BooGie TiMe In BeRLiN…

. 

Hollande is facing rejection
He’s hiding a massive erection
Merkel is coy
She hates this new boy
And farts in his general direction

The Limerick King

BooGie TiMe In BeRLiN…

. 

Hollande is facing rejection
He’s hiding a massive erection
Merkel is coy
She hates this new boy
And farts in his general direction

The Limerick King

The Market Could Tumble Very Soon — Here’s How to Protect Your Portfolio

To Europe's leaders and Greek voters, here's a modest request: Will you please flip over all the cards and make the bold moves that markets are increasingly expecting? At this point, providing further bailout funds for Greece is simply foolish. No amount of money can turn this economy around as long as it's still tied to the euro and undergoing deep austerity measures. Nearly a year ago, I suggested that the ultimate cure for the country and the continent was a Greek exit from the euro and a return to the drachma as the country's currency. I still think that's the case, and the pressure is getting a lot tougher.

Over the weekend, media reports were circulating that such a move may be unavoidable, though it remains taboo for policy leaders to speak of such an event. In the latest issue of The Economist, an unnamed European banker said leading financial institutions are already formulating plans to handle Greece's euro departure (and possible major bond default). Leading banks have quietly cut a lot of their exposure to Greece in recent quarters, so any fallout on the broader financial system will be more palatable than it was a year ago. Still, there are major concerns that unanticipated ripple effects will at least temporarily destabilize financial markets. That's why many investors are in sell mode right now. Since hitting a 52-week high on April 2, the S&P 500 has dropped nearly 5%.

Indeed, Greece may take a turn for the worse about a month from now. That's when the remaining half of the billion in promised funds is set to be transferred to Greek banks to keep them solvent. But Greek voters, in their failure to elect a government that will adhere to the agreed-upon austerity plan, may unwittingly prevent these funds from being disbursed. "This could lead to a run on Greek banks," warn analysts at Credit Suisse. In my view, this could quickly hasten Greece's exit from the euro. A Greek default could spread to neighboring troubled economies such as Spain and Portugal, the analysts add.

The good news: When that wave of selling is complete, the market will be freshly-positioned for solid multi-year gains. Position yourself with ample reserve cash for this great buying opportunity to come.

The calendar shifts
Europe's woes are surely starting to have an effect worldwide. Key trading partners such as China, Brazil and the United States are noting signs of falling exports to Europe and, as a result, all are likely to see gross domestic product forecasts trimmed a bit in the months ahead.

Here in the United States, another dynamic is playing out. Right around mid-year, many investors stop focusing on what corporate sales and profits will look like in the current year and shift their sights to the following year. One recent report says investors may be quite disappointed in what lies ahead. If the report proves true, then stocks could take a hit, at which point more far-sighted investors have a chance to snap up bargains for what is likely to be much more solid economic activity in 2014 and 2015.

Morgan Stanley's May 10 report entitled "13 Reasons why 2013 EPS Estimates are Too High," calls into question the near and mid-term economic outlook. Rather than focus on earnings forecasts for individual companies (known as bottom-up analysis), the firm uses a basket of 33 factors that have historically been a solid predictor of economic of profit-margin trends to come. The SWEEP (sector-weighted equity earnings predictor) test finds aggregated profits for the S&P 500 may be just a share in 2013. To put that in context, Morgan Stanley's individual stock analysts, who examine the prospects for individual companies, came up with a 0 profit target for the S&P 500. That's a huge gap. Even if the truth lies somewhere in between, it tells you that a number of companies will likely face rising struggles for profit growth.

How does that SWEEP analysis actually work? Let's take the materials sector as an example. The system looks at inputs such as gold prices, non-farm payrolls, credit spreads and the University of Michigan Consumer Sentiment Index to take the pulse of projected activity in the sector a year from now. And according to these data, it may be impossible for companies in the materials sector to meet current 2013 profit forecasts.

Morgan Stanley's analysts go a step further and conclude that a share in 2013 S&P 500 profits means the index could slide to just 1,167 by year-end.  This represents a 13% drop from current levels.

