Don’t Miss the Comeback in Solar Stocks

September 30th, 2010

Don't Miss the Comeback in Solar Stocks

During the course of 2010, investors have continually fretted that the solar power industry was headed for severe slump. They worried that too many new factories were set to produce far more solar panels than the industry could absorb. And that supply increase was coming right at a time when demand was set to fall. European governments had been the key behind robust global demand in previous years, but massive budget pressures would likely force them to throttle back incentives.

Despite those dire concerns, 2010 will likely turn out to be a banner year for the industry, with global solar spending set to more than double, according to UBS. Firm demand means that suppliers did not need to embark on profit-sapping price wars, as many had feared. As a result, the 10 largest publicly-traded solar plays exceeded sales forecasts in the June quarter, and all raised guidance for the second half of 2010.

One of the benefits of firm demand is that expected price cuts haven't materialized. Yet the industry had been preparing for the worst by enacting steady cost reductions. Lower costs and firm prices translates into stable or rising profit margins, which is just what we are seeing in recent industry quarterly reports. Sector share prices have rebounded from their spring lows, but they still have more room to run.

To be sure, the industry is in flux. Germany, which had been the biggest buyer of solar equipment, is likely to start spending less in coming years. And don't be surprised if a few new growth markets such as the Czech Republic start to disappoint on the heels of budget pressures. But elsewhere, especially in the United States, demand is really kicking into gear. As this table shows, the U.S. should emerge as the second-leading buyer of solar equipment by 2012 in terms of GigaWatts (GW) of power.

Rank 2010 2012 GW in 2012
1 Germany Germany 7,000
2 Italy U.S. 2,260
3 U.S. China 2,180
4 Japan Italy 1,725
5 France France 1,127

Industry bears will note that Germany is such a strong consumer of solar power than any change of heart could devastate industry demand. But Barclay's Vishal Shah predicts those concerns will eventually abate. In a recent report, he noted that a number of countries such as Canada, the U.K. and other countries across Europe, are likely to increase their solar power subsidies in 2011, adding that “we expect demand to exceed supply during this second growth-phase.”

The industry's brightening prospects come at a time when fossil fuel prices are well off their 2008 highs, when oil exceeded $140 a barrel, and natural gas prices surged in tandem. Many thought the solar industry would only thrive if energy prices were high or carbon emissions were heavily taxed. So if either of those factors comes into play, then demand for solar could well be sustained at high levels into the middle of the decade.

The picks
As noted earlier, sector shares have rebounded from their lows but remain below analyst target prices. Several analysts cite Yingli Green Energy (NYSE: YGE) as a favorite current pick. The China-based supplier of solar modules has established a low-cost manufacturing base that is leading to rising market share. Sales are expected to rise more than +50% this year to around $1.6 billion, and consensus forecasts of around +11% sales growth in 2011 looks too conservative now that industry prices are no longer falling. Shares trade for about 11 times next year's consensus profit forecast, and that profit outlook also looks understated.

For many investors, First Solar (Nasdaq: FSLR) represents the strongest business model in the sector. The company is the global leader in the production of thin-film solar, which captures less of the sun's energy than traditional silicon-based solar panels, but can be made far more cheaply and also can be deployed in a wider variety of applications. Over the years the company has managed to steadily cut production costs, pushing prices below levels where rivals could make money, even if those rivals' technological approach yielded more energy from each solar panel. In 2007, the company was able to build modules for roughly $1.40 per watt of power. That figure breached the $1 mark late in 2008, and recently hit $0.76. The company now spends roughly $100 million per year on research and development to achieve this kind of efficiency.

That leading-edge approach led to fast-rising market share. Sales doubled or tripled every year from 2003 to 2008, and are still rising in excess of +20% every year. Moreover, a shift in the business model toward the development of massive solar power farms is leading to an apparent reduction in gross margins — so per share profits are likely to be flat this year. It's also a result of accounting methods, but the company's current major projects should yield robust cash flow in a year or two.

Action to Take –> Shares of First Solar don't likely possess massive upside, but they should see steady, moderate gains as the solar industry progresses in coming years. Any major pullback in the stock would represent a compelling buying opportunity. Shares have had a habit of bouncing between $100 and $150 during the past year. Right now, they are at the upper end of that range, so you may want to wait for a pullback before pouncing.

The bottom line is that this industry's obituary has been prematurely written. Many of these stocks have moved back toward their 52-week range, but the next move could be a break-out through that 52-week range. The key catalyst for this group in 2011 is either a spike in fossil fuel prices or further progress on carbon tax legislation.


– David Sterman

P.S. — Each month, Government-Driven Investing editor Andy Obermueller goes on the hunt , scouting out where government action is going to create soaring stock prices. Whether it's in alternative energy… healthcare… infrastructure… or anywhere else, Andy brings it to light for investors. Learn more — click here now.

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
Don't Miss the Comeback in Solar Stocks

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Don’t Miss the Comeback in Solar Stocks

Uncategorized

An Unknown Energy Play That Could Deliver +365%

September 30th, 2010

An Unknown Energy Play That Could Deliver +365%

Although the energy sector has underperformed in the wake of the Gulf oil spill disaster, it will likely be a plentiful source of profitable stocks as the economic recovery grinds ahead. While investors ought to do nicely during the next few years with household names like Chevron (NYSE: CVX), ConocoPhilips (NYSE: COP) and Exxon (NYSE: XOM), I'm anticipating much larger returns from some of the sector's small- and mid-caps.

One mid-cap oil and gas producer I've found could more than quadruple your money by 2015 or even sooner.

Projections call for a share price of $45 to $70 in three to five years from the current price of about $15. Assuming five years, the annual return would be +25% to +35%. At three years, you'd be looking at something more in the +45% to +65% range annually. All told, the stock could jump roughly +200% to +365% from current levels.

The company I'm referring to is called Petrohawk (NYSE: HK).

Such ambitious return projections for the stock are feasible, mainly because of its plans to keep ramping up production at its profitable Haynesville Shale and other natural gas fields. The company churned out an average of 625 million cubic feet of natural gas per day in the second quarter of this year, for example, and is expected to produce 650 to 660 million cubic feet daily in the third quarter. That's more than twice the 283 million cubic feet per day it was putting out in the second quarter of 2008. The company anticipates production growth of +30% to +40% in 2011 and +15 to +25% in 2012.

