Judy Romero

19
Nov
2017

Getting Started: The Balance Sheet

Are you new to trading and want to master the basics? Well, we would recommend learning about the balance sheet as soon as you can. It can be a useful tool that will help you make trading decisions.

What is the Balance Sheet?

If you spend some time in trading chat rooms, you will inevitably hear about balance sheets. And, you will probably notice that a lot of people pay close attention when someone brings it up. Well, they do so for a reason. But why?

To put it simply, the balance sheet is one of the primary financial statements of a company. In fact, it is one of the most useful documents you can put to use while evaluating a firm. Its job is to inform you, as an investor, of the financial standing of the company.

There are two main sections in a balance sheet.  The first one (usually on the left-hand side) is there to inform you about the assets. This section will include anything that the company owns that has actual financial value.

The second one (usually on the right-hand side) is for liabilities and equity of shareholders. Liabilities present the company’s debt. Most commonly, they refer to bond issues and bank loans. However, anything that the firm owes to someone is a liability.

Owners’ equity (or stockholders’/shareholders’ equity), on the other hand, consists of the stock of the company and the income it holds from operations. This income is known as retained earnings. The company can use liabilities, its stock, or owners’ equity to purchase assets. So, if we were to present the balance sheet in an equation, it would look like this:

Shareholders’ Equity + Liabilities = Assets

This equation is one of the original concepts accountants have been using for a long time. To put it in words, assets of a company are equal to the liabilities of a company plus the shareholder’s equity. And, it does make sense. Allow us to simplify. In order to buy something, a company has to pay for it. In order to do so, they either have to use their earnings, sell stock in the same value, or take out a loan. And, of course, this simple equation works for every single company. No matter how big it gets or how small it starts. In fact, you can even apply the formula to a lemonade stand your neighbor’s kid is running.

Allow us to demonstrate: Let’s say the child spent 10 dollars to make the lemonade stand. Let’s also say that it got a 10 dollar loan from the parents to buy lemons, sugar, and straws. With that situation in mind, let’s make a simple balance sheet.

Assets

Supplies: 10 dollars

Property: 10 dollars

Total Assets: 20 dollars

Liabilities and Shareholders’ Equity

Liabilities: 10 dollars

Shareholders’ Equity: 10 dollars

So, let’s take a look at this basic balance sheet to figure out how it works. The kid spends the 20 dollars on the business overall and has no cash at the moment. However, the “books” still show 20 dollars in assets. After all, the supplies for making the lemonade are still all there. The kid owes the parents 10 dollars, which are there as a liability. And lastly, as the owner, or the sole stockholder, the “company” has 10 dollars of equity. Hopefully, this example was helpful. Now that we can grasp the basics of balance sheets let’s delve a bit deeper into the details.

The Assets

Our example was very simple, but in the real world, it can get a bit more complicated than that. So, let’s go through some common assets. The most common examples are cash, inventory, property, plant and equipment (PPE), accounts receivable, and goodwill. Now, most people will instinctively understand a couple of these terms. However, other items on the list are not quite as self-explanatory as cash or inventory – for example, account receivable. It is an item that represents liabilities that clients owe to the company. Since they represent the money that others owe to the company, they are that company’s assets. PP&E is the account that summarizes all of the property the company has, the plants it uses for manufacture and any equipment it owns.

You can further classify assets as current or noncurrent assets. The current ones are those that the company will use up in one year (for most companies, the year is the length of one business cycle) or the assets that the company can easily convert to cash. The noncurrent ones, on the other hand, are those that are going to remain on the balance sheet for longer. An example of noncurrent assets is the land the company owns.

But, is it possible to have too many assets? Actually, it is. Bear in mind that the company has to pay for every asset with its equity or through liabilities. Especially if the company is buying unnecessary assets. That can lead to increasingly difficult debt or devaluation of the stocks as they are overselling. And, if the company is buying too many assets, the investors might lose money through devaluation of their holdings.

Also, having stagnant assets can increase the costs of operation, and thus reduce the profit margins. While most assets are a good thing, there are those that the company won’t be able to sell. And, not only does the upkeep cost rise the more stagnant inventory you have, but it takes more time to move it. And, over time, the inventory might become obsolete and lose value. So, make sure to check the inventory turnover if you see a company that has a lot of assets.

You should also bear in mind that certain assets (like PP&E) will depreciate as years go by.  For example, if a company buys a building for 10 million dollars, and plans to use it for 10 years with no residual value, the depreciation rate would be 1 million dollars per year.

The Liabilities

While liabilities represent the debt of the company, they aren’t necessarily a bad thing. After all, they allow the company to buy assets they otherwise would not be able to afford. In fact, almost every single large company in the world has had debt in their books. And, it makes sense in the short term – borrowing money is a great way to improve your business.

Most common liabilities are bonds payable, mortgages, and accounts payable. However, even if you find a company with little to no liabilities on the balance sheet, it doesn’t mean you have found a company that has no financial obligations. Some companies might try to hide their debts by rewording the balance sheet. So, keep your eyes open to see if the footnotes of the financial statement hide something you should know about. Sometimes, the company might list debts as “operating leases” or “other transactions.” In fact, while there is no reason to hide existing assets, it could be appealing for companies to hide liabilities. Just remember the Enron scandal.

And lastly, always check if there are red flags when it comes to company’s debt. The last thing you want is to be an investor in a company that is about to default on its debt.

The Shareholders’ Equity

This is one of the trickier sections of the balance sheet. There are multiple topics that affect this section, and they require some knowledge to understand fully. Some of these topics are multiple stock classes, equity financing, subsidiaries, and many others. So, make sure to take the time and go over this section in detail if you are an investor in the company. This part of the balance sheet is the part where the company speaks about what you own.

The Limitations of The Balance Sheet

While balance sheets are definitely useful, they have their limitations, depending on what you want from them. First of all, balance sheets are financial statements, and, as such, they follow the guidelines GAAP and the FASB set up. So, why do we mention that? Well, primarily because the balance sheet doesn’t show the fair value of most items. That is mostly due to the practice in the accounting industry referred to as lower of cost or market.

This practice dictates that the accountant recording the asset uses the lower of two values between the fair value and the cost of the asset. This way, the accountant can’t inflate the numbers it records on the balance sheet. Let’s go back to that lemonade stand. When it makes lemonade out of the ingredients worth 10 dollars, the lemonade itself is worth a lot more. So, the kid expects to sell the inventory for 50 dollars instead. That means that while the cost was 10 dollars, the market value is 50. However, the balance sheet will still show that the “company” has 10 dollars worth of assets.

If the company ever sold all of the assets, the result would not be equal to the balance sheet numbers.

Maintaining the Balance

Financial statements can be quite intimidating. In fact, not all investors take the time to investigate them. However, they can be incredibly powerful tools for analysis. And the Balance Sheet is one of the financial statements that you can investigate even when you don’t have a lot of time. It holds a lot of information you can successfully use to predict what the future holds for the company. Just remember – there is a learning curve to investigating these statements. So, make sure to take your time and develop your knowledge.

Posted by Judy Romero in Trading
06
Oct
2017

Investing 101: A Beginner’s Guide to Investing Strategies

How to Invest Without Becoming Obsessed

Even though it sounds like you need a college degree for it, investing is a lot less scary if you learn the basics first. So, even if you’re just a high school graduate, it can still become your career. All you have to do is be confident and create a plan that will lead you through life.

Why Does it Sound Scary?

It all comes down to our family life and our childhood. People who grew up in poor households are usually scared to talk about money and investments. Meanwhile, those that are well-off are also confused because their parents can rarely give them financial advice that makes sense.

The times have also changed, and what was normal once, it’s not anymore. Your parents are probably encouraging you to buy a house when there’s a housing bubble. But, they think that’s a good idea because, in their time, prices only went up – and almost never down.

Nevertheless, your first investment will be the hardest one you’ll make.

What is the Point of Investing?

When it comes to money, everyone has a different goal in mind. As you get older, your opinions change, and your confidence grows. So, by the time you’re ready to invest, you’ll know which path to follow.

However, there’s one basic goal you should keep in mind – safe and stable retirement. By working hard and curbing your spending habits, you can invest that money difference into assets that will give you more money. Thus, by the time you retire, you’ll have something that’s making you enough cash to live comfortably.

It’s vital to work hard for your goal. If you think that investing is just a simple way of earning extra cash, then you can stop reading this article right now. However, if you want to retire at a reasonable age, you’ll have to learn how to spend less and use that money for different investments.

