Sunday, December 12, 2010

Big Announcement

As you may be wondering why there has not been a post in a few days because I am creating a domain.  This blog will be transfering to its own domain sometime in the next few days.  I will of course keep you updated and give you the new site. 

Hang tight, there won't be any new posts in the mean time most likely but I will have plenty on the new site.

Also, this friday is when I will be releasing the interview with Hedge Fund manager Tim Ayles on the outlook for 2011.

Check back for more updates!!

Thursday, December 9, 2010

Freeport-McMoran's Big Day

Freeport-McMoran (FCX), came out with some big announcements today: a 2-1 stock split and a $1/share special dividend.  FCX closed up 2% today at $110.66 on the news. 

The stock split was approved by the board of directors today and will take place in February 2011.  As for the special dividend, the payments will be sent out on December 30 for all shareholders that hold the stock as of December 20.  You have some time to get a stake in FCX to reap this special dividend.

Freeport's stock is able to boost its regular dividend from $1.20 to $2 and issue a special dividend based on its huge profits from the rising copper prices.  The stock is up 38% this year and is positioning itself to move higher.  Freeport is stepping up production to meet the demand for copper and is certainly reaping the benefits.  Copper is expected to continue its climb after it closed at a record high yesterday, in the wake of higher demand and the construction of housing. 

These events are fantastic but it also tells us, the investor, that Freeport cares about its shareholders and really want to return value to the shareholders.  This is always a classic sign of a great, well-run company.

Fundamental Analysis
P/E: 14
Forward P/E: 11
Price/Sales: 2.84
PEG: 1.28
Price/Book: 4.4
ROE: 39%
Total Debt/Equity: 41
Revenue: 18B
Dividend yield: 3% (regular+special)
Earnings Growth (this year): 43%
Earnings Growth (next 5 years): 8%

Based on the fundamentals, it isn't oversold but the 8% growth over next 5 years isn't super attractive.  However, you have to look at the some of the good signs: low P/E, low P/S, good ROE, great dividend.  Remember, this is the bare bones fundamental analysis, more in depth would be needed to assume this is a good investment for you. Personally, FCX is a great way to play the rising demand of copper.  They have solid management that know how to please the shareholders and they will continue to position themselves to profit nicely from copper and gold.  FCX is one of my favorite mining stocks out there.

Trade: Pick up some FCX before December 20 to get in on that special dividend.  I am bullish on FCX until copper's demand decreases.  I would then scale back.  In short, if you buy FCX, you have to be able to watch the copper and gold futures to monitor price movements and how they will affect the stock and its earnings.

Disclosure: plan on buying FCX in near future

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Tuesday, December 7, 2010

Bush-Era Tax Cuts Extended

  • My interview will Hedge Fund Manager, Tim Ayles regarding market outlook and how to trade 2011 will be debuted on December 17, 2010
  • December Book of the Month is Aftershock by Robert Reich.  Book may be purchased through the Amazon link to the left of this writing
President Obama announced today that the Bush Tax Cuts will be extended for 2 years.  Markets surged at the open but ended lower with Dow down 3 points, Nasdaq up 4 points and S&P up just under a point.

Whether you agree with the tax extensions or not is your own personal opinion.  As far as the financial facts are concerned, the tax cut extensions will keep the low capital gain tax rate and low dividend tax rate.  So, as far as capital gains are concerned there are no new taxes but the estimated income loss for the government is $600B-$800B. Analysts polled said that the tax extensions will help make the recovery more speedy and easier to gain ground.

European Crisis Update
Hungary has, as of Monday, been added to the list of European countries that are in trouble.  Moody's double downgraded Hungary's debt ratings saying that the leadership is taking no active steps to reducing its blooming debt.  The EU faces yet another issue that could prove to be have a similar solution that transpired with Ireland and Greece.  The Euro lost gains that were posted last week.

Trades:  Stick with the trades advised in "Playing the European Crisis" and "Boosting Returns Using Dividends".

Sunday, December 5, 2010

Boosting Returns With These Dividend Stocks

There are many basics that you need for a well diversified portfolio.  You need your techs like Intel (INTC), your energies Exxon Mobil (XOM), your food and drink Coca-Cola (KO), etc.  What is very important for a basic portfolio to have is high yielding dividend stocks. Dividends are important because they can not only boost returns but they can also help cover losses sustained in the stock.

 I put the stocks in bold for a reason, they all pay decent yielding dividends, 2.7%-3%.Yes, 3% is a good dividend but there are some stable companies paying huge dividends, 6-8%. 

I recommend Verizon Communications (VZ), Eli Lilly (LLY), Waste Management (WM), Bristol-Myers Squibb (BMY), National Presto Industries (NPK).

Verizon Communications (VZ):

Verizon is the well known cell phone corporation that operates all over the US.  Verizon recently introduced its new 4G experience which will be a huge growth driver over the next few years.  VZ has benefited greatly from the Android phones this year, boosting sales.  The big news for VZ is the fact that they may be getting the Apple iPhone in the coming year.

Dividend Yield: 6%
Price/Sales: .86

Eli Lilly (LLY)

Eli Lilly is a biotechnology company that develops drugs for mostly neuropsychological disorders such as schizophrenia, manic episodes, bipolar medications, ADHD, depression, etc.  Although LLY is a strong company, its sales forecasts have been lowered because most of its cash cow drugs will be expiring.  However, LLY is known for innovation and they are paying you pretty well to wait out any turbulence. 

