Saturday, August 18, 2012

6 Best Greenblatt Stocks For Dividend Income

Joel Greenblatt is a value investor that founded the Gotham Capital Hedge Fund in 1985. The fund currently manages around $715 million in assets. Mr. Greenblatt implements what he calls the Magic Formula to pick stocks that have high earnings yields and a high return on capital. Earnings yield is the inverse of the price to earnings ratio, and return on assets can provide a useful proxy for return on invested capital if it is not readily available. Here are the six highest yielding stocks in Greenblatt’s portfolio for investors seeking dividend income.

Southern Copper Corporation (SCCO) SCCO has a market cap of $27.44 billion with a price to earnings ratio of 13.84. The stock has been trading in a 52 week range between $22.58 and $50.35. The stock is currently trading around $32. The company reported second quarter revenues of $1.81 billion compared to revenues of $1.17 billion in the second quarter of 2010. Second quarter net income was $658 million compared to net income of 313 million in the second quarter of 2010.

One of SCCO’s competitors is Freeport-McMo Ran Copper & Gold (FCX). FCX is currently trading around $43 with a market cap of $40.57 billion and a price to earnings ratio of 7.48. FCX pays a dividend which yields 2.6% versus SCCO whose dividend yields 8.6%.

Gotham Capital owns 9,065 shares of SCCO. Gotham purchased all 9,065 shares of SCCO in the second quarter of 2011. SCCO is an exploration and mining company that produces copper gold and silver. The company’s earnings have been moving steadily upwards. Year-over-year second quarter revenues increased by 54% while net income increased by 110%. In 2010 the company’s net income increased by 68%. The company has been paying quarterly dividends since 1996 and in the third quarter of 2011 raised the dividend to $2.48 with a dividend yield of 8.6%. Like other mining companies its stock price has suffered and is down by 24.16% over the last 52 weeks. The good news is that the stock has been recovering, and the stock is up by 24.5% over the last month. I believe that SCCO’s stock price will continue its comeback, and that the 8.6% dividend yield will make the wait worthwhile. I rate SCCO as a buy.

Century Link Inc. (CTL) CTL has a market cap of $21.63 billion with a price to earnings ratio of 17.74. The stock has traded in a 52 week range between $31.16 and $46.87. The stock is currently trading around $36. The company reported second quarter revenues of $4.41 billion compared to revenues of $1.77 billion in the second quarter of 2010. Second quarter net income was $102 million compared to net income of $239 million in the second quarter of 2010.

One of CTL’s competitors is AT&T Inc. (T). T is currently trading around $30 with a market cap of $176.24 billion and a price to earnings ratio of 15.04. T pays a dividend which yields 6% versus CTL whose dividend yields 8.5%.

Gotham Capital owns 43,278 shares of CTL. Gotham purchased 38,079 of those shares in the second quarter of 2011. CTL is the third largest telecommunications company in the US, and it is a provider of long distance telephone and high speed internet access services. The company has been successful and has increased its net income in each of the last five years. CTL has paid a quarterly dividend since 1988 and since 2006 it has increased its dividend four times by 1050%. The current dividend is $2.90. The company is in a transition period because it purchased another telecom company, Savvis Inc., in April of 2011, for $2.65 billion. As a result of the purchase, the company’s second quarter revenues increased by $2.64 billion while its net income decreased by $137 million. If CTL is able to integrate the two companies, it should be able to realize substantial cost savings, and continue to pay its current dividend. I would wait to see the company’s third quarter earnings before making a decision about the stock. I recently identified CTL competitor Frontier (FTR) as a stock with a monster dividend yield. I rate CTL as a hold.

Reynolds American Inc. (RAI) RAI has a market cap of $22.81 billion with a price to earnings ratio of 17.01. The stock has traded in a 52 week range between $30.94 and $39.94. The stock is currently trading around $39.13. The company reported third quarter revenues of $2.2 billion compared to revenues of $2.24 billion in the third quarter of 2010. Third quarter net income was $367 million compared to net income of $381 million in the third quarter of 2010.

One of RAI’s competitors is Lorillard Inc. (LO). LO is currently trading around $115 with a market cap of $15.47 billion and a price to earnings ratio of 15.44. LO pas a dividend which yields 4.6% versus RAI whose dividend yields 5.6%.

Gotham Capital owns 56,506 shares of RAI. Gotham purchased 12,839 of those shares in the second quarter of 2011. RAI is a mature business that sells cigarettes. The company has had flat revenues and net income for the last six years. In 2010, the company had net income of $1.11 billion. The reason that investors are attracted to RAI is because of its high yield dividend. The company has paid quarterly dividends since 1999 and since 2006 it has increased the dividend five times by a total of 70%. The current dividend is $2.12. In addition to the rising dividend, the stock price has also been on an upswing. RAI‘s stock is up by 20.5% over the last 52 weeks and 105% over the last three years. Investing in RAI pretty much guarantees steady earnings and a strong dividend. I agree with Joel Greenblatt, and I rate RAI as a buy.

Verizon Communications Inc. (VZ) VZ has a market cap of $106.53 billion with a price to earnings ratio of 15.13. The stock has traded in a 52 week range between $31.60 and $38.95. The stock is currently trading around $38. The company reported third quarter revenues of $2.79 billion compared to revenues of $2.65 billion in the third quarter of 2010. Third quarter net income was $1.38 billion compared to net income of $881 million in the third quarter of 2010.

One of VZ’s competitors is Sprint Nextel Corporation (S). S is currently trading around $3 with a market cap of $8.14 billion and a negative price to earnings ratio. S does not pay a dividend, as opposed to VZ whose dividend yields 5.3%.

Gotham Capital owns 27,296 shares of VZ. Gotham purchased 12,085 of those shares in the second quarter of 2011. VZ is in the highly competitive telecommunications business and has seen its net income decrease in each of the last two years by 52%. In 2010, the company reported net income of $2.55 billion. However, the company has made improvements and has reported net income of $4.43 billion through the first three quarters of 2011. Perhaps the increase in earnings has helped to boost the stock price which is up by 15.9% over the last 52 weeks. The company has paid quarterly dividends since 1984 and currently pays a $2.00 dividend. VZ had strong third quarter earnings and figures to have an even better fourth quarter due to sales of the recently released of the iPhone 4s series. I think the stock price will continue to rise, and I like the dividend. Once again I agree with Joel Greenblatt and I rate VZ as a buy.

Eli Lilly & Company (LLY) LLY has a market cap of $42.64 billion with a price to earnings ratio of 9.16. The stock has traded in a 52 week range between $33.46 and $39.78. The stock is currently trading around $38. The company reported third quarter revenues of $6.15 billion compared to revenues of $5.65 billion in the third quarter of 2010. Third quarter net income was $1.24 billion compared to net income of $1.3 billion in the third quarter of 2010.

One of LLY’s competitors is Pfizer Inc. (PFE). PFE is currently trading around $20 with a market cap of $154.64 billion and a price to earnings ratio of 18.51. PFE pays a dividend which yields 4% versus LLY whose dividend yields 5.2%.

Gotham Capital owns 33,619 shares of LLY. Gotham purchased 9,758 of those shares in the second quarter of 2011. For the last three years, LLY has had relatively little revenue growth. However over that period of time the stock price increased by about 40%. One reason that investors find LLY attractive, is because of its consistent dividend income. The company has paid a quarterly dividend since 1982 and over the last five years it has increased its dividend three times by 22.5%. The current dividend is $1.96. In October of 2011, the company will lose the exclusive patents on Zyprexa, an antidepressant drug that has been its largest revenue producer. In 2010, Zyprexa had worldwide revenues of over five billion. The company also has several other drugs coming off patent, and has no new replacement products to make up for the potential loss in revenues. Despite these developments, LLY‘s stock price is up by 8.75% over the last 52 weeks. LLY has been a strong company, but there is too much uncertainty about the company’s future revenue stream for me to recommend it. I rate LLY as a hold.

United Online Inc. (UNTD) UNTD has a market cap of $541.91 million with a price to earnings ratio of 10.18. The stock has been trading in a 52 week range between $4.80 and $7.50. The stock is currently trading around $6. The company reported second quarter revenues of $256 million compared to revenues of $243 million in the second quarter of 2010. Second quarter net income was $14.8 million compared to net income of $14 million in the second quarter of 2010.

One of UNTD’s competitors is Inc. (FLWS). FLWS is currently trading around $3 with a market cap of $181.76 million and a price to earnings ratio of 31.44. FLWS does not pay a dividend as opposed to UNTD whose dividend yields 6.7%.