The goal doesn’t include selling any investments. Wealthy people don’t do that because they would only lose money that way. Instead, they invest in assets that bring them enough cash flow for their comfortable lifestyle. And, the best part is that you can also pass down these assets to your descendants. Now that’s a goal you should strive to achieve.

Types of Investments

People usually start by investing in stocks and bonds. When you buy a stock, you become a partial owner of the company. Meanwhile, a bond is an indebtedness security, and mutual funds actually own bonds or stocks instead of you. Whichever you pick, the choice will depend solely on your financial circumstances and needs.

But, there are other ways as well. You can invest in REITs – real estate investment trusts. Nevertheless, when you are a beginner, it’s best to focus on the funds, as well as on the bonds and stocks they hold.

Having said that, it’s vital to know if you should invest if you have any sort of debt. Credit card debt, student loans, and mortgage debts are all factors you should consider because it might be futile to invest if you’re indebted.

Debt Pay Off vs. Investing

It’s needless to say that you should cover at least the minimum debt payments before you start investing. However, there are other choices if you have some leftover money from your paycheck:

1. Pay off all your debts.

You should consider your interest rate. If it’s more than 10%, you shouldn’t invest. Instead, use that money to eliminate the debts. Why? Well, because the stock market is volatile, and there’s never a guarantee. But, your debt is quite real, and if you don’t pay it off, it can lead to bankruptcy.

2. Use the money to invest in funds, bonds or stocks.

If your interest rate is less than 5%, then it makes sense to invest. It would serve you well in the future to have some extra money lying around. However, investing in bonds might not be that useful. Even if the interest rate is higher than your debt rate, it might not be a good investment after all. Therefore, choose your securities wisely.

3. Do both at the same time.

Benjamin Graham gave all investors, including Warren Buffett, a great piece of advice about investment money. He said that it would be better if you held on to no more than 75% of the total amount in a single asset class. Thus, you can use that same logic and figure out how much money you can actually invest.

If your debt has a low-interest rate, then you should use about 25% of your additional income to pay it off. Meanwhile, you can use what’s left for stocks. However, if investing becomes too expensive (fund and stock prices might go up), then 75% of the additional income should go to the debts. The remainder – 25% – should go to stocks.

Needless to say that you should just pay off your debts if they have a high-interest rate. And, if the situation is a bit more complex than that, then a financial adviser could help you out. They will know how to solve your debts, and they will also give you investment ideas that will bring you more money.

Saving vs. Investing

Before you start to invest, it’s vital to resolve some of the issues you might have. You ought to be employed, and you also need to have insurance coverage. The personal debts you’ve made should be under control, and if you lose your job, you should have an emergency savings fund to soften the blow.

Saving money is not the same thing as investing. If you lose your job, and you don’t have an emergency fund, you’ll have to sell your investments. Thus, all your efforts will be futile.

Lifetime Investing 101

We will now explain two long-term strategies. However, bear in mind that they naturally assume that you’ll continue to hold down a job in the next few decades.

The first one is a minimal effort strategy, while the second one might seem like that as well. But, it’s actually a bit more complex, and you will need to learn more about investing to implement it.

1. Mutual Funds & Margin of Safety Strategy

Jack Bogle is an educator (and the Vanguard Group founder) who has spent a part of his life explaining how you can use cheap no-load index mutual funds to build your wealth. The main idea behind it is to implement dollar-cost averaging, which means regularly buying the same dollar amount of a specific fund.

Thus, you don’t have to time your purchases, and it is more likely that your average purchase price will show the real value.

But, if you’re unemployed, you cannot use this strategy. You won’t be able to buy stocks when they are dirt cheap. For example, in 2006 and 2007, most investors were spending parts of their paychecks on stocks. By the time the financial crisis rolled in, they didn’t have enough money to buy cheap stocks. Thus, they missed a fantastic chance.

There is an easy solution for this, though. You can establish an investment reserve fund – sort of like an emergency fund, but for your investments. If you add at least $100 per week to it, by the time you reach $2,400, you’ll have enough money to freely invest for about six months.

If you feel bad because you have to part with the money, then you should curb those feelings. The most affluent investors are emotionally detached – and that’s why they often make small investments.

Here’s a practical example for you (bear in mind that it refers to dividend reinvestment). Let’s say that you have $6,000 and you want to invest in the VTSMX (Vanguard Total Stock Market Fund). If you invested the total sum in September of 2007, you would have $290 more by August of 2012.

But, if you decide to invest just $100 per month, that investment grows a lot more. So, by 2012, it would have increased to about $7,689. Thus, the solution is obvious: go slow, and you’ll easily win the race.

Mutual Funds – A Warning

There’s one more thing you should know. If you are planning to invest in a low-cost mutual fund, then you probably already know that the initial investment is sometimes quite high. It’s usually between $3,000 and $5,000. Hence, it would be wise to find a mutual fund that has a low initial investment, even if it has high expenses.

But, some poor-quality funds are counting on that, and they will try to attract you with their low initial investment. Don’t get fooled – look what the high-quality providers are offering. Check out Fidelity, Vanguard, and Charles Schwab.

2. Buy and Hold Strategy

Just like Benjamin Graham said – it’s far easier to achieve decent investment results than the superior ones. Achieving superior results is often trickier than it might look.

That statement is true even today, even though most ignore it for regular “stock picking.” Small investors are after the psychological reward, even if it eats up their gains.

For example, if you buy stocks worth $500, you can subtract the $10 broker commission immediately. Then, you might be able to sell the stocks when they experience a 4% rise. But, you’ll have to pay the commission fee again, thus earning nothing.

Winning trades can eat up your gains because you have to pay taxes and various transaction costs. Not to mention that you’ll have to go against computer programs and PhD-level math experts who are just waiting to pick your pockets.

So, what can you do? Well, there’s a huge value in the buy and hold strategy. And, that value increases if the stocks are paying dividends to you for a great number of years. Reinvesting dividends is the right way to go because it could lead to incredible results. And, most of the time, dividend reinvestment is a free service offered by many online brokers.

Buy and Hold Strategy Still Exists

One fantastic example of this strategy is the Corporate Leaders Trust. This mutual fund has never given up on the stocks it holds, even though it’s about the same age as Warren Buffett.

A $10,000 investment in the LEXCX in 1935 would be worth millions today. And, during the past decade, it has outperformed the likes of Berkshire-Hathaway and S&P 500 – pretty amazing, if you ask us. Thus, it’s no wonder it always has a Morningstar five-star rating.

The CFA, Kevin McDevitt, explained the fund’s aim in its 75-year birthday message. He said that they had long-term investments in mind, which meant that they had to find blue-chip stocks that would thrive over the years. That sort of thinking was influenced by fundamentals of a company – not the earnings projections. Thus, if you find reasonably-priced stocks with dividend payouts from reputable brands, you will amass wealth just by holding onto the stocks. People will continue using those products, which means that you will never have to worry about the company going under.

It sounds a lot easier than it actually is, but it’s worth considering.

How to Invest Without Losing Your Money

The first thing you should do is learn how to determine the company’s value. If it makes sense to buy the whole company, then becoming a partial owner will also sound reasonable.

There’s a bit of math included in all that, but in time, you’ll get the hang of it. You should learn as much as you can about the company you’re planning to invest in – and that includes reading the financial statements as well. However, in the end, it all comes down to one thing: how long would it take for you to return your initial investment if you bought the whole company and all its debts? Also, assume that you would, in this situation, collect 100% of the profits until the end of time.

When you understand it like this, you will realize why a $1 stock is not that cheaper than a $50 one. But, now the plot thickens.

It’s easy to do it this way if you’re sure that the company will generate steady profits in the future. However, products come and go, and that especially applies to the tech sector. Nokia was once the king of mobile phones, and Apple was then just a $7 stock. Now, the situation is a lot different.

So, you have to think about the products as well. If nobody will use them in the future, and nobody is using them now, then why invest in them? Also, investing in companies you don’t believe in is a futile strategy. If you hate cigarettes, investing in tobacco companies will make you feel even worse.

Lastly, remember to diversify. Even if some of your stocks fail, one fantastic investment can cover all your losses. And, if you don’t overpay in the beginning, and hold on to your diverse set of about 30 stocks, you will experience grand results.

Then again, if this all sounds complicated to you, you can always purchase a mutual fund. Thus, you can own the entire stock market, and avoid the potential investing research headaches. It all comes down to the amount of free time you have.

Build Your Investing Knowledge

Investing requires a lot of patience, money, and confidence. That will make or break your investing career, so you should always strive to learn more about it. Here is a reading list you can start with:

 

  1. “The Intelligent Investor” by Benjamin Graham. Even though this is a fantastic investing book by itself, the writing style might bother you. So, you can always read the “The Rediscovered Benjamin Graham” which consists of lectures and interviews.