The dramatic upward productivity trend should profoundly increase Petrohawk's earnings. Excluding a nonrecurring loss of -$0.39 per share, the company is expected to earn $0.65 a share this year. That's +67% more than in 2009, when earnings were $0.39 a share, excluding a nonrecurring loss of -$4.05. The 2011 projection of $1.20 a share is an +85% spike from 2010's forecasted earnings.

Obviously, a growing enterprise needs cash and Petrohawk has been raising plenty through divestiture and cost cutting. The company recently collected a total of $1.4 billion when it sold its WEHLU and Terryville fields and some other smaller properties and entered into a joint venture allowing Kinder Morgan (NYSE: KMP) access to some of its Haynesville acreage. To reduce expenditures, Petrohawk is testing a new wellbore design that could shave up to a million dollars off drilling costs per well starting in 2011.

A recent debt refinance should also help shore up Petrohawk's cash position by reducing interest expense. In early August, the company issued $825 million in 7.25% senior notes due in 2018. The proceeds will be used mainly to pay off $769 million in 9.125% notes due in 2013.

High P/E isn't an issue
With an industry average P/E ratio of about 15, Petrohawk's P/E of 28 may seem too pricey. However, the stock is only trading at about 14 times forecasted 2010 earnings. And the stock is more than -46% off its one-year high, about -72% below its five-year high and almost -50% shy of Morningstar's current fair value estimate of $30 a share.

Although I'm not worried about Petrohawk's P/E, its total debt-to-equity ratio of nearly 70 reflects a large debt burden, and there's no sign of that load lightening in the near future. While heavy leverage is common for young, equipment-intensive companies like Petrohawk, it greatly increases your risk as an investor.

For one thing, as its beta of 1.35 suggests, this stock comes with added volatility. And if revenue shrank enough for some reason (like a drop in energy demand or worse-than-expected well output), there is a real risk of the company defaulting on its bonds. That certainly wouldn't help its stock price any.

Such a scenario seems a bit less likely, however, since Moody's recently upgraded Petrohawk's credit status from “negative” to “stable.” The company's debt is still considered junk, though, as indicated by Moody's ratings, which are in the B2 to B3 range.

Action to Take –> See Petrohawk for what it is: a volatile mid-cap stock with potential for serious outperformance — but also a considerable amount of risk. Don't buy it if you're risk averse. If you do buy the stock, keep the amount reasonable — no more than, say, 2% to 4% of your total portfolio. That way, you'll get a benefit if it performs as projected, but you won't suffer terribly if it doesn't meet expectations or the worst case materializes.

A final note on one of the intangibles at play here: Petrohawk is the third major oil and gas startup of founder and CEO Floyd C. Wilson. His plan for Petrohawk is to accomplish what he did with the prior two — sell when the time is right at a nice profit for shareholders.


– Tim Begany

Tim Begany has worked at several financial planning and investment advisory firms. He also holds a Series 65 investment consultant license. Read more…

Disclosure: Tim Begany and/or StreetAuthority, LLC hold a position in HK.

This article originally appeared on StreetAuthority
Author: Tim Begany
An Unknown Energy Play That Could Deliver +365%

Read more here:
An Unknown Energy Play That Could Deliver +365%

Uncategorized

An Unknown Energy Play That Could Deliver +365%

September 30th, 2010

An Unknown Energy Play That Could Deliver +365%

Although the energy sector has underperformed in the wake of the Gulf oil spill disaster, it will likely be a plentiful source of profitable stocks as the economic recovery grinds ahead. While investors ought to do nicely during the next few years with household names like Chevron (NYSE: CVX), ConocoPhilips (NYSE: COP) and Exxon (NYSE: XOM), I'm anticipating much larger returns from some of the sector's small- and mid-caps.

One mid-cap oil and gas producer I've found could more than quadruple your money by 2015 or even sooner.

Projections call for a share price of $45 to $70 in three to five years from the current price of about $15. Assuming five years, the annual return would be +25% to +35%. At three years, you'd be looking at something more in the +45% to +65% range annually. All told, the stock could jump roughly +200% to +365% from current levels.

The company I'm referring to is called Petrohawk (NYSE: HK).

Such ambitious return projections for the stock are feasible, mainly because of its plans to keep ramping up production at its profitable Haynesville Shale and other natural gas fields. The company churned out an average of 625 million cubic feet of natural gas per day in the second quarter of this year, for example, and is expected to produce 650 to 660 million cubic feet daily in the third quarter. That's more than twice the 283 million cubic feet per day it was putting out in the second quarter of 2008. The company anticipates production growth of +30% to +40% in 2011 and +15 to +25% in 2012.

The dramatic upward productivity trend should profoundly increase Petrohawk's earnings. Excluding a nonrecurring loss of -$0.39 per share, the company is expected to earn $0.65 a share this year. That's +67% more than in 2009, when earnings were $0.39 a share, excluding a nonrecurring loss of -$4.05. The 2011 projection of $1.20 a share is an +85% spike from 2010's forecasted earnings.

Obviously, a growing enterprise needs cash and Petrohawk has been raising plenty through divestiture and cost cutting. The company recently collected a total of $1.4 billion when it sold its WEHLU and Terryville fields and some other smaller properties and entered into a joint venture allowing Kinder Morgan (NYSE: KMP) access to some of its Haynesville acreage. To reduce expenditures, Petrohawk is testing a new wellbore design that could shave up to a million dollars off drilling costs per well starting in 2011.

A recent debt refinance should also help shore up Petrohawk's cash position by reducing interest expense. In early August, the company issued $825 million in 7.25% senior notes due in 2018. The proceeds will be used mainly to pay off $769 million in 9.125% notes due in 2013.

High P/E isn't an issue
With an industry average P/E ratio of about 15, Petrohawk's P/E of 28 may seem too pricey. However, the stock is only trading at about 14 times forecasted 2010 earnings. And the stock is more than -46% off its one-year high, about -72% below its five-year high and almost -50% shy of Morningstar's current fair value estimate of $30 a share.

Although I'm not worried about Petrohawk's P/E, its total debt-to-equity ratio of nearly 70 reflects a large debt burden, and there's no sign of that load lightening in the near future. While heavy leverage is common for young, equipment-intensive companies like Petrohawk, it greatly increases your risk as an investor.

For one thing, as its beta of 1.35 suggests, this stock comes with added volatility. And if revenue shrank enough for some reason (like a drop in energy demand or worse-than-expected well output), there is a real risk of the company defaulting on its bonds. That certainly wouldn't help its stock price any.

