determining if the stock is ready to keep moving higher, or if it's getting ready for a fall?

Tip 1: I have found that by adding a solid valuation metric to these stocks, you can identify the high flyers that are still bargains from the ones that are overpriced.

My all time favorite valuation metric to use with momentum stocks is the Price to Sales ratio; preferably 1 or less than the median for its respective industry. And my experience has shown the Price to Sales ratio to be absolutely one of the best ones to use.

Aggressive Growth Style

Aggressive Growth traders are primarily focused on stocks with aggressive earnings growth or revenue growth (or at least the potential for aggressive growth).

You'll often find smaller cap stocks in this category because smaller cap stocks are typically newer companies in the early part of their growth cycle.

But a word of caution, it's not as easy as just looking for stocks with the highest growth rates. So don't go out and start looking for stocks with a 500% or 1,000% growth rate. While there will definitely be stocks out there like that and do well -- my studies have shown that those kinds of companies will typically underperform. In fact, often times, you'll see companies with the highest growth rates perform almost as poorly as those with the lowest growth rates.

The reason for this is because many growth stocks are priced for perfection. For example: a stock that earns 1 cent, that is then expected to earn 6 cents, is a 500% growth rate.

Now let's say, for whatever reason, the analysts now believe they'll only earn 5 cents. That's still a 400% growth rate. But that's also -100 points less than the original growth rate and a -16.6% downward earnings estimate revision.

And if you're the person that just got into that stock the day before, and you're wondering why on earth a 400% growth rate stock is going down? That's why!

Tip 2: Instead, look for stocks with growth rates above the median for their industry, but with growth rates less than 50%.

Why 50%? Because in my testing, I have found that once you get above 50%, the returns start to drop. It's usually because those growth rates are just simply unsustainable. And for the ones above 50% that do pan out, many of them will carry with it a higher degree of risk. So use your head when looking for those kinds of companies, so those shooting stars don't fizzle out on you.

Value Style

Value investors and traders favor good stocks at great prices over great stocks at good prices. However, this does not mean they have to be cheap stocks in price. The key is the belief that they're undervalued. That they are, for some reason, trading under what their true value or potential really is. The value investor hopes to get in before the market 'discovers' this and moves higher.

The value investor will typically need to have a longer time horizon because if that stock has been undervalued, i.e., 'ignored' for a while, it may take a bit of time before that stock gets noticed and makes a move.

You can usually spot these kinds of stocks by looking at their valuations, like their P/E ratio for example.

I know a lot of investors out there look at P/Es. But not all low P/E stocks are good value stocks. Many companies have low P/Es because they don't have any real growth to speak of. They lack earnings power. And people aren't willing to pay up for these stocks because there's nothing to pay up for.

Tip 3: The key to finding true value stocks that are ready to move is to make sure there's a catalyst. Buying a stock and sitting with it for years just because you believe it's undervalued won't make you any money.

So make sure your value stocks have a catalyst. And nothing can wake up an investor more than the catalyst of upward earnings estimate revisions.

My favorite upward earnings estimate revisions are for Q1 and F1 over the last 4 weeks. And if you really want to increase your odds of success, you can also focus in on the Sectors with the best upward earnings estimate revisions as well.

It's been said that value investing is one of the most profitable ways to invest. And it's true.

While value stocks usually require a longer time horizon; by combining value stocks with the right catalysts, you can find yourself getting into the best value stocks for an immediate price response.

Growth & Income

Growth and Income investors and traders are looking for good companies with solid revenue that pay a good dividend.

Oftentimes, these are more mature, larger-cap companies. Companies that may not have the kinds of spectacular growth rates like some of the younger or smaller companies have (or like they had themselves when they were younger and earlier in their growth cycle as well).

But that doesn't mean they're not making money. Far from it. A lot of these companies might be great companies, generating huge amounts of cash. But because of their size, they may not have the same growth opportunities they once had.

For example: let's say there was a small-cap company that does $100 million in sales. And someone comes up with a great idea that will increase sales by an additional $100 million. That's great news. And that company is now looking at a 100% growth rate.

But apply that to a mid-cap company that does $1 billion in sales and that $100 million-dollar idea is now only a 10% increase in sales.

Now apply that same $100 million to a company that does $10 billion in sales and that's only a 1% increase.

Simply put, for some of these companies, the law of big numbers makes it harder to grow at the same pace that a younger and smaller company is capable of. But the consistency of earnings can be pretty impressive in its own right.

And instead of investing all of their earnings back into the company, they reward their shareholders by paying out a portion of their profits in the form of a dividend.

Tip 4: Not all dividend paying companies have to be large-cap companies. There are plenty of mid-cap stocks offering exciting dividends with impressive growth prospects as well.

Just remember, you don't have to focus in on just the largest of the large-caps for solid dividend paying stocks. Focus in on the mid-caps and smaller large-caps with the best dividend yields too, and watch your profits grow.