 

  1. Warren Buffett’s annual letters. The investor writes these every year, and you can download them for free from the Berkshire-Hathaway website.

 

  1. Joshua Kennon from About.com. Kennon knows how to explain both the basic and the more advanced concepts about finance. What’s more, he knows how to clarify a successful person’s view about money.

 

  1. If you want to know the bare facts, then you ought to read something from Morgan Housel of The Motley Fool. Meanwhile, if you’re interested in the individual stock analysis, “Crossing Wall Street” blog by Eddy Elfenbein is a must.

 

  1. TheStreet investment guides. These guides first appeared in 1996, and they are a fantastic source of knowledge for beginners. By reading them, you can learn more about the basics and all the essential financial terms. But, if you are a bit more advanced, their daily stock ideas are also worth checking out.
Posted by Judy Romero in Investing
11
Sep
2017

How to Pick Your First Broker

Truth be told, one can start investing even without a brokerage account. When you are a young investor, choosing a perfect broker for yourself can often be much different than it would be for experienced investors of the same level of experience. You choose a broker in a similar way as you choose a stock – with a lot of careful consideration, as not all investors require the same brokers.

What Is a Broker?

Before choosing one for yourself, you should know what a broker actually is. Basically, we have two kinds of brokers: ones who are engaged directly with clients (regular brokers), and ones who function as mediators between a larger broker and a client (broker-resellers).

Regular brokers are usually believed to be more respectable than broker-resellers. That doesn’t mean that resellers are bad, but you should learn a bit more about their ways before you sign up with them. Regular brokers such as TD Ameritrade, Ally Invest, Fidelity, and Capital One Investing belong to recognized organizations. For example, they are members of the FINRA (Financial Industry Regulatory Authority) and the Securities Investor Protection Corporation.

Full-Service Vs. Discount Brokers

Let’s break it down even further and learn the distinction between discount brokers and full-service brokers. You might have guessed from the name – full-service brokers provide significantly more services than discount brokers. But, the services aren’t exactly cheap. When you hire a full-service broker, he will do much of the legwork for you, giving you plenty of one-on-one advice and customized suggestions and research.

When it comes to discount brokers, many of them will provide the option to request a broker solely for advice on a specific trade with your current brokerage account. Be cautious, though, because once you execute that trade, you will end up paying considerably more (in execution fees) after having consulted with an actual broker than you would with a plain online trade.

If you are a young investor, it is probably your best bet to go with discount brokers. Although some people advise new investors to hire full-service brokers, that’s not financially feasible for a young person who has just started investing. Moreover, many investors have used online discount brokers in recent years. They provide various tools suitable for inexperienced investors who aren’t always sure what their next step should be. Also, when you start slowly, you’ll be able to learn much more about investing if you do some of the work on your own.

Fees and Costs

Although trade executions fees are important, there are other types of brokerage fees one should take into account as well. Most people under 30 are limited by their budget. Before investing, it is essential that you look at the fees that could apply to you. By doing that, you will make sure that you get the most of the money you invest. Here are some examples of additional costs you should consider.

Minimums

To start a brokerage account, most brokers require minimum balances. With an online discount broker, the number usually ranges between $500 and $1,000.

Margin

New investors often don’t want to open a margin account straight away, but it’s something to consider in the future. The minimum balance is normally higher for margin accounts. Also, be sure to take a look at the interest your broker will charge you when you make a trade on margin.

Withdrawal

Even though the money belongs to you, it isn’t always easy to get it out of your account. Some brokers will charge you to make a withdrawal. Furthermore, they might not let you take any money if it will drop your balance below the minimum. With some accounts, you can write checks from them, but those normally require a much higher minimum balance. You should have a good understanding of the rules regarding the withdrawal of your money from your account.

Complicated Fee Structures

Even though the majority of brokers have comparable fee schedules, some have complicated fee structures. These structures can make it hard to spot hidden fees. Complex fee structures are typical among broker-resellers who might use them as a selling point to attract clients.

If your potential broker has an unorthodox fee structure, it’s even more important to confirm that he is legitimate. He has to look out for your interests, and his fee structure has to complement your investing style. When the rates seem too good to be true, they might be. Be sure to read about fee summaries and your account agreement thoroughly. Additional fees can be hidden there.

What Kind of Investor Are You?

The answer to this question should affect the selection of your broker. There isn’t one perfect broker for everyone. So, it might be smart to determine your investment style before you start to invest.

The Trader

If you don’t hold onto stocks for long periods of time, you are a trader. Traders are typically interested in dirty and quick gains that are based on short-term price volatility. Also, they make a lot of trade executions in a short amount of time. If this is how you envision yourself, search for a broker with low execution fees. Otherwise, your returns could be eaten up by high trading fees. You should know that active trading requires experience. Frequent trading and a new investor are often a match that results in negative returns.

The Buy-and-Hold Investor

A buy-and-hold investor, also known as a passive investor, holds onto stocks for the long term. They let the value of their position increase in worth over longer periods of time and then reap the benefits sometime later. Buy-and-hold investors’ main concern is staying away from brokers with monthly fees. A somewhat higher trade commission shouldn’t concern them.

Other Factors to Consider

If you find that your investment style falls between a buy-and-hold investor and an active trader, you are not the only one. In this case, additional factors will be crucial when picking the best broker for yourself. For example, an extremely young investor (a minor) won’t be able to open his own brokerage account. But, some brokers have made it possible to set up custodial accounts and thus offer fee structures that suit teenagers. This way, people can start investing at a young age.

The Bottom Line

There will come a time when you’ll have to make a decision and choose a broker. It is essential to balance your needs as a client and as an investor. Another thing that is crucial is good customer service.

Your first broker doesn’t have to be your broker forever. However, you will have a much better shot at making money as an investor if you take your time and do your research before choosing the right one.

Posted by Judy Romero in Investing
27
Aug
2017

Investing in Dividend Stocks: A Quick Guide

Did you ever want to learn how to make money from investing in dividend stocks? Well, we are here to give you a quick walkthrough that will help you find dividend growth stocks that are safe picks. So, let’s jump right into it.

What is the first thing you should focus on while evaluating a dividend stock? Well, we would recommend focusing on the sustainability and viability of the dividend.  The primary focus should go straight to having secure payments every year. No matter what happens during the year, your payment should be safe.

And, to keep up with the payments, the company has to have a steady cash flow. Logically, lack of it poses a danger to a dividend. If the company’s cash flow is weakening, one of the first costs that will be cut down will be dividends. And the last thing you want in your portfolio is a dividend stock that is failing to pay dividends. That is something that happened to several companies in the energy sector. Chesapeake Energy and Linn Energy both had to remove dividends altogether.

So, what do you need to do to locate a “safe” dividend? Well, checking the cash flow is the most important thing to do. Try to find a company that can afford to cover the payments at least two times over. Some companies are willing to sustain dividends and go into debt, but that is not a sustainable practice.

You should also check the dividend history of the company. Of course, there are no guarantees, but a lot of companies have made it into a habit to raise their dividends each year.

And lastly, it is always a good idea to check if the yields are trending upward, especially if they are nearing the all-time high.

Of course, you are going to want to run some analysis tools. Mainly, most of the basic research that you would use while picking regular growth stocks applies. However, you should add a layer of analysis that focuses on fixed income.

As a dividend stock investor, you should focus on the outlook for the company rather than on individual trades. Not to mention that you should always consider long-term positions. And this is where the difference lies. Most retail investors would tell you that a long-term position is a position you hold for a month. Not for you. The minimum period for holding a dividend stock in your portfolio is a year. And you should usually plan to hold it for a lot more than that.

The drops in the value are also not as critical as they are with regular stock. For example, if the stock falls from $60 to $55, that is not that big of a deal as long as there are no fundamental changes. The dividend is there to cushion the losses and make it a lot easier for you to ride out the low.

Now, we should probably strengthen our understanding by going through some of the concepts of dividends.

We should start with the fact that they are usually paid quarterly, and can be adjusted at every interval, which means that the dividend can grow, fall, or straight out disappear at the interval. That is why you should look for a company that raises the payout consistently.

Now, we should talk about the yield. If you have ever heard someone say that a particular stock comes with a dividend of 5%, they were talking about the yield. The yield is a ratio of the payment the investor gets every year from the dividend stock.

The next factor we will mention is the ex-dividend date. Essentially, this date is the cutoff for the interval payment. So, if you want to qualify for the period dividend, you should make sure to make your trade before that date. So, if you see a share that opened slightly lower than usual, it could be due to the ex-dividend date.