Dividend Yield: 5.7%
Price/Sales: 1.66

Waste Management (WM)

WM is a garbage company, literally.  Waste Management offers collection, transfer, recycling, disposal, and waste-to-energy services. WM are the leaders of the trash industry with a market cap of 16.56B, nearly 5.5B larger than its next closest competitor Republic Services (RSG).  WM has an expected growth of over 12% in 2011.

Dividend Yield: 3.6%
Price/Sales: 1.35

Bristol-Myers Squibb (BMY)

BMY is another pharmaceutical company that innovates drugs for serious diseases such as "affective (psychiatric) disorders, Alzheimer’s/dementia, cardiovascular (primarily atherosclerosis/thrombosis), diabetes, hepatitis, HIV/AIDS, obesity, oncology, rheumatoid arthritis and related diseases, and solid organ transplant".  As you can tell by the list there are some very serious diseases on there: HIV/AIDS, Alzheimer's to name a few.  BMY has had many successful drugs to combat these diseases and the stocks performance over the years shows that.  BMY is one of the huge leaders in the biotech/pharmaceutical industry.

Dividend Yield: 5%
Price/Sales: 2.28

National Presto Industries (NPK)

A small, diversified company that makes diapers, cooking appliances and ammunition.  NPK has a sizable insider holding of the stock at over 30%.  Their balance sheets are clean of debt but the best part is they pay a regular dividend...and a special dividend every year.  Thereby making a very sizable yield that is pretty attractive.  NPK is estimated to grow over 11% in 2011.  NPK is also estimated to make 157.75M this quarter, up 4.5% from last year.

Dividend Yield (Total): 6.5%
Price/Sales: 1.73

As you can see there are some nice dividends that were recommended that will surely boost your returns and give you some working capital while you earn capital gains. It is always important to have a great, big dividend yield to provide security in volatile times. 

  • Look for an upcoming interview with hedge fund manager Tim Ayles for his outlook for 2011 and how to set up your portfolio for success in the new year.
  • Be sure to check out the "recommended ebook buys" section of the left side of the webpage to get in on some great financial ebooks that will make you money
  • Also check out the book at the beginning of this post that can be purchased through Amazon.  Aftershock by Robert Reich is a well done book about the 2008 crisis but way more indepth than most books about the crisis.  Check it out, it is only $12.43, normally $25.

Dislosure: Long XOM

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Thursday, December 2, 2010

Rally: Day 2

Markets rallied for the second day in a row today with the Dow up 106 points, NASDAQ and S&P both up over 1%.  The continued rally was a surprising number in November same store retail numbers.  This showed us that the consumer was out and shopping more than expected, as I previously guessed in earlier posts such as "Playing the Consumer This Holiday Season".

The day began with some disappointing news on increase in unemployment benefit applications which again shows the reality of the jobs situation, as I described in yesterday's post.

However, great news on the housing front.  Pending home sales role 10.4% last month and real estate corp, Toll Brothers (TOL) returned to profitability for the first time since early 2007.

This is huge news for the housing sector which has just been a downer debby of a sector for a while now. Finally, we get some good news and Toll Bros, who was hit pretty hard in the beginning of the housing fall, finally returned to profitability.

European Crisis Update:
We like to keep readers up to date on the latest events that are occurring overseas, as they will have an impact on the US markets. 

Today's update is S&P's announcement that they may be cutting Greece's debt rating sometime over the next three months.  Greece's current rating is a "BB+" which is really not all that good.  S&P says they have seen little progress with Greece's handling of their debt since their mini crisis back in March and April of this year.  This is right within my estimates that I outlined in yesterday's post in terms of what could happen to Europe.  I am reiterating to buy put options on: iShares MSCI Ireland Index (EIRL), iShares MSCI Spain Index (EWP), iShares MSCI Italy Index (EWI) which were recommended last Saturday.

As far as the American economy is concerned stick with the recommendations from the past few weeks that I have been giving you, stick with strong retail stocks: Best Buy (BBY), Nordstrom (JWN), WalMart (WMT), and Amazon (AMZN).  Best Buy (BBY) reports earnings on December 14 so watch for those earnings to be quite good.

Disclosure: Long BBY

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Wednesday, December 1, 2010

December Starts With A Bang

Major rally started December as new economic news proved that the economic recovery was gaining strength.  The Dow Jones closed up 2.3%, Nasdaq up 2% and S&P up 1.6%.

The private sector added 93,000 jobs in November after an expectation of 58,000 jobs, polled by economists.  Also there was an upward revised October's job creation from 43,000 to 82,000.  The Chinese also posted a positive manufacturing number which gave signs of stability in China.

It didn't stop there, the Fed released numbers from the Beige Book which showed improving economic climate around the country, this included a very positive consumer spending numbers.  Later, Goldman Sachs increased the GDP outlook for the US in 2011 from 2% to 2.7%.

Ford Motor Corp said they saw a 24% raise in car sales for November, GM saw 12% increase.

A major thought on the minds of traders today was whether or not the S&P would close above the 1200 mark, which in theory, gives a great chance of a "Santa Claus Rally" to close out the year.  The S&P closed up 1206 today passing that mark.  After the huge news today, I think that a Santa Claus rally could be possible with only one obstacle on the horizon...Europe.  Europe has been a major issue for traders lately and it isn't going to go away until decisions are made and steps are taken to resolve, or at least temporally capped.

