With Bernanke now making it extremely clear that housing is all we have, the following may raise a few eyebrows.
Submitted by Ramsey Su via Acting Man blog,
There is good news. This is likely my shortest rant ever.
Freddie Mac recently released the 2013 First Quarter Refinance Report. My attention was drawn to one chart. More specifically, the blue line in the chart.
Boom and bust in mortgage finance … – via Freddie Mac – click to enlarge.
It may just be a coincidence but whoever created this chart used the time period that covers exactly the reign of Chairmen Greenspan and Bernanke. Real estate investors should look back and realize that they could not have asked for anyone better than these two.
Accommodate, accommodate, accommodate, accommodate… that was and is the mantra. It did not matter whether it was the S&L fiasco, 9/11, the sub-prime bubble or the Lehman collapse, the Fed's policy is to accommodate.
All good things must come to an end. Look at that chart. We are about to go off the page. With QE-to-infinity, Bernanke is spent.
Each new iteration of accommodation is bringing in less results. What can the next Fed chairman, or maybe chairwoman, do to continue this practice of accommodation? There is little room to lower rates of all maturities. Aside from transferring more and more debt onto the Fed's balance sheet, QE is done in. Not that it has not been lost already, but is there going to be any form of a free market economy left?
Repent, the end is near.
The old adage of risk equaling reward couldn't be truer. It was 2008, and the stock market was in chaos.
Great rewards went to investors who took the risk of stepping into the fray to buy the lows. But during the same time, many investors were practically wiped out because they failed to manage their risks wisely in the highly volatile environment.
The stock market today isn't as volatile as it was during the financial crisis. However, the same investing maxim still holds: The greater the risk, the greater the rewards.
Many investors shun risk. These risk-averse investors pile into the safest possible investments in an effort to preserve principal at all costs. This attitude will most likely preserve your portfolio, but it will also greatly decrease your potential for market-beating rewards.
What I learned from the risk-embracing derivative culture of 2008 is that both the shunning of risk and the gunslinging embracing of it are wrong. Investors who hope to earn outsize returns must embrace risk, but in a sensible way. This means dedicating only a small portion of your portfolio to risky investments.
The amount depends on your personal goals and plans, but in general, dedicating 10% to 30% of your capital to the stock market is a good rule of thumb. This allows you to participate in the high returns associated with high risk while protecting the majority of your capital in the event the risky investments turn sour. Risk is not just the domain of derivatives; risk is part and parcel of any high-yielding investment.
The reason is that new and otherwise risky companies understand that they need to provide a higher than normal return to attract investors.
A prime example of a risky but high-yielding stock is Northern Tier Energy (NYSE: NTI).
This energy and retail company runs an 84,500-barrel-a-day stream at its refinery in St. Paul, Minn. If you are from the Midwest, you may already be familiar with Northern Tier, as it also owns 166 convenience stores and supports 70 additional franchise locations under the SuperAmerica name. The company also owns the SuperMom brand bakery and commissary.
Northern Tier has an astounding dividend yield of 15.7% based on its current per-share price. Analysts project a yield of more than 19% for the year. The company posted great first-quarter results this year with revenue of just more than billion, a nearly 12% increase from the same period last year.
The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled to over 6 million during the same time frame. These ultra-high yields go hand in hand with the risk factors of the company being very new and commodity prices staying steady or rising.
A technical look at the weekly chart shows support at the range and resistance at . Despite its youthfulness and commodity risk, I like this high-yielding stock right now with stops placed right below .
Risks to Consider: There are substantial risks in Northern Tier. The primary risk is its youthfulness and limited history of paying dividends. Although the dividends are very high, the company has paid out only three during its short life. Secondly, due to the nature of the business, commodity risk is very high. This means if oil drops in price, then it will likely adversely affect the company's bottom line. In addition, the U.S. government is proposing rules that will demand refiners to limit the sulfur content of gasoline to 10 parts per million (ppm) from the current 30 ppm. This proposal could cost refiners millions to comply, which would obviously hurt Northern Tier's bottom line.
Action to Take –> I like Northern Tier right now with tight stops directly below . Remember, the rule to always position size properly is doubly important when it comes to high-risk, high-yield names like Northern Tier.
– David Goodboy
P.S. — The next big commodities play is unfolding right now… This disruptive energy technology will bring about major changes in our country… and one company is leading the charge. To learn more about this opportunity, click here.
This article originally appeared on StreetAuthority
Author: David Goodboy
Get A 15% Yield And Huge Upside From This Energy Stock
The housing market 'recovery' has provided substantial support to the U.S. economic growth. The housing-related activities, which Guggenheim's Scott Minerd defines as private residential investment, personal expenditures on household durable goods, and utilities, as well as consumption wealth effect from home price appreciation, have positively contributed to real GDP growth for five consecutive quarters. In the first quarter of 2013, housing-related activities contributed more than half of the growth in the real GDP. That seems a significant burden to be carrying for a sector now seeing data disappointing already expectations, mortgage applications plunging, furniture sales plunging, and REIT IPOs being pulled.