Gotham Capital currently owns 81,628 shares of UNTD. Gotham sold 10,074 shares of UNTD in the second quarter of 2011. UNTD is an online retailer of flower and other gift items. The company has been profitable in four out of the last five years. The company’s second quarter year-over-year second quarter revenues increased by 5% while its net income increased by 6%. The stock price has been steady and is down by 1.1% over the last 52 weeks. One of the attractive features of this stock is its 6.7% dividend yield. The company has paid quarterly dividends since 2005 and currently pays a $0.40 annual dividend. UNTD is a company that pays a nice dividend but is unlikely to realize any significant earnings growth. Joel Greenblatt recently reduced his position in this stock but still owns 81,628 shares. I will follow his lead, and I rate this stock as a hold.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Top Stocks For 5/30/2012-13

GreenHouse Holdings, Inc (GRHU)

GreenHouse Holdings is a leading provider of energy efficiency and sustainable facilities solutions. The company designs, engineers and installs disparate products and technologies that enable its clients to reduce their energy costs and carbon footprint. Its target markets for energy efficiency solutions include government and military, as well as commercial, residential and industrial markets. In addition, the company develops designs and constructs rapidly deployable, sustainable facilities primarily for use in disaster relief and security in austere regions.

Terrorism has always been a problem in United States history. Over the last five years, however it has become the center of focus for many state and national governments. Terrorism strikes us at the very core because terrorists are universal; they have no age, sex, race, or nationality. They come from anywhere; have motives that are religious, political or racist. Terrorism is felt on every level, and especially three levels which locations are as local (within our own community, city and state) national and even globally.

GreenHouse Holdings, Inc. a leading provider of energy efficiency solutions and sustainable infrastructure products, announced that it has completed the acquisition of Costa Mesa, CA based Control Engineering, Inc. (CEI), a provider of automation and control solutions including engineering, installation and integration services. The CEI team are experts in multiple technologies and applications with a client base that includes recognizable brands from a wide range of industries including AECOM, Fluor, Coca-Cola, AMGEN and Occidental Petroleum with anticipated revenues to exceed $3.5 million in 2011.

GreenHouse is a qualified service provider of Southern California Edison’s Auto-DR program, providing site assessment, feasibility studies, project development, engineering, and installation of enabling technologies including complete processing of all utility documents. The addition of CEI’s suite of services will allow GreenHouse to not only realize greater profit margins on demand response implementations but more importantly package a complete turnkey Auto-DR program that can be adopted by utilities across the country.

For more information please visit official website of GRHU:

Cleantech Transit, Inc. (CLNO)

Cleantech Transit Inc. was founded to capitalize on technology advances and manufacturing opportunities in the growing clean energy public transportation sector. The Company has expanded its focus to invest directly in specific green projects that could maximize shareholder value. Recognizing the many economic and operational advances of converting wood waste into renewable sources of energy, Cleantech Transit Inc. has selected to invest in Phoenix Energy (

One of the major advantages of biomass energy is it’s small carbon footprint compared to fossil fuel.
As long as new plant material is grown to replace that used, biomass energy produces no net CO2 increase.
To the extent biopower reduces fossil fuel consumption it reduces CO2 release.
One problem keeps this from being as good news as it should be: often fossil fuels are used to harvest and manipulate biomass.
For example, loggers use chain saws to fell trees and trucks to transport the lumber, so some fossil fuel is used to produce wood for fuel.
Depending on the exact situation, the fossil fuel consumption required for the use of the biofuel offsets or even eliminates any carbon advantage.

Cleantech Transit Inc. recently announced that the previously announced 500 KW biomass gasification facility located in Merced, California has successfully passed its interconnection tests and is now connected to the utility distribution grid.

The gasification technology uses a non-combustion process to convert Ag and other woody residues into a hydrogen rich gas (”syngas”), which is then converted into electricity, along with heat and biochar (a useful byproduct that captures carbon in solid form and can be used as a soil amendment).

The Phoenix Energy technology used in Merced essentially cooks the biomass in an oxygen-deprived environment to release the elemental gasses from the wood. In the process biomass is converted into a carbon rich biochar. With the carbon fixed in solid form this process not only provides a valuable soil amendment but also serves as a source of carbon sequestration.

The Merced plant is expected to produce enough electricity to power about 400 homes. The plant connected to the electricity grid under California’s feed-in-tariff with a 15-year power purchase agreement.

For more information about CLNO, visit

Olympic Steel Inc. (Nasdaq:ZEUS) announced that it entered into a merger agreement (”Merger Agreement”) with Chicago Tube and Iron Company, a Delaware corporation (”CTI”) and the holders of a majority of CTI’s outstanding common shares. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Olympic will acquire all of the outstanding common shares of CTI (the “Transaction”), and CTI will become a wholly-owned subsidiary of Olympic.

Olympic Steel, Inc. engages in the processing and distribution of carbon, coated, aluminum and stainless steel, flat-rolled sheet, and coil and plate products in the United States.

Elizabeth Arden, Inc. (Nasdaq:RDEN) announced that the Company will be presenting at the Stephens Inc. Spring Investment Conference being held at The New York Palace Hotel in NYC on Tuesday, May 24, 2011 at 11:30am eastern time. Scott Beattie, Chairman, President, and CEO, and Marcey Becker, Senior Vice President, Finance will host the presentation. The presentation will also be webcast live and can be accessed by visiting the “Investor Relations” section on the Company’s web site at The live webcast can also be accessed at

Elizabeth Arden, Inc., a prestige beauty products company, sells fragrances, and skin care and cosmetic products to retailers and other outlets in the United States and internationally.

Bullish On Brazil: Comparing 2 Small-Cap ETFs

This week’s Barron’s has a special section on investing in Brazil. It included an article featuring a panel discussion with three investment managers who have an interest in Brazil.

One of them, Christopher Abuthnot, Senior Portfolio Manager at John Hancock Asset Management, addressed a question on Brazil’s largest cap companies – Petrobras (PBR) and Vale (VALE) for example – that represent large segments of Brazil’s Bovespa:

So the companies that dominate the Bovespa, which are also the firms that trade in the U.S., are not the best opportunities to get at Brazil's growth?

Arbuthnot: Right. Less-sophisticated investors may buy the big benchmark names, like Petrobras and Vale, and they're great companies. But we don't own them. If you can buy locally-listed stocks, you'll find better risk/reward profiles in the lesser-known benchmark names, which still have substantial market share and phenomenal management teams.

I tend to agree. If you take a look at one of the mostly widely traded Brazil ETFs, the iShares MSCI Brazil Index Fund (EWZ), you’ll see that various classes of shares of Petrobras and Vale – along with Itau Unibanco (ITUB) and Banco Badesco (BBD) account for nearly 47% of the entire ETF.

As Arbuthnot notes, Petrobras and Vale may be great companies (and I own Vale), but as the country’s middle class continues to grow, companies that meet expanding domestic demand will probably do quite well.

That’s one reason why I happen to own another ETF, the Market Vectors Brazil Small-Cap ETF (BRF). This fund owns some of the smaller companies that appear more leveraged to growth within the country and less leveraged to exports.

A look at the sector allocation between the two funds shows a big difference in the types of companies in these ETFs.

Taking a look at performance year-to-date, both BRF and EWZ are down, with BRF underperforming the larger-cap EWZ fund by around 4.3.

But looking over the past two years or so, BRF has outperformed EWZ, especially in late 2010 into early 2011.

High beta vs. Brazilian Real

If you plot weekly price changes for BRF against weekly price changes in the SPY ETF, you can see that there’s a positive relationship between the two. The slope of the linear regression line essentially represents the fund’s beta to the SPY ETF.

But there’s an even stronger relationship between the BRF ETF and the Brazilian Real as you can see here – a higher beta and higher correlation.

Any country ETF is going to be subject to currency risk. And given the recent strength in the U.S. dollar with respect to the Brazilian Real, it’s not surprising that BRF has given up a lot of its gains this year.

A better small-cap Brazil ETF?

There’s another small-cap Brazil ETF, the iShares Small-Cap MSCI Brazil Small Cap Index Fund (EWZS). It has only been trading for a little over a year now, but it seems to outperform the Market Vectors BRF ETF.

Why? I can’t say for sure, but I did take a look at the top 15 holdings for both BRF and EWZS.

As you can see in these tables, while BRF does include many of the companies in the EWZS top holdings, EWZS does not seem to own companies that top the BRF list. It's what EWZS doesn't hold that could be what adds more lift to its performance.

(Note that symbols with numbers at the end represent shares traded in Sao Paulo, but that two of BRF’s holdings are actually U.S. ADRs.)

I also took a look at the sector allocations for both funds – comparing the large-cap EWZ with both BRF and EWZS.

As you can see, EWZS adds more financial and industrial exposure than BRF and tends to underweight the materials sector.

EWZS is a fairly small fund, only $47 million in AUM with an average daily volume over the past three months of about 19,000 shares. BRF is more than 10 times as large at $636 million with an average share volume of 244,000 shares.