Jobs Reality (Downer Debby alert!!): Yes, jobs are being created and less people are filing for unemployment benefits.  That is great news but there are under-the-surface reasons behind those facts.  Employers tend to hire more staff around the holidays to cope with demand of the season.  Most of these jobs that are being created now will be lost in January.  I guarantee January's job report is not going to be showing that employers added more jobs because of the fact that we are still in a downturn and we are not in that point of the recovery yet where sustainable job growth is a reality.  The huge optimism behind jobs right now is great but remember that unemployment is still at 9.6%.

Look, I'm not trying to ruin the party and kill the fun but it is better to be a smart trader than a trader who doesn't step back and look at the full picture because those traders always get burned in the end.  Its about positioning yourself to outperform and make money rather than falling for the false hope that is jobs. 

For example, 93,000 jobs were created in private sector, sweet.  What you may not know is that today, State Street Corp announced that it will be cutting 5% of its workforce to cut costs.  This is just one more example that yes, jobs are getting temporally better for the holidays but the underlying facts are that a recovery is not coming soon.

Tuesday, November 30, 2010

November: Review and Moving Forward

Stocks closed down yet again today as the continuing European crisis strikes fear in the heart of investors and a delayed vote on the possible extension of the Bush Era Tax Cuts.  Dow was down as much as 110 points today but closed ended the session down 46.  Nasdaq down 27 and S&P down 7. 

Stocks closed out November in a loss, the first monthly loss since August.  November saw big events that had mostly negative twists to them; QE2 and Ireland bailout (second Euro nation to receive a bailout this year).  QE2 has received many negative views and opinions.  Most of which are essentially worries of a "dollar crash" or very high inflation. 


As for Ireland, many remain skeptical on Ireland's plan to get its economy stable again.  Another worry is that two European nations have received bailouts this year and there may be more to follow.

Standard and Poor are reviewing Portugal's financial documents and hinting at a downgrade.  Portugal seems to be heading closer and closer into the dark everyday with its huge debt position and the bond market issues. 

As for Spain, leaders have vowed to stabilize the economy and reduce the debt.  "Talk is cheap" is the main response from traders and other Euro leaders.  Spain needs to start acting now on its solution to keep down fears of default and a possible bailout. 

Prediction:  I predict that Portugal will end up being downgraded by S&P and will eventually need a bailout from the EU, marking the 3rd bailout.  I believe Spain will need some sort of EU assistance to help rebalance the debt but I don't believe they will need a bailout because they do seem to be aware of the situation and its severity.  Greece and Ireland will need more EU assistance, especially Greece.

In addition for the trades that were suggested my article "Playing the European Crisis", I would like to add gold.  Gold surged up over $21 today, but eventually closed lower, on Euro debt woes.  I believe gold is a great addition to the list of trades that were suggested in earlier article.  Possible ETFs are the SPDR Gold Trust (GLD) and iShares Gold Trust (IAU)

Look for the December Stock of the Month, coming soon!

**Share this article, look at options below to add this article or any article to your Facebook, Twitter, or email!!!

Disclosure: no positions

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Saturday, November 27, 2010

Playing the European Crisis

As I wrote about in yesterday's post, Europe is in trouble.  Ireland, Spain, Portugal, Greece and possibly Italy are at the forefront of the financial crisis in Europe.  Overwhelming debts combined with already weak economies are creating serious issues.  The EU is now contemplating whether to make the bailout fund larger to suit the current position that Europe is facing.  However, Germany, largest contributor to the bailout fund, is hesitant to make the bailout fund larger because Germany is risking a large sum of capital in countries that are on the brink of defaulting. 

 I do believe that at the end of the day, Germany and the rest of the EU will have to compromise to allow a bigger rescue fund.  If they decide not to, the consequences could be devastating to markets around the world. 

All the while these events are happening, the Euro is being hit hard against the dollar.  Similar events occurred earlier this year when Greece was the main problem. 

Now it seems those days have returned and that sets up a few good trades as far as currency goes.  I recommend Powershares Bullish Dollar Index (UUP), and Proshares Ultrashort Euro (EUO).  These trades made great returns during the first European incidents at the beginning of the year, and they are sure to make good returns the second time around until Europe can stabilize the ailing economies.

There are other options at your disposal if you don't want exposure to currency.  We can use put options or short the individual countries that are having a hard time cutting down debt and stabilizing their economies.  A few trades that would be ideal are: iShares MSCI Ireland Index (EIRL), iShares MSCI Spain Index (EWP), iShares MSCI Italy Index (EWI).

Another route you can go (if you want a higher risk, higher return situation) is shorting Europe as a whole or shorting financials, which are the hardest hit sector in Europe.  If you want that higher risk a few plays that would suit that screen are: Proshares Ultrashort MSCI Europe Index (EPV), MSCI Europe Financials Sector Index (EUFN).  Be sure that if you play one of these trades that for EPV is already a short fund so you would simply just buy the ETF.  However with EUFN you would need to short it or buy put options.

No matter what way you plan to play the European crisis, I urge you to do your own research before you invest money, to understand if the risk is suitable for your financial situation.

***A recommended ebook read, Short Swing Trading, explains in detail how to go about using swing trading to benefit from companies that are turning lower. A proven technique that can produce very nice returns if you know how to find the signs that a company is turning.  You can bet that this ebook will provide you with those tools.  A great read that will definitely help you with successful swing trading.  Please click the link below entitled "Click Here". 
Click Here!