Such a scenario seems a bit less likely, however, since Moody's recently upgraded Petrohawk's credit status from “negative” to “stable.” The company's debt is still considered junk, though, as indicated by Moody's ratings, which are in the B2 to B3 range.

Action to Take –> See Petrohawk for what it is: a volatile mid-cap stock with potential for serious outperformance — but also a considerable amount of risk. Don't buy it if you're risk averse. If you do buy the stock, keep the amount reasonable — no more than, say, 2% to 4% of your total portfolio. That way, you'll get a benefit if it performs as projected, but you won't suffer terribly if it doesn't meet expectations or the worst case materializes.

A final note on one of the intangibles at play here: Petrohawk is the third major oil and gas startup of founder and CEO Floyd C. Wilson. His plan for Petrohawk is to accomplish what he did with the prior two — sell when the time is right at a nice profit for shareholders.


– Tim Begany

Tim Begany has worked at several financial planning and investment advisory firms. He also holds a Series 65 investment consultant license. Read more…

Disclosure: Tim Begany and/or StreetAuthority, LLC hold a position in HK.

This article originally appeared on StreetAuthority
Author: Tim Begany
An Unknown Energy Play That Could Deliver +365%

Read more here:
An Unknown Energy Play That Could Deliver +365%

Uncategorized

Cash in on the Imminent Natural Gas Rally

September 30th, 2010

Cash in on the Imminent Natural Gas Rally

The numbers are out and it’s official: this year’s summer was the fourth-warmest on record, according to the National Oceanic and Atmospheric Administration. Moreover, on a population-weighted basis, it was perhaps the warmest summer on record in the United States.

Yet here we are with natural gas prices stuck below $4.00/mmbtu, down substantially from levels above $5.00 in June and above $6.00 in January.

As the second-most consumed fuel for generating electricity after coal, record heat would typically translate into record demand for the commodity, as well as elevated prices. Indeed, benchmark coal prices are up nearly +25% from last year, but gas prices are actually down -20%.

So what happened?

It all boils down to supply. Flush with capital from debt and equity issuances, natural gas producers have been drilling frantically, taking advantage of prolific shale reserves to grow output at a rapid pace. Joint ventures with deep-pocketed international oil companies have been another source of capital, while certain provisions in lease agreements obligate producers to drill within a certain time frame. Taken together, these factors have led the industry to maintain ambitious capital expenditure plans despite depressed gas prices. In turn, production continues to grow by leaps and bounds. Industry sources indicate that output may be up by as much as 3.5 billion cubic feet (bcf) per day from a year ago, a significant figure in a roughly 60 bcf/day market.

In this context, we can see why natural gas prices have largely shrugged off the record summer heat. That demand is temporary, while the supply issues are more structural.

Yet in spite of this gloomy outlook, natural gas may be poised to rally. Thanks to scorching summer temperatures, inventories of the fuel have gone from an 89 bcf surplus over year ago levels in April, to a 185 bcf deficit currently. Furthermore, the anticipation of winter typically leads to a seasonal upswing in natural gas, and this year is likely no exception, especially as prices have fallen to a level where a meaningful rebound is very much achievable. All things considered, the commodity may move toward $5.00/mmbtu during the course of the next month or two, notably higher than current levels.

But before suggesting what investors should buy to take advantage of this potential rally in natural gas prices, it is worth mentioning what not to buy. The United States Natural Gas Fund (NYSE: UNG) has received a lot of attention in the past year, particularly from retail investors. UNG is an exchange-traded fund (ETF) that attempts to replicate movements in natural gas prices by purchasing the front month natural gas futures contract on the New York Mercantile Exchange, the IntercontinentalExchange or the equivalent exposure on over-the-counter markets.

As many UNG investors have learned the hard way, the performance of the fund is not as straightforward as one might expect. [See: The 6 Rules ETF Investors Must Know] It is important to understand that the fund’s returns are impacted by both the movement of natural gas prices as well as the structure of the natural gas forward curve. Because prices are typically higher in each subsequent month of the forward curve — a condition called contango — the fund takes a hit each month as it rolls over its positions by selling contracts in the nearby month and buying contracts in the next month. In fact, while natural gas prices are down -20% from a year ago, UNG is down a hefty -46%, illustrating that the fund is not the best vehicle for gaining long exposure to the commodity.

Action to Take –> Instead, investors should consider buying shares of low-cost producers who can increase production and cash flow in a modest commodity price environment. Range Resources (NYSE: RRC), Petrohawk Energy (NYSE: HK), Southwestern Energy (NYSE: SWN) and Ultra Petroleum (NYSE: UPL) look attractive after falling steeply as natural gas pricing expectations have declined. [Read my colleague Tim Begany's take on Petrohawk]

These stocks' valuations are now accounting for lower commodity prices, so any rebound in natural gas should lead to a rebound in share prices. Each of these exploration and production companies has accumulated enviable positions in some of the most profitable unconventional natural gas resource plays ever discovered. They should enjoy strong rates of growth regardless of the fluctuations in gas prices, taking market share from higher-cost producers if necessary.


– Sumit Roy

P.S. Exchange-traded funds are one of those underappreciated tools that should be in every investor's arsenal. They are the cheapest, easiest and fastest way to profit from hundreds of industries, commodities and countries. Start putting these tools to use in The ETF Authority and profit in practically any market.

Sumit has more than eight years of experience covering equity and commodity markets. Sumit's work has been cited on Barron's and Yahoo! Finance. Read more…

Disclosure: Neither Sumit Roy nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: Sumit Roy
Cash in on the Imminent Natural Gas Rally

Read more here:
Cash in on the Imminent Natural Gas Rally

Commodities, ETF, Uncategorized

Cash in on the Imminent Natural Gas Rally

September 30th, 2010

Cash in on the Imminent Natural Gas Rally

The numbers are out and it’s official: this year’s summer was the fourth-warmest on record, according to the National Oceanic and Atmospheric Administration. Moreover, on a population-weighted basis, it was perhaps the warmest summer on record in the United States.

Yet here we are with natural gas prices stuck below $4.00/mmbtu, down substantially from levels above $5.00 in June and above $6.00 in January.

As the second-most consumed fuel for generating electricity after coal, record heat would typically translate into record demand for the commodity, as well as elevated prices. Indeed, benchmark coal prices are up nearly +25% from last year, but gas prices are actually down -20%.