By focusing more attention on the mid-cap stocks and smaller large-cap stocks, you can increase the growth portion of your growth and income stocks, while still enjoying the income portion you normally would with large-cap stocks.

Putting It All Together

Picking winning stocks has never been easier once you know what to look for.

In fact, you'll find winning stocks all around you.

Think about the last car you bought. Once you decided what kind of car you wanted, you probably saw them everywhere. They didn't just magically appear on the road. They were always there. You just became aware of them.

And the same can be said for picking stocks. Once you've identified what kind of trader you are and the style that suits you the best, it'll become easier to find stocks with those kinds of characteristics.

This can help you take full advantage of the next big move in the market and even outperform when the market isn't as cooperative.

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Wednesday, November 14, 2012

What Obama Means for Your Investing and Trading


The election is over and Obama has won a second term. So what does that mean for us traders? Or for that matter, what does that mean for investors in general? For me the financial chaos in the world continues to get worse, principally because there’s no political will, whether in the United States or in Europe to control the exploding debt load. Of course we’ve seen the consequences in Greece when they’ve attempted to cut back on entitlements causing riots, looters in the street, general panic. Why? Because the Greek government is being pressure to curtail entitlements and get their budget deficit under control. This is very politically unpopular. Once you give people something and then try to take it away, they’re going to be very unhappy. In the United States we have the same situation. As a percentage of GDP our total debt is about 100 percent, 16 trillion dollars. That’s about a little less than the situation in Greece. The only big difference here is we have a printing press called the Federal Reserve. They can print dollars whereas the government in Greece cannot print Euros.

So what does all that mean? It means that the debt will continue to spiral out of control, running deficits of over a trillion dollars a year. Obama has shown zero inclination to do anything about that. He’s shown zero leadership to do anything about it. Of course he’s not alone. He’s got many politicians in the Congress who have no inclination to do anything about it. So this is going to continue to put a big drag on the economy. It’s not unlikely that we will have another recession, even though I believe we’ve never really exited the last recession. Interest rates will continue to be manipulated to zero or very low levels by the Federal Reserve. Hope against hope that somehow the economy will restart itself and grow us out of this mess. That’s just a pipe dream; it’s not going to happen.

Once interest rates do increase, because the Fed won’t be able to hold them down forever because the market won’t put up with it; the market will not perpetually buy U.S. Government debt forever at these very, very low rates. So when the market rejects the U.S. debt at these low rates, rates will rise regardless of what the Fed tries to do. When that happens, if we aren’t already in a second recession we will be then.

Now, for investors that’s a pretty gloomy outlook. For investors in this environment there are not a lot of good choices. When I’m talking about an investor, I’m talking about somebody who buys and holds, has a diversified portfolio and hopes that the diversification will protect them from the vagaries of the marketplace. Stocks go down, bonds go up and they’re safeguarded. In this environment that absolutely offers no protection. And so what are left to do? My view is if you’re not already a trader, a short term swing trader, you better learn how to become one real quick, because you’ll need to do so at a minimum to protect yourself. These markets are unforecastable. We don’t know when the dollar is going to collapse. We don’t know when the bond market is going to collapse. We don’t know when the stock market is going to collapse. But as a short term trader, you don’t care. You’re not invested for the long term. What you’re doing is you are going with where the market wants to go in the short term. So that protects you on the one hand. On the other hand, it allows you the opportunity and the potential to rack up some very impressive profits.

So you go from one extreme to the other. You go from desperation as an investor, scared, worried, what’s going to happen tomorrow, I don’t know, how’s this going to impact my 401k? You go from that to, hey look, I’m going to go with wherever the market wants to go and I’m going to take advantage of the profit potential that short term trading, swing trading, has to offer. So this is a new world, this is going to be this way for a long time. So don’t think it’s going to get better here in another year or two because it isn’t.

These are very serious structural problems that are going to take a long time to work through. So we can thrive in the meantime. We don’t have to be worried, don’t have to be concerned. We can thrive. How do you do that? You need a good trading method, or good trading advice. Then you can successfully take advantage of the short term swings of the market up or down while protecting your capital from risk all the while.

So the bottom line for me is be not the investor, be the trader, be the short term trader. And you’ll be very, very happy and you’ll be able to sleep at night. And you will go from borderline panic and fear to absolute control over your financial future.

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Tuesday, November 13, 2012

Don't Let Politics Get Your Investing Down



It's politics, not principles, that are keeping our country from moving forward, Jim Cramer told his "Mad Money" TV show viewers Monday, as he demonstrated multiple ways the stock market could be making investors money, if only they weren't too scared to invest.

Cramer reminded viewers that the looming fiscal cliff is a manmade problem, one that could be solved by locking our congressional leaders in a room and forcing them to hammer out a compromise. Until that happens however, the things that are going right in the markets are being largely unnoticed, he said, as investors head for the exits and lock in gains before year end.