Disclosure: no positions

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Friday, November 26, 2010

Rough Start to Black Friday and Update on European Debt Crisis

Before we begin, a few announcements:
  • I hope every had a very nice, safe Thanksgiving.
  • A new feature has been added to Invest Chief.  At the bottom of each post there are options to: email, blog, Twitter, Facebook, and Google buzz to share with your friends posts from Invest Chief. 
Markets opened lower today on European debt worries.  The Dow is down 83.36 or .75%, Nasdaq down 7 or .3% and the S&P 500 is down 8.05 or .67%. 

The main focus today should be retail, its Black Friday.  Earlier this week a surprising consumer report came out that showed us that consumers are starting to spend their income again.  A surprising lower number of people are applying for unemployment benefits went along with the consumer report earlier this week.  Retailers are also cutting prices a record rates to make it even more affordable for consumers to splurge on holiday gifts.  This could point towards a good holiday retail numbers.  Now to be clear, we are in no way out of the woods.  Yes, the consumer is showing signs of recover, as is employment, very slightly.  However, keep in mind we still have an unemployment number around 10%.  That being said, the economy is, no doubt, much stronger than is has been in the last few years.  Please refer back to my "Playing The Cautious Consumer This Holiday Season" article from Monday to see how to play retail this holiday season.

Back to the European debt crisis.  Ireland was recently bailed out by the EU and they have issued a 4 year plan to get their economy back on target and stabilized.  However, many people are skeptical that Ireland will be able to hit that target because of its insistence not to raise the corporate tax rate, which the EU has been pressing Ireland to raise.

 The problems don't stop there.  I was reading the Wall Street Journal on Wednesday and an article entitled "Fears of Domino Effect Pervade Europe" caught my eye.  Essentially, the article says that because of Ireland's bailout and unstable economy, other EU nations such as Spain and Portugal, and Greece.  Spain's economy is on the brink, as is Portugal.  Greece's debt securities are at risk to default.  Lots of unrest is occurring in Europe right now which could prove to have worse outcomes than earlier this year when these problems were last in the spotlight.  A safe trade to be in right now is Powershares Bullish Dollar Index (UUP).  The Euro is not safe right now due to all the uncertainty in Europe.  The Pound fell against the Dollar based on risk adversion.  Lastly, the Dollar rallies against the Yen based on a higher inflation number in October.  We are in an uncertain time right now with Europe's economic woes, potential second Korean war, TSA full body scans at airports.  A safe place to be is UUP.

***Please take the time to look at Getting Started in Currency Trading by Michael D. Archer, which can be purchased via the link to the left.  I have read it myself and it is the best book I have read about currency trading (FOREX). 

Disclosure: No positions

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Thursday, November 25, 2010

Happy Thanksgiving!

Have a great Thanksgiving! Enjoy the day with family, friends, football and a delicious feast.  I wish safe travels to all!

On a more serious note, tomorrow is a half day for the markets but most importantly its Black Friday, the biggest shopping day of the year.  If you going out, be safe and grab some deals! 

Tuesday, November 23, 2010

Preparing for Crashing Markets

I was surfing around the other day and I happen to stubble upon a very interesting article by Tim Ayles entitled "Preparing for Crashing Markets".  Mr. Ayles addresses the facts and the reality of a huge bubble that is to come because of the Fed and federal government's involvement in the markets.  Most importantly he addresses how you could position yourself favorable to with stand a bubble burst.

I thought this article needed to be heard more widely, as it is a serious problem.  It is the kind generosity of Mr. Ayles that I was given the privilege to republish his article on Invest Chief.  Please visit the "about the author" section at the bottom of this post.

Preparing for Crashing Markets (by: Tim Ayles)

If the Fed and government continue to meddle in the free markets in an attempt to prop up asset prices at levels that are "higher than they otherwise should be", you can be certain more bubbles and asset price crashes are ahead. I would say chances are about as good as the sun rising tomorrow.

Black Swan type events of bubbles crashing are beginning to happen closer in time than they ever have before. It creates the sense that things are quickly spinning out of control, leaving investors ever more skeptical and afraid of the future. These investors may forever pull their money from the stock market they increasingly feel is manipulated, and are more concerned with the return of their principal than a return on their principal. They do so risking their long term ability to not run out of money before they die. has done a good job in covering the aftermath of bubbles in the past. In this article, I want to present the case that the typical investor is not mentally prepared for a market rout, and then provide solutions for the way one invests as a means to overcome the panic that is sure to set in for most human investors during market crashes.

This chart is the anatomy of a typical bubble. You can see the different responses of different investor types as the bubbles take off and then crash. After the initial drop in prices following the mania phase, most investors think that they are faced with a great buying opportunity. As the market goes up from that dip, the idea of them being right is reinforced and they are left complacent in their regards for the risk they are taking. When the market turns back down and begins to crash, most investors are frozen expecting a bounce back to get them back to break even, where they promise God in their prayers that they will get out. As the market continues to plunge, they get to a point where they think the world is falling apart, and that they want to just save some of what they had, vowing to keep that money safe and promising to never return to the market. Right when they throw in the towel, the low is reached, and the market begins the next cycle of parting investors with their money.

I propose the reason that most people throw in the towel at the lows is that they view their investments completely wrong. The stock market to them is no different than a casino. They do not view the stock market as an easy way to own pieces of actual businesses that pay them actual profits from selling actual products. Price gains are all they focus on. The problem with price gains is that it IS gambling. Let me show you.