You should also remember that you might have to wait for four weeks after this date to receive the payment. That means that if you sell your shares before this date, the one who bought the shares will receive the dividends. However, if you sell them on the ex-dividend date, or even after, you can still receive the payout. Of course, you should hold the position for a lot longer than weeks, but if you are looking to sell, this tip might get you a bit more money overall.

Posted by Judy Romero in Stock
22
Jul
2017

Investing in Stocks for the Long Haul

It’s often said that the masochist and the optimist are way more similar than one would have thought. Individual investors often find themselves wondering which one they resemble more.

Even those who consider themselves optimists have to admit the following: investing won’t be easy in the next couple of years. According to Ralph Wanger, ACRNX’s manager, a period of fairly tough markets is ahead of us. Only those who have substantial skills are going to prevail.

If you are still here, reading financial publications, then the mighty market hasn’t scared you away. That’s great news since stocks remain every investor’s best bet for the long run.

Jeremy Siegel stated that the best bull market ever lasted from 1982 to 2000 when real returns were around 15.6% a year. When you compare that to the historical rate of equity returns, that’s more than double. Regression hasn’t been enjoyable.

But, you can still make money. It’s just that the rules have changed, and some tried rules have become vengeful now. It’s better to throw the old playbook away and adjust to recent changes. Long-term investors can succeed with the help of the long haul in the new era, regardless of possible market changes.

Firstly, let’s go over the rules of the game.

Know Yourself

Numerous investing strategies exist – deep value, active trading, buy and hold, index investing, etc. Before doing anything else, investors should determine which type exactly they are.

According to Michael Mach, EHSTX’s manager, to be a long-term investor, you have to know yourself. He claims that the key is to combine a rational investing approach and your personality. A consistent application will result in success.

If you don’t mind taking a large risk, and you can keep your cool in periods of great volatility, you can probably handle a risky strategy. As the majority of investors start to lose their cool, the long run often focuses on strategies designed to avoid excessive risk and marketing timing. Instead, longer time horizons and fundamental analysis are favored.

One more thing, be honest with yourself. You have to know how much time you will sacrifice to track your investments. For example, avoid taking big stakes in a couple of companies in the quickly-evolving biotechnology industry, if your plans don’t include keeping up with sector development.

Diversify

When it comes to investing, diversification is in all likelihood the simplest truth there is. Also, it is most often misconstrued. Back in the 1990s, asset allocation used to mean 100% stocks for many people, and around 90% of those stocks were large-cap growth.

Basically, all investment vehicles experience ups and downs. But, a large number of individual portfolios are made of holdings that all move up at the same time and then go back down again at the same time.

The founder and CEO of Legend Financial Advisors, Louis Stanasolovich says that investors need diversification. By that, he means that they need to diversify away from large-cap domestic equities. According to him, when you buy two Janus funds, three Fidelity funds, American Funds Growth Fund of America, and an S&P 500 index fund, that’s not diversification.

In order to achieve true diversification, investors have to assemble portfolios by using investments that have lower correlations to one another. Here’s an example: for equity holdings, you should consider paring back your large-cap weighting and improving exposure to international stocks, emerging markets, real estate investment trusts, and smaller-cap stocks.

The Reinvention of DIY Investing

One of the supposed hallmarks of the bull run from the 1990s was the rise of the DIY investor. When the stock market bubble collapsed, some experts declared the DIY movement dead.

There’s a lot of irony in that. Investors got over their heads in the recent years mainly because the notion of DIY investing was cast aside, or just poorly redefined. DIY investing isn’t just reading The Wall Street Journal or watching business news, listening to analysts or getting inside tips from your broker; it’s much more. It requires hard work and doing your research before making any decisions. If you just buy a stock that someone mentioned on CNBC, that isn’t doing it yourself.

 

To reinvent DIY investing, remember what Peter Lynch said in 1989. He advised investors to stop listening to professionals, ignore the recommendations of brokerage houses, hot tips, and suggestions from their favorite newsletter, but do their own research instead.

However, this doesn’t mean that one should disregard all stock analysts, mutual fund managers, business news experts, etc. There are various trustworthy and intelligent people who can help you become a better investor. What’s more, countless are at your disposal in the Internet age. To put it simply, trust people, but verify. These resources should help your research, not replace it.

Passion For Investing, Not Investments

To become a successful DIY investor, one will need plenty of fundamental analysis, analyst reports, going over company statements, and online and offline research. Passion is a must. However, try not to be too passionate about your investments. Fear and greed are not great emotions to be driven by, at least not when investing. So, focus on being unemotional about your investments.

Emotions shouldn’t get in the way, that’s a common truth. It is even more important to remember this during unstable times, when there are a lot of sudden moves on the market, and no sustainable upward trend. Remember to stick to your guns, don’t just follow blindly.

In September 2002, many people thought the world was coming to an end, and wanted to sell everything. Then, in October, tables turned, and they wanted to buy everything. Neither of these two ideas proved to be sound.

The New Era

Let’s take a look at the market peaks of 1929, 1966, and 2000 to get a sense what the new era could look like. It wasn’t until 1954 and 1982, respectively, that stocks returned to their previous heights. Take inflation into consideration, and that’s 1955 and 1994, according to Wanger.

We can’t be sure if another quarter of a century will be needed to get back to the levels from March 2000. Either way, investors have to realize that getting rich quickly isn’t the right recipe for success in this market. Also, overburdening technology isn’t the best idea either.

When the energy bubble burst in 1980, here is what happened to the energy sector. For energy stocks, it was the best of times and then the worst of times. Similarly, technology stocks suffered, and they may keep sliding.

However, this shouldn’t make you avoid all tech stocks. Companies like eBay and Qualcomm managed to keep record earnings and revenue growth during the industry’s worst downturn. In the meantime, giants like Microsoft have made themselves more appetizing as stable performers by ushering in dividends. That, would, however, go against all bubbles in the 20th century, in case tech was to recommence leadership in the new era. In order to stay safe, keep technology light.

Nobody can know for sure what the next decade holds. Also, it’s impossible to say if stocks will experience a fourth down year in a row for the first time since the Great Depression. If we rely on the post-bubble history as an indication, quality companies could outperform.

Marshall Acuff, the founder of AMA Investment Council, says that everyone should stack as many things in their favor and cut down speculations to a minimum. What’s important is the price, a clean balance sheet, a dividend-paying stock, and a high rate of return. He also says he’d keep his growth, as well as valuation/risk growth expectations conservative. Being in a hope category isn’t a great choice.

The 7% Solution

It’s natural that expectations get out of order with the 18-year run of 15.6% returns. Over a very long haul of 200 years, stocks return around 7%, according to Siegel’s research. Both companies and individuals could anticipate the broader market to give back the historical average over the course of their investing lifespan.

However, don’t expect double-digit returns or you’ll be disappointed.

When you get your expectations right, you will realize that 7% returns aren’t that bad. Your money will double every 10 years. Those who aim for a more sensible 7% return are less prone to digress from the investing game rules. Lower your expectations, and it will be much easier to be an optimist, rather than a masochist.

As this text column started on a negative note, here’s a bit of cockeyed optimism for the end: The 2000s decade may be the same as the 1930s, meaning the worst for investors.

There was only one decade when market averaged a loss was (from 1930-1939), resulting in a negative 0.05% average yearly return. So, how is this exactly good news? Managing director at Eaton Vance, Larry Sinsimer, draws attention to the fact that the average annual market return has been a negative 14.5% this decade. Thus, to equal the 1930s, the stock market will need to give back 5.6% per year on average. In order for a decade to have a flat return, the markets would need to give back 6.5% per year.

Posted by Judy Romero in Stock
11
Jun
2017

Penny Stocks Trading Guide

The term “penny stocks” usually correlates to instruments that small companies issue and trade at less than 5 dollars per share. Many of these OTC stocks are small companies in growth stages. Most traders like to further classify them by separating shares that are under a dollar from those that are over.

Companies with shares that trade for less than a dollar are popular choices with new traders. And, while there are stories of incredibly successful penny stock traders, they are very risky purchases. Most of the time, they trade for under a dollar for a reason. Usually, that reason is that the company’s financial metrics are poor. Poor metrics lead to general uncertainty when it comes to the future of the stock.

Typically, penny stocks are traded OTC (Over the Counter). That means they are not on lists of formal exchanges such as NASDAQ; instead, you can find them on OTC Bulletin Boards or trade them as Pink Sheets. In fact, if a company drops under 1 dollar while trading on NASDAQ, NASDAQ will remove it from their lists after a certain period. That means the company will have to convert to Pink Sheet or OTCBB.