 Here's where I think they might be wrong: The troubles in Greece or the rising awareness that 2013 profits may disappoint could get us closer to that 1,167 level well before year-end. So you should be prepared to pivot into an aggressive buying mode if the market stumbles badly in the next few months. Indeed, a sharp sell-off may lead the Federal Reserve to put QE3 (a third round of "quantitative easing") into place, which would likely trigger a solid rebound in stocks as investors welcome the liquidity that bond-buying program brings.

Risks to Consider: As an upside risk, corporate profits were stronger in the first quarter than many expected, so predictions of profit pressures may never come to pass.

Action to Take –> This is not a call to stop buying stocks. Indeed, solid bargains are being uncovered every day. So it pays to continue to find appealing stock ideas, but it pays to hedge your portfolio. For example, in my 0,000 Real-Money Portfolio, I own 600 shares of the Direxion Daily Small Cap Bear 3X ETF (NYSE: TZA), which moves at three times the pace of the Russell 2000 Index — in the opposite direction. Many investors also use the ProShares UltraShort S&P 500 (NYSE: SDS) as a hedging tool.

[Note: Be sure not to miss a single thing and have 0,000 Portfolio updates sent to your email inbox, free for a limited time, as soon as they're published by signing up here.]

– David Sterman

This article originally appeared on StreetAuthority
Author: David Sterman
The Market Could Tumble Very Soon — Here's How to Protect Your Portfolio

StreetAuthority Articles

Here Come The Greek (Re)Elections

Wonder why the EURUSD is suddenly sliding? Here’s why:

• GREEK ANTI-BAILOUT CONSERVATIVE KAMMENOS SAYS THERE IS NO DEAL ON GOVERNMENT -BBG
• KAMMENOS SAYS “THEY PREFER CREDITORS TO NATIONAL SOLUTION”

Which means Syriza will win the June re-elections, likely with a strong majority, and what happens then is anyone’s guess.

The Market is WRONG About this Big Pharma Stock

Generic prescription drugs are the bane of big pharmaceutical companies and investors alike. As patents for name brand drugs expire, generics eat into revenue, shrink earnings, and depress stock prices of the Big Pharma players.

But the smart investor knows that good drug companies are hardly one-trick ponies. The herd always overlooks the mountains of products that either still have patent protection, or have survived and retained market share. Then there's the pipeline full of new products that's often not given enough consideration.

Bottom line: It's important to be able to see the forest for the trees if you want to recognize a good investment opportunity.

And right now, industry giant AstraZeneca Plc (NYSE: AZN) is the forest. And it's on sale.

But first the not-so-good news…
The near-term picture is… well… simply "not good." In the first-quarter, sales declined 11% to .34 billion, compared with the year-ago period. Operating profits were off 19% from .67 billion reported in the first quarter of 2011. The result was a dismal 38% drop in earnings per share (EPS) from .08 to .28. It's no surprise that the company has lowered core 2012 EPS guidance from .00-.30 to .85-.15.

On top of all this, there's concern about succession at the top of management. Chairman and CEO David Brennan just announced his retirement. Chief Financial Officer Simon Lowth will serve temporarily in the top slot until a permanent replacement is found.

But amid these concerns lie some real positives — ones that I think outweigh in favor of considering buying shares of AstraZeneca…

It's all about the value
Three of the company's major drugs — Seroquel (for Schizophrenia), Symbicort (for Chronic obstructive pulmonary disease) and Crestor (for cholesterol control) — have come off patent protection. But the company has two years' worth of patent protection on its highly-effective (and extremely expensive) gastrointestinal drug Nexium. Throw in widely-used general anesthetic Diprivan and popular local anesthetic Xylocaine, and AstraZeneca still has some strong drug franchises to its advantage. (As an anecdotal note, I'm friends with a couple anesthesiologists, and they don't shop for drugs based on price.)

On average, the company's research and development spending as a percentage of sales comes in at about 15%, nearly twice the industry average of 8.5%. This explains the 86 projects the company has in the pipeline in some form of clinical trial.