You can do all the research in the world on a stock. You can know the company's products, balance sheets, income statements, customers, management teams, etc. You do the due diligence and figure you are ready to buy at a certain price you feel is a great value. The moment you buy, you are now at the mercy of the market. You no longer have any control. The only control over your investment that you have is how much you are willing to risk, and when you decide to get out. As far as the direction of the price of the stock, you have zero control. Gains will be decided by the market as a whole. If those around you are scared, you will lose money. If they are euphoric, you stand to gain. Your wealth is not at the mercy of your friends and neighbors emotional state. The original buy price that you paid is basically your line in the sand. The company can grow is revenues and income, but if others aren't willing to pay a higher price than your "line in the sand" price, you don't make a dime. For those of you who think that a business who is increasing in value from higher earnings will have an ever rising stock price, you must have been asleep the past 11 years. Many companies have doubled and tripled their earnings the past decade, yet they have not seen their share prices go higher.

This is also a problem with the majority of mutual funds out there. Most mutual funds track the prices of stocks, and therefore have their own line in the sand number if you buy them. If you are retired and have been relying on these mutual fund share prices going up the past decade, you are running out of money.

This share price "line in the sand" mentality is what creates fear and panic at market lows and the eventual throwing in of the towel. If you buy a mutual fund at $30 per share, and hold it all the way down to $15 per share for a 50% loss, you probably lose heart. During those types of crashes, the news flow about the market and economy are terrible, thus reinforcing your fear. Based on what you hear, you are certain the stock market will languish for decades. You realize it will take years for your mutual fund to gain 100% from $15 per share just to get back to break even. You begin to rationalize being safe and selling at $15 per share because 50% of something is better than 100% of nothing. You don't want to see this thing go down to $5 per share, so you cash out.

If you are reading this and never felt this way or have never done something like this, your name is Warren Buffett. Everyone else reading this probably has a story that is similar.

Now for the solution. How can an investor retrain the way they think and invest so that when the next bubble does explode, they will not sell at or near the lows, only to watch the investment go higher without them?

Simple. Buy stocks of companies that sell products that people have to buy, creating large free cash flows, and have managements in place that want to pay the investors an income. By buying stocks that sell products people have to buy, you will create a first line of defense mentally in that you know the companies you own will probably not be out of business. If you buy Kraft Foods (KFT) for example and the stock drops 50%, you probably won't sell it out of fear they are going out of business. People will still eat food if the S&P 500 drops to 600.

More importantly, make sure any company you buy is paying a dividend that is more than covered by a healthy Free Cash Flow. Let's take a look at an example.

Verizon Communications (VZ) currently has a $92 billion market cap selling products that even homeless people at food shelters can somehow afford. Sporting a current yield that stands at 6%, the stock is more appealing than most bonds that I could buy today. Last year VZ paid out $5.2 billion in income to its shareholders through dividends, while bringing in $14 billion in free cash flow, meaning they had almost $9 billion more they could have paid out for dividends! In 2008 they made about $9 billion in free cash flow, almost double the $5 billion they paid out. As you can see, Verizon has plenty of money to pay out. Through the September quarter 2010, they have made $13 billion in free cash flow, having paid out about $4 billion in dividends.

So how will a company like Verizon help you not sell near the bottom? Well, I would argue that when you own a company like Verizon who pays a current 6% yield, and has no problem affording that kind of yield, it will be very hard to sell it if it drops 50% from here. If you invest $10,000 in VZ now and get a $600 per year for income, if the stock price drops to where your investment is worth only $5,000, although sad, you will be less likely to liquidate that $5000 and turn it into cash when the $5000 is currently paying you a 12% return ($600 on $5000 is 12%). Even with your line in the sand price 100% higher after the 50% drop, the solid dividend begins to force you to not do something stupid, like sell at the lows. At that point - you really can't get a much better deal than 12% on the money if you were to sell. Are you going to get rid of the $600 cash flow and put it in the bank to earn $12.50 a year? If your investment languished at a $5000 value for years, you at least get to earn $600 per year which you can go and spend on life's essentials you need. If you had $10,000 in a mutual fund that turned into $5000, you don't have the same luxury. To get the same same $600 for life essentials, you would have to sell $600 worth of your shares that are worth 50% less. If the market doesn't rally quick, you run out of money in 8 years. As we like to say at the office: "That's no bueno."

Some of you might be thinking, if the market dropped 50%, then the economy is doing badly and VZ is probably losing sales and seeing their earnings drop. To which I would reply, what if half the people in America got rid of their cell phone? Verizon's free cash flow could drop 50% from here, and they would still have enough cash to almost double the current payout.

And Verizon is not unique in this characteristic.

Another example would be Bristol-Myers Squibb (BMY). With a current market cap of $44.5 billion, BMY has kicked off $3.75 billion in free cash flow the previous 4 quarters. They could pay all of that cash out and give a solid 8.4% income at the moment. Currently, they pay out a healthy 4.9%, meaning that in the event of a 50% market crash, you would have to decide to sell them at yield of 9.8% and go to cash yielding .25%. Chances are in stressful economic times, the products they sell would be in higher demand. But even if their free cash flow dropped by 50%, they could still offer out a 4.2% yield in the worst of times. The risk to a BMY is eventual drug patent expiration, but the truth is, these types of companies have the franchises and cash flow to partner with most generics if not buy them out in order to maintain their cash flows.