There is nothing more frustrating than finding a seemingly attractive young company, only to discover that its shares have already risen 800% in the past seven months. Then again, seeing that stock subsequently lose half its value in a matter of weeks suggests that perhaps you didn't miss out on "the next Microsoft" after all.
It has been that kind of roller-coaster ride for investors in Uni-Pixel (Nasdaq: UNXL), which is either widely admired or widely reviled, depending on whom you ask. The company, which has yet to generate revenue from operations, will eventually make its investors a lot of money or prove to be a spectacular bust, depending on how the next three to six months play out.
The current question: With a 50% haircut, are shares worth your money?
This spring, Uni-Pixel saw its market value briefly move above 0 million — yet that's only a fraction of the revenue potential that some saw (and still see) for this company. Uni-Pixel has developed an alternative touch-screen technology that aims to replace the current indium tin oxide (ITO) formulation that is found on many of today's smartphones and tablets.
ITO has some clear drawbacks, including:
- Cost: It is expensive to manufacture, especially in larger screen sizes.
- Raw material issues: Indium is a rare earth metal that is often produced as a byproduct of zinc mining. Concerns over China export restrictions of rare earth metals have led the industry to seek alternatives.
- Durability: ITO is brittle and breaks easily in the production process, leading to subpar manufacturing yields.
- High power consumption: This is due to ITO's electronic resistance of materials.
To address the shortcomings of ITO, Uni-Pixel has developed UniBoss, which is a very thin copper mesh layered on both sides of a thin plastic sheet. The copper mesh, which acts as a sensor, comes into contact with a computer chip (known as a touch controller) made by companies such as Texas Instruments (NYSE: TXN).
According to Uni-Pixel, UniBoss is cheaper to make, consumes less energy than ITO (as copper is more conductive than indium), has fewer breakage issues in manufacturing, and can be made in high volumes on low-cost production equipment. UniBoss is expected to be sold for 20 to 25 cents per square inch, compared with 35 cents a square inch for ITO.
One of the key challenges of any technology upstart is to win the trust of potential clients. Uni-Pixel, which has yet to generate sales, has lined up impressive partnerships with firms like Texas Instruments (pairing UNXL's copper mesh screens with TI's touch controller). Yet chipmaker Atmel (Nasdaq: ATML) looms as a tough rival. Atmel, which has dozens of existing customers, has been developing a technology platform that is similar to Uni-Pixel's.
Major tech firms might prefer to work with an established vendor with a history of successful product development and production expansion. Firms like Atmel have built up billion-dollar revenue bases on the trust they have generated over the years by rolling out new technologies.
Uni-Pixel's management claims to have developed superior production processes when compared with Atmel's, though that claim is hard to verify, especially as Atmel is fairly tight-lipped on the matter. (Atmel allegedly uses a traditional semiconductor approach, with thin-film deposition through photomasking.)
Although Uni-Pixel has three patents and several dozen patents pending, intellectual property in this niche is hard to protect, and potential rivals are likely working on current workarounds. Indeed, one U.K.-based company (and partner of Atmel's) claims Uni-Pixel has infringed upon its intellectual property. So while Uni-Pixel's supporters work up scenarios of huge revenue opportunities, they appear to assume that Uni-Pixel will capture a large share of this market. Management's repeated citation of a billion potential market opportunity in 2018 is nothing short of reckless.
The Rise And Fall
This stock's huge surge and subsequent fall has tracked a series of events over the past seven months:
- Dec. 7, 2012: A major PC manufacturer (unnamed but assumed to be Dell (Nasdaq: DELL)) is given an exclusive licensing agreement to be first-to-market with Uni-Pixel's UniBoss. The technology endorsement lights a fire under the stock. (Shares of Atmel received a similar lift that month as new contract details for its rival product were announced.)
- January-March 2013: Shares soar yet higher as analysts see 2014 sales above 0 million (with forecasts well higher than in subsequent years). Williams Capital launches coverage on February 11 with a price target that would eventually be boosted to . In early March, a large wave of insider selling takes place.
- April 2013: Uni-Pixel secures manufacturing capacity — a key investor concern — announcing a partnership with Eastman Kodak (OTC: EKDKQ) that will open up production lines by year's end. Shares move above . Soon thereafter, the company announces plans to sell new shares, in keeping with a long history of capital-raising in the absence of any earnings. Priced at a share, the 1.2 million-share offering leads short sellers to collectively sigh with exasperation.
- May-June 2013: Barron's publishes a negative column, which helps trigger an exodus from the stock in subsequent days and weeks.
Shares then started to fall at a quickening pace, tied to a series of concerns related to Atmel having a superior product, a possible entry by Apple (Nasdaq: AAPL), and selling by key shareholders, but all of these reasons missed the mark. Instead, this stock has finally collapsed in the face of concerns that spread in late May that Uni-Pixel's technology may be only hype.
Is It For Real?
