Chart of the Week: Gold and the Miners

September 27th, 2010

From a technical perspective, the big event in the markets in the last week is undoubtedly the breakout in the S&P 500 index, but since I devote so much time to the SPX and its derivatives, I thought the time is ripe to recognize gold for hitting a new all-time high and bumping up against $1300 per ounce.

To put a slightly different spin on gold, in the chart of the week below I have elected to include the gold futures continuous contract (red line) and also two popular ETFs for gold miners: GDX, the large cap version (top holdings of ABX, GG and NEM), shown below in a blue line; and GDXJ, the junior gold miners ETF (green line.)

As the chart of 2010 performance shows, gold futures have been the least volatile of the group and have had about the same performance as GDX. While GDX and GDXJ track each other fairly closely, note that GDXJ has distinguished itself with superior performance over the course of the last month or so.

Predicting the future of gold is a daunting task, but if the bullish trend continues, GDXJ clearly has the potential to continue to deliver outsized returns – with commensurate risk, of course.

Related posts:

[source: StockCharts.com]

Disclosure(s): long GDXJ at time of writing



Read more here:
Chart of the Week: Gold and the Miners

ETF, Uncategorized

SP500 Internals, Dollar & Gold Pre-Week Analysis

September 26th, 2010

After a fierce equities rally on Friday, which I figured would happen, just not that strong; I have to wonder if there is some event or major decision in the works we don’t know about?

Friday’s rally could be something simpler like window dressing by the funds. This is when the funds buy up all the top performing stocks for month end reporting. They do this so that their investors think they are on the ball and know what they are doing. Window dressing will end Monday and from there we could see some profit taking (selling) start. But for all we know Obama could be extending the tax cuts for everyone or cutting payroll taxes etc…

It would only take one of these events to trigger a sharp up move in the market and that could be what Friday’s move was anticipating. That being said volume has remained light and during low volume session the market has a tendency to move higher. Sell offs in the market require strong volume to pull the market down, so until volume picks up there could still be higher prices just around the corner.

Let’s take a look at some charts…

SPY – SP500 60 Minute Intraday Chart

Last week we saw the market reverse to the down side with a strong end of say sell off. That set the tone for some follow through selling and for any bounces to be sold into. That being said, the market always has a way of surprising traders and it did just that on Friday gapping above Thursday’s reversal high causing shorts to cover and the typical end of week light volume drift to help hold prices up.

NYSE Market Internals – 15 Minute Chart

I like to follow some market internals to help understand if investors are becoming fearful or greedy. It also helps me gauge if the market is over bought or oversold on any given day.

These three charts below show some interesting data.
Top Chart – This indicator shows me if the majority of shares traded are bought or sold. When the red line spikes up and trades above 5 then I know the majority of traders are buying over covering their shorts. I call this panic buying because traders are buying in fear that the market will continue higher and they will miss the train. When everyone is buying you know a pullback is most likely to occur.

Middle Chart – This is the NYSE advance/decline line. When this indicator is below -1500 then the market is over sold and bottom pickers/value buyers will step in and nibble at stocks. But when this indicator is trading over 1500 then you know the market is overbought and there should be some profit taking starting any time soon.

Bottom Chart – This is the put/call ratio and this tells us how many people are buying calls vs put options. When this indicator is below 0.80 level more traders are bullish and buying leverage. My theory is if they are buying leverage for higher prices, then they have already bought all their stocks and now want to add some leverage for more profits. When I see the majority of traders bullish then I an sure to tighten my stops (if long) as top my be forming.

Putting the charts together – When each of these charts are trading in the red zone know I must be cautious for any long positions because the market just may be starting to top. Or a short term correction may occur.

UUP – US Dollar Daily Chart

The US dollar has been under some serious pressure with all the talk about quantitative easing (printing money). Obviously the more the Fed’s print the less value the dollar will have. The chart below shows a green gap window which I think once it is filled should put the dollar in a oversold condition for a short term swing trade bounce before heading back down. A bounce in the dollar will put pressure on equities, gold and oil.

GLD – Gold Daily Chart

Gold continues to grind its way up. This move is looking very long in the teeth and pullback will most likely be sharp.

Weekend Trading Conclusion:

In short, equities and gold continue to grind their way higher while the US dollar continues its grind lower. When I say the market is grinding I am implying the market is over extended and a reversal any day should occur.

Financial stocks like Goldman (GS) which typically leads the market has been strongly underperforming over the past week. Insiders were selling GS very strongly which is strange and makes me wonder what’s up there? With the financial stocks underperforming it sure looks like a market reversal is just around the corner.

If Friday’s rally was simply window dressing by the funds then it should end on Monday and with any luck we will see a sharp reversal to the down side early this week.

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 toe get more into 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.

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:
SP500 Internals, Dollar & Gold Pre-Week Analysis




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, OPTIONS

SP500 Internals, Dollar & Gold Pre-Week Analysis

September 26th, 2010

After a fierce equities rally on Friday, which I figured would happen, just not that strong; I have to wonder if there is some event or major decision in the works we don’t know about?