The balance sheet is also incredibly healthy. There's plenty of cash (a lot of it, actually) — about billion to be exact. I'm comfortable with the safety of the .80 per share annual dividend, which comes to a yield of about 6%.

And remember, when I say AstraZeneca is Big Pharma, I mean big. The company's market cap is around billion. This is a good value opportunity for smart investors looking for some dependable yield.

Risks to consider: As discussed in the first part of this article, going long AstraZeneca is the equivalent of buying a fixer-upper. The challenges are pretty clear. The value, however, is compelling, and the generous dividend offers ample compensation for investor risk.

Another risk is foreign taxes on stock dividends paid to U.S. citizens (AstraZeneca is domiciled in the United Kingdom). Currently, U.S. investors are not subject to withholding on U.K. dividends. But with the mess the British economy faces, it wouldn't surprise me to see this policy change. Typically, some if not all of foreign taxes paid on dividends are recoverable through your income tax refunds (taxable accounts only). Also, tax policy in the United States is going to change soon. At best, count on uncertainty.

Action to take –> Based on a strong balance sheet, a full pipeline and a relatively safe 6.0% dividend yield, shares of AstraZeneca Plc are a good opportunity for patient, growth- and income-biased investors.

The stock trades at around with a forward price-to-earnings (P/E) ratio of 7. If the company executes effectively in resolving its top management deficit and stabilizing its revenue stream, then a 20% multiple expansion is not out of the question (7.0 to 8.5 is still dirt cheap). This would result in a 12-month price target of a share. Adding the dividend brings the potential total return to 27%.

– Adam Fischbaum

This article originally appeared on StreetAuthority
Author: Adam Fischbaum
The Market is WRONG About this Big Pharma Stock

StreetAuthority Articles

“The Weight Of The Nation”: Documenting America’s Obesity Epidemic: Part 1 – Consequences

68.8% of Americans are overweight or obese: this stunning fact, setting aside the unsustainability of US fiscal or monetary policy, means that something must change in this country, or very soon it won’t matter if America has trillion or googol in debt: everyone will be simply too fat to care. And, shortly thereafter, too dead. Now that America’s obesity epidemic is rapidly, and finally, becoming a front and center topic of conversation, and one which can not be excluded from any rational healthcare policy discussion, increasingly more media has started to narrow in, pardon the pun, on the causes, consequences, choices and challenges involved in recognizing that America does in fact have an obesity problem, and that the sooner proactive steps are taken, the better for everyone. As Charles Hugh Smith pointed out recently, sickcare represents a(n at least) 8% hidden VAT tax to all Americans, of which obesity is the primary cause for outflows: this number will only grow, until it too becomes merely one more unsustainable line item in America’s increasingly improbable income statement. Starting tonight, HBO is releasing a 4 part documentary titled “The Weight of the Nation – confronting America’s obesity epidemic” to bring more attention to a systemic threat which if left unchecked will, by 2020, impact 75% of America’s population. We present the first movie in the series below, and will bring the remaining three parts shortly.

 

From HBO:

The first film in ‘The Weight of the Nation’ series examines the scope of the obesity epidemic and explores the serious health consequences of being overweight or obese.

 

The first character we meet is Cindy. Born and raised in Bogalusa, Louisiana, Cindy is the mother of two grown sons and now a proud grandmother. Cindy allowed HBO into her home and life to discuss some very painful things. Only 99 pounds when she got married, Cindy has struggled with her weight ever since her first pregnancy. And it’s only gotten harder.

 

Health and behaviors in early childhood can have serious consequences later on in life. The Bogalusa Heart Study – of which Cindy was a participant – shows that overweight and obese children have risk factors for heart disease, even at a young age.

 

The obesity epidemic is a problem that’s emerged over the last 30 years. It threatens our nation’s social, economic and physical health. But, unlike a natural disaster, obesity is often preventable. Although overall obesity prevalence rates appear to be leveling off, there are still far too many Americans who are overweight or obese and who continue to develop health problems as a result. In order to end the epidemic, everyone must be part of the solution.