As I mentioned, I own Vale, but I do want to continue to own these Brazilian small cap companies. If I put new money to work however, I might consider EWZS instead of BRF – especially if EWZS gains more traction and greater liquidity.

Disclosure: I am long BRF, VALE.

Today In Commodities: Read The Tea Leaves

Maybe it is the money some clients have lost on their longs or maybe I’m getting a better feel for the market but I expect prices to head south in a number of commodities…trade accordingly. Crude will close virtually unchanged today but the volatility continues as $2,500-4,000 daily ranges are becoming more and more common. We expect prices to trade lower and continue to operate under the influence that Crude is a sale above $88/barrel and a buy below $78. In December futures 3.75-3.80 continues to support natural gas but wait for a move higher to confirm that an interim bottom is in.

Stocks were surprisingly resilient today holding onto slight gains as of this post. We are incapable of picking a top but a close back below the 9 day MA would signal that we are due for at least a pullback. That pivot point comes in at 1205 in the S&P and 11425 in the Dow. Another flush lower in gold with prices down $25/ounce trading to two week lows. We advised clients to cut losses on their gold longs today. Silver gave up nearly 2.5% today briefly trading back under $30/ounce. Clients were advised to cut loses on their silver longs today as well. The fact that copper lost 5% today and is off 10% this week does not bode well for commodities moving higher in the immediate future. The dollar was unable to hold onto gains reversing mid-day closing under the 34 day MA again. Clients continue to scale into bearish exposure in the Yen anticipating a trade down to 1.2750 in the coming weeks. Cocoa cannot get out of its own way on a rally in the coming sessions move back to the sidelines. Exit all remaining futures longs in November OJ.

Tomorrow is options expiration and we expect a trade below $1.70 in futures. Use downside into the weekend tomorrow to exit 30-yr bond bearish trades. Corn reversed to our surprise and is on the verge of breaking above the 200 day MA…a feat that we had expedited but we anticipated a trade lower first. A close over $6.60 in March triggers buy signals. January soybeans closed lower again today but were able to pare loses almost fighting back into positive territory. Live cattle were lower again today making their way back to the 20 day MA. We may get a window to offset December shorts for clients on a further break. As for February a 50% Fibonacci retracement drags prices back near 122.50…stay tuned.

Risk disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Friday, August 17, 2012

Apple Stock Is the New Microsoft — Good, But Not Good Enough

Microsoft‘s (NASDAQ:MSFT) earnings, reported after the bell Thursday, were good. But like Apple (NASDAQ:AAPL), they just weren�t good enough.

Microsoft reported a fiscal first-quarter profit of $5.74 billion, or 68 cents per share. That�s up 6% from last year�s $5.4 billion, or 62 cents per share profit. Revenue also was up to $17.4 billion from $16.2 billion, a 7% rise. But �experts� had expected earnings of 68 cents per share, so MSFT stock started to get hit after hours.

Sound familiar? Apple (NASDAQ:AAPL) missed the mark earlier this week, and shares sold off Tuesday as a result. Apple earnings remained strong as usual — net income jumped to $6.62 billion from $4.31 billion, and AAPL stock revenue surged nearly 39% to $28.3 billion. But as investors should know by now, it�s not the numbers that matter, but how those numbers perform against Wall Street forecasts.

In the wake of Microsoft and Apple reporting earnings, it�s worth examining how good companies continue to be sold off because they aren�t �good enough.�

Could Apple Be the Next Microsoft?

Once-dominant tech stock MSFT has been wildly unpopular in recent years. Microsoft’s stock has been languishing in the high $20s for the better part of a decade. And while no one expects Apple to crash from triple digits anytime soon, there are some very real fears lately that AAPL stock could desperately be in need of a second act to stay in favor with investors.

It�s more than a little absurd, I know. The iPhone was Apple�s second act. The iPad was its third. And rumors of an Apple HD TV could very well hint at its fourth. If not the TV, then consider that 93% of Fortune 500 companies are deploying or testing the iPhone for business use — which could be a stunning opportunity for enterprise sales.

But who cares? Apple earnings weren�t as good as they should have been. So the stock sold off.

Microsoft stock watchers should be painfully familiar with this trend. Consider the dead-money performance of Microsoft in the past 10 years despite a strong business that includes:

  • A virtual monopoly, with an approximately 83% market share of computer operating systems.
  • The ascendance of the Xbox 360 video game console and related products like the Kinect.
  • An EPS forecast of almost $3 per share for this fiscal year vs. just $1.62 in fiscal 2009.
  • Some $43 billion in cash and equivalents on its balance sheet, even while maintaining a nearly 3% dividend yield.

Aside from the 2008-09 lows, MSFT stock always seems to bounce back strongly after it has sold down to around the $25 level. Investors might not think this tech stock is sexy, but it�s difficult to ignore the profit potential at those valuations. Heck, even right now MSFT has a forward P/E ratio of 8.7 — before today�s earnings sent shares down after hours.

But Microsoft just never seems to muster the momentum for a breakout. And it seems that even modest growth for an already dominant company isn�t good enough. Everyone has become painfully complacent with the rather impressive business of MSFT, no matter how bulletproof a company it is.

Could the same hold true for Apple? Could $400 be the new floor for a stock that is doomed to flail about for the next few years?

Maybe. This week, a Wall Street analyst at BGC Partners did the unthinkable and downgraded Apple stock to �hold� from �buy.� It seems the scorching run of AAPL stock was just too hot for some to hold onto — even in the face of a dominant gadget business and lots of good things in the pipeline.

Apple is perhaps the biggest secular growth story on Wall Street in the past several years, so it�s hard to bet against this company. But as Microsoft has proven, you don�t have to crash and burn to get a bad reputation with investors. You just have to plod along with the same �boring� level of dominance and success.

There�s a very real risk AAPL could follow MSFT in this regard.

Jeff Reeves is the editor of Write him at, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

Low Risk Investment Options – Are You Missing These?

Today’s market seems to be a bit risky one in terms of investment and thereby one seeks for ways and struggles to invest in low risk investment options. If you are looking for one, then don’t worry. There are numerous such options available to you that will assist you in acquiring good returns on your principal investment. This is the best time to invest in the stock options that are the low risk opportunities as this market is somewhat unstable during recession. Read below to understand further.

Any sort of investment you prefer to make, it bears some sort of risk; may it be minimum or maximum. Eventually, there are yet some alternatives that possess stable rates and give you what you invest and may be more than that. However, the true idea lies in the fact that if you prefer investing your sum in low risk investment options, probably, you will be benefitted with lower rates of returns, as compared to the other investment options. Each investment option has its own pros and cons. It’s up to you to select the one that suits you and your pockets.

You can go for certificates of deposits. Buy it for the sum you intend to invest and determine the lifetime or maturity period of it with the bank officers, in charge. A certificate of deposit is brought at the rate of interest offered by the bank and you will get the interest for the period you are having it.

Bonds are also a better choice for low risk investment options. Here you need to give your sum to the municipality, government or an entity, who provides bonds for sale and a get bond in return. During its lifetime, you receive the payments on interests and on its maturity; you get back your original sum invested at the time of purchasing it.

Another alternative is to straight away deposit your revenue in a bank by opening a saving account there. You will get the desired interest on your sum; however it’s not a big amount. But the advantage is that if money is deposited in a bank, you can access it easily and anytime as compared to that of certificates of deposit or bonds. You can go for online savings, as well to regulate more control over it and save your time in running to bank to and fro, for the sake of withdrawal or deposit.

Last, but not least is the option of mutual funds left. It grows about five percent annually and is at a lower risk as compared to the stock market. Further, for any more clarification, you can contact cash value life insurance to get the best assistance in terms of investment options associated with low risk investment options. These options vary from individual to individual based on their income, past experience and the amount they desire to invest. Low risk investment options are available in plenty, you need to make a smart choice depending on your past experiences and future preferences.

Did you know that there are secure investment alternatives outside of the market?

I put together a free video that reveals a 200 year old financial tool that banks and Wall Street have been trying to keep secret from you. Visit my website here for the details:

Forget Oil... This Could Be the Biggest Story in Energy

In the past, I've told you where to find 57% of America's best income stocks.

For those who didn't read that article, my research team found that 12 of the 21 best-performing American income stocks of the past decade came from a single sector -- energy. (You can get the entire list of the 21 income stocks and their performance here.)

The success of energy stocks in the past decade makes sense. After all, in the unpredictable world of investing, energy consumption just might be the only sure thing. We've only had one annual decline in the past 30 years -- and even that was a mild 1.1% dip in 2009, as the global economy regained its footing.

But what if I were to tell you that right now, the vast majority of energy users are overpaying for it?

It's a crazy thought. After all, who would pay $3.50 per gallon of gasoline when you can go across the street and pay $3.25?

I certainly wouldn't and I doubt you would either. When given the choice of two similar goods at different prices, consumers gravitate toward the cheaper one almost every time.