With that in mind, you should still know that not every company that trades Over the Counter is a penny stock company. A lot of them are just trying to grow their business and step up to a major exchange like the NYSE. So, if you manage to identify the stocks that will do that, you are golden. Of course, it is fairly challenging to avoid those that are extremely risky.

Choosing Your Broker

There are some things you should consider before selecting a broker for penny stock trading. First of all, make sure that there are no commission gimmicks. You want a broker with flat fees that charges per trade. Anything else might cost you a lot more money in the long run. Especially if you plan on trading with a lot of money eventually.

A lot of brokers will charge you additionally per share. And that is on top of the base fee. And, remember, these are penny stocks – you will be buying shares by the thousand. Even if the brokerage with this type of fees has a maximum cost limit, they will be far more expensive. Allow us to break it down for you with two examples.

The first example: You find a broker that will charge you a flat fee per trade. Let’s say they charge 5 dollars per trade (which is on the low end, but not uncommon). You enter the position with and buy stock worth 5,000 dollars. The fee remains 5 dollars. Now, let’s see the other situation.

The second example: You find a broker that charges half a cent per share and buy 5,000 shares of a company that trades for 80 cents. That means you just bought 6,250 shares and had to pay $31.25 in fees. As you can probably see, the difference is quite noticeable, especially if you plan on making hundreds of similar trades each year.

So, to help you out, here is the list of top five brokers for those who want to trade penny stocks:

  1. E*Trade
  2. Interactive Brokers
  3. Charles Schwab
  4. Fidelity
  5. TD Ameritrade

Beware of Frauds

In most of the cases, penny stocks are that inexpensive for a good reason. That usually leads to large institutions avoiding them, which further leads to little liquidity. Due to the liquidity issue, the difference between the ask and bid prices can be very noticeable. And that can make them perfect targets for various frauds.

The most famous method of manipulating penny stocks is the “pump and dump” strategy. The person performing this scheme will first acquire a huge number of shares. They will then use various paid services to promote the stock and flood the Internet with false reports and fake news to encourage people to buy the stock. They will send out millions of emails to people around the world and have fake accounts on social media networks promoting the stock. Once the stock reaches a sufficiently high value, they will sell everything they have to make a profit. But they won’t even stop there. Since the cost was artificially inflated, you can expect that stock to plummet. So they will start shorting shares of that stock to make even more profit.

Don’t Believe In Every Myth About Penny Stocks

For some reason, a lot of people believe that you are getting more for your money when buying inexpensive shares. However, that is not true at all. In fact, these stocks can be a lot riskier than stocks that trade for tens of dollars. After all, the stronger shares will have support from larger investors. And, not to mention the listing on major exchanges such as NASDAQ.

Of course, there are ways to make a lot of money through penny stocks. That is why they are still very popular, and people trade them every day, especially since the low cost of the share can mean an incredible increase in value. It is relatively easy for a stock to double its price if it initially went for 15 cents.

The Takeaway

To summarize this article, there are five essential tips you shouldn’t forget when trading penny stocks.

  1. Penny stocks are risky
  2. Don’t get caught up in a pump and dump scheme
  3. Ignore the promotional emails regarding shares
  4. Do your homework and always research the stock yourself
  5. Stick to flat-fee commissions

 

Follow these tips, and you will drastically improve your chances of turning a profit at the end of the year.

Posted by Judy Romero in Stock
27
Sep
2016
Retiring and Looking At Investments?

Retiring and Looking At Investments?

If you are retired and you read this, I would like to extend my sincere congratulations for having the luxury of a pension. I’m sure you’re anxious or maybe the curiosity to understand how to better manage their pensions and activities to help his years as a boarder a comfortable financially so they can concentrate on enjoying life without the inconvenience of worrying about money.

1) to examine the pension plan

The first step you must take is to find himself exactly how your retirement plan in detail. Read the fine print and ask if uncertain. All retirement plans are equal. Normally, you should note if the pension is his whole life, or if it is still a certain age. Pension plan to provide an element of insurance for you? How much you pay each month? Where are the payments are made on an annual basis? Are organizations that provide these benefits to insured and what would happen if these organizations could fail in certain situations? There are ways to get tax credits and reliefs of his pension?
These are some questions you should ask questions about the plan.

Figure 2) for its core activities and liabilities

Now we understand better its security plan is important for you to look closely at the resource base of assets and liabilities that most people have is their home and possibly their own cars or other vehicles. However, these activities can become obligations. If you’re one of those people who have managed to pay their homes and vehicles, without having to rely on contributions, it’s great! But if you’re the majority, who still have your house every month and for vehicles to meet, we must consider whether you can reduce the total long term liabilities.

dollar-appreciation

One possibility is to try to repay their debts as possible. We all know that the payment installments usually involve heavy interest rates and may end up paying three times the original price of the house of the vehicles. Paying their debts before it reduces the interest payable. Now I understand that you should keep the money in hand and there is inflation, if the money later, maybe a bit ‘of money is worth less, but in general, by hand or the bank is an illusion. In fact, it happened in the house and car, why not reduce the amount spent?

At this point you probably have some smart investors who believe that the use of money to invest, we can easily offset the interest earned on our liabilities. But this violates the first principle of investment, for example, you should only invest what is needed (for example, the surplus).
This brings us to our good neighbor, the financial investment, if the mutual funds, shares such as Royal Mail that pay dividends, bonds or other financial products. I remember, was highlighted in our financial profile has changed. For example, the typical owner should review their financial investments and reallocate the funds to ensure that the reduction of the likelihood. For the most part, the days of the need to speculate heavy to be put aside in favor of safer investments.

3) Take care of yourself

Surprised by the fact that it is a financial advice? If you think that the main cause of the cost of many pensioners are actually medical expenses. The little money saved by not going for regular health screening are often overwhelmed by the costs incurred by the retiree discovers he has a serious illness. This is not meant to scare, but it’s just a reminder. Do not bore you with statistics. Suffice it to say that at this age, as older adults face a higher risk of having a serious disease like cancer, heart disease, stroke … and so on.

Now the good news is that if you care of themselves physically, decreases the chances of it happening. Simple things like walking regularly, cut the consumption of tobacco and alcohol, or better still to stop smoking, staying socially and mentally active and higher dividends and so on is the best plan to invest freely. As pensioners, which should include regular checks to detect early signs of disease, preferably twice a year, or at least once a year.

4) Insurance

However, some serious diseases and disasters occur. Fortunately, if you followed the suggestion above, would have been recognized previously, but still pay the bills and so hospital to recover. This is where the insurance cover may seem a waste of money for some, but believe me, those who find themselves suddenly down with a serious illness and harassment by the hospital bills, you probably wished that he had received assurances. It seems ridiculous that people could buy insurance for their vehicles, yet none of their bodies. What is more important?

If you agree that your body is important and that hospital bills are ridiculously expensive, it remains only to find that an insurance company that should, if your retirement plan does not include insurance with him. The good news is that insurance is relatively cheap nowadays and often with a tie in the investment plans. As a pensioner, what is important to you is to ensure that insurance is very affordable and still cover the medical expenses and hospital care. There are more of these policies, and is only a matter of choosing one that suits you.

Another issue to consider is your home. It may be inconceivable to believe that his house, literally, it could burn or destroy, but natural disasters and accidents happen all the time around the world. The smart thing to do is get a basic insurance for your house if you do not already have one.

5) make a will

Why leave things to chance? In several regions, generally the government has sent its lawyer to divide the assets of a person under the laws of succession in that country. But if you want to cut exactly as you want, it’s a good idea to make a will.

6) Finding funds and continue to work

As a retiree, you may want to continue working in any capacity, whether independent or part-time vocations to fill the time. But if you are physically unable to work due to medical conditions or otherwise, you can get financial aid. There are many organizations that can help you if you are in a financial crisis and its retirement plan is not sufficient for their basic needs.

If you are unsure, contact with other retirees in their region to share information. Or simply use the Internet and the public to ask where to find help. The leaders of the local community, his former company, friends and local religious leaders are all people who can give an idea on how to get help.

7) Calculate the costs

Now that you have an idea of its assets, liabilities, insurance requirements, income and the like, it’s time to create an actual plan for how the cost of the amount you can pay each month.

Do this slowly. All guides on-line is essentially the same as a guide. No matter how many articles to read, nothing can replace this process for every elderly person is unique and has its own needs and desires. I really recommend you get a good solid financial consultant for this step, or someone very good with the finances that you know and trust. There is often a good financial planning professionals who are ready to run your finances at a very low cost.