So what happened?

It all boils down to supply. Flush with capital from debt and equity issuances, natural gas producers have been drilling frantically, taking advantage of prolific shale reserves to grow output at a rapid pace. Joint ventures with deep-pocketed international oil companies have been another source of capital, while certain provisions in lease agreements obligate producers to drill within a certain time frame. Taken together, these factors have led the industry to maintain ambitious capital expenditure plans despite depressed gas prices. In turn, production continues to grow by leaps and bounds. Industry sources indicate that output may be up by as much as 3.5 billion cubic feet (bcf) per day from a year ago, a significant figure in a roughly 60 bcf/day market.

In this context, we can see why natural gas prices have largely shrugged off the record summer heat. That demand is temporary, while the supply issues are more structural.

Yet in spite of this gloomy outlook, natural gas may be poised to rally. Thanks to scorching summer temperatures, inventories of the fuel have gone from an 89 bcf surplus over year ago levels in April, to a 185 bcf deficit currently. Furthermore, the anticipation of winter typically leads to a seasonal upswing in natural gas, and this year is likely no exception, especially as prices have fallen to a level where a meaningful rebound is very much achievable. All things considered, the commodity may move toward $5.00/mmbtu during the course of the next month or two, notably higher than current levels.

But before suggesting what investors should buy to take advantage of this potential rally in natural gas prices, it is worth mentioning what not to buy. The United States Natural Gas Fund (NYSE: UNG) has received a lot of attention in the past year, particularly from retail investors. UNG is an exchange-traded fund (ETF) that attempts to replicate movements in natural gas prices by purchasing the front month natural gas futures contract on the New York Mercantile Exchange, the IntercontinentalExchange or the equivalent exposure on over-the-counter markets.

As many UNG investors have learned the hard way, the performance of the fund is not as straightforward as one might expect. [See: The 6 Rules ETF Investors Must Know] It is important to understand that the fund’s returns are impacted by both the movement of natural gas prices as well as the structure of the natural gas forward curve. Because prices are typically higher in each subsequent month of the forward curve — a condition called contango — the fund takes a hit each month as it rolls over its positions by selling contracts in the nearby month and buying contracts in the next month. In fact, while natural gas prices are down -20% from a year ago, UNG is down a hefty -46%, illustrating that the fund is not the best vehicle for gaining long exposure to the commodity.

Action to Take –> Instead, investors should consider buying shares of low-cost producers who can increase production and cash flow in a modest commodity price environment. Range Resources (NYSE: RRC), Petrohawk Energy (NYSE: HK), Southwestern Energy (NYSE: SWN) and Ultra Petroleum (NYSE: UPL) look attractive after falling steeply as natural gas pricing expectations have declined. [Read my colleague Tim Begany's take on Petrohawk]

These stocks' valuations are now accounting for lower commodity prices, so any rebound in natural gas should lead to a rebound in share prices. Each of these exploration and production companies has accumulated enviable positions in some of the most profitable unconventional natural gas resource plays ever discovered. They should enjoy strong rates of growth regardless of the fluctuations in gas prices, taking market share from higher-cost producers if necessary.


– Sumit Roy

P.S. Exchange-traded funds are one of those underappreciated tools that should be in every investor's arsenal. They are the cheapest, easiest and fastest way to profit from hundreds of industries, commodities and countries. Start putting these tools to use in The ETF Authority and profit in practically any market.

Sumit has more than eight years of experience covering equity and commodity markets. Sumit's work has been cited on Barron's and Yahoo! Finance. Read more…

Disclosure: Neither Sumit Roy nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: Sumit Roy
Cash in on the Imminent Natural Gas Rally

Read more here:
Cash in on the Imminent Natural Gas Rally

Commodities, ETF, Uncategorized

Mid-Week Market Report on SP500, Oil, Gold & Dollar

September 30th, 2010

Wednesday the market didn’t tell us anything new. The equities market is still over extended on the daily chart but the market is refusing to break down. Each time there has been seen selling in the market over the past two weeks, the market recovers. Equities and the dollar have been trading with an inverse relationship and it seems to drop every in value each selling pressure enters the market, which naturally lifts stocks.

That being said, sellers are starting to come into the market at these elevated levels and it’s just a matter of time before we see a healthy pullback/correction. The past 10 session volatility has been creeping up as equities try to sell off. There will be a point when a falling dollar is not bullish for stocks but until then it looks like printing of money will continue devaluing of the dollar to help lift the stock market. Some type of pullback is needed if this trend is to continue and the markets can only be held up for so long.

Below is a chart of the USO oil fund and the SPY index fund. Crude has a tendency to provide an early warning sign for the strength of the economy. As you can see from the April top, oil started to decline well before the equities market did. This indicated a slow down was coming.

The recent equities rally which started in late August has been strong. But take a look at the price of oil. It has traded very flat during that time indicating the economy has not really picked up, nor does it indicate any growth in the coming months. This rally just may be coming to an end shortly.

This daily chart of the SP500 fund shows similar topping patterns. This looks to be the last straw for the SP500. Most tops occur with a gap higher or early morning rally reaching new highs, only to see a sharp sell off by the end of the session which generates a reversal day. From the looks of this chart that could happen any day.

In short, volume overall in the market remains light which is why we continue to see higher prices. Light volume typically gives the stock market a positive bias while Sell offs require strong volume to move lower. That being said every dip in the equities market which has been close to a breakdown seems to get lifted back up by a falling dollar, but that can only happen for so long because one the volume steps back into the market the masses will be in control again.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more info across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Due to more analysis and that I want to keep the service personal the price of the service will be going up Oct 1st, so join today.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
Mid-Week Market Report on SP500, Oil, Gold & Dollar




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Mid-Week Market Report on SP500, Oil, Gold & Dollar

September 30th, 2010

Wednesday the market didn’t tell us anything new. The equities market is still over extended on the daily chart but the market is refusing to break down. Each time there has been seen selling in the market over the past two weeks, the market recovers. Equities and the dollar have been trading with an inverse relationship and it seems to drop every in value each selling pressure enters the market, which naturally lifts stocks.

That being said, sellers are starting to come into the market at these elevated levels and it’s just a matter of time before we see a healthy pullback/correction. The past 10 session volatility has been creeping up as equities try to sell off. There will be a point when a falling dollar is not bullish for stocks but until then it looks like printing of money will continue devaluing of the dollar to help lift the stock market. Some type of pullback is needed if this trend is to continue and the markets can only be held up for so long.