Through the rise and fall of this stock, it has become clear that this is a still-unproven technology with a management team that is prone to hyperbole. But that doesn't necessarily make this company a fraud (and resulting terminal short). It's hard to discount the fact that companies such as Eastman Kodak, Intel (Nasdaq: INTC), which has invited the company to its technology developer conference, and an unidentified PC partner have presumably reviewed the company's technology and, to some extent, vetted it.
Yet that doesn't mean that a profitable revenue ramp is assured. The longer it takes for real sales to take root, the less investors should expect a bright future. After all, well-heeled rivals are pursuing this same technology, so time is not on Uni-Pixel's side.
Risks to Consider: Until Uni-Pixel generates meaningful sales growth and transitions into profitability, shares may see further dilution.
Action to Take –> Wall Street analysts at lesser-known firms have been placing ever-higher price targets on this stock, which is likely stems from Uni-Pixel's several secondary share offerings — not from conclusions drawn from independent research. Whenever you see that, you should beware.
This would seem to be an open-and-shut case of a stock heading to zero when the money runs out. Indeed, lawsuits are arriving at a furious pace. Yet even as there are several red flags around this company, it's undeniable that the touch-screen sensor market is fairly large, and it's also widely agreed that the current ITO technology standard is less than ideal. A solution that delivers higher sensitivity, consumes less power, and can be sold at a lower cost would be welcomed by makers of handsets and tablets.
Keep a close eye on this stock. This saga isn't over, and I remain curious to see whether Uni-Pixel is truly a game-changer. The odds are against tremendous success in light of a management team prone to hyperbole and broken promises, but it's too soon to conclude that this technology platform won't succeed.
– David Sterman
P.S. — When you get in on the ground floor of a promising new trend or technology by companies like Uni-Pixel, the profits that can follow can change your life forever. Andy Obermueller’s Game-Changing Stocks is entirely devoted to finding the next big, life-changing investing idea. See his latest report for more ground-breaking investment plays.
This article originally appeared on StreetAuthority
Author: David Sterman
Should You Buy The Market's Most Controversial Stock?
WB7: Chindogu are useless Japanese inventions, including ones that create more troubles than they solve.
The CEO of the world's largest copper mining company bought 1 million shares of his company's stock at .16 per share on June 3.
At the time of this writing, shares are trading around .32.
Now, I don't want to suggest blindly following the investment moves of every industry insider. But when a CEO makes a million purchase of his company's stock, which is trading for the cheapest it's been since 2008 — I think a closer look is in order.
Regular readers may already know that mining stocks have not fared as well as the broader market so far this year. Commodity prices for precious metals have been lagging, which creates headwinds for producers and drives share prices down. In another example, Barrick Gold (NYSE: ABX) (which I covered two weeks ago), has been trading for the cheapest valuation we've seen since 2004.
The company I'd like to take a look at today is Freeport-McMoRan (NYSE: FCX).
According to regulatory filings, James C. Flores, CEO and president of Freeport-McMoRan Oil & Gas, just bought 1 million shares of his company's stock. To be clear — this was not an "acquisition" or an exercise of stock options — this was a buy order.
So the questions that immediately arise are "Why now?" and "What does the future look like for the company?"
Why now? Put simply, the stock is cheap. In April, share prices dipped to , which was as cheap as the stock has been since 2008. Even at today's asking price, shares are still trading for only 8 times forward earnings and a price-to-book ratio of 1.6.
There are two main reasons for the current depressed prices. The first is the price of copper.
Although it also mines gold and molybdenum (used to make steel alloy), Freeport is the world's largest publicly traded copper miner. The company sells an average of 3.9 billion pounds of copper every year.
Since the heady days of 2011, when copper was trading up to .50 a pound, prices have been in decline. This is mostly due to decreased demand from China, which consumes approximately 40% of the world's copper supply for industrial purposes.
While the short-term decline may appear to bode ill for miners like Freeport, it's important to also take note of the enormous gains copper has made over the past decade.
Even at today's slightly lower prices, the metal is more than three times as valuable as it was 10 years ago.
Some analysts argue that the recent sell-off has been overdone. As Bloomberg recently reported:
While prices have suffered on concerns China's economy may slow, [Goldman Sachs] said the country's "underlying cyclical growth is likely stronger than the headline figures suggest."
Copper in warehouses monitored by the Shanghai Futures Exchange is being drawn down, it said. The bank estimated bonded stockpiles at 510,000 tons from 715,000 tons in early March and noted that futures in Shanghai are in backwardation.
Backwardation is a market condition which means that the price of a futures contract is trading below the spot price at maturity. This situation usually arises when a commodity faces a positive demand or negative supply shock.
Freeport is able to produce copper for about per pound. So even if future prices remain relatively stable at current rates, the company will have no trouble turning a profit.
The other factor possibly weighing on Freeport's share price is investor concern over a pair of large acquisitions.
Freeport finalized the purchase of oil and gas producer Plains Exploration on May 31 for .3 billion. Just a few days later, on June 3, Freeport announced shareholder approval to buy Gulf of Mexico gas and oil explorer McMoRan for .2 billion.