However, to avoid this step, remember that the situation may change in future and, if possible, some basic plans should be taken into account.

Once done, you’re on track to enjoy their retirement. Although the management and knowing your finances may seem like a conventional accounting of all, I’m sure the financial freedom and confidence that comes with it is worth the time and effort.

Posted by Judy Romero in Investing, Investment, Stock Market
12
Jul
2016
Building Blocks for a Better Portfolio

Building Blocks for a Better Portfolio

There’s a big change coming in the second half of 2016 and you might not even be aware of it.

Manufacturing and construction, two of the building blocks of the U.S. economy, are on the upswing.

Why should you care? After all, manufacturing is just 10% of the overall U.S. economy now.

But it has such a big psychological impact when it is doing well, that optimism in manufacturing has the ability to really light a fire under the rest of the economy.

Construction, which has been in the doldrums since the housing bust, can have a similar impact. It provides thousands of good paying jobs over long periods.

If both manufacturing and construction are humming at the same time, the U.S. economy becomes virtually unstoppable.

We could be in for a whole new paradigm in the second half of 2016.

The Manufacturing Turnaround

With oil in the midst of its worst price plunge of the last 50 years and China slowing, U.S. manufacturing slowed in 2015 as well.

For 5 months, American manufacturing was in a slump. The ISM for Manufacturing was in contraction, with readings under 50, from October 2015 through February 2016. Many were calling this a “manufacturing recession” complete with job lay offs, especially in the energy sector.

In February, however, crude prices bottomed and reversed course.

I don’t think it’s a coincidence that oil and manufacturing bottomed at the same time.

Take a look at this chart for the ISM for manufacturing since 2013.

It’s not surprising that it started to weaken in 2014, just as crude prices did, and then slumped right into the worst of the crude sell off.

For 4 straight months, manufacturing has picked up steam with June 2016’s reading of 53.2 the highest since February of last year. New orders, at 57, were the highest since March.

All indicators are pointing to manufacturing gaining strength.

Is it out of the woods? Is the manufacturing recession over?

Some indicators in the index continue to remain weak, such as employment. While employment is rising, the numbers indicate that companies are being cautious in adding new members to the team.

This would be normal, however, given the length, and severity, of the downturn. It’s going to take more than a few turnaround months for the companies to believe that the strength is here to stay.

Better Portfolio

Construction Continues to Pick-Up

The construction industry is made up of three segments: residential, non-residential and public.

This is an important distinction to remember because most people pay attention only to residential activity but non-residential and public construction are also big drivers of the economy.

Since the 2008 housing bust, new construction in the housing market has been well below the average seen in the last decade. Of course, that was distorted by the bubble.

Single family and multifamily construction, however, has been on the upswing. They are moving in the right direction.

Multifamily, in particular, has been extremely hot in the last few years although most of that has been concentrated in 12 major metropolitan areas in the form of luxury apartment buildings.

Since 2010, construction starts, for all three segments, have shown annual year over year gains including a 10% gain in 2015.

Big Projects are Heating Up

In May, the $3.8 billion Dakota Access Pipeline was started. It will stretch across several states including North Dakota, South Dakota, Iowa and Illinois. It will connect the Baaken to existing pipelines in Illinois.

This is a big project in an area that has seen lots of layoffs due to the crude plunge.

Highway and bridge construction also increased in May thanks to the passage in late 2015 of the new transportation bill.

In June, according to the Dodge Momentum Index, which tracks construction starts across the country, 14 new projects worth $100 million or more entered the planning stages in the month, nearly double that of May.

Since these are just planning, or starting, that would indicate the construction spending will rise later in the year and into 2017 as these projects get underway.

Low Rates Means More Construction

The construction environment remains favorable for the remainder of this year.

Long term interest rates remain low which means its cheap for builders to borrow and the banks are wide open to lending right now. One area of caution, however, is in multifamily construction where some banks are tightening lending in over saturated markets like Houston.

States are also able to finance construction through bond measures which means more construction in the months to come.

The Federal government may be likely to spend even more money on infrastructure, depending on the tone and direction of the election. Donald Trump has pushed transportation infrastructure spending in his agenda, in the form of new airports and roads.

Non-residential construction is now just below the 2009 peak and it still has upward momentum.

Residential construction is also moving in the right direction. I don’t expect it to approach the bubble highs, if ever, for quite some time as that demand was artificially inflated. But the millennials are a big generation and they will need housing, especially in the urban areas.

The Building Blocks

Manufacturing and construction are two of the building blocks that the U.S. economy needs to pick up steam.

They are also being ignored by investors. Now is the time to start snooping around in these sectors. I’m expecting the earnings estimates to continue to rise over the next few months which means better Zacks Ranks.

1. How to Play Manufacturing

“Manufacturing” can mean a lot of different things from the pure play big industrial manufacturers with global reach to the company that is making washers to ship to the Home Depot.

I like to play this area by buying the chemical companies. It’s the chemical companies that make the products that go into many of the manufacturers end-products. You start with the chemistry first.

The chemical companies are also a large, diverse group so it can be overwhelming, but I started by looking for the best, high ranked Zacks stocks.

1. Koppers Holdings (KOP)

I discovered Koppers when the corporate insiders bought a bunch of shares two months ago. The shares were already trading near a new high when the insiders jumped in which means they had to have a lot of confidence that things were turning around at the company to buy in.

Koppers is a small cap company that makes carbon compounds and commercial wood treatment products, especially for the railroad industry.

It is really focused on its Performance chemicals segment, especially that used in railroad maintenance and on home roofs. An improving housing market actually benefits Koppers as well.

Koppers is a Zacks Rank #1 (Strong Buy). Shares are trading at 16x despite the shares being at new record highs. This is still an attractive valuation especially given its expected earnings growth.

2016 earnings are forecast to rise 27.7% and another 29.7% in 2017. Not too shabby.

2. Trinseo S.A. (TSE)

Trinseo is a mid-cap company specializing in emulsion polymers and plastics. It used to be part of Dow before being spun-off.

Its key end markets are rubber, latex and plastics and it also has a big styrene business.

Shares were on a wild ride after the Brexit on fears that the European business would be hit, but UK revenue, as a total of the entire business, is under 5%. So it’s a little too early to have a full scale panic.

The stock is dirt cheap. It trades with a forward P/E of just 6.9.

It’s also one of those chemical companies that has been around forever so it rewards shareholders. Trinseo pays a dividend currently yielding a healthy 2.7%.

Trinseo is a Zacks Rank #2 (Buy). Earnings are expected to rise 42.4% this year, with a big chunk of that based on strong styrene margins.

2. How to Play Construction

In making a plan to get into the construction industry, your first instinct may be to buy the home builder stocks or builder ETFs.

Yes, that would give you exposure to the residential side of the construction industry.

But I don’t believe that’s where the big gains are going to be made.

There are plenty of big infrastructure projects going on, such as the Dakota Access Pipeline I discussed above, which specialty construction firms will be a part of. Look to the general contractors for opportunities.

There are several top picks in this space. These companies cover different aspects of the construction industry.

For instance, Zacks Rank #1 (Strong Buy) Dycom Industries (DY) is a big player in wireless infrastructure.

MasTec Inc. (MTZ), also a Zacks Rank #1 (Strong Buy) is big in communications and pipelines. It will be involved in the building of the $3.8 billion Dakota Access Pipeline.

Neither of these stocks are cheap, even though fundamentals are strong. Dycom is trading at 21x while MasTec has a forward P/E of 18.

My best pick in this area, however, has both double digit growth as the others do, but also has really cheap fundamentals.

3. Tutor Perini (TPC)

Tutor Perini is a $1.2 billion market cap general contracting firm that works on subways, tunnels, sports stadium and other big infrastructure projects.

As of Mar 31, 2016 it has a near record backlog of $8.2 billion, up 9% year over year. That’s the largest backlog since the third quarter of 2008.

It continues to get new projects. It recently won a $100 million contract for the expansion of the Maryland Live! Casino.

After a lackluster 2015, the company has really turned it around on the growth front. Earnings for 2016 are expected to jump 76.2% and another 16.5% in 2017.

Shares are cheap even though they’ve been hitting new 52-week highs. Tutor Perini trades with a forward P/E of 11.6. It doesn’t pay a dividend.

Tutor Perini is a Zacks Rank #3 (Hold).

Think Expansion, Not Contraction

What if the economy is actually starting to gain steam, instead of losing it?

Construction and manufacturing is where you want to be coming out of a slowdown. They are the first to reap the benefits of a growing economy.

With record low interest rates and a solid job market, I’m bullish on America in the second half of 2016.