But consumers are also set in their ways, as are many business executives. And over the decades, we've grown accustomed to oil as one our chief energy sources. So accustomed, in fact, that we're now overlooking a cleaner, plentiful alternative that is about 80% cheaper.

The graph below tells the story:

This graph shows the price of crude oil versus the price of an equivalent amount of energy from natural gas during the past three years.

A barrel of oil contains about six times the raw energy content of a thousand cubic feet (Mcf) of natural gas. So all things being equal, with oil prices about $94 per barrel, natural gas should fetch about one-sixth as much, or $15.60 per Mcf.

But thanks to horizontal drilling and fracking technologies, the United States is now awash in accessible, cleaner-burning natural-gas resources. And the resulting flood of natural gas has created a surplus, causing prices to collapse.

Right now, natural gas prices are currently languishing at $2.47 per Mcf. Multiply by six, and you see that it costs less than $15 to get an equivalent amount of energy from natural gas as you get from a barrel of oil. So on an energy-equivalent basis, natural gas is roughly one-fourth the cost of oil.

Natural gas isn't just readily available at a 10% or 20% discount to oil -- but more than 80%. These economics are simple but powerful. It's hard to justify paying $1 for an energy source when you can buy something comparable for $0.20.

And in fact, we're already starting to see a major shift toward the use of natural gas.

For the first time in 15 years, there's currently an expansion wave in petrochemical manufacturing (which uses natural gas as a feedstock). We're also beginning to see many fleet owners convert their cars and trucks to vehicles that run on compressed natural gas (CNG) transportation fuel -- which is about $2 cheaper per gallon than ordinary gas or diesel at the pump.

And as for electricity, the U.S. Department of Energy is forecasting that natural gas will fuel 90% of the additional power-generating capacity scheduled to be built in the next two decades.

But the real opportunity for energy investors rests in something called liquefied natural gas (LNG).

By chilling natural gas to -260 degrees Fahrenheit, production companies can liquefy and compact the energy source, making it economically feasible to ship large quantities overseas.

Now U.S. oil and gas companies can ship their excess natural gas as LNG to foreign markets -- where natural gas is scarcer and widely commands prices of $10 to $15 per Mcf, and in the case of Japan, nearly $20 per Mcf.

Events have already been set in motion to allow our cheap shale gas to be liquefied and sold abroad. Needless to say, selling billions of cubic feet of gas for triple the price they might get here in the U.S. has major producers like Chesapeake Energy (NYSE: CHK) seeing dollar signs. And there are plenty of hungry customers out there.

Just a few years ago, only 17 countries imported LNG worldwide. Today, this number has risen to 25 -- not counting Poland, El Salvador, Costa Rica and many others that are planning to build LNG import terminals.

As a result, global annual LNG production has spiked 60% since 2005. And with an estimated $200 billion in capital being poured into expansion projects worldwide, this trend isn't stopping anytime soon. Case in point: global giant Chevron (NYSE: CVX) recently pledged to put 40% of its investment capital into new LNG projects in the next decade.

I expect the use of LNG will become more widespread. There's already been a flurry of headline-grabbing deals as savvy industry execs wake up to the potential.

> Keep your eyes on what's going on in the energy patch. Right now, the price of natural gas relative to oil is way too cheap to ignore... and the growth in LNG is still in the early stages. It's only a matter of time before more and more investors start to catch on. 

[Note: This new trend in natural gas is bound to be one of the biggest energy stories for some years to come. In fact, I dedicated the inaugural issue of my Exploration & Paydirt advisory to the topic -- including analysis of one stock in the field paying a dividend yield of more than 6.5%.

Fluor Misses on Revenues but Beats on EPS

Fluor (NYSE: FLR  ) reported earnings yesterday. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Fluor missed estimates on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded significantly and GAAP earnings per share increased significantly.

Margins improved across the board.

Revenue details
Fluor notched revenue of $6.25 billion. The 19 analysts polled by S&P Capital IQ wanted to see a top line of $6.38 billion on the same basis. GAAP reported sales were 19% higher than the prior-year quarter's $5.27 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Non-GAAP EPS came in at $0.90. The 22 earnings estimates compiled by S&P Capital IQ anticipated $0.82 per share on the same basis. GAAP EPS of $0.89 for Q4 were 37% higher than the prior-year quarter's $0.65 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 5.0%, 310 basis points better than the prior-year quarter. Operating margin was 4.0%, 320 basis points better than the prior-year quarter. Net margin was 2.4%, 20 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $6.24 billion. On the bottom line, the average EPS estimate is $0.87.

Next year's average estimate for revenue is $27.21 billion. The average EPS estimate is $3.78.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 1,280 members out of 1,317 rating the stock outperform, and 37 members rating it underperform. Among 342 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 336 give Fluor a green thumbs-up, and six give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Fluor is outperform, with an average price target of $71.16.

  • Add Fluor to My Watchlist.

The Plague Behind the Zombies

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THE RABID UNDEAD | 'Resident Evil: Extinction' from 2007.

'I hereby resolve to kill every vampire in America" writes the young Abraham Lincoln in the best-selling 2010 novel "Abraham Lincoln: Vampire Hunter." Honest Abe doesn't quite make good on his promise, and the grim results are all around us. Today, vampires spring from the shadows of our popular culture with deadening regularity, from the Anne Rice novels to the Twilight juggernaut to this year's film adaptation about the ghoul-slaying Great Emancipator. Lately we've also endured a decadelong bout with the vampire's undead cousin, the zombie, who has stalked films from "28 Days Later" to "Resident Evil" (the next sequel of which is due out this fall) and the popular TV show "The Walking Dead."

Purists will hold forth on the differences between vampire and zombie, but the family resemblance is unmistakable. Both are human forms seized by an animal aggression, which manifests itself in an insatiable desire to feed on the flesh of innocents. (Blood, brains, whatever; it's a matter of taste.) Moreover, that very act of biting, in most contemporary versions of both myths, transforms the victims into undead ghouls themselves.

Photos: A Movie History of the Undead

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Everett Collection

"Shaun of the Dead," 2004

Our vampires and zombies (as well as such poor relations as werewolves) all serve as carriers for vaguely similar saliva-borne infections. These mythical contagions are especially odd because they have so few analogues in the natural world. Indeed, there is really only one: the rabies virus.

A fatal infection of the brain, rabies is particularly devastating to the limbic system, one of the most primitive parts of the brain. Fear, anger and desire are hijacked by the virus, which meanwhile replicates prolifically in the salivary glands. The infected host, deprived of any sense of caution, is driven to furious attack and sometimes also racked with intense sexual urges. Today we know that most new diseases come from our contact with animal populations, but with rabies this transition is visible, visceral, horrible. A maddened creature bites a human, and some time later, the human is seized with the same animal madness.

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Known and feared for all of human history—references to it survive from Sumerian times—rabies has served for nearly as long as a literary metaphor. For the Greeks, the medical term for rabies (lyssa) also described an extreme sort of murderous hate, an insensate, animal rage that seizes Hector in "The Iliad" and, in Euripides' tragedy of Heracles, goads the hero to slay his own family. The Oxford English Dictionary documents how the word "rabid" found similar purchase in English during the 17th century, as a term of illness but also as a wrenching state of agitation: "rabid with anguish" (1621), "rabid Griefe" (1646).

The roots of the vampire myth stretch back nearly as far. Tales of vampire-like creatures, formerly dead humans who return to suck the blood of the living, date to at least the Greeks, before rumors of their profusion in Eastern Europe drifted westward to capture the popular imagination during the 1700s.

In its original imagining, though, the premodern vampire differed from today's in one crucial respect: His condition wasn't contagious. Vampires were the dead, returned to life; they could kill and did so with abandon. But their nocturnal depredations seldom served to create more of themselves.

All that changed in mid-19th century England—at the very moment when contagion was first becoming understood and when public alarm about rabies was at its historical apex. Despite the fact that Britons were far more likely to die from murder (let alone cholera) than from rabies, tales of fatal cases filled the newspapers during the 1830s. This, too, was when the lurid sexual dimension of rabies infection came to the fore, as medical reports began to stress the hypersexual behavior of some end-stage rabies patients. Dubious veterinary thinkers spread a theory that dogs could acquire rabies spontaneously as a result of forced celibacy.

Thus did rabies embody the two dark themes—fatal disease and carnal abandon—that underlay the burgeoning tradition of English horror tales. Britain's first popular vampire story was published in 1819 by John Polidori, formerly Lord Byron's personal physician. The sensation it caused was due largely to the fact that its vampire, a self-involved, aristocratic Lothario, distinctly resembled the author's erstwhile employer.