In order to complete these purchases, Freeport issued 91 million additional shares of common stock.
Stockholders are never too happy when the value of their shares is diluted by additional issuances. But in this case, the future benefits for Freeport could far exceed any short-term pain.
The Plains acquisition gives Freeport access to an impressive portfolio of oil production facilities in California and the Gulf of Mexico, as well as large stakes in both the Eagle Ford and the Haynesville Shale plays.
The McMoRan acquisition gives the company a leading position in the emerging shallow-water, ultra-deep gas trend on the shelf of the Gulf of Mexico and onshore in south Louisiana.
StreetAuthority analyst and natural resources expert Nathan Slaughter has been covering these emerging energy plays for years…
He recommended McMoRan Exploration to subscribers of his Junior Resource Advisor newsletter last October, eight months before the merger with Freeport took place. So far, his subscribers are up almost 50% on the recommendation.
Whether these acquisitions were smart or not remains to be seen. But the recent million share purchase by Freeport's CEO could be a sign that at least one well-positioned insider is willing to bet big on its future.
Risks to Consider: Nineteen billion dollars in acquisitions is a lot for a billion market cap company like Freeport to digest. Future success will depend not only on volatile commodity prices, but how well management incorporates the new acquisitions with the existing business.
On May 14, the company had a serious mining accident during safety training at one of its top mines in Indonesia. Twenty-eight workers were killed. Freeport has announced that halted production at the mine has so far resulted in a production loss of 80 million tons of copper and 80,000 ounces of gold.
Fortunately, this looks like an isolated event, not part of a larger pattern or deficiency on the part of Freeport. It's the first such incident of this magnitude in the company's 40-year history.
Action to Take–> Freeport-McMoRan is now one of the premier U.S.-based natural resource companies. Shares offer a 4% yield with a manageable payout ratio of 40% over the past 12 months. Consider buying Freeport at today's prices with a goal of a share over the next 12 to 18 months.
P.S. — Nathan Slaughter just discovered a tiny oil company sitting on a huge reserve. Recent estimates indicate there are billions of barrels underneath the surface, plus the company acquired 134,000 acres of this oil-rich land for dirt cheap. You can learn more about the details on this discovery and other recent developments here.
This article originally appeared on StreetAuthority
Author: Chad Tracy
This Mining CEO Just Made An Insider Purchase Of 1 Million Shares
Over the past several years, I have been discussing the tech sector with my brother Michael Whalen who is currently the Head of Digital Rights Administration for TuneSat,LLC. TuneSat’s audio fingerprint technology monitors hundreds of TV channels in 14 countries and crawls millions of websites. Michael is a professor at NYU and The City College of NY, a two-time Emmy® Award-Winning composer as well as an internationally-known recording artist. Last month on Zero Hedge, we spoke about the outlook for Apple Inc (AAPL). This month we return to one of our favorite topics, namely Facebook (FB). By way of background, you can read the February 2012 discussion with Michael about FB onZero Hedge, “Facebook Jumps the Shark.” Also, see my FB comment in Washington & Wall Street, “At Facebook it’s about Quality vs. Quantity.” — Chris
RCW: So Michael, we have spoken in the past about some of the business model issues at FB. They just went through an especially ugly annual shareholder meeting, inspiring me to write a comment on Breitbart.com from a valuation perspective. I’d like you to dig a little deeper and revisit the business model of FB in light of the results of the past year. Observers talk about how FB is changing the world but is this really a business or simply a web site that is still largely free?
MW: If I was an investor in FB – - I would be furious too. Mark Zuckerberg cashed in a chunk of his stock, he got married and most importantly – he has stopped listening. How do I know that? Look at what they’ve done since their IPO. They’ve put in a “Timeline” and some minor fixes to their basic interface. That’s all.
RCW: That is a pretty tough indictment. How do you measure Zuckerberg’s failure?
MW: Their revenue is flat. Flat? How is it possible to NOT monetize 200 million eyeballs? When we talked about FB 18 months ago – - I was hoping that Wall Street and the responsibility of actually BEING A CEO would have to kick-in. Right? So many potential opportunities are passing him by. The young audience that set fire to FB prior to the IPO have abandoned it. My teenage children joke that FB is the “cool” platform for 40-somethings and their grandparents (aged 60+). In marketing terms, this is FB’s death sentence. When the audience that validated the platform turns away from it – - it’s long past time for the investors to move on. So, no, unless someone takes control of this ship FAST – - the potential markets and opportunities of 24 months ago will be a distant memory.
RCW: Talk a little about the “how” of monetizing the audience at FB. What has Zuckerberg done right or wrong in terms of building FB’s revenue model? The company trades at 500x earnings, so we can understand why investors are a little antsy.
MW: Zuckerberg has created an easy to use platform for sharing updates, pictures and videos. There is a simple interface for loading games and some basic “APPs”. Their mobile product works well. That’s what they’ve done “right.” The rest is a long list of missed opportunities and ridiculous myopic decisions.
RCW: Can you be more specific?