Below is a chart of the USO oil fund and the SPY index fund. Crude has a tendency to provide an early warning sign for the strength of the economy. As you can see from the April top, oil started to decline well before the equities market did. This indicated a slow down was coming.

The recent equities rally which started in late August has been strong. But take a look at the price of oil. It has traded very flat during that time indicating the economy has not really picked up, nor does it indicate any growth in the coming months. This rally just may be coming to an end shortly.

This daily chart of the SP500 fund shows similar topping patterns. This looks to be the last straw for the SP500. Most tops occur with a gap higher or early morning rally reaching new highs, only to see a sharp sell off by the end of the session which generates a reversal day. From the looks of this chart that could happen any day.

In short, volume overall in the market remains light which is why we continue to see higher prices. Light volume typically gives the stock market a positive bias while Sell offs require strong volume to move lower. That being said every dip in the equities market which has been close to a breakdown seems to get lifted back up by a falling dollar, but that can only happen for so long because one the volume steps back into the market the masses will be in control again.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more info across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Due to more analysis and that I want to keep the service personal the price of the service will be going up Oct 1st, so join today.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
Mid-Week Market Report on SP500, Oil, Gold & Dollar




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Five Tech ETFs to Look at Now

September 30th, 2010

Ron Rowland

You can always count on one thing in the technology sector: Change! The cutting-edge inventions that fascinated us so much back in the 1990s are de rigueur now. Where will we be in ten years? I can only imagine.

As I said last year in my Trade Technology with ETFs column, playing tech trends with individual stocks is a high-risk game. You never know where the next big breakthrough will originate. Even a portfolio of 15-20 tech stocks might not catch the big winners.

The ideal solution: Exchange traded funds (ETFs). But you still have to know what you are buying. These days, the answer is not as easy as it might look.

Here’s the problem: “Technology” is a very broad term. You can take your pick of tech-oriented ETFs and mutual funds. The big ones will be composed of the same few dozen names — highly liquid stocks that won’t get anyone in trouble.

With the plain-vanilla segment well covered, ETF sponsors are defining narrower and narrower niches in an attempt to distinguish their offerings. Unfortunately, the “definitions” are not always as clear as they might seem.

Here is a good example …

Where Does GOOG fit in?

What is Google? Does GOOG fit into the internet, software, or telecom category? Maybe it should be classified as an advertising company instead of a tech company.

Pop quiz: What sector is this company?
Pop quiz: What sector is this company?

The correct answer: All of the above! Google is a big company doing many different things. Ditto for stocks like Apple, IBM, and Microsoft.

This creates a quandary …

Index providers categorize stocks in various ways; so not all “software” ETFs are comparable to each other. The same is true in any of the technology sub-sectors.

So what do you do? Many analysts take a top-down approach. They look at market action to identify promising trends, then try to find ETFs that can exploit those trends.

I prefer to work from the bottom up, going straight to the performance of individual ETFs. I don’t especially care what they claim to be doing. I look at what they are doing — and the results always show up in their performance.

Of course I consider other factors like liquidity and diversification, and you should, too. You also need a strategy that dispassionately ranks the available ETFs from best to worst.

Right now my analysis is pointing to a handful of technology ETFs with strong momentum. You may want to take a closer look at these names …

  • First Trust Dow Jones Internet (FDN). We’re way past the days when “the Internet” was new and exciting. Now it’s just a part of life. Yet there is still money to be made on the net — and companies like Google, Amazon, eBay, and Yahoo! are doing it. That’s why their stocks are climbing recently. FDN is a good way to get on the train.
  • Guggenheim China Technology (CQQQ). It’s no exaggeration to say our high-tech society could not exist without China. Many of the devices we depend on so heavily originate there. CQQQ lets you zero in on Chinese tech stocks. Incidentally, this ETF used to be called Claymore China Technology. The sponsor was bought by Guggenheim recently, and they are changing names.
  • iShares S&P North American Technology — Software (IGV). A computer without software is like a brick without a building: Not worth much. IGV holds a good selection of the software-oriented stocks that keep the world going.
  • Vanguard Telecommunication Services (VOX). Phone companies used to be boring — and they still would be if all they did was let us call each other and chitchat. Now they do much more: Data is their fastest-growing segment, especially mobile data. The stocks held in VOX are literally the glue that binds the world’s technology together.
  • PowerShares Dynamic Networking (PXQ). Technology took a quantum leap when computers starting talking to each other as well as to us. The stocks held by PXQ are involved in both hardware and software, with a singular focus on networking. I especially like the way this ETF diversifies its holdings.

Pop quiz: What sector is this company?

So what is the potential with ETFs like these? Just check out their results for the current quarter on the table to the left.

Meanwhile, another technology group, semiconductors, has been lagging the past few months. So if your favorite tech fund has a large allocation to this group, then chances are it’s been lagging too.

Obviously we don’t know that the next three months will be as favorable as the last, for these ETFs or any others. Yet if your goal is to follow the bull wherever he goes, they could be some good candidates for you to consider.

Best wishes,

Ron

P.S. Speaking of technology, are you a Twitter user? I am. You can follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the “Follow” button from http://www.twitter.com/ron_rowland to receive updates on either your cell phone or Twitter page.

Related posts:

  1. Mega-Cap ETFs Give You the Bluest Blue Chips
  2. Zero in on Small Cap Sectors with New ETFs
  3. Get Outside the Style Box with ETFs

Read more here:
Five Tech ETFs to Look at Now

Commodities, ETF, Mutual Fund, Uncategorized

Five Tech ETFs to Look at Now

September 30th, 2010

Ron Rowland

You can always count on one thing in the technology sector: Change! The cutting-edge inventions that fascinated us so much back in the 1990s are de rigueur now. Where will we be in ten years? I can only imagine.

As I said last year in my Trade Technology with ETFs column, playing tech trends with individual stocks is a high-risk game. You never know where the next big breakthrough will originate. Even a portfolio of 15-20 tech stocks might not catch the big winners.

The ideal solution: Exchange traded funds (ETFs). But you still have to know what you are buying. These days, the answer is not as easy as it might look.

Here’s the problem: “Technology” is a very broad term. You can take your pick of tech-oriented ETFs and mutual funds. The big ones will be composed of the same few dozen names — highly liquid stocks that won’t get anyone in trouble.