But Polidori's Byronic ghoul only seduced and killed. It took until 1845, with the appearance of James Malcolm Rymer's serialized horror story "Varney the Vampire," for the vampire's bite to become a properly rabid act of infection. For the first time readers were invited to linger on the vampire's teeth, which protrude "like those of some wild animal, hideously, glaringly white, and fang-like." And at the long tale's end, Varney's final victim (a girl named Clara) is herself transformed into a vampire and has to be destroyed in her grave with a stake.

Both these innovations carried over into the most important vampire tale of all, Bram Stoker's "Dracula." In Stoker's hands, the vampire becomes a contagious, animalistic creature, and his condition is properly rabid. It is a lunge too far to claim (as one Spanish doctor has done in a published medical paper) that the vampire myth derived literally from rabies patients, misunderstood to be the walking dead. But it is clear that this central act of undead fiction—the bite, the infection, the transferred urge to bite again—has rabies knit into its DNA.

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Over time, the vampire's contagion infected his undead cousin, too. The original zombie myth, as it derived from Haitian lore, also involved the dead brought back to kill, but again without contagion—an absence that carried over to Hollywood's earliest zombie flicks. In this and many other regards, the most influential zombie tale of the 20th century was nominally a vampire tale: Richard Matheson's 1954 novel "I Am Legend," whose marauding hordes of contagious "vampires," victims of an apocalyptic infection, set the whole template for what we now think of as the standard zombie onslaught.

Since then, as Hollywood has felt the need to conjure ever more frightening cinematic menaces, the zombie has if anything grown increasingly rabid. The antagonists in Matheson's novel can, at times, carry on an intelligent conversation with a normal human. By the 2007 film adaptation, starring Will Smith, the infected are howling, lunging, senselessly hateful animals inside a human form. Danny Boyle, the director of "28 Days Later," has said outright that he modeled his zombie virus on rabies. But even if he hadn't consciously done so, the name he gave that virus—"Rage"—already draws its power from the same centuries-old supply.

Westerners don't have much cause to fear death from rabies these days. Thanks to the availability of vaccine, human fatalities in the U.S. have dropped to a handful per year; Britain got rid of the virus entirely in 1902, succeeding in just the sort of national eradication project that apparently stymied the vampire-slaying Abraham Lincoln. Yet the infected bite, the human turned animal aggressor, menaces us as often as ever on our flat screens and nightstands.

Rabies itself may be a distant concern, but the rabid idea, like Varney the vampire, still has teeth—and it still succeeds in spreading itself.

—Mr. Wasik and Dr. Murphy are the co-authors of "Rabid: A Cultural History of the World's Most Diabolical Virus," to be published next week.Printed in The Wall Street Journal, page C2

Top 6 Stocks for October

Earnings, Dividends Make These Stocks Stand Out

Following a Dow Theory bear market signal, a death cross and other technical characteristics plunged the key indices to new lows in August, and those lows were tested again in September. The Dow has been down for seven of the past nine weeks, and the charts of the major indices all show bearish flag formations.

Because of the high volatility of the markets, the following stock picks have been chosen for their consistent earnings and steady dividends. Technically every stock on the list is still in an uptrend despite the miserable market conditions. Thus, if the overall market improves, these stocks should outperform most others by a wide margin.

Here are your top stocks to buy for October:

    View All  Top Stock to Buy #1 – American Electric Power

American Electric Power (NYSE:AEP), a holding company for a number of electric utilities mainly in the central and southern United States, is known for its consistent earnings and dividend policy. In October, it declared a 9.5% increase in its dividend, which is now $1.84, providing a yield of 5%. S&P has a �five-star strong buy� on the stock.

Technically AEP broke from a long-term bearish resistance line in April and has been consolidating between $36 and $39 — except for one selling climax in August that drove it down to $33.50. Note the recent increase in accumulation. A break from the current bullish �W� formation has a target of $44.

See chart key

    View All  Top Stock to Buy #2 – Celgene Corp.

Celgene Corp. (NASDAQ:CELG) is considered by S&P to have �the brightest growth prospects among large-cap biotech companies.� Its impressive performance was led by its cancer products Revlimid and Vidaza. The company also has a number of other products in the pipeline awaiting FDA approval.

Earnings are expected to reach $3.20 in 2011 and $3.80 in 2012, and gross margins are expected to maintain 93%. Analysts target the stock at $75 to $85 within 12 months.

Technically CELG broke from a compound top on Sept. 20 on heavy volume, and even though the stochastic appears overbought, the breakout is so strong that it could remain overbought for some time. The trading target for CELG is $70.


See chart key

    View All  Top Stock to Buy #3 – Dollar General

Dollar General (NYSE:DG), a leading U.S. discount retailer, has defensive qualities that should help it hold up in a weak economy. With low operating margins and a strong cash flow, earnings are expected to top $2.30 in 2012, up from $1.82 in 2011.

Note the recent breakout from a triangle, and the sudden turn up by the stochastic. The trading target is $44. Buy at market.

See chart key

    View All  Top Stock to Buy #4 – General Mills

Blue-chip producer of packaged consumer food products General Mills (NYSE:GIS) has experienced steady earnings and dividend increases for many years, making it one of the premier institutional favorites. The stock pays a dividend of 3%. It has paid dividends without reduction or interruption for 113 years.

Technically GIS is in a major bull channel and recently experienced very heavy accumulation. The stock�s long-term fundamental and technical target is $44, but along with its dividend, it provides a good return for long-term investors and is a solid performer in uncertain times.


See chart key

    View All  Top Stock to Buy #5�- Sturm, Ruger & Co.

Sturm, Ruger & Co. (NYSE:RGR), a manufacturer of firearms to domestic customers, has been able to avoid market slumps, and since June has appreciated by 50%.

RGR is a Zacks #1 �strong buy,� and they look for earnings of $1.65 this year, up from $1.45. In 2012, it is expected to earn $1.95. The company has topped earnings estimates for 10 of the last 11 quarters and pays a dividend of 2%.

Technically RGR is advancing with support on its 50-day moving average. The stochastic recently flashed a strong buy. The trading target for RGR is $36.


See chart key

Top Stock to Buy #6 – VF Corp.

Apparel company VF Corp. (NYSE:VFC) designs and manufactures a variety of apparel and footwear for all ages. It is transforming the denim and daypack area with lifestyle apparel brands, according to Standard & Poor�s. Their Vans and North Face brands are viewed as growth drivers along with new store growth in Asia.

On Sept. 23, Bank of America Merrill Lynch upgraded VFC to a buy rating citing momentum in the retailer�s higher-margin segments led by North Face and Vans. Its acquisition of Timberland was also cited as a growth producer.

Technically VFC is in a powerful bull channel. Even though the stochastic is �overbought,� strong momentum can keep it overbought indefinitely. The target for VFC is $145.


See chart key


The Right Investing Tool for the Job

As the old saying goes, "If all you have is a hammer, everything looks like a nail". The trouble is that, in the real world, everything isn't a nail. The best tool for the job depends not only on the job itself, but who exactly is wielding the tool.

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Even 88 years after their introduction in the US, I'm firmly of the belief that less active investors of modest means are far better served by using open-ended mutual funds than buying individual stocks or bonds themselves. For portfolios under $50,000, they remain the ideal option.

Open-ended funds offer effortless diversification within nearly every market sector that would be nearly impossible to achieve with a smaller account. Gone are the days when every mutual fund held the same basket of S&P 500-centric stocks. Competition has not only lowered prices but expanded choice as well, including low-minimum funds that focus on commodities, foreign exchange and small-cap stocks. With three or four funds, you can allocate $20,000 across a wide range of assets for virtually no cost.

The rock-bottom costs are another clear advantage for open-ended funds: most carry no transaction costs ("load") and their extremely low cost of ownership -- Vanguard charges 0.17% for its flagship Index 500 (VFINX), or $17 per $10,000 -- make them ideal choices for long-term investments.

The biggest advancement in the past decade has been the development of exchange-traded-funds, or ETFs, which have allow one to enter or exit positions during the trading day, unlike open-ended funds in which one can only transact after the close.

Yet for those who are truly investing for the long term, the ability to tweak exposure at just the right hour or minute of the day is irrelevant. More useful is the advantage of open-ended funds in allowing you to increase (or reduce) your exposure in small increments at no cost. Even at discount commissions, paying $7 to buy or sell $200 worth of stock is far too much of a vig for consistent success.

As the size of one's account grows, so does the ability to diversify without the use of a fund, meaning larger investors are usually better served by opting for direct investments in stocks or bonds. The advantages aren't just lower costs (unlike mutual funds, direct stock ownership doesn't levy a percentage-based management fee), but even more importantly control. As regular readers know, how you manage a portfolio is arguably even more important than what is actually in it. Direct ownership allows one to cut losers, enhance winners and manage a portfolio with far greater precision than by simply owning a fund, which is more akin to picking the jockey than the actual horse.

Direct ownership also permits far more flexibility to enhance return, including the ability to write call options against individual stock holdings, something that's impossible with open-ended-funds.