MW: I think the BIG problem is that Mark thinks that FB is AAPL. FB doesn’t have the R&D department to create the software, APPs or platforms that their customers want. My question would be “why try” to go up against tens of thousands of APP companies developing technology that can be purchased inexpensively? FB bought Instagram for billion. That wasn’t cheap nor is there a clear picture of the ROI from integrating this APP into FB. What’s needed is a whole NEW vision of what this website can be. Mark Zuckerberg has created a shopping mall in FB that has been universally accepted by a huge percentage of people - – but he seems loathe to populate it. Why not “lease” the page space…? I don’t mean for “Farmville” and all the insipid games… What about NetFlix (NFLX)? Why can’t FB be a container for other people’s content? Frankly, the platform FB has made for their APPs and content looks cheap. If I were a content provider, I would not want my valuable material framed that way. Why not sell page space to Spotify or iTunes? The key component here is VALUE and convenience for the customer. During demos and shareholder meetings, Zuckerberg says he’s “committed to the user experience.” There’s just not that much real evidence of it so far in the FB offering.
RCW: So is your criticism that FB is talking about “the experience,” but basically mimicking other existing platforms? If Zuckerberg took your advice, how do you think Wall Street and the investor base would react? Has too much time gone by since the FB IPO to “think different” to borrow the AAPL metaphor.
MW: Yes, they are mimicking. But I also think Zuckerberg and the FB management team are playing it safe. Ironically, they are control freaks. This is antithetical to the notion of “social networks” that the company would be so protective of their spaces. Look at how Google (GOOG) has gotten their butts kicked on “Google +.” Some of these huge Internet/media companies are living inside an ivory tower and they’re trying to be all things to all people. As you learn in any business school, this is a losing proposition. Pick your business and excel at it.
RCW: Yeah, I killed Google + a while back. And of course never been on FB. To your point, humans tend to repeat what works. The biggest challenge any CEO faces is to be critical of the current accepted business strategy and to seek out opposing opinions. Has FB failed at this task?
MW: It really comes down to one notion: “open source”. Look at Tumblr, it’s a “open source” social network that thrives on repurposing content from other places. I think Yahoo (YHOO) overpaid for them – - however, Tumblr is successful for being a content hub and a convenience. FB could learn a lot from their model. The next step for Tumblr will be creating content bridges between accounts where sharing content legally is encouraged or even requested by the rights holders (even edited or “tweaked” content). So, to answer your question, it’s never “too late” to innovate. Actually, this would be a great time for FB to do a huge pivot and surprise people.
RCW: OK, so besides turning FB into a high-utility shopping mall, what else would you do if Mark Zuckerberg made you CEO of FB tomorrow?
MW: I’m the new CEO of FB! (laughs) I would look at two areas: I would go after the business audience of Linkedin (LNKD) and GoToMeeting by making FB the FREE communications hub for small business using advanced video chat, VOIP and file sharing. Because the FB platform is already ubiquitous, my job is to make the barrier to entry for these companies as close to zero as possible. This would be a fun marketing challenge.
RCW: What else?
MW: The second area I would get into is to enter into carriage license deals with television networks and production companies to host their current and NEW content versus going to YouTube, Vimeo, NFLX or having the networks do it themselves. As the CEO of FB, I have an invaluable currency – which is called “eyeballs.” If I can deliver viewers to other people’s content – - what is that worth? I don’t have to make the content (ie: NFLX) I can just be there when it comes time to monetize it. If you are providing value, monetization works if you are willing to be transparent to the customer what they need to do, what the company gets and that they are valuable. You can’t grow anything by either being too careful or too arrogant. FB is still enormously valuable if the company is willing to sit in the seat of their customers and ask the right questions. The problem is that the clock is ticking for them and their untapped potential is spilling out all over the floor. It would be tragic if FB became the next MySpace.
RCW: Thanks Michael. Let us know if the FB board calls.
Will interest rates continue their recent ascent?
If so, many investors will come to question the wisdom of holding dividend-paying stocks. After all, bonds and CDs are virtually riskless, and if they sport more attractive yields, why bother with riskier stocks?
The simple reason: Interest rates (such as on the 10-year Treasury note) are unlikely to move past 4%, as I noted recently.
Any stock with a yield above that threshold should still hold appeal — as long as that dividend doesn't look vulnerable to a reduction or elimination in a changing economic environment.
Yet there is a whole different type of income-producing stocks that fail to meet that 4% yield threshold but should still hold great appeal. These are the stocks with fairly low yields right now but look poised for robust growth, which should set the stage for future yields well above 4%, using today's prices as a basis.
Notes From The Guru
Over the past six months, I've been eagerly awaiting the latest newsletter issues from my colleague Amy Calistri, author of StreetAuthority's Daily Paycheck. Amy has been spelling out a game plan for how to deal with the inevitable rise in interest rates that may now be underway, helping readers to separate winners from losers in a higher-rate environment.
In her most recent issue to subscribers, Amy focuses on an exchange-traded fund (ETF) that should fare quite well, even as rates rise higher. The current yield on this ETF is around 3.5%, which is below the 4% level I noted earlier.