With the plain-vanilla segment well covered, ETF sponsors are defining narrower and narrower niches in an attempt to distinguish their offerings. Unfortunately, the “definitions” are not always as clear as they might seem.

Here is a good example …

Where Does GOOG fit in?

What is Google? Does GOOG fit into the internet, software, or telecom category? Maybe it should be classified as an advertising company instead of a tech company.

Pop quiz: What sector is this company?
Pop quiz: What sector is this company?

The correct answer: All of the above! Google is a big company doing many different things. Ditto for stocks like Apple, IBM, and Microsoft.

This creates a quandary …

Index providers categorize stocks in various ways; so not all “software” ETFs are comparable to each other. The same is true in any of the technology sub-sectors.

So what do you do? Many analysts take a top-down approach. They look at market action to identify promising trends, then try to find ETFs that can exploit those trends.

I prefer to work from the bottom up, going straight to the performance of individual ETFs. I don’t especially care what they claim to be doing. I look at what they are doing — and the results always show up in their performance.

Of course I consider other factors like liquidity and diversification, and you should, too. You also need a strategy that dispassionately ranks the available ETFs from best to worst.

Right now my analysis is pointing to a handful of technology ETFs with strong momentum. You may want to take a closer look at these names …

  • First Trust Dow Jones Internet (FDN). We’re way past the days when “the Internet” was new and exciting. Now it’s just a part of life. Yet there is still money to be made on the net — and companies like Google, Amazon, eBay, and Yahoo! are doing it. That’s why their stocks are climbing recently. FDN is a good way to get on the train.
  • Guggenheim China Technology (CQQQ). It’s no exaggeration to say our high-tech society could not exist without China. Many of the devices we depend on so heavily originate there. CQQQ lets you zero in on Chinese tech stocks. Incidentally, this ETF used to be called Claymore China Technology. The sponsor was bought by Guggenheim recently, and they are changing names.
  • iShares S&P North American Technology — Software (IGV). A computer without software is like a brick without a building: Not worth much. IGV holds a good selection of the software-oriented stocks that keep the world going.
  • Vanguard Telecommunication Services (VOX). Phone companies used to be boring — and they still would be if all they did was let us call each other and chitchat. Now they do much more: Data is their fastest-growing segment, especially mobile data. The stocks held in VOX are literally the glue that binds the world’s technology together.
  • PowerShares Dynamic Networking (PXQ). Technology took a quantum leap when computers starting talking to each other as well as to us. The stocks held by PXQ are involved in both hardware and software, with a singular focus on networking. I especially like the way this ETF diversifies its holdings.

Pop quiz: What sector is this company?

So what is the potential with ETFs like these? Just check out their results for the current quarter on the table to the left.

Meanwhile, another technology group, semiconductors, has been lagging the past few months. So if your favorite tech fund has a large allocation to this group, then chances are it’s been lagging too.

Obviously we don’t know that the next three months will be as favorable as the last, for these ETFs or any others. Yet if your goal is to follow the bull wherever he goes, they could be some good candidates for you to consider.

Best wishes,

Ron

P.S. Speaking of technology, are you a Twitter user? I am. You can follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the “Follow” button from http://www.twitter.com/ron_rowland to receive updates on either your cell phone or Twitter page.

Related posts:

  1. Mega-Cap ETFs Give You the Bluest Blue Chips
  2. Zero in on Small Cap Sectors with New ETFs
  3. Get Outside the Style Box with ETFs

Read more here:
Five Tech ETFs to Look at Now

Commodities, ETF, Mutual Fund, Uncategorized

When Only a Much Weaker Dollar Will Do, Part One of Two

September 30th, 2010

It is sometimes challenging to make sense of economic policymakers’ frequently convoluted and occasionally obfuscating language. There are times, however, when they say what they mean rather clearly. This the Fed did in its September policy meeting statement. While these statements normally contain quite standard language that does not change materially meeting to meeting, last month was an important exception. The Fed chose to add some text which, when placed in context, implies that the Fed now has a bias to apply more unconventional stimulus to the economy. Here is the relevant excerpt:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

Now if inflation is too low and is likely to remain too low for “some time”, then the Fed clearly has a bias to do what it can to try and expedite a rise in inflation. But with policy rates already near zero and the Fed already preventing a natural shrinkage of its balance sheet as securities holdings mature, all that is left is for the Fed to reach further into its toolkit of unconventional policies.

We have examined the Fed’s various unconventional policy tools in previous Amphora Reports and concluded that, absent a decline in the dollar and/or rise in commodity prices, the Fed is not going to succeed in increasing the rate of price inflation. This is because the money and credit transmission mechanism is the US is broken due to a weak financial sector, excessive household debt and associated high unemployment. We believe that Mr. Bernanke knows this. Indeed, in a speech from 2002 that we have quoted before, he cites currency devaluation as an effective means of policy in the event that the domestic money and credit transmission mechanism breaks down:

…there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation. [emphasis added]

Now think about this for a minute. Mr. Bernanke is on the record advocating currency devaluation as an effective means of ending deflation, supporting the stock market and promoting economic growth when interest rates are near zero. Well, with interest rates near zero and the Fed already buying Treasuries systematically to prevent any shrinkage in the monetary base, an obvious possible conclusion one can draw from the Fed’s recent, explicit statement that inflation is too low amidst weak economic activity, is that the Fed is moving closer toward advocating a policy of dollar devaluation as the means to bring an end to deflationary pressures, support the stock market, promote economic growth and contribute to a decline in unemployment.

We say “advocating” for a reason, in that it is the US Treasury, not the Fed, which has the mandate for US currency policy. Any decision to deliberately devalue the dollar must therefore be made by the Treasury, presumably on the executive order of the president, although it is possible that an act of Congress would be used to provide additional legitimacy for such action. The Fed, however, would act as the agent, selling dollars in exchange for foreign currency government bonds, most probably those of the euro-area and Japan–the largest foreign markets–but possibly also others.