It's a luxury only afforded by the fact the impact of commission shrinks as one's account size grows. Trading twice a week at the average discount commission will run an investor over $700 a year, or roughly 7% of a $10,000 account. The same level of activity costs the $100,000 a mere 0.7%. If an extra $1.00 or $2.00 per trade has a meaningful impact on your portfolio, you're probably better served by using less expensive open-ended funds.

Besides long-term holdings, many investors maintain a "fun account" for taking flyers on options, or dabbling in futures such as Chicago Mercantile Exchange's (CME (CME) ) e-Mini contracts. But there's a much better tool for those looking for more action than a simple stock account. It's not long-shot options, penny stocks or highly volatile ETFs, but an even superior choice for those who want to actively trade.

I'll reveal it in this space, one week from today.

—Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC

Market Reaction to Moscow Airport Bombing Muted

The suicide bomber who killed 35 people and injured about 150 more in an attack on Russia’s busiest airport on Monday may have, among other reasons, intended to discourage Russia’s efforts to attract foreign investment, but markets themselves had a short-term, low-key reaction to the attack.

While Russian markets and the ruble took a tumble in the immediate aftermath of the bombing, broader reaction was less marked. U.S. Treasuries did rise in the wake of the Domodedovo airport attack, but there was greater market reaction to a stunning drop in GDP in Britain on Tuesday. According to a Reuters report, by Tuesday the ruble recovered and was expected to continue to rise.

Analysts said that Russian investors are hardened to such occurrences, and cited previous instances in which the markets rebounded quickly. Tim Steinle, co-manager of the Eastern European Fund (EUROX) at U.S. Global Investors, said in an interview with AdvisorOne that, tragic as circumstances were, the bombing was unlikely to deter investment in Russia.

He pointed out that plans underway for the Troika Dialog-organized investment conference, Russia Forum 2011, set for Feb. 2-4 in Moscow, have not been canceled, nor has President Medvedev canceled plans to attend Davos, at which he was scheduled to present the opening statement. “He might tilt [the subject] more toward global terrorism,” he said, “but he is still planning on going.”

Steinle added that the subway bombing in 2010, which also took many lives, “didn’t seem to affect investor sentiment in a negative way.” He also called attention to Pepsi’s entry into Russia—“a strong endorsement for a Russian-domiciled company”—and BP, which “most recently did a deal share swap; they replaced reserves that they sold last year at less than half the cost in Russia”—as examples of the market’s appetite for new territory despite potential unrest.

The attractiveness of the assets, he added, “makes the investing case. It seems as if Russian investment is more a function of attractiveness of the investments than the speeches the politicians make,” he concluded.

While the average European or American may not be quite as sanguine about such events as Russians, there is little indication of hesitation on the part of investors. Also, expectations of tighter money policy on the part of Russia’s central bank, as well as strong December industrial output numbers, go a long way to reassure.

Robbins & Myers Earnings Preview

After beating estimates last quarter by $0.04, Robbins & Myers (NYSE: RBN  ) has set the standard for itself. The company will unveil its latest earnings on Friday. Robbins & Myers is a supplier of engineered equipment and systems for critical applications in global energy, industrial, chemical, and pharmaceutical markets.

What analysts say:

  • Buy, sell, or hold?: Analysts strongly back Robbins & Myers, with seven of nine rating it a buy and the remainder rating it a hold. Analysts like Robbins & Myers better than competitor Graco overall. Analysts still rate the stock a moderate buy, but they are a bit more wary about it compared to three months ago.
  • Revenue forecasts: On average, analysts predict $242.2 million in revenue this quarter. That would represent a rise of 47.7% from the year-ago quarter.
  • Wall Street earnings expectations: The average analyst estimate is earnings of $0.68 per share. Estimates range from $0.64 to $0.76.

What our community says:
CAPS All-Stars are solidly backing the stock with 95% awarding it an outperform rating. The community at large concurs with the All-Stars with 96% assigning it a rating of outperform. Fools have embraced Robbins & Myers, though the message boards have been quiet lately with only 66 posts in the past 30 days. Despite the majority sentiment in favor of Robbins & Myers, the stock has a middling CAPS rating of three out of five stars.

Robbins & Myers' profit has risen year over year by an average of more than fourfold over the past five quarters. The company boosted its gross margin by 4.8 percentage points in the last quarter. Revenue rose 45.2% while cost of sales rose 34.7% to $158.7 million from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The following table shows gross, operating, and net margins over the past four quarters.






Gross Margin





Operating Margin





Net Margin





For all our Robbins & Myers-specific analysis, including earnings and beyond, add Robbins & Myers to My Watchlist.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Earnings estimates provided by Zacks

Make Big Money in Underpriced Options

Most people enter the options trading game with the idea of buying some short-term options and simply watching them skyrocket to big profits. This is the allure and “pot of gold” at the end of the options rainbow.

But after a few losing trades, reality usually sets in — and newcomers have to realize that, if they are going to survive long enough to hit it big, they must have a game plan to get there.

Before you begin buying options, you must decide how much of your investment capital you feel comfortable putting at risk. Losing streaks are a fact of the game, so never put all of your capital into buying options.

You should set aside only a small portion with which to speculate — 10% is an ideal maximum for most investors. I can’t stress this enough — smart portfolio management means being diversified among stocks and options.

Commission costs are also an important consideration when deciding how many option contracts to buy and how frequently you want to trade. You might pay anywhere from a couple of dollars to $20 or so per trade in commissions, depending on the brokerage platform you use, so start with enough capital to be able to buy at least four option contracts per position. That way you’ll reduce commission costs per trade, giving you a chance to stay in the game longer and increasing your chance of profit.

Your ability to manage your money will determine whether you succeed as an options trader.

The major risk with buying options is that because they have a predetermined time limit, options are a “wasting asset.” Every day that passes costs you, and your option could expire worthless.

Inexpensive options are usually the best plays. They give you the most leverage, the percentage returns are better, and if the market or stock goes against you, you are risking less. More important, you’re able to spread your capital over more positions, increasing your odds of winning.

A big advantage of buying options is knowing your risk in advance. You simply pay your money (the premium) and wait to see if the stock does what you think it will — which is rise if you buy a call option, or fall if you buy a put option.

If the stock price rises above the strike price specified in your call option, you win your bet. And if the stock falls below the price specified in your put option, you also win your bet.

But if the stock does not behave the way you thought it would you lose your bet, as well as the money you paid for your option. Don’t be dismayed by this. Even the pros only win their bets about 20% to 30% of the time when they buy cheap options.

Fortunately, we know how to increase your odds of winning. So you have a better chance to profit if you follow our strategies.

Price is the key to success in the options market. When you pay too much for an option, the odds get stacked against you.

Undervalued and low-priced options give you two advantages. First, you are risking less money when you buy a cheap option. It is much easier on the pocketbook to lose $50 than $500 if the option expires worthless. Second, if the stock crosses the strike price (putting it “in-the-money”) before your option expires, you not only win your bet but your percentage gains will be more than had you bought a more expensive option.

Finding underpriced options is simple in theory but in the real world it takes an enormous amount of work. We have developed a computer pricing model that does this better than anyone else. This model is to put to work every week in my Maximum Options trading service.

Just as important as selecting the right option to buy and paying the right price is knowing when and how to take profits. Most option buyers lose not because they take the wrong positions, but because they fail to take profits properly.

With options, your first objective is to protect profits, and your second objective is to hit home runs. Most important, when your option begins to profit you must be ready to act.

The best way to do this is to know exactly what you will do with a position when the option hits a specific price. Deciding this in advance, and sticking to your decision when the time comes, removes a lot of emotion from your decision making.

When you buy an option, you should decide in advance what your target price for the option will be. If the option hits its target price, sell half your position (for example, if you bought four contracts, sell two of them). This takes most of your original money off the table. Capital preservation is paramount when you speculate with options.

Then, let the rest of your position ride for possible future gains, using a 5% trailing stop on the underlying stock. A trailing stop can be a “mental” stop, though more and more brokerages are allowing this to be done automatically. The trailing stop adjusts when the stock moves in your direction, and stays the same when the stock moves against you.

For example, if a call option you own hits its target price, sell half of your position. Then if the stock keeps rising, hold the option and adjust the trailing stop higher so that it is never more than 5% under the current stock price. But if the stock falls, do not adjust the trailing stop.

The process is reversed for a put option. If the stock continues to fall after the option hits its target price, keep lowering the trailing stop. But if the stock rises, do not adjust the trailing stop.

Another key for taking profits — if your option is in-the-money and enters its last week before expiration, close the entire position and take profits. Don’t wait for it to expire.

Taking half of your profits at the target price serves two beneficial purposes. One, it forces you to take some money off the table, protecting you from a sudden reversal in the stock price. And two, it leaves money on the table for possible future gains. Protecting profits and preserving capital is critical when you’re buying options.