Some examples include Gilead Science (GILD) and Celgene (CELG), two biotech stocks that rose 13.7% and 5.8% in Monday's trading on the heels of positive trial data on their drugs.

Cramer noted that today's news was not hard to find, as Celgene's CEO said good things were coming this fall when he last appeared on "Mad Money."

Then there's paint-maker Sherwin-Williams (SHW), whose shares soared 5.7% on the news it's acquiring Mexican paint-maker Consorcio Comex. Precision Castparts (PCP) also saw its shares rise 4.8% on the news its acquiring Titanium Metals (TIE). Titanium Metals' shares jumped 42% on the deal.

The list goes on, said Cramer, including a 14% pop in shares of Jefferies (JEF) on another takeover deal.

What do all these gains mean? Cramer said it means bold companies will take advantage of market's cheap stock prices to make deals happen and investors need to be paying attention. Some deals are simply too good to pass up.

The Gift of Holiday Retail

With the holiday shopping season upon us, many investors are looking to add a retail stock to their portfolios. Cramer said they need to be careful however, as retail this year has been a very hit-or-miss affair.

While some retailers, like Wal-Mart (WMT) have seen their stocks soar since April, others like J.C. Penney (JCP) are in a serious decline. That's why Cramer once again recommended Ascena Retail (ASNA) as one of the safer ways to play the retail trade.

Cramer said that Ascena remains a terrific story. The company maintains a stable of diversified stores including Justice for teens and tweens, Maurice's for women in the 20s, Dress Barn for middle aged shoppers and the company's recent acquisition of Charming Shoppes gave it Lane Bryant and others to tackle the plus-sized market.

Cramer said that Ascena's diversification of its brands is perhaps its largest strength, as each concept has little to do with the others. Yet all of Ascena's stores focus on customer service and relationships, something that never goes out of style.

Trading at just 11 times earning with a 15% long-term growth rate, Cramer said Ascena remains one of his favorite value-oriented retail stocks and he would be a buyer going into the holiday season.

Improvement in China

There are three things weighing on our markets, Cramer told viewers: Europe, the U.S. fiscal cliff and a slowing China. But at least one of those things is starting to improve, he said, as recent macro and micro-economic data have shown, the Chinese economy may have bottomed.

On the macro side, Cramer said there's been a slew of data showing China is improving. Chinese exports are at a five-month high, he noted, which still makes their economy far from great but certainly better than most people think.

He said the Chinese have only cut interest rates twice, leaving lots of room for further action. But more importantly, China has been directly injecting cash to stimulate growth, a plan that's now working as the country's retail sales, purchasing manager's survey and even iron ore prices are starting to climb.

There's also positive news from individual companies, Cramer said, as Caterpillar (CAT), Eaton (ETN) and Alcoa (AA) have all signaled that 2013 is looking better than 2012.

With the new Chinese leadership highly incentivized to get things moving quickly, Cramer said he'd play China with the iShares FTSE China 25 (FXI) ETF, which represents a basket of high-quality Chinese stocks from materials to telecom. Best of all, the FXI pays a hefty 4.8% dividend.

Lightning Round

In the Lightning Round, Cramer was bullish on Toro (TTC).

Cramer was bearish on Choice Hotels (CHH), Marvell Technology (MRVL), Alcoa (AA), Stratasys (SSYS) and MarkWest Energy Partners (MWE).

Executive Decision

In the "Executive Decision" segment, Cramer once again spoke with David Demers, CEO of Westport Innovations (WPRT), a natural gas engine maker that's doubled since Cramer first recommended it in January 2010, but also one that's fallen 28% from its highs in August, as hopes for a quick transition to natural gas for heavy trucks faded with an Obama re-election.

Demers said it's important to realize the enormity of the industries Westport and the entire natural gas industry are disrupting. He said everything from the fuel producers, to refiners to filling stations to vehicles and engines all must coordinate in order to make natural gas a prominent surface fuel. Demers noted that while signs may not be visible to the public, things are indeed happening.

When asked about his company's lagging quarterly results, Demers characterized them as merely a pause in the transition. He said while last year was strong, the economy this year has pushed some sales into 2013. Those sales will be coming, he added, saying that the next generation of products, including a long-haul engine, will drive growth throughout next year.

Cramer fell short of offering a recommendation on Westport, continuing to express optimism for the future of natural gas as a surface fuel but noting that the transition has been riddled with delays for years.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer opined on just what it may take in order to achieve a budget deal and avert the fiscal cliff. He said there are three pressure points that could get Congress moving.

The first would be a precipitous market decline, something that would surely get their attention. Second would be a rise in jobless rates, as companies learned during the last slowdown that those who fired first survived the best. Finally, Cramer said the election itself is spurring some change, as the Republican and Democrats have both learned that doing nothing is the quickest way to to get voted out of office.

Cramer said he hopes the message of the election is enough to get things moving before the other two begin to take hold.

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