The strong double digit growth rates for all of these companies show that the analysts are bullish too. Keep an open mind on value opportunities. They are always out there somewhere, even when the stock indexes are hitting record highs.

Happy Investing.

Posted by Judy Romero in Investment, Stock Market, Trading
06
Jul
2016
Get Ready for the Breakout to New Highs

Get Ready for the Breakout to New Highs

It’s been a volatile year so far, and we’re only 6 months in.

The markets looked pretty shaky in January and February when they plunged more than -11% in one of the worst starts to a year ever. But then they just as quickly made it all back and then some.

The Brexit vote’s surprise outcome the other week sent stock reeling once again. But within days, the markets were right back to where they were when they started.

After all of the market’s machinations, the S&P is now up 2.89%.

Even though the bears were growling each time the market pulled back, the bulls won out as they have been doing since this bull market began in March 2009.

And now it looks like the markets are poised for a massive breakout sending stocks to brand new all-time highs.

Fundamentals

The fundamentals of the market look strong.

It’s true that Q1 2016’s GDP gave pause to the market with its advance estimate of only 0.5%. (This was in sharp contrast to Q4 2015’s 1.4% reading.) But the revised Q1 ’16 estimate a month later showed the economy did better than originally thought at 0.8%. Then, just last week, the final estimate for Q1 GDP showed the economy grew by 1.1%, which was even better than all of the Q1 estimates along the way.

But historically, at least over the last couple of years, Q1 has been notoriously weak, only to surge higher in the next quarter. Take Q1 ’14 for example, which came in at -0.9%, but then exploded higher in Q2 with a 4.6% print; or Q1 ’15 at just 0.6%, which was then followed by a Q2 growth rate of 3.9%. Both of those years saw the S&P trek higher as the US economy continued to expand.

We won’t get Q2 ‘16’s GDP estimate until July, 29th. But the Federal Reserve Bank of Atlanta’s ‘GDP Now’ forecast is putting it at 2.6%, painting a picture of a strengthening US economy.

Underscoring this is the robust Employment numbers showing unemployment at a 9 year low at 4.7%, with an average of nearly 200,000 new jobs created each month over the last year.

Consumer Confidence is also strong at 98.0, putting it within just a few points of its best reading since this bull market began. A strong consumer is an important metric when you consider that consumer spending accounts for roughly 70% of the US economy.

The list of improving economic reports goes on and on, from Manufacturing, to Services, to Housing, and more.

Let’s also not forget what the professional investors are doing since they are the ones who truly move the market. And one look at the State Street Investor Confidence Index (which tracks actual buying and selling of stocks from institutional investors), shows that the smart money is still bullish. A reading above 100 shows portfolio managers adding equities to their portfolios, which is a sign of confidence in the market. The latest report showed a combined reading of 105.9 with all three major regions including North America, Asia, and Europe, all recording scores above the 100 threshold.

chart Economy

Technicals

The technicals of the market are also strong.

When the market plummeted in the beginning of the year, I remained confident that it was nothing more than a long overdue correction, rather than the start of a bear market.

Why? For one, a bear market doesn’t officially even begin until the market falls by at least 20%. And from its peak in May of 2015 to its lows in Feb. of 2016, it was ‘only’ down -15.21% at its worst.

But why was I so confident the market was going to turn around? The chart said it all.

In the chart below (long-term weekly chart), you can see a trendline drawn from the lows in March of 2009 (beginning of the bull market) to the second point of the trendline in October 2011 (the lowest point following the highest high that preceded it). That trendline remained intact for the entire bull move, but had not yet been tested since those two points were established.

Knowing that a mature trend should successfully test that trendline at least once after it’s been established (resulting in at least three touch points), said to me that we’d find strong support at that level, which was just under the 1,800 mark.

As it approached that line, getting as low as 1,810.10 on February 10th, the market showed its resilience and strongly bounced backed. The Relative Strength Index oscillator at the bottom of the chart also foreshadowed the rally to come as it flashed bullish divergence while the market took out last August’s correction lows, and January’s lows as well, but registered ‘higher lows’ on its RSI readings. (The ‘higher low’ RSI readings while the market is making ‘lower lows’ in price shows it’s being made on less strength and conviction.)

Within the next 11 weeks, it soared 16.63%, closing higher in all but 3 of those spectacular weeks as it regained the closely watched 2,100 level.

Currently, the market remains above 2,100, and is above the downward slanting resistance line that connects the all-time high from May ’15, to the reactionary high in November ’15, to last month’s high in June ‘16. And with the market trading above all of its moving averages (10-day, 20-day, 50-day, and 200-day moving averages), it appears to have the momentum at its back to push onto new highs.

Targets

I’m expecting the market to make new all-time highs by the end of this upcoming earnings season (if not sooner). With the market only 1.49% from the old highs, it won’t take much to do so.

Why earnings season? For one, it’s been a great catalyst to propel the market higher. Over the last 29 earnings seasons (going all the way back to Q1 2009 when the bull market began), the median return for the S&P 500 was 2.35%. And 21 out of the last 29 periods (72%) were winners.

Moreover, there’s a greater chance (70%) of having a positive earnings season if the last earnings season was positive as well. And last earnings season saw the market up 2.38%.

Combine that with all of the good news out there both fundamentally and technically and it’s hard to come up with a good reason why it won’t make new highs.

Some may point to Brexit fears as potentially holding the market back. But, I’m highly skeptical it will even happen. And the narrative that’s taking shape right now suggests that the powers that be are looking for a political way to walk that non-binding referendum back and stay within the EU. But even if it does happen, Article 50 isn’t expected to be triggered for at least 3 months until a new Prime Minister is elected (or possibly not even until next year). And from that point, the Brexit still won’t go into effect until a two-year long process takes place for Britain and the EU to negotiate new trade agreements that will govern economic, labor, and immigration activity once they leave.

Even though it appeared as if everything had changed over there with the recent vote, in all actuality, it doesn’t seem like anything has changed at the moment, and maybe never will.

When the market finally does breakout, I’m expecting it to be big and fast. With bullish sentiment from retail investors at an 11 year low, and neutral sentiment at a 16 year high, there are a lot of people expected to pile into the market once this happens in a fear-of-missing-out-rush to get back in.

I’m expecting a move to 2,250 and even 2,300 to take place by year’s end, which would represent anywhere from a nearly 7% gain to more than a 9% gain from current levels.

And if that’s what’s in store for the indexes, then there are even bigger gains to be seen in the right individual stocks.

Three Picks for the Coming Breakout

Here are three picks that should benefit from the upcoming breakout and are poised to gain even more in the process.

1) iShares Russell 2000 Small-Cap ETF (IWM)

The iShares Russell 2000 Small-Cap ETF tracks the performance of the Russell 2000 Index. It represents virtually all the different sectors, but with a greater weighting towards the more aggressive Technology (16.69%), Financial Services (16.23%), Industrials, (13.39%), and Healthcare (13.33%) sectors, which make up nearly 60% on the index.

Granted, it holds thousands of stocks (hence the 2000 part of its name), but the ETF’s top 10 holdings are: Steris (STE), CubeSmart (CUBE), Treehouse Foods (THS), West Pharmaceutical (WST), MarketAxess (MKTX), Tyler Technologies (TYL), Sovran Self Storage (SSS), Manhattan Associates (MANH), Piedmont Natural Gas (PNY), and Vail Resorts MTN).

As far as valuations go, it has an average P/E ratio of 19.65 (just above the S&P’s 18.57), a P/B ratio of just 1.84 (below the S&P’s 2.57), and a P/S ratio of only 1.10 (vs. the S&P’s 1.80).

Performance-wise, the Russell has some catching up to do to the broader market. While the S&P is up 2.89% YTD, the Russell is only up 1.02%. And even though the broader market is just 1.49% away from their all-time highs, the Russell has to rally 10.74% to match their best levels. But that’s exactly what I’m expecting them to do and then some with a price target of 1,350 by the end of the year for a potential gain of 16.70%.

2) Lowe’s (LOW)

Lowe’s Companies is a retailer of home improvement products with a special emphasis on retail do-it-yourself and commercial business customers. They offer products and services that cover virtually every area of your home improvement needs including home décor, home maintenance, home repair, lawn & garden care, and more. They also provide solutions for commercial buildings and customers as well.

They are a Zacks Rank #2 Buy, with a VGM Score of A, in an industry (Building Products-Retail/Wholesale) ranked in the top 7% of Zacks Ranked Industries. With retail and housing/construction both doing well, this is a great stock to straddle both spaces.