 

At the level of our DNA, we’re programmed to eat as much as we can to survive and store the extra as fat for future energy use. In a world where calorie-dense, sugar-laden and fatty foods are available around every corner, that’s a problem. The good news is that, even if the propensity to gain weight is written into our genes, we’re not fated to a lifetime of fat.

 

As we take a look at communities across the country – from New York City to Santa Ana, California – it is clear that we have all been getting heavier. But the problem doesn’t affect all communities equally. The sad fact is that obesity rates are higher in some ethnic communities and in lower-income states. The trends are so extreme that they are attracting the attention of health officials and lawmakers.

 

Obesity among children is also rising, and it’s a real threat that may have lasting health consequences. As Anna Busby says, based on her observations as the nurse of the Bogalusa Middle School Health Clinic, overweight and obese children are at risk of being “on dialysis in their thirties if we don’t do something now.” The good news is that we can make a difference in our children’s lives both now and as they get older by helping them adopt healthy eating behaviors and become more active.

 

There’s a powerful connection between being overweight or obese and having heart disease as an adult. The heart, our hardest-working muscle, spends every second of every day vigorously pumping blood to the farthest reaches of our bodies. The larger we become, the harder our hearts have to work to keep blood circulating. The bottom line: being overweight or obese places you at a higher risk of developing heart disease and suffering a stroke as an adult.

 

Beyond the cardiovascular system, excess weight has negative consequences throughout the body. “Almost every organ system in the body is adversely affected by having excess body fat,” says Dr. Samuel Klein, director of the Center for Human Nutrition at Washington University in St. Louis.

 

Even a small amount of excess weight, accumulated slowly at the rate of a few pounds a year over many years, can lead to type 2 diabetes. Being over 45 years of age, having a family history of diabetes, being physically inactive and being overweight or obese can increase a person’s chances of developing type 2 diabetes. If poorly controlled or left untreated, type 2 diabetes can lead to a number of serious health problems, including heart attack, stroke, kidney disease, blindness, amputation and even death.

 

Obesity is not only one of the top public health issues facing our country; it’s also a threat to our nation’s bottom line. Rising obesity rates threaten to drag our economy down through higher health care costs and lower productivity. Currently, 69% of American adults are overweight or obese.

Full documentary:

h/t stock_bitch

One of My Favorite Latin American Stocks is Now a Bargain

Over the past few years, I've been imploring investors to boost their exposure to the more dynamic economies and regions of the world. Simply put, Latin America, Asia and even Africa are poised to grow at a stronger pace in the next few decades than the United States and Europe. This view stems from the steady expansion of a middle class in each of these regions. As people move up from the lower-income strata, they spend money on appliances, homes, vehicles, fast food and many other typical consumer items. This creates a virtuous cycle, whereby a range of industries sprout up to support this demand, and they in turn create many more middle-class jobs.

Of course, there's a good time and a bad time to load up on stocks and funds for these dynamic markets. I'm a huge fan of countries like Brazil, Turkey, Colombia and Indonesia — just to name a few. But these countries' economies and markets haven't fully decoupled from the United States and Europe. It's an ongoing process, and troubles here still affect these emerging markets from time to time.

Instead of focusing on these markets, I'm spending more time looking at specific companies that directly benefit from rising consumer incomes in these regions. I recently focused on home builder Gafisa (NYSE: GFA), which continues to trade poorly but offers the potential for significant upside if the Brazilian housing market firms up.

Is a housing stock too risky for you? After all, you need to accept the busts with the booms that come with this kind of stock. How about a company that makes money every quarter, posts solid top-line gains and is becoming the go-to provider for middle-class consumers in Latin America seeking a fast food meal?

I'm taking about Arcos Dorados (Nasdaq: ARCO), which currently sits in the investor doghouse and now looks quite inexpensive in the context of long-term regional growth. (The name means "Golden Arches" in Spanish — Arcos Dorados is the leading franchiser of McDonald's (NYSE: MCD) restaurants in Latin America.)