In summary, if you want to mentally survive the next crash and not sell at the bottom, retrain yourself to think about income yields from individual stocks. Consider getting rid of mutual funds or story stocks who sell luxury products and don't pay out profits. Retrain your brain to think like a business owner and not a gambler. Litter your portfolio with companies like Verizon, Kraft Foods, and Bristol-Merys. Our portfolios have nearly 100 of these types of companies in them, so there are plenty to choose from. These moves alone will go a long way in helping you survive 30 years of retirement which should see many more bubbles and crashes if the Fed has any say.

Disclosure: Long KFT, VZ, BMY

About the Author: Timothy L. Ayles is the Chief Investment Officer of Napa Wealth Management, Inc. NWM has hand picked Tim both for his highly disciplined investment management techniques in building sensible client portfolios; and for his ground breaking developments in international mathematical investment models. Tim’s expertise is in the rarified atmosphere of commodity trading. He was the founder of Creative Investment Research Group that trained commodity traders all across the United States. Tim was born and raised in Napa and attended Biola University in Southern California.
He runs MA Capital, LP which is a long/short equity, private equity, and fixed income hedge fund. He is a Registered Investment ...More Advisor.

Monday, November 22, 2010

Playing The Cautious Consumer This Holiday Season

Tomorrow's GDP report will be key to give us an idea to whether we could be expecting a good or not so good Black Friday.  Economists are expecting the GDP to be reported at 2.4%. 

Regardless, there are a few plays that will be winners this holiday season for consumers that are spending less.  I do expect these companies to outperform in the retail sector this holiday season.  Here are your possible plays this holiday season:

  • Best Buy (BBY): Best Buy is a top electronics retail play that does expect a huge holiday season.  The company was upgraded today by Barclays, who share the same opinion, that Best Buy will outperform this holiday season.  The rose their target to $51 and remained their outlook at overweight.  Best Buy was up 3% today on the news.
  • Nordstrom (JWN): Nordstrom is a higher end retail play that is currently pretty cheap with a P/E of 18, ROE of 33% and a dividend yield of 1.9%.  Nordstrom has done a pretty good job of staying ahead of the pack in the higher end retail.  Look for JWN to capitalize on its sales momentum.
  • Wal-Mart (WMT):  WMT is a great low cost retailer especially in this economic climate. Wal-Mart has great deals and savings that should be very attractive for the frugal consumer.  Wal-Mart is the largest offline retailer and they should easily post great numbers this holiday season.  The stock is very cheap at the moment with a P/E of 13, ROE of 22%, P/S of .47.  I like WMT.
  • Amazon (AMZN): With a growing number of consumers looking for better deals online and skipping the crowds at the malls, Amazon, the largest online retailer, will be an obvious choice for consumers.  Amazon and Wal-Mart are in a huge price war this holiday season but I don't see it being a big deal because there will not be a big enough price difference to determine a clear "winner".  They will both be winners in their right.  Amazon will be the winner of online retail.
These companies are the top of the retail sector and will outperform this holiday season.  These companies manufacture success and know their market.  Marketing and deals have been very successful in the past and should have continued success this season.  Consumers are looking for the best deal this holiday season and I think these companies will give them those deals they are looking for.  Stick will Best Buy (BBY), Nordstrom (JWN), Wal-Mart (WMT), and Amazon (AMZN).

Disclosure: Long BBY

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Sunday, November 21, 2010

Cisco: Good Long Term Buy

Cisco Systems (CSCO) makes IP networking devices and is a very prominent tech company that has been known as an innovator.  Last week Cisco (CSCO) reported 3Q earnings which were lower than the Street's estimates and on top of that, Cisco lowered its outlook.  Cisco blames lower government spending of IP products as the new Congress campaigns on cutting spending.  Needless to say, the stock was destroyed, down about 20%. 

As Wall Street becomes more and more bearish on Cisco, it could be time to pick up some shares at a cheap price of $19.61.  Cisco is a great value play if you are looking for a top tier tech stock that is temporally seeing some headwinds.  They have experienced issues in the past that they were able to bounce back after they looked to innovate their products and expand their markets.

Cisco will do as it has done before, innovate.  Find a new way to market their product, expand their market more rigorously in emerging countries.  That's right, Cisco has a growth rate of 12% for fiscal 2011 and 17% growth over next 5 years.  Much of this growth will come from emerging markets that are looking to update servers and networks.

On a more fundamental level, Cisco has a P/E ratio of 14, PEG (growth) of .99.  The PEG shows that shares of cisco are a little undervalued at the moment, and the P/E is in normal area.  As far at debt goes, Cisco has total debt of $15B but the debt/equity is at 34.  Essentially, what this means is Cisco has for every $34 of debt, $1 of equity.  This is a bit on the higher end of the spectrum, but Cisco is a stable company that will be able to pay off the debt.  Cisco has pretty solid fundamentals which is giving the stock an undervalued look at this point in time.

Trade: Buy Cisco as a long term trade.  Look for the long term view and ignore the current headwinds.

Disclosure: positions held in CSCO

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Saturday, November 20, 2010

Stock Showdown: GM vs. Ford

GM (GM) returned to the Wall Street scene on Wednesday priced at $33 with about half a billion shares, the largest IPO in US history.  The stock has risen about 4% since Wednesday and there is a huge bull sentiment on the stock.  A huge catalyst for this sentiment was GM's better than expected 3Q earnings last week.  The two analysts that are covering GM recommend a "strong buy" with a median target (price target over next 12 months) of 46.25.