In the event that the euro-area and Japan are willing to allow their currencies to appreciate, then the cost of goods imported from those countries into the US is going to rise. The same is true for imports from any country which is willing to allow its currency to rise versus the dollar in this fashion. In time, the US will find that import price inflation is pushing up the prices of consumer goods generally. As US wages are likely to remain stagnant amidst high unemployment, however, it is only when the dollar has fallen far enough to make US workers’ wages somewhat cheaper relative to the rest of the world (ROW) that businesses will begin to hire US workers again and unemployment will begin to decline.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

When Only a Much Weaker Dollar Will Do, Part One of Two originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Only a Much Weaker Dollar Will Do, Part One of Two




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

When Only a Much Weaker Dollar Will Do, Part One of Two

September 30th, 2010

It is sometimes challenging to make sense of economic policymakers’ frequently convoluted and occasionally obfuscating language. There are times, however, when they say what they mean rather clearly. This the Fed did in its September policy meeting statement. While these statements normally contain quite standard language that does not change materially meeting to meeting, last month was an important exception. The Fed chose to add some text which, when placed in context, implies that the Fed now has a bias to apply more unconventional stimulus to the economy. Here is the relevant excerpt:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

Now if inflation is too low and is likely to remain too low for “some time”, then the Fed clearly has a bias to do what it can to try and expedite a rise in inflation. But with policy rates already near zero and the Fed already preventing a natural shrinkage of its balance sheet as securities holdings mature, all that is left is for the Fed to reach further into its toolkit of unconventional policies.

We have examined the Fed’s various unconventional policy tools in previous Amphora Reports and concluded that, absent a decline in the dollar and/or rise in commodity prices, the Fed is not going to succeed in increasing the rate of price inflation. This is because the money and credit transmission mechanism is the US is broken due to a weak financial sector, excessive household debt and associated high unemployment. We believe that Mr. Bernanke knows this. Indeed, in a speech from 2002 that we have quoted before, he cites currency devaluation as an effective means of policy in the event that the domestic money and credit transmission mechanism breaks down:

…there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation. [emphasis added]

Now think about this for a minute. Mr. Bernanke is on the record advocating currency devaluation as an effective means of ending deflation, supporting the stock market and promoting economic growth when interest rates are near zero. Well, with interest rates near zero and the Fed already buying Treasuries systematically to prevent any shrinkage in the monetary base, an obvious possible conclusion one can draw from the Fed’s recent, explicit statement that inflation is too low amidst weak economic activity, is that the Fed is moving closer toward advocating a policy of dollar devaluation as the means to bring an end to deflationary pressures, support the stock market, promote economic growth and contribute to a decline in unemployment.

We say “advocating” for a reason, in that it is the US Treasury, not the Fed, which has the mandate for US currency policy. Any decision to deliberately devalue the dollar must therefore be made by the Treasury, presumably on the executive order of the president, although it is possible that an act of Congress would be used to provide additional legitimacy for such action. The Fed, however, would act as the agent, selling dollars in exchange for foreign currency government bonds, most probably those of the euro-area and Japan–the largest foreign markets–but possibly also others.

In the event that the euro-area and Japan are willing to allow their currencies to appreciate, then the cost of goods imported from those countries into the US is going to rise. The same is true for imports from any country which is willing to allow its currency to rise versus the dollar in this fashion. In time, the US will find that import price inflation is pushing up the prices of consumer goods generally. As US wages are likely to remain stagnant amidst high unemployment, however, it is only when the dollar has fallen far enough to make US workers’ wages somewhat cheaper relative to the rest of the world (ROW) that businesses will begin to hire US workers again and unemployment will begin to decline.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

When Only a Much Weaker Dollar Will Do, Part One of Two originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
When Only a Much Weaker Dollar Will Do, Part One of Two




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Zooming in on the St. Louis Fed’s Financial Stress Index

September 30th, 2010

Yesterday’s post, St. Louis Fed’s Financial Stress Index, generated a great deal of interest in what I like to call the STLFSI.

Not surprisingly, many of the questions and comments had to do with the performance of the STLFSI and the VIX during the 2008 Financial Crisis and up through the present.

The chart below zooms in on the previous 1993-2010 timeline and highlights the STLFSI and VIX since the beginning of 2007. Keep in mind that the data is weekly (the STLFSI is only updated once per week) so some of the nuances are lost. Still, some conclusions are unavoidable. For instance, the STLFSI appears to have done a better job than the VIX of flagging the deteriorating economic situation from the end of 2007 to September 2008. Additionally, the STLFSI indicates that extreme stress in the system in late 2008 persisted longer than the VIX would have investors believe. Finally – and perhaps most relevant to the current situation – the VIX has almost completely discounted the May 2010 volatility spike some four months later, whereas the STLFSI suggests that the events of May, which were highlighted by the European sovereign debt crisis, still cast a large shadow on the current state of the markets.

As is often the case, here the holistic analytical approach trumps the solo indicator.

Related posts:

[source: Federal Reserve Bank of St. Louis]

Disclosure(s): none



Read more here:
Zooming in on the St. Louis Fed’s Financial Stress Index

Uncategorized

Student Housing REIT – Perfect Combination of Yield, Stability and Price Gains

September 30th, 2010

A buddy of mine has been making a killing in college housing for years.  Unlike what has happened to the residential real estate market, the college housing market has been largely insulated from both the initial bubble and the subsequent crash.  Why?  Well, valuations are based on actual cash-flows (real money) and not speculation, flipping and no-doc loans like the mess we got into with residential real estate.  In essence, if a certain unit is return X cash per year, it can be reasonably valued at Y dollars.  In general, the cost of college housing has been increasing at or more than the rate of core inflation for years pretty steadily.  There’s no shortage of college students requiring off-campus housing if you pick the right university.  Zoning laws and insider dealings make it a bit of a tough nut to crack, but once you’re in, you’re in.  So in the end, my friend is making 20% on cash and continues to roll equity from one property to the next.  He’s building a small empire – the one you used to hear about with condo flipping in Miami…but this one won’t pop unless universities start going belly up.

In thinking through how I could participate in this seemingly handsome reward per modest risk without being an insider myself, I came across a great proxy – a Real Estate Investment Trust (REIT list of dozens of tickers referenced there) based on college campus housing.  There are a couple of these out there but I identified what I felt to be the best in class – American Campus Communities Inc (ACC).  I like ACC for several reasons, enough to actually buy some for my self-directed IRA.  I prefer holding dividend payers in this account since they’re protected from taxes and I love the benefit of the overall dividend return equating to close to half of the total stock market returns over time as indicated graphically there.