This stock wasn't always in the doghouse. It had been one of the hottest IPOs of 2011, eventually approaching almost this past fall. Now it trades for half of that peak.

 
Reality sets in
It's a bit unclear, in hindsight, why this was one of the hottest IPOs of 2011 (for awhile at least). Investors clearly got carried away in their anticipation of super-strong growth in a fast-growing region. In reality, this is a company that expands its 1,800 stores base by 5% to 10% every year and generates modest same-store sales gains.
 
But these numbers are a bit deceiving, as growth had been aided by a rapid build-up in the store base in recent years. And as the table above shows, growth slowed to a crawl in 2009 when the global recession took hold. Even as sales growth resumed in 2010, operating income growth stalled as currency effects and other costs constrained results.

Fast-forward to the first quarter of 2012, and the same thing is happening again. A slump in the Brazilian real shaved several percentage points of growth, forcing Arcos Dorados to earn six cents less than the .18 a share consensus estimate.

Make no mistake, despite the near-term speed bumps, this remains a solid long-term growth story. Even as the Brazilian economy (currently Arcos Dorados' largest market) is expected to post modest 3% gross domestic product growth this year, sales are still expected to rise 10% (to billion), thanks in part to new store openings. The International Monetary Fund says Brazilian economic growth will likely move back up by 4% in 2013, which is why analysts say the country's sales could grow roughly 15% to .6 billion.

This isn't just a play on Big Macs and French fries. Management has developed a range of menu items in each country that cater to local taste, so families have a diversity of options. Analysts at Brazil's Itau BBV have a target price, noting that they "remain confident in management's ability to leverage on the aspirational appeal of McDonald's brand and develop local innovations for consumers for a wide range of income levels, benefiting from the structural growth in demand in its core markets."

Risks to Consider:  Arcos Dorados is on the cusp of a strong expansion in Mexico, where McDonald's had lacked focus and rival Burger King was able to take solid market share. Also, Brazilian inflation is high but falling, though any uptick in inflation as the economy rebounds could deter Brazilian consumer spending. And there is foreign exchange risk. As analysts at Citigroup note, "the aggressive monetary easing in Brazil, although accelerating economic growth, could translate to a weaker exchange rate, complicating ARCO's US (dollar) results."

Action to Take –> This stock traded for more than 30 times next year's earnings this past summer, which is a bit absurd. Now that the forward multiple has been cut by half, investors can now see this stock as a long-term growth platform with reasonable valuation. Shares also trade at less than nine times projected 2013 EBITDA, a fair price to pay for a company positioned for sustained long-term growth.

– David Sterman

This article originally appeared on StreetAuthority
Author: David Sterman
One of My Favorite Latin American Stocks is Now a Bargain

StreetAuthority Articles

One of My Favorite Latin American Stocks is Now a Bargain

Over the past few years, I've been imploring investors to boost their exposure to the more dynamic economies and regions of the world. Simply put, Latin America, Asia and even Africa are poised to grow at a stronger pace in the next few decades than the United States and Europe. This view stems from the steady expansion of a middle class in each of these regions. As people move up from the lower-income strata, they spend money on appliances, homes, vehicles, fast food and many other typical consumer items. This creates a virtuous cycle, whereby a range of industries sprout up to support this demand, and they in turn create many more middle-class jobs.

Of course, there's a good time and a bad time to load up on stocks and funds for these dynamic markets. I'm a huge fan of countries like Brazil, Turkey, Colombia and Indonesia — just to name a few. But these countries' economies and markets haven't fully decoupled from the United States and Europe. It's an ongoing process, and troubles here still affect these emerging markets from time to time.

Instead of focusing on these markets, I'm spending more time looking at specific companies that directly benefit from rising consumer incomes in these regions. I recently focused on home builder Gafisa (NYSE: GFA), which continues to trade poorly but offers the potential for significant upside if the Brazilian housing market firms up.

Is a housing stock too risky for you? After all, you need to accept the busts with the booms that come with this kind of stock. How about a company that makes money every quarter, posts solid top-line gains and is becoming the go-to provider for middle-class consumers in Latin America seeking a fast food meal?