Yet here's the rub: This ETF is chock-full of companies that are boosting their dividends at a fast pace, and a 3.5% yield today could easily morph into a 5% yield in a few years and a 7% or 8% yield in half a decade.
The combination of solid current and future dividend streams and potentially robust price appreciation makes me think Amy has delivered another winning pick to her subscribers.
There's another reason to focus on dividend growth: "Companies with a long history of dividend growth display high returns on equity (ROE)," according to WisdomTree's head of research, Jeremy Schwartz. The data bear that out: The companies in the widely followed NASDAQ US Dividend Achievers Index had a 22% annual ROE over the past 10 years, according to Schwartz, compared with 13% annual ROE for all companies in the S&P 500.
I can't share Amy's dividend growth-oriented ETF pick, as that would be unfair to her current subscribers, but I can share some similar investing options that capitalize on this theme.
WisdomTree — which has pursued the dividend angle for a number of years with funds such as WisdomTree Emerging Markets SmallCap Dividend ETF (NYSE: DGS) and the WisdomTree LargeCap Dividend ETF (NYSE: DLN) — recently pursued the growth angle with a newly launched ETF, the WisdomTree U.S. Dividend Growth ETF (Nasdaq: DGRW).
This fund uses an index-based approach to select the top companies in a 1,330-stock universe in terms of dividend growth, sustainability of those dividends (in terms of a payout ratio above 1.0) and current yield. Tech stocks represent the largest weighting of any sector, at around 20%.
And that makes sense: The number of dividend-paying technology firms in the S&P 500 has shot up by one-third since 2010, according to S&P Capital IQ's Scott Kessler, who runs that firm's technology research department. "You need to think about the tech sector as being uniquely positioned for robust dividend growth in the years ahead," he adds. (Here's a hint: Amy Calistri's newsletter readers are well aware of that looming trend.) Along with tech, industrials, consumer discretionary stocks and consumer cyclical stocks are the primary focus.
My primary complaint with this fund is that it is focused only on large firms (each component has a market value of at least billion). Smaller companies are often capable of even more robust dividend growth as they can tend to be earlier in their life cycle.
There is the WisdomTree SmallCap Dividend ETF (NYSE: DES), but this doesn't really have the dividend growth orientation that we're talking about. The fund's 0.28% expense ratio is respectable, but cheaper options are available. (Note that according to recent filings, Wisdom Tree indeed appears to be poised to launch a small-cap version of the dividend growth ETF.)
The Vanguard Option
For the ultra-low-cost approach, check out the Vanguard Dividend Appreciation ETF (NYSE: VIG), which owns companies with a history of 10 straight years of dividend growth. This approach brings two small drawbacks.
First, any companies that were forced to reduce or eliminate their dividend during the financial crisis of 2008 won't be here, even though a number of these companies are now back on track with solid divided boosts.
Second, it ignores the wide variety of tech stocks that only began paying dividends in recent years. For example, Apple (Nasdaq: AAPL) won't be in this fund for another decade.
Still, the Vanguard fund has real strengths. In giving the fund a five-star rating, Morningstar analysts noted: "Whereas many dividend-focused funds concentrate in smaller value companies, this fund shades slightly toward growth. VIG is a great choice for a core allocation."
Moreover, like many Vanguard funds, the 0.13% expense ratio is quite pleasing, so your long-term gains won't be diverted away to the fund company's coffers.
The PowerShares Dividend Achievers ETF (NYSE: PFM) and the First Trust Morningstar Dividend Leaders Index (NYSE: FDL) have a similar focus to the Vanguard fund, though they carry higher expense ratios of 0.60%, and 0.45%, respectively.
Risks to Consider: Dividend growers should relatively greater appeal than companies and funds that have limited growth prospects, but all equity-based income producers may sell off if fixed-income rates move sharply higher.
Action to Take –> Though rates are coming up off of generational lows, they are unlikely to rise much higher, killing the dividend party. Instead, assume a moderate move up in rates over time that still leaves plenty of room for robust dividend growers in your portfolio as well.
– David Sterman
P.S. — If you want to know about one of the most effective dividend strategies around, then you have to find out about the "Dividend Trifecta." Simply put, it's a three-part approach to dividends that multiplies the effectiveness of every dollar you invest. The plan is specifically engineered for people who want to retire sooner or for those who would like to get a steady stream of extra income now. Go here to learn more.
This article originally appeared on StreetAuthority
Author: David Sterman
'Bernanke-Proof' Your Portfolio With These Dividend Growers
Few others are better equipped to comprehend both the insider’s and outsider’s perspective on what the government, the Fed, and the banks are doing in this so-called ‘recovery’ we are experiencing than David Stockman. Nowhere does he detail this better than Chapter 31 of his new book ‘The Great Deformation’. In this first part (of a four-part series), he explains just what happened after the US economy liquidated excess inventory and labor and hit its natural bottom in June 2009. Embarking upon a halting but wholly unnatural “recovery,” doing nothing but igniting yet another round of rampant speculation in the risk asset classes. The precarious foundation of the Bernanke Bubble is starkly evident in the internal composition of the jobs numbers.