Key Performance Measures of ACC:

  • Yield: 4.5% – The dividend payouts have continued uninterrupted for years, even through the financial collapse last year.  Granted, share prices declined, as did all asset classes outside of Treasuries, but they also recovered quickly.  Meanwhile, investors have continued to enjoy yields exceeding the 2% yield on the S&P500 and 3% on the longest duration Treasuries.  While one could pursue even higher yields with muni bond funds and other high yield asset classes, there are significant risks that may have yet to manifest themselves in the current valuations.  Admittedly, the best utility ETFs due convey similar benefits of stability and high yield.
  • Performance YTD: ACC is up 7.4% vs. 2.7% for the S&P500 (SPY) – This is impressive in that with a market with virtually no dispersion and alpha tough to find, it has greatly outpaced the market at large.  This, all with a higher dividend to boot.
  • Performance During Crash of 2009: ACC was down 40% vs 47% for the S&P500 (SPY) – While 40% is nothing to write home about, it demonstrates lower volatility and risk than the market at large.  I looked at the 1 year period leading up the March 2009 lows before the market capitulated and rebounded.
  • Performance Since Inception Aug 20, 2004: ACC has gained 72% since inception vs. 7.5% for the S&P500 (SPY) - very strong long-term performance.  In a “lost decade” and a period of near flat returns from 2004, ACC delivered a very respectable 72% plus dividends.
  • Performance vs. REIT Index ETF: When comparing to the iShares REIT Index ETF (IYR), ACC outperformed strongly as well, at the same 72% since inception vs. 3.8%.

Disclosure: Long ACC

ETF, Real Estate

Student Housing REIT – Perfect Combination of Yield, Stability and Price Gains

September 30th, 2010

A buddy of mine has been making a killing in college housing for years.  Unlike what has happened to the residential real estate market, the college housing market has been largely insulated from both the initial bubble and the subsequent crash.  Why?  Well, valuations are based on actual cash-flows (real money) and not speculation, flipping and no-doc loans like the mess we got into with residential real estate.  In essence, if a certain unit is return X cash per year, it can be reasonably valued at Y dollars.  In general, the cost of college housing has been increasing at or more than the rate of core inflation for years pretty steadily.  There’s no shortage of college students requiring off-campus housing if you pick the right university.  Zoning laws and insider dealings make it a bit of a tough nut to crack, but once you’re in, you’re in.  So in the end, my friend is making 20% on cash and continues to roll equity from one property to the next.  He’s building a small empire – the one you used to hear about with condo flipping in Miami…but this one won’t pop unless universities start going belly up.

In thinking through how I could participate in this seemingly handsome reward per modest risk without being an insider myself, I came across a great proxy – a Real Estate Investment Trust (REIT list of dozens of tickers referenced there) based on college campus housing.  There are a couple of these out there but I identified what I felt to be the best in class – American Campus Communities Inc (ACC).  I like ACC for several reasons, enough to actually buy some for my self-directed IRA.  I prefer holding dividend payers in this account since they’re protected from taxes and I love the benefit of the overall dividend return equating to close to half of the total stock market returns over time as indicated graphically there.

Key Performance Measures of ACC:

  • Yield: 4.5% – The dividend payouts have continued uninterrupted for years, even through the financial collapse last year.  Granted, share prices declined, as did all asset classes outside of Treasuries, but they also recovered quickly.  Meanwhile, investors have continued to enjoy yields exceeding the 2% yield on the S&P500 and 3% on the longest duration Treasuries.  While one could pursue even higher yields with muni bond funds and other high yield asset classes, there are significant risks that may have yet to manifest themselves in the current valuations.  Admittedly, the best utility ETFs due convey similar benefits of stability and high yield.
  • Performance YTD: ACC is up 7.4% vs. 2.7% for the S&P500 (SPY) – This is impressive in that with a market with virtually no dispersion and alpha tough to find, it has greatly outpaced the market at large.  This, all with a higher dividend to boot.
  • Performance During Crash of 2009: ACC was down 40% vs 47% for the S&P500 (SPY) – While 40% is nothing to write home about, it demonstrates lower volatility and risk than the market at large.  I looked at the 1 year period leading up the March 2009 lows before the market capitulated and rebounded.
  • Performance Since Inception Aug 20, 2004: ACC has gained 72% since inception vs. 7.5% for the S&P500 (SPY) - very strong long-term performance.  In a “lost decade” and a period of near flat returns from 2004, ACC delivered a very respectable 72% plus dividends.
  • Performance vs. REIT Index ETF: When comparing to the iShares REIT Index ETF (IYR), ACC outperformed strongly as well, at the same 72% since inception vs. 3.8%.

Disclosure: Long ACC

ETF, Real Estate

Three ETFs Influenced By Chinese Real Estate

September 30th, 2010

As China continues to witness exponential economic growth, its real estate sector is following and the Chinese government is taking measures to curb the real estate boom potentially influencing the Guggenheim China Real Estate (TAO), the iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS) and the Guggenheim China All-Cap (YAO).

China’s Finance Ministry recently announced that it will speed up the introduction of a trial property tax in certain cities before implanting the levy across the nation.   The Ministry further stated that the tax rate will be 1 percent for units that are 90 square meters or smaller and will end an income-tax exemption on profits from the sale of real estate reinvested within one year. 

To further spark a crackdown on its real estate sector, which has witnessed property prices in 70 of its major cities rise 9.3 percent in August from a year earlier, China is urging commercial banks to stop offering loans to buyers of third homes and extended a 30 percent down payment requirement to all first-home buyers.  Additionally, banks have been ordered to stop lending to property developers that violate industry regulations, have raised interest rates on second-home mortgages and have put restrictions on the number of new homes that residents can purchase in certain cities. 

Overall, these increased regulations and the implementation of a property tax on residential real estate are likely to hinder the Chinese real estate sector influencing these ETFs:

  • Guggenheim China Real Estate (TAO), which is a diversified play on Chinese real estates and includes 41 holdings.
  •  iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS), which allocates more than 8% of its assets to Chinese real estate holdings.
  • Guggenheim China All-Cap (YAO), which includes companies which will be directly influenced by stricter lending regulations such as China Construction Bank Corporation, Industrial and Commercial Bank of China and Bank Of China Limited.

If currently invested in these ETFs, to further protect against downward price pressure implementing an exit strategy is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

Read more here:
Three ETFs Influenced By Chinese Real Estate




HERE IS YOUR FOOTER

ETF, Real Estate, Uncategorized

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