Valuation-wise, they also have a Style Score rating of A, which is underscored by their industry beating and market beating PEG ratio of 1.27 vs. 1.48 and 1.79 respectively. Their P/S ratio also comes in below the market at 1.11 vs. the S&P’s 1.80. And growth-wise (also an A rating), they’re outperforming the market as well with a projected sales growth rate of 7.27% and projected earnings growth of 22.47% in comparison to the S&P’s sales and earnings outlook of 2.83% and 5.95%.

Looking at their chart, you can see they have traced out a large bullish rectangle pattern for more than a year. They finally broke out to the upside in May, although they quickly retested (albeit successfully) their old resistance area turned new support, before shooting back up. My short-term price target over the next 3 months comes in at $89.90 for a 12.94% increase. Longer-term, over the next 6-12 months, I’m looking for a move to $102.50 (before it goes even higher) for a potential gain of more than 28%.

3) Thermo Fisher Scientific (TMO)

Thermo Fisher Scientific, headquartered in Waltham, Massachusetts, is in the Medical Instruments industry and they provide analytical instruments, equipment, reagents & consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics.

They are a Zacks Rank #3 Hold, but their industry is ranked in the top 37% of Zacks Ranked Industries. The Healthcare industry is also one of the top job creators generating more than 487,000 new jobs over the last 12 months making it the top job creating sector. And more new jobs goes hand in hand with an increase in economic activity to warrant all the new hiring. And an increase in economic activity usually means more new sales and an increase in earnings.

You can see this in their projected sales growth numbers at 5.88% (which is more than double the S&P) and their projected EPS growth at 9.97% (which is nearly a 70% lift over the market). And all the while their net margins are coming in at 11.49%, beating both the broader market and their industry.

Chart-wise, they too have been tracing out a large bullish rectangle pattern before recently breaking out to the upside. But the recent Brexit inspired pullback sent TMO back down to successfully retest their previous breakout point (which was not that far off from their supporting 200-day moving average either). Since then, TMO has bounced back nicely and are poised to continue their gains. They report earnings on 7/27 and that could be the catalyst to send prices to new all-time highs. And with 28 positive EPS surprises in a row, I’m betting they positively surprise once again. My near- term price target is focused on $164 for a 9.90% increase, while longer-term I’m looking for $190 for a potential gain of over 28%.

Summary

Even though this bull market has gone on for more than 7 years now, I don’t think it’s about to stop anytime soon.

And we’re still years away for it to become the longest running bull market in history.

But history is being made right now. And this bull market’s story is still being told.

Could some of the economic numbers be better than they are? Of course. But the slower growth (key word being growth), and lack of excesses in the economy, has elongated the typical 5 year boom and bust cycle to a potential 8-10 year cycle if not longer.

Also, when you stop to consider the earnings yield on the S&P 500 (5.70% using F1 Estimates) in comparison to the yield on the 10-year Treasury (1.46% and seemingly going lower), there’s almost nowhere else to go to get a better return than stocks.

For stocks to be considered the better value, their risk-based earnings yield should trade at least at a 200 basis point premium to the 10-Year’s risk-free return. With the S&P’s earnings yield trading at more than a 400 basis point premium, stocks should enjoy exceptional demand for a long time to come.

Make sure you’re positioned for the potential upcoming breakout and be a part of history.

Thanks and good trading.

Posted by Judy Romero in Investing, Stock Market, Trading
16
Dec
2013
What to Do When the Market is Too Hot

What to Do When the Market is Too Hot

Lately, I’ve been reading quite a bit about how the market is getting overheated.  Some even say the market is in or near a bubble and soon will burst.  Once that happens, most expect large losses and price drops coming from the stocks in the market.

The S&P 500 is widely accepted as a good measure of overall stock market activity.  So far, year to date returns for the S&P 500 are up 24.48% as of December 13, 2013.  In 2012, the S&P 500 return was up 13.4%.  As you can see, the market has had quite a good run over the past 2 years and investors should have done fairly well with their portfolios.

The higher returns over the past couple years has many investors worried.  The stock market goes up and it goes down.  We can’t always expect it to go up.  Many investors and pundits become worried when the market reaches new highs, expecting that it won’t be long before it comes back down again.

This is irrational thinking.  We should not be thinking about the market reaching new highs in the form of prices.  The S&P 500 being at it’s all time high price really tells investors nothing.  As investors, to really find meaning from the market price, we need to look at it in terms of valuation.

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Looking at the market in terms of valuation means comparing the S&P 500′s price to the underlying earnings from the companies making up the index.  Most recently, the S&P 500 has a P/E ratio of 18.4 on 12/13/13.  A year ago, the P/E was 16.8.  Historically, the average has been right around 14.  So what this means is that certainly the S&P 500 is currently trading at a higher valuation than it was last year and even based on it’s historical average.  However, one thing that should be clear is that a P/E of 18.4 is most definitely not a bubble.

While the market may pull back at some point to align itself closer to historical norms, I don’t think we will see a sharp decrease due to any sort of bubble burst in the stock market.

The stock market is getting heated.  Prices are climbing.  Valuations are climbing.  Investors need to have a plan of action for when the market is starting to become overpriced.  There are a few paths of action dividend growth investors may consider in this type of situation.

Continue with your plan.  Yes, the market valuation is getting higher and many companies are becoming overpriced (not bubble territory yet but certainly prices that smart investors aren’t as interested in).  However, there are still many dividend growth companies that are trading at reasonable or even under valuations!  There are still quite a few companies on my list of Top 35 Dividend Growth Stocks that I believe are still at price points worth buying.  Later this week, I’ll write an article highlighting some of the companies I believe still worthy of buying at current valuations.  Definitely, if the investor is willing to do a little digging, more companies trading at reasonable valuations worth buying can be found.  Many dividend growth investors, me included, will want to continue with our buying of more shares of dividend growth stocks.  Until I cannot find a single company worth buying at it’s current price, I will continue to be a buyer for the long term.
Sell Put options.  This is a method many investors can use to earn a return while waiting for prices to come down to levels where they are willing to buy.  Selling put options means that you are giving someone the right to sell 100 shares of stock for each option at a given price.  In return for this right or option, the person will pay you a premium at the start of the contract.  You keep this premium whether they decide to sell their stock to you or not in the end (when the option expires).  For example, I may sell a January 35.50 Put option to someone for Microsoft for a premium of $0.23/share or $23 total.  I will receive $23 up front.  Then if the price of Microsoft drops from it’s current price of $36.69 down to $35.50 (or lower), the person who bought the put option may exercise it forcing me to buy the 100 shares of MSFT for $35.50 each.  My cost basis on each share will be the $35.50 I pay minus the $0.23/share premium I received.  My cost basis per share is then $35.27.  This means I am buying the shares at a 3.87% discount from where they are currently trading.  If you are willing to buy at this discounted level then you may want to do the option.  If not then I would advise not doing the option trade.  Option trading is an advanced strategy and I would recommend anyone interested to do a little research before jumping into this strategy.
Continue holding current positions, hold off on buying anything new and collect cash for when prices come back down.  If you feel prices are getting too high and are not comfortable buying anything with the market so heated, then one option is to put your plan on hold.  Collect the cash you normally would use for buying and keep it in a savings account.  Accumulate this cash so that you can put it to use when market prices come down to a level you are more comfortable buying at.  You may want to hold your current investments rather than selling because you want to own for the long term, you don’t really know what the market is going to do from this point (could continue going up) and you want to collect dividends.
Sell out of current investments, collect cash for new purchases when market prices come down.  There are certainly some investors that may feel more comfortable selling their stocks right now and getting out of the market completely.  This isn’t what I’d recommend, but certainly if that is what makes you able to sleep at night then that is what you should be doing.

Personally, I feel I am still able to find good valued companies worth buying, even in today’s heated market environment.  I have no idea what the future direction of the market will be.

The year 2014 could bring a small slow drop in prices, a large drop in prices, another large gain in prices.  We really don’t know.  There is nothing stopping the market from continuing it’s climb eventually to reach true bubble territory.

I am a long term investor, I buy my companies for the long run.  I won’t sell them unless I believe they are trading at absolutely ridiculous valuations, which they currently are far from.

My personal plan is to continue with my plan.  Making purchases of new shares and new companies as I have money available.  I am becoming more interested in options strategies and may decide to implement some of those in 2014 but feel I must do a little more research before jumping down that path.

How about you?  Do you feel the market is valued to high?  Are you afraid of a crash soon?  Are you continuing to buy or holding off or trying new strategies?  Share your thoughts in the comments below!

Posted by Judy Romero in Financial Statement, Investing, Stock Market