After the US economy liquidated excess inventory and labor and hit its natural bottom in June 2009, it embarked upon a halting but wholly unnatural “recovery.” The artificial prolongation of the Bush tax cuts, the 2 percent payroll tax abatement and the spend-out of the Obama stimulus pilfered several trillions from future taxpayers in order to gift America’s present day “consumption units” with the wherewithal to buy more shoes and soda pop.
But there has been no recovery of the Main Street economy where it counts; that is, no revival of breadwinner jobs and earned incomes on the free market. What we have once again is faux prosperity. In fact, the current Bernanke Bubble is an even sketchier version of the last one and consists essentially of the deliberate and relentless reflation of financial asset prices.
In practice, this amounts to a monetary version of “trickle down” economics. By September 2012, personal consumption expenditure (PCE) was up by .2 trillion from the prior peak, representing a modest 2.2 percent per year (0.6 percent after inflation) gain from the level of late 2007. Yet half of this gain—more than 0 billion—reflected the massive growth of government transfer payments, and much of the rebound which did occur in private consumption spending was concentrated in the top 10–20 percent of households. In short, the Fed’s financial repression policies enabled Uncle Sam to fund transfer payments for the bottom rungs of society at virtually no carry cost on the debt, while they juiced the top rungs with a wealth effects tonic that boosted spending at Nordstrom’s and Coach.
The Fed’s post-Lehman money printing spree has thus failed to revive Main Street, but it has ignited yet another round of rampant speculation in the risk asset classes. Accordingly, the net worth of the 1 percent is temporarily back to the pre-crisis status quo ante. Needless to say, successful speculation in the fast money complex is not a sign of honest economic recovery: it merely marks the prelude to another spectacular meltdown in the canyons of Wall Street next time the music stops.
DEFORMATION OF THE JOBS MARKET: THE ECLIPSE OF BREADWINNERS
The precarious foundation of the Bernanke Bubble is starkly evident in the internal composition of the jobs numbers. At the time the US economy peaked in December 2007, there were 71.8 million “breadwinner” jobs in construction, manufacturing, white-collar professions, government, and full-time private services. These jobs accounted for more than half of the nation’s 138 million total payroll and on average paid about ,000 per year—just enough to support a family.
Breadwinner jobs also generated more than 65 percent of earned wage and salary income and are thus the foundation of the Main Street economy. Yet after a brutal 5.6 million loss of breadwinner jobs during the Great Recession, a startling fact stands out: less than 4 percent of that loss had been recovered after 40 months of so-called recovery.
The 3 million jobs recovered since the recession ended in June 2009, in fact, have been entirely concentrated in the two far more marginal categories that comprise the balance of the national payroll. More than half of the recovery (1.6 million jobs) occurred in what is essentially the “part-time economy.” It presently includes 36.4 million jobs in retail, hotels, restaurants, shoe-shine stands, and temporary help agencies where average annualized compensation was only ,000. This vast swath of the jobs economy—27 percent of the total—is thus comprised of entry level, second earner, and episodic jobs that enable their holders to barely scrape by.
The balance of the pick-up (1.1 million jobs) was in the HES Complex, which consists of 30.7 million jobs in health, education, and social services. Average compensation is slightly better at about ,000 annually and this category has grown steadily for years. Its increasingly salient disability, however, is that it is almost entirely dependent on government spending and tax subsidies, and thus faces the headwind of the nation’s growing fiscal insolvency.
When viewed in this three category framework, the nation’s job picture reveals a lopsided aspect that thoroughly belies the headline claims of recovery. A healthy Main Street economy self-evidently depends upon growth in breadwinner jobs, but there has been none, even during the bubble years before the financial crisis. The Bureau of Labor Statistics (BLS) reported 71.8 million breadwinner jobs in January 2000, yet seven years later in December 2007—after the huge boom in housing, real estate, household consumption, and the stock market—the number was still exactly 71.8 million.
The faux prosperity of the Fed’s bubble finance is thus starkly evident. This is the single most important metric of Main Street economic health, and not only had there been zero new breadwinner jobs on a peak-to-peak basis, but that alarming fact had been completely ignored by the smugly confident monetary politburo.
Alas, the latter was blithely tracking a feedback loop of its own making. Flooding Wall Street with easy money, it saw the stock averages soar and pronounced itself pleased with the resulting “wealth effects.” Turning the nation’s homes into debt-dispensing ATMs, it witnessed a household consumption spree and marveled that the “incoming” macroeconomic data was better than expected. That these deformations were mistaken for prosperity and sustainable economic growth gives witness to the everlasting folly of the monetary doctrines now in vogue in the Eccles Building.
To be sure, nominal GDP did grow by 40 percent, or about trillion, between 2000 and 2007. Yet there should be no mystery as to how it happened. As has been noted, total debt outstanding grew by trillion during that same period. The American economy was thus being pushed forward by a bow wave of debt, not pulled higher by rising productivity and earned income.