As important as taking profits is cutting losses. Losses are part of the game, and if you don’t take them and move on you will soon be out of the game.

There are two ways to cut losses. One is by setting a stop loss on the underlying stock. If the stock closes below (for a call option) or above (for a put option) its stop loss, close the option position the next day.

Another way to cut losses is to use the option price. If an option falls in value by 50% after you buy it, sell it and close your position.

We can’t stress this enough — if you do not cut your losses quickly, you will not last as an options player.

That, in a nutshell, is the best way to maximize profits with short-term options. It is a system that takes profits when they are available, and cuts losses when necessary. Most important, it removes emotions from your decision-making. Follow this system and you’ll have your best shot at real success when you buy options.

The key to long-term success as an options speculator is to hit home runs. And the key to successful investing with options is to buy extremely cheap ones.

Cheap options have the potential for spectacular gains. But finding those that are inexpensive and have the potential for a home run is not easy. You need tremendous patience.

You may have to enter a lot of orders before you get one filled at your price. More cheap options expire worthless than don’t, so you must have the patience, discipline and resources to keep trying for a home run.

Try to find options that are priced under $1.50 and whose strike price is close to the market value of the stock. Make sure the options are underpriced and have a probability of profit of at least 20%. To get your best deal, try to buy put options on stocks that are rallying and call options on stocks that are falling.

Most important, try to buy options on stocks that have the potential for surprise volatility. Stocks tend to fall much faster than they rise, so buying put options tends to be a better bet on surprise volatility.

Apple’s New iPad Data Sparks Flurry Of Street Estimate Hikes

The new data from Apple (AAPL) over the weekend on iPad sales – the company said it has sold 2 million of the tablets so far – has prompted a round of upward Street earnings estimate revisions.

  • Broadpoint Amtech analyst Brian Marshall repeated his Buy rating, while increasing his price target to $340, from $320. He raised his FY 2010 EPS forecast to $14.25 from $13.59; for FY 2011 he goes to $16.39, from $15.24. He lifted his iPad estimates to 2.5 million units for the June quarter, 10 million for calendar 2010 and 17 million for calendar 2011, up from 1 million, 6 million and 12.2 million, respectively.
  • UBS analyst Maynard Um repeated his Buy rating, raising his target to $320, from $315. His FY 2010 estimate is now $13.41, up from $13.22; for FY 2011 he goes to $14.83, from $14.36.
  • Barclays Capital analyst Ben Reitzes likewise repeated his Buy rating and upped his target to $320, from $315. His FY 2010 estimate is now $13.68, up from $13.32.; for FY 2011 he now sees $15.75, up from $15.25.
  • Kaufman Bros. analyst Shaw Wu repeated his Buy rating and $320 target, while raising his FY 2010 forecast to $13.30, from $13.20; for FY 20110 he goes to $15.05, from $15.
  • Piper Jaffray analyst Gene Munster repeated his Overweight rating and raised his target to $330, from $323.

AAPL is up $4.03, or 1.6%, to $260.91.

Scheduling note: This evening, Apple CEO Steve Jobs is the featured dinner speaker at the All Things D conference in Rancho Palos Verdes, California; I’m planning to blog the event live.

3 Teen Retail Stocks for Holiday Shoppers

Every year it seems Christmas comes earlier. Retailers dependent on holiday shopping are anxious to jump-start the season with deals that now begin before Thanksgiving — the traditional start of the Christmas season. It’s not surprising given the very difficult economy. Getting out in front can make the difference between a success and disappointment. Just this week Wal-Mart (NYSE:WMT) announced its Black Friday deals hoping to get a leg up on rivals.

Thus far, despite headlines about unemployment and rising prices, retailers have been faring well. Within the larger segment, some teen retailers offer investors compelling value because they’ve been trading lower over the last 12 months in anticipation of a big slowdown that has yet to materialize.

The sector’s demographics help: Teens are ever hopeful, and they like to spend money on clothes. That helps to somewhat insulate teen retailers from such troubles as Europe’s debt crisis. Teens care far more about the latest trends and going to the mall to do some shopping.

And this holiday season is likely to be strong given how well retailers have held up thus far. Investors will want to buy these stocks in advance of year-end earnings results that are likely to be better-than-expected.

So, get your own early start to the holidays with these three teen retailers:

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True Religion (NASDAQ:TRLG)

One thing certain to be bought during the holidays is blue jeans. This teen staple has evolved to become more and more of a fashion statement. Designer jeans are alive and well, and that should bode well for a company like True Religion.

Note that one of Wal-Mart�s big Black Friday deals is $10 blue jeans. But I wouldn�t be too concerned. As we’ve seen in this economy, there’s a pronounced dichotomy between luxury and discount retailing. So, True Religion’s designer jean sales aren’t likely to slide because of Wal-Mart’s discounts.

On Nov. 2, True Religion announced earnings for the quarter ending Sept. 30 that beat Wall Street estimates. On an adjusted basis, the company made 51 cents per share versus an average estimate of 48 cents. The stock moved higher on the news and is now up 80% over the last 12 months.

For the full year, Wall Street expects True Religion to make $1.19 per share. In the following year, profits are forecast to grow by 18% to $2.33 per share. At current prices, True Religion trades for just 14.5 times next year�s expected earnings.

I would buy the stock in advance of what should be a strong Christmas season for the company.

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American Eagle Outfitters (NYSE:AEO)

Teen fashion can be fickle. What was popular yesterday can be doomed today. But American Eagle has managed to stay in the forefront of teen trends. Still, the company has seen its stock drift lower in 2011.

American Eagle has matched or bested Wall Street estimates in three of the last four quarters. In the quarter ending July 31 it missed expectations, but by only a penny per share. On Nov. 2 it raised guidance for the quarter ending Oct. 29.

For the full year ending January� 31, 2012, Wall Street expects American Eagle to make 89 cents per share. That’s anticipated to grow by 16% to $1.03 per share in the following year. At current prices the stock trades for 13 times next year�s expected earnings.

If the Christmas season is strong, American Eagle is likely to do better than current Wall Street estimates. At these prices the stock is a buy.


One of the hottest teen retailer two years ago was Zumiez, which caters to the extreme sports set. Its shares shot up more than 100% in 2010. But 2011 has been a different story, even though the company�s offerings remain hot. The stock is down 15% this year, but that’s more due to profit-taking than a reflection of operating performance.

In each of the last four quarters Zumiez has exceeded analyst expectations. And on Nov. 2, it announced same-store sales for October that beat Wall Street estimates. For the month, Zumiez stores open for a year or more had a 3.3% sales increase versus an estimate of 2.8%. That performance sets up Zumiez for another earnings beat for the quarter ending Oct. 31.

For the full year ending Jan. 31, Wall Street expects Zumiez to make $1.08 per share. Earnings for the following year are anticipated to grow by 18%. At current prices, its shares trade for 18 times next fiscal year�s estimated earnings.

Given Zumiez’s performance against estimates, it’s reasonable to assume profits will be better than expected. The company deserves a premium valuation for that performance. Any strength in the economy will be an added bonus. I would buy Zumiez at these prices.

Thursday, August 16, 2012

10 Things Still Made in America

From Apple(AAPL) iPads to fruit juice, many of our purchases these days rely on parts, labor or commodities shipped in from overseas.

Even products perceived as "American" brands, like Levis and Wrangler jeans, are now made either south of the border or overseas and that all-American paean to capitalism -- the Monopoly game -- has a workforce in Ireland that is churning out all those red hotels and green houses for Hasbro(HAS).

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Last month, a study conducted by global management consulting firm Booz & Co. with the University of Michigan's Tauber Institute for Global Operations, said the future of U.S. manufacturing is being decided now."Today, U.S. manufacturers provide about 75% of the products that Americans consume," the study says. "But that number could soar to 95% within a few years if business and government leaders take the right actions. Conversely, if the sector remains neglected, that output could fall by half, meeting less than 40% of U.S. demand."The report was based on a sector-by-sector analysis of U.S. industrial competitiveness, along with a survey of 200 manufacturing executives and experts. Among the recommendations:

  • The U.S. needs to build a better future with Mexico, shifting less-demanding, labor-intensive processes to that country while helping build a safer consumer economy there and retaining highly skilled work in the U.S.
  • America needs more robust manufacturing-education programs, immigration reform and to promote the attractiveness of manufacturing careers.
  • Public and private sectors can build geographical concentrations of suppliers, service providers and academic institutions, reinforced by investments in infrastructure.
  • The country needs also to simplify and streamline the tax and regulatory structure. The official statutory corporate tax rate stands at 39%. Closing the gap between statutory and effective rates (typically 28%) would be a revenue-neutral way to put U.S. manufacturing on a level global playing field.
While government officials debate these and other proposals, consumers can take matters into their own hands by buying American-made goods.The following are 10 things you can still buy that fit that category:

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MotorcyclesAmong the many points of pride for Harley-Davidson(HOG) owners is that the motorcycles are designed and made in the U.S.