I'm taking about Arcos Dorados (Nasdaq: ARCO), which currently sits in the investor doghouse and now looks quite inexpensive in the context of long-term regional growth. (The name means "Golden Arches" in Spanish — Arcos Dorados is the leading franchiser of McDonald's (NYSE: MCD) restaurants in Latin America.)

This stock wasn't always in the doghouse. It had been one of the hottest IPOs of 2011, eventually approaching almost this past fall. Now it trades for half of that peak.

 
Reality sets in
It's a bit unclear, in hindsight, why this was one of the hottest IPOs of 2011 (for awhile at least). Investors clearly got carried away in their anticipation of super-strong growth in a fast-growing region. In reality, this is a company that expands its 1,800 stores base by 5% to 10% every year and generates modest same-store sales gains.
 
But these numbers are a bit deceiving, as growth had been aided by a rapid build-up in the store base in recent years. And as the table above shows, growth slowed to a crawl in 2009 when the global recession took hold. Even as sales growth resumed in 2010, operating income growth stalled as currency effects and other costs constrained results.

Fast-forward to the first quarter of 2012, and the same thing is happening again. A slump in the Brazilian real shaved several percentage points of growth, forcing Arcos Dorados to earn six cents less than the .18 a share consensus estimate.

Make no mistake, despite the near-term speed bumps, this remains a solid long-term growth story. Even as the Brazilian economy (currently Arcos Dorados' largest market) is expected to post modest 3% gross domestic product growth this year, sales are still expected to rise 10% (to billion), thanks in part to new store openings. The International Monetary Fund says Brazilian economic growth will likely move back up by 4% in 2013, which is why analysts say the country's sales could grow roughly 15% to .6 billion.

This isn't just a play on Big Macs and French fries. Management has developed a range of menu items in each country that cater to local taste, so families have a diversity of options. Analysts at Brazil's Itau BBV have a target price, noting that they "remain confident in management's ability to leverage on the aspirational appeal of McDonald's brand and develop local innovations for consumers for a wide range of income levels, benefiting from the structural growth in demand in its core markets."

Risks to Consider:  Arcos Dorados is on the cusp of a strong expansion in Mexico, where McDonald's had lacked focus and rival Burger King was able to take solid market share. Also, Brazilian inflation is high but falling, though any uptick in inflation as the economy rebounds could deter Brazilian consumer spending. And there is foreign exchange risk. As analysts at Citigroup note, "the aggressive monetary easing in Brazil, although accelerating economic growth, could translate to a weaker exchange rate, complicating ARCO's US (dollar) results."

Action to Take –> This stock traded for more than 30 times next year's earnings this past summer, which is a bit absurd. Now that the forward multiple has been cut by half, investors can now see this stock as a long-term growth platform with reasonable valuation. Shares also trade at less than nine times projected 2013 EBITDA, a fair price to pay for a company positioned for sustained long-term growth.

– David Sterman

This article originally appeared on StreetAuthority
Author: David Sterman
One of My Favorite Latin American Stocks is Now a Bargain

StreetAuthority Articles

JPM Blowtorching Continues As IG Surge Refuses To End

As first pointed out here last week, IG9 10Y credit risk has pushed nothing but wider since the JPM news broke. Between the size, common-knowledge, and technical richness of the position, liquidity is providing its helping hand as the legacy credit index is now 25bps worse than last week’s lows (and 17bps worse than when JPM announced) – while the on-the-run IG18 is only 10bps wider over this period. Extrapolating the 0mm DV01 we assumed from the initial announced loss and spread movement, this is potentially an additional .4bn loss for JPM already (who we can only assume have been trying to unwind). Until the skew (the spread between the index and its components) narrows further – which it is today (though momentum will take over at some point in the index itself) – it is likely that the runaway train will keep going and going, until JPM issues a formal announcement that the firm is fully out of the trade, together with a final tally of its losses, which will probably be double the reported loss as of Thursday. Here is the good news: we are 100.4% certain JPM was the ONLY prop trading bank to be massively, massively short IG9-18 into this epic blow out. Because if other had suffered billion dollar losses, they would all pull a Jamie Dimon and fess up. Right?