With all of this attention going to GM, whats new with Ford (F)? Ford fell 4% on GM's debut, but managed to come come back 1% yesterday.  Ford did not deserve the whipping on Wednesday, its just that its not "hip" right now with the coming of GM.

Chevy Camaro
Ford Shelby Mustang
The real question: Is GM's stock a buy or Ford's stock a buy?

Firstly, Ford was Invest Chief's Stock of the Month last month and it posted positive gains for us.  The stock went as high as 17.42 but in the recent headwinds pulled back.  I believe in Ford because they properly weathered the downturn without any government assistance.  Not to mention Ford has been outselling all other major brands in the last few months, while GM is in 2nd and 3rd place.  GM was hit very hard during the downturn and left the NYSE, bankrupt.  GM was known as "Government Motors" because the government had and still has a huge stake in the company. 

Although GM posted great 3Q earnings, I am going to need to see more quarters like that before I can fully endorse it.  Ford has already recovered and it shows in the high customer satisfaction surveys, great sales and revenue and just overall has their organization better.  Its their organization that helped them succeed in 2008.

Summary: GM's IPO is over hyped especially when their earnings are just now getting stronger.  Not to mention over hyped IPOs tend to fall pretty hard once the hype goes away, so beware of that in the coming weeks.  Ford on the other hand has had great success for a while now and needed no government assistance what so ever during 2008.  GM has to prove that it can outperform again before I can get behind it .

Trade: Buy Ford (F)

Discloser: No positions at time of writing

Disclaimer:  Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Thursday, November 18, 2010

Back to Work---Look Back At the Events Since October

Hello fellow readers! I apologize for my over month absence.  There were some serious issues that were occurring with my family but things are better now.  I am back and there has been a lot of things going on since my last post on October 6th.

1.  The Republicans took over a huge amount of seats in Congress, and took over the House of Representatives.  Look for a huge push in spending reduction, lower taxes, and reducing the deficit.

2.  The Fed began QE 2 to try an stabilize the economy and promote more growth.  Whether this will ultimately have a negative effect or positive is yet to be seen.  However, as we can see by the Treasury yields there has been a "silent crash".

3.  Still lots of M&A action going on out there which is a good symbol that companies that have a record amount of cash on their balance sheets are beginning to use the cash to buy up companies or buy back stock which is a good sign.

4. Irish bailout was announced today after the country has had a hard time stabilizing their finances.  The bigger issue here is that European countries that were having trouble at the beginning of 2010 are getting back into trouble i.e. Greece, Spain and possibly Italy.  The EU must be assertive and move quickly to stabilize any problems that surface before the issue gets out of hand.  I think their response to Ireland's issue was pretty quick and will overall help Irish.

5. GM returns to Wall Street in the largest IPO in US history with over half a billion shares that started at $33 a share.  In GM's first day back, the shares were up around 8% intraday but closed up 3.6% at $34.19.  Look for an article to get the story on whether GM is a good buy or a good place to stay away from.

October's Stock of the Month: Ford (F) started the month at $13.01 and ended the month at 14.13.  Thats about a 7% gain. Not too shabby! Look for November's stock of the month!

Its great to be back in the swing of things! I will return to posting articles if not everyday, every other day.  Thank you for your support!

Wednesday, October 6, 2010

70% of S&P 500 Companies are Overbought

I recently discovered a graph that shows the overbought and oversold percentages of the S&P 500.  It is interesting to see that 70% of these companies are overbought, which is very concerning.  It is also concerning that it looks as if the rally is turning.  Some analysts and financial forecasters such as Mike Turner from Street Authority ( that predict that the recent rally's gain will be erased.  His reasoning is mostly the fact that the rally wasn't based on any good economic news or positive event. 

Now that its October (historically one of the worst months for stocks), 70% S&P components are overbought and the recent rally was based on no significant factor, we could be facing some problems.  It is important to be cautious and if you made money last month, sell it and lock in those gains. 

The Fed is expected to make a few moves by early November.  Whether they will continue quantitative easing, buyback bonds, or change rates is yet to be determined. 

Trade:  A good play for this environment would be Proshares Ultra Short S&P 500 ETF (SDS).  This will be a great addition to provide security for your portfolio.  SDS moves at twice the rate in the opposite direction of the S&P 500.  SDS is currently trading at $28.56.

Disclosure: No position as of this writing, intent to open a position in near future.

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Tuesday, October 5, 2010

October Stock of the Month

This month's Stock of the Month is: Ford Motor Corp (F).

Ford is a comeback story of the ages.  Ford has a rich history that certainly have had highs and lows.

Henry Ford created Ford Motor Company in 1903 and created the revolutionary Model T.  For the longest time, Ford dominated the little competition they faced.  Ford successfully survived the Great Depression and had decades of prosperity and dominance in the car market.  It can be said that Ford began its decline in the late 1970s.  This is when Toyota and Honda were becoming very popular in the United States and were said to be more "reliable" than the declining Ford models.

Ford experienced relatively low levels of sales compared to its Japanese counter parts for many years...until recently.  Once the recession hit the world in 2008, it was as if Ford rose from its decline into the top tier once again.  While Toyota and Honda are experiencing major recalls on safety issues, Ford has outsold all other car companies for almost a year straight.  GM brands have also had some issues with recalls but have overall done well but not as well as Ford.

The government's "Cash for Clunkers" program, combined with incentives and a new image have once again shot Ford up to number 1.  Now Ford is considered a major growth stock that will rise with the correction of the economy.  Ford's management team has a clear plan for the future and has clearly showed that American Made is back and in style.