Indeed, the modest gain of 7.5 million jobs during those seven years reflected exactly this debt-driven dynamic and explains why none of these job gains were in the breadwinner categories. Instead, about 2.5 million were accounted for by the part-time economy jobs described above. On an income-equivalent basis these were actually “40 percent jobs” because they represented an average of twenty-five hours per week and paid per hour, compared to a standard forty-hour work week and a national average wage rate of per hour. Thus, spending their trillions of MEW windfalls at malls, bars, restaurants, vacation spots, and athletic clubs, homeowners and the prosperous classes, in effect, temporarily hired the renters and the increasing legions of marginal workers left behind.
Likewise, another 5 million jobs were generated in the HES (health, education, and social services) complex. Here the job count grew by 20 percent, but it was mainly due to the fact that the sector’s paymasters – government budgets and tax-preferred employer health plans – were temporarily flush.
As discussed in part 2 of this series, however, these, too, were “debt-push” jobs that paid modest wages. While the steady 2.6 percent annual growth of HES jobs during the second Greenspan Bubble did flatter the monthly employment “print,” it was possible only so long as government and health plans could keep spending at rates far higher than the growth rate of the national economy.
It was September 2008, and the stock market was in chaos.
The Dow Jones industrial average experienced its largest point decline, plunging 777 points in just one session. The support of the 50- and 200-period moving averages were slashed like a hot knife through butter, while the Volatility Index (VIX) rocketed through technical resistance as if it wasn't even there. The financial media was full of pundits declaring a complete technical breakdown in the stock market.
Many were left asking what it all meant. Part of what it meant was that the once esoteric quasi-science known as technical analysis had gone mainstream.
In the days before the personal computer, practitioners of technical analysis used quotes out of the newspapers or quote books to draw charts and make projections. Intraday data were very difficult to obtain outside of the exchange. Charts were painstakingly plotted on graph paper with a ruler and pencil. New highs and new lows were marked and repeating patterns noted in an attempt to determine whether a price trend was likely to continue or reverse.
Today, every trading platform has a charting package, often at no additional cost. PCs permit the crunching of stock market data in all timeframes, from the tick to the month and everything in between. Rather than being an esoteric investing tool, technical analysis has become the norm. Many of the same concepts and ideas apply today, just as they did back when investors would chart by hand. One of the most used and important concepts of technical analysis is the idea of support and resistance.
If you are a regular reader of my articles, you are familiar with the terms support and resistance. However, I wouldn't be surprised if a few readers did not fully understand what these terms mean and how knowing about support and resistance can dramatically increase your investing profits.
What Is Support And Resistance?
I define support and resistance as areas on a price chart that appear to provide either support to falling prices or resistance to the price moving higher. The measurement of support and resistance depend on the timeframe involved. For example, support on a daily chart would be different than support on a 15-minute chart.
Support and resistance can either be horizontal lines on a chart or consist of a moving average. A simple moving average consists of the average of a certain number of periods, plotted as one point on a graph.
For example, a 20-period simple moving average on a daily chart adds together the past 20 days' movement, then divides by 20 to obtain the average movement. The end result is generally an upward or downward sloping line on the chart that can act as support or resistance. Often, when explaining technical analysis topics, a picture can be better than a thousand words.
Here's an example of an upsloping simple moving average that is acting as support.
Horizontal support or resistance is a little trickier to identify on a price chart. My basic definition is any price level that has been hit two or more times in the same direction that has either supported price from moving lower or prevented price from moving higher. However, a single-period high or single-period low can also be considered support or resistance. Remember, the more time price hits a certain level, the stronger the support is thought to be. In addition, support or resistance, once broken, will turn into the opposite.
Here are current examples of horizontal line support and resistance.
Safeway (NYSE: SWY)
As you can see, on Safeway's daily chart, support exists in the range. Safeway investors would be wise to use this support level as a stop-out point should price drop below it. In addition, a technical buying opportunity will present itself should the price hit the support level and then start to bounce higher.
Micron Technologies (Nasdaq: MU)
This is a great example of both support and resistance. The lower line in the area is classic support and the upper line located at is classic technical resistance. Buying on a breakout above the upper line or on a breakdown to the lower line, if it holds, makes perfect technical investing sense.
Risks to Consider: Technical analysis is an inexact discipline. It is ideal for illustrating what has happened and for providing a context from which to make investing decisions. It is most effectively used in conjunction with other analytical techniques rather than by itself. I like to think of technical analysis as a map used to plan decisions, but with the caveat that outside factors that can change the trip at any time.
Action to Take –> Review your portfolio from a technical perspective. Look at your holdings on a daily chart while plotting support and resistance levels and the 50- and 200-day simple moving averages. Does the map match your expectations? You may be very surprised at what you find.
– David Goodboy
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This article originally appeared on StreetAuthority
Author: David Goodboy
Technical Analysis: What Can This Advanced System Do For You?