 

 

Source: CMA

The Safest way to Invest in the Real Estate Bounce

More millionaires have been made in real estate than any other investment in the United States. All one had to do was start buying single family homes, rent them out to cover the mortgage payment, and then price appreciation would take care of the rest. It was an easy formula to riches. Millions upon millions actively took advantage of the housing bull market to build their nest egg.

Still, millions more benefited from the boom, in a passive fashion, as their individual family home price skyrocketed into the stratosphere. In fact, from 1963 to 2007, the average home price exploded from less than ,000 to more than 0,000. This represents more than a 600% return. I know a few hedge fund guys who would sell their grandmother for this type of performance.

Add in the leverage and tax benefits and you had what appeared to be a no-risk path to wealth. These soaring home prices combined with easy credit created a new class of hyper-consumers who bought everything and anything with their new found wealth. This buying drove the economy to dizzying heights in the first seven years of the new millennium.

Next, the impossible happened: The housing bubble burst in 2007. In retrospect, it was easy to see coming, however, only a few economic pundits warned of the bust. Many of the newfound real estate elite were revealed to be emperors with no clothes, as their heavily-leveraged mini-empires collapsed under their own weight. Multiple real estate investors were trapped, unable to sell in an illiquid market.

This rapid decrease in prices led to the banking crisis, the government bailouts and too-big-to-fail legislation.  Now, finally, signs of the real estate market bottom are starting to surface. The relevant economic numbers have started to tick higher, indicating the worse may be over. Even the most pessimistic economists are agreeing that the bottom should be evident by mid-2013.

Regardless of what economists tell us, many investors remain scared of real estate. Let's face it: real estate remains a relatively illiquid investment at this time. If you have ever tried to sell a home in a down market, then you know exactly what I mean. How can one benefit from the likely bounce in real estate prices without getting stuck?

Well, the answer is by buying professionally-managed Real Estate Investment Trusts, or REITs for short. These tools will enable you to catch the coming bounce in real estate without the liquidity risk of buying physical properties.  Let's take a closer look at one that recently caught my interest…

The number one real estate investment on my radar is the Schwab US REIT ETF (Nasdaq: SCHH). This exchange-traded fund (ETF) is built upon the Dow Jones U.S. Select REIT Index by investing in stocks included in the index. The fund has returned about 16% during the past year already.

What I like most about this ETF is its diversification within the real estate sector. Its top holdings include the strong performing REITs such as Public Storage (NYSE: PSA), Simon Property Group (NYSE: SPG) and Equity Residential (NYSE: EQR). It's produced a steady dividend yield of about 2.6% during the past two years and has been in a steady uptrend this year. Perhaps, most interestingly, is that Charles Schwab Investment Advisory just added 262,400 shares to its holdings. I like seeing this type of insider interest.

Technically, the 50-day simple moving average has been acting as solid support since December, 2011. Shares have slipped from their high of to about during the past few trading sessions.

Risks to Consider: Despite the strong performance of the Schwab REIT ETF, its performance remains tied to the uncertain real estate market. Although my research has indicated that the real estate bottom is in or very close, no one really knows what the future holds. Be certain to use stops and position size correctly when investing.

Action to Take–> This ETF has set up perfectly for a buying opportunity. As long as price stays above the 50-day simple moving average at .42, buying the current consolidation is the way to go. I view this ETF as a long term play, but only above the 50 day simple moving average. Right now, buying the pullback/consolidation appears prudent. However, should shares slip below the 50 day simple moving average, buying breakouts above this level makes sense. REIT's, in general, show lesser correlation with the overall stock market than other ETF's. This makes REIT's the perfect way to diversify your portfolio.

– Dave Goodboy

This article originally appeared on StreetAuthority
Author: Dave Goodboy
The Safest way to Invest in the Real Estate Bounce

StreetAuthority Articles

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