Fundamental Analysis: As far as the balance sheet goes Ford is pretty healthy with about $18.32M in cash and $109.63M in investments. Ford has $117.38M in total debt. The PEG ratio is a way undervalued at .41 and a P/E of 7.74. Ford Motor is very undervalued and will produce great gains over the long term as the recovery continues. It is also important to note that institutions own 63% of shares of Ford Motor.

Technical Analysis: The RSI shows a signal of neither overbought or oversold.  Bollinger Bands point to a higher stock price as they are beginning to opening up.  The MACD shows a neutral signal and the Williams%R shows a moderately overbought senario.  However, it is not bad to where I would be worried.  Latly, the Stochastics shows a mild overbought senario, which again, I would not be worried about.

Outlook:  Ford (F) is currently priced at $13.01 (as of October 5, 2010).   Over the next 12 months we are projecting a $15.50/share and higher.  If Ford can capitalize on its growth in Europe and China, as well as the US, Ford could be hitting $20 by 2012.

Disclosure: No position at time of writing.

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

Sunday, October 3, 2010

October Book of the Month

Its that time again to designate a book for the month of October.  This month's book is, in my opinion, one of the best books if you like reading about crisis of 2008.  More specifically, the fall of Bear Sterns.

October's Book of the Month is: Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street by: Kelly Kate.

"Street Fighters" is a very indepth book about the last 3 days of Bear Sterns.  Kate documents every move made by the board of directors that were scrambling for every dollar, desparately trying to get a "loan" (bailout) from the US Treasury.  It also takes about how Bear Sterns ended up selling themselves for $2/share to JP Morgan.  I highly recommend this book that describes the fall of the first mighty investment bank on Wall Street.

Here is a quick summary from NY Times:

"The acclaimed New York Times bestseller-updated for the second anniversary of the collapse of Bear Stearns.
The fall of Bear Stearns in March 2008 set off a wave of global financial turmoil that continues to ripple. How could one of the oldest, most resilient firms on Wall Street go so far astray that it had to be sold at a fire sale price? How could the street fighters who ran Bear so aggressively miscalculate so completely?

Expanding with fresh detail from her acclaimed front-page series in The Wall Street Journal, Kate Kelly captures every sight, sound, and smell of Bear's three final days. She also shows how Bear's top executives descended into civil war as the mortgage crisis began to brew."

Best part is through my link, you can buy this book for $2.97 from Amazon.  We recieve a very small commission desparately need some more capital.  Thank you very much for your support!!

Thursday, September 30, 2010

Best September in 71 Years

Today was rough as the Dow was up as much as 113 only to close down 47 but, stocks posted best September in 71 years.  The Dow was up 7.7% for September, best since the start of World War 2 in 1939.  The top performers of September were technology stocks, they also led the pullback today with most top tech down as much as 1%.

Lets take a look back at how my trades have fared.  I like to reflect on past recommendations to not only show my success/failures but to also make my blog more transparent and credible.

 September's Stock of the Month, Balchem (BCPC)
  • recommended buying on September 4 at $24.78
  • As of the close September 30, BCPC is trading at $30.86
  • conclusion: up $6.08 or 19.7%
Citigroup (C)
  • recommend buy 9/06 at 3.82
  • currently trades at 3.91
  • conclusion: up $.09 or 2.3%
Anheuser-Busch InBev (BUD)
  • recommended buy 9/11 at $54.55
  • currently trades at 58.75
  • conclusion: up $4.20 or 7%
Fedex (FDX)
  • recommended buy 9/13 at 82.23
  • currently: 85.50
  • conclusion: up $3.27 or 3.8%
Best Buy (BBY)
  • recommended: 9/14 at 33.80
  • currently: 40.83
  • conclusion: up $7.03 or 17.2%
Nike (NKE)
  • recommended: 9/18 at 71.50
  • currently: 80.14
  • conclusion: up $8.64 or 11%
Recommended within last 5 days: Apple (AAPL)

Not one stock pick was down this month.  The top performing recommendation was our Stock of the Month, Balchem (BCPC) which has been on fire!  I still recommend "buy" for the above stocks.  These stocks are great companies and will continue to outperform. 

Look this weekend for October's Stock of the Month and Book of the Month.  Lets make money together.

Wednesday, September 29, 2010

Gold and How to Play It

Gold has had a terrific run since 2008 and the financial meltdown.  Prices recently have hit over $1,300 and could be headed higher.  Gold has multiplied since 2000 which makes investors think that Gold still has room to run. Not to mention that it generally holds its value over the long term and overall is considered a safer security than bonds. This creates a bubble when everyone uses Gold as a "safe" security from stocks, bonds, etc.

Gold, recently is losing hold on an important support and could be headed lower.  Now, let me tell you that I am not necessarily a gold bear but rather a cautious trader who has seen disaster strike before.  Most obvious example is the Internet bubble burst of 2000.  Everyone piled into Internet stocks only to lose everything when the bubble burst. 

Ok, so I am would I trade gold?
I would stick to the Gold Miners ETF (GDX) which has performed well this year, up 13%.  If you aren't into gold miners and want something that attempts to track the price of gold, I recommend the usual Gold Trust (GLD).  GLD is up 13% this year as well. 

My outlook on gold is lightly bullish.  I like gold but it has had a nice run and will eventually come down.  Now this is probably a longer term deal when gold will burst (3-5 years).  Until then, reap the benefits of gold!

**Keep a look out for October's Stock of the Month

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.