In 1901, William Harley, a young man living in Milwaukee, came up with the concept of meshing a small engine with a bicycle frame. After considerable trial and error, Harley, working with his friends Arthur and Walter Davidson, developed a prototype of what would later evolve into the modern motorcycle. In 1906, Harley and the Davidsons opened the Wisconsin factory that, to this day, serves as Harley-Davidson's corporate headquarters today. While touting its U.S. workforce, the company has battled the import market for decades.In 1952, it unsuccessfully lobbied for a 40% tax on imported motorcycles, but in the 1980s the company's complaints over Japanese imports led President Ronald Reagan to impose a five-year tariff plan. That 1983 plan raised the tariff of 4.4% all the way to 49.4% on Japanese imports with engines larger than 700 CCs, gradually decreasing, year-by-year, back down to 4.4%. In 1987, declaring itself profitable and competitive once again, Harley-Davidson made the surprising move of advocating that the tariff schedule be stopped a year early.A frequent debate among motorcycle enthusiasts has long been whether Harley-Davidson deserves the "made in the U.S.A." distinction, as various parts are imported from Japan, Germany, Italy and even Australia.Also made in the U.S. since 1998 are Victory Motorcycles, based in Spirit Lake, Iowa. It is owned by Polaris, a Minnesota company best known as a manufacturer of snowmobiles. Polaris also owns the U.S.-made Indian Motorcycle brand.

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Sports EquipmentNo sport embodies Americana quite like baseball, and fans should be pleased to note that the classic Louisville Slugger baseball bat -- used by approximately 60% of all Major League Baseball players -- is indeed made here in the U.S.

The 120-year history of the bat starts with a 17-year-old named John A. "Bud" Hillerich, whose father owned a woodworking shop in Louisville, Ky., in the 1880s. Legend has it -- as told in the company's official history -- that in 1884, Hillerich was attending a game played by the Louisville Eclipse when its star player, mired in a hitting slump, broke his bat. The young man offered to carve a new bat for the player; after a three-hit game the next day, word of mouth spread throughout the team and orders for bats started coming in at a brisk pace. Hillerich's father, despite initial resistance, agreed to add bat making to his traditional trade of making stair railings and butter churns. In 1894, the name Louisville Slugger was registered with the U.S. Patent Office and, in the early 1900s, it pioneered a sports marketing concept by paying Hall of Fame hitter Honus Wagner to use his name on a bat.Football fans are also doing their part for the U.S. economy.Since 1941, Wilson Footballs has made the ball used in every NFL game (including all Super Bowls) and is the top manufacturer for the consumer market. Wilson also manufactures the official footballs of the NCAA.Wilson's official football is called "The Duke," a reference to the nickname of the late New York Giants owner Wellington Mara.In 1955, Wilson opened the Wilson Football factory in Ada, Ohio, described by the company as "the world's only dedicated football factory." Producing 4,000 footballs a day, the plant employs 120 people and production is done by hand.According to the company, the NFL is the only major sports league whose balls are made in the United States. The cowhides come from cattle raised in Iowa, Kansas and Nebraska, with young, lean steers preferred over fat dairy cows because the leather is more resistant to stretching. A less serious bit of sports equipment -- the Wiffle Ball -- was invented in the 1950s by a one-time semi-pro baseball player who created, and personally sold one by one, a ball to help kids throw curve balls. Today, the family business maintains the longstanding tradition that every Wiffle Ball ever made is from Shelton, Conn.

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Kitchen AppliancesMany kitchen appliances are still being cooked up in the U.S.

KitchenAid mixers have been made in Greenville, Ohio, since 1941, at a factory employing nearly 700 people.The mixer itself predates that plant by decades. Introduced in 1919, the product greatly expanded its sales in 1955 with a variety of color options. Today the mixers -- with a distinctive silhouette that is actually trademarked -- comes in 40 colors. Building on the popularity of its iconic mixer, the company has since branched out into a wide variety of kitchen equipment, including dishwashers, cookware, ranges, refrigerators and even wine cellars, the majority of which are made in America, as are many (but not all) of the products sold by its parent company, Whirlpool(WHR).According to the company, Whirlpool employs more U.S. workers than any other appliance manufacturer and "the United States continues to be the company's largest market in terms of revenue, manufacturing presence and number of employees -- more than 20,000 workers nationwide."Also made in America are Viking products, a line of ovens, ranges, refrigerators, dishwashers, cookware and small appliances.The company, founded in 1989, not only has its headquarters in Greenwood, Miss.; it also maintains four manufacturing plants, a distribution center, a cooking school and its own restaurant.Also built in the U.S. are the refrigeration units and freezers made by Sub-Zero. Last October, GE(GE) announced it would invest $432 million to bolster U.S.-made refrigeration products with design and manufacturing centers in Louisville; Bloomington, Ind.; Decatur, Ala.; and Selmer, Tenn. As many as 500 jobs could be added through the expansion by 2014, according to the company.Also being made by GE in America are water heaters, washers and dryers and dishwashers.

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GuitarsNothing screams rock 'n' roll quite like an electric guitar.

Founded in 1896 in Kalamazoo, Mich., the Gibson Guitar Co. created the first electric guitar in 1936. Known globally for its signature Les Paul edition and used by rock stars from Jimmy Page to Paul McCartney, Gibson is an ax of choice for many musicians.The original Kalamazoo plant closed in 1984 and the company relocated to Nashville, where 500 employees handcraft as many as 2,500 Les Pauls, Flying Vs, Explorers, SGs and Firebirds each week. Other models, and custom-made guitars, are also made at the Tennessee factory.

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Crayons and toysCrayola Crayons were created after inventors Edwin Binney and C. Harold Smith won a gold medal at the 1900 World's Fair for their creation of a dustless chalk substitute for teachers.

Although the company formed as Crayola does have overseas production facilities, domestic crayons are still made in Easton, Pa., a factory that has churned out more than 1 billion crayons since opening in 1969.Beyond crayons, there are still some American-made items for kids that aren't cobbled together in Chinese factories.Silly Putty was invented in the U.S. and is still made in Easton, Pa. Also made in Pennsylvania, in the jolly-sounding town of Hollidaysburg, is the Slinky.True to its name, Vermont Teddy Bear does indeed stitch together furry friends in Burlington, Vt.

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PianosSteinway(LVB) pianos, considered by many musicians to be the world's finest, have been handcrafted in New York since 1853.

The company traces its roots to 1836, when German cabinet Heinrich Engelhard Steinweg built his first piano in this kitchen. Within just 10 years, he would build 482 more pianos. In 1850, Steinweg and his family emigrated to the U.S. and in 1853, after changing the family name to Steinway, he and his family founded Steinway & Sons in a Manhattan loft on Varick Street. The company has remained in the city ever since.By 2000, Steinway had sold 550,000 pianos. In addition to its U.S.-made grand pianos, the company has the less expensive Boston and Essex brand pianos, which are made overseas.

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Greeting cardsThe Great Recession and high unemployment have even worked their way into the messages offered on greeting cards.

In 2009, Hallmark introduced a line of greeting cards meant to express sympathy and support for those who have lost their job.A grumpy-looking cat is pictured on one such card with the prose: "Heard about your job. Is there anywhere I could hack up a hairball, like, say, on a former employer's head? Just wonderin' ..."Another has a less humorous take: "Losing your job does not define you. What you do about it does. As you face what lies ahead, your strength will come from the determined and passionate person you are ... the person I already know you to be." Given the audience, Hallmark stresses that all the cards are made in the U.S. The $4.1 billion company sells its products in 100 countries and more than 40,000 stores in the U.S. Headquartered in Kansas City, Mo., Hallmark has manufacturing and distribution facilities in Missouri, Kansas, Connecticut, Georgia, Texas and Illinois. Among its subsidiaries is the previously mentioned Crayola.

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GunsThe rest of the world may have a lead in high-tech products, but Americans can always stick to their guns.

Based in Massachusetts, with additional facilities in Maine and Tennessee, Smith & Wesson(SWHC) is the largest maker of handguns in the U.S.Founders Horace Smith and Daniel B. Wesson entered the firearm market by making a lever-action pistol that was sold by their Volcanic Repeating Arms Co. In 1856, after financial difficulties led them to lose ownership of the company, they struck out on their own with a new, cartridge-based model.The timing of the company proved fortunate. The Civil War proved a boon for business. By 1867 the revolvers were being sold internationally, their image bolstered from use by legendary lawman Wyatt Earp and the U.S. Army.More recently, its Magnum gained silver screen notoriety as the weapon of choice for Clint Eastwood's shoot-first-ask-questions-later Dirty Harry.

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