Friday’s rally could be something simpler like window dressing by the funds. This is when the funds buy up all the top performing stocks for month end reporting. They do this so that their investors think they are on the ball and know what they are doing. Window dressing will end Monday and from there we could see some profit taking (selling) start. But for all we know Obama could be extending the tax cuts for everyone or cutting payroll taxes etc…

It would only take one of these events to trigger a sharp up move in the market and that could be what Friday’s move was anticipating. That being said volume has remained light and during low volume session the market has a tendency to move higher. Sell offs in the market require strong volume to pull the market down, so until volume picks up there could still be higher prices just around the corner.

Let’s take a look at some charts…

SPY – SP500 60 Minute Intraday Chart

Last week we saw the market reverse to the down side with a strong end of say sell off. That set the tone for some follow through selling and for any bounces to be sold into. That being said, the market always has a way of surprising traders and it did just that on Friday gapping above Thursday’s reversal high causing shorts to cover and the typical end of week light volume drift to help hold prices up.

NYSE Market Internals – 15 Minute Chart

I like to follow some market internals to help understand if investors are becoming fearful or greedy. It also helps me gauge if the market is over bought or oversold on any given day.

These three charts below show some interesting data.
Top Chart – This indicator shows me if the majority of shares traded are bought or sold. When the red line spikes up and trades above 5 then I know the majority of traders are buying over covering their shorts. I call this panic buying because traders are buying in fear that the market will continue higher and they will miss the train. When everyone is buying you know a pullback is most likely to occur.

Middle Chart – This is the NYSE advance/decline line. When this indicator is below -1500 then the market is over sold and bottom pickers/value buyers will step in and nibble at stocks. But when this indicator is trading over 1500 then you know the market is overbought and there should be some profit taking starting any time soon.

Bottom Chart – This is the put/call ratio and this tells us how many people are buying calls vs put options. When this indicator is below 0.80 level more traders are bullish and buying leverage. My theory is if they are buying leverage for higher prices, then they have already bought all their stocks and now want to add some leverage for more profits. When I see the majority of traders bullish then I an sure to tighten my stops (if long) as top my be forming.

Putting the charts together – When each of these charts are trading in the red zone know I must be cautious for any long positions because the market just may be starting to top. Or a short term correction may occur.

UUP – US Dollar Daily Chart

The US dollar has been under some serious pressure with all the talk about quantitative easing (printing money). Obviously the more the Fed’s print the less value the dollar will have. The chart below shows a green gap window which I think once it is filled should put the dollar in a oversold condition for a short term swing trade bounce before heading back down. A bounce in the dollar will put pressure on equities, gold and oil.

GLD – Gold Daily Chart

Gold continues to grind its way up. This move is looking very long in the teeth and pullback will most likely be sharp.

Weekend Trading Conclusion:

In short, equities and gold continue to grind their way higher while the US dollar continues its grind lower. When I say the market is grinding I am implying the market is over extended and a reversal any day should occur.

Financial stocks like Goldman (GS) which typically leads the market has been strongly underperforming over the past week. Insiders were selling GS very strongly which is strange and makes me wonder what’s up there? With the financial stocks underperforming it sure looks like a market reversal is just around the corner.

If Friday’s rally was simply window dressing by the funds then it should end on Monday and with any luck we will see a sharp reversal to the down side early this week.

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 toe get more into 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.

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:
SP500 Internals, Dollar & Gold Pre-Week Analysis




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, OPTIONS

Upside Fibonacci Price Projections for Silver SLV

September 26th, 2010

With Silver screaming to new price highs, it’s time to pull out the Fibonacci Price Projection tool to see where upper indicator price confluences exist.

Fibonacci Projection tools are a type of advanced analysis, but follow with me and we’ll walk through it together.

First, the chart:

(Click for full-size chart)

For detailed information on how I used the Fibonacci Price Projection Tool, see my post in the Education Center entitled:

Fibonacci Price Projections.”

The main idea is that you pick a key swing low, draw the tool to the next swing high, and then draw down to the next swing low (higher than the prior low).

The Fibonacci Tool then projects the appropriate price levels for you.

You can do that on a single swing to find likely price targets to play for (or overhead resistance levels to try to short into), or you can do what I’ve done above and draw multiple Fibonacci Projection Grids to find not one level, but where levels converge or form tight confluences.

These levels are often more important than single levels.

That being said, I’ve labeled each of the four Projection Grids above in different colors.

Cutting through all the levels, there are TWO upside Confluence Zones:

C1:  The First Confluence Target is just under $22.00 at the $21.80 level.

That’s not too terribly high from where we are now.  This is the confluence of the Blue Grid’s 100% projection and Green Grid’s 161.8% Projection.

C2:  The Second Confluence Target is just above $24.00 at the $24.50 level.

This confluence reflects the 261.8% projection of the Red Grid; 138.2% of the Blue Grid, and 138.2% of the Purple Grid.

Longer-term Grids often hold more importance than shorter term grids – if you have to pick a level of most importance (sort of like longer-term trendlines hold more importance than shorter-term trendlines).

Anyway – the key will be watching what happens at $21.80 or $22.00 (which translates to the $21.50/$22.00 level in the SLV ETF).  If we start to see reversal candles or other sort of sell signals there, it might be wise to take profits.

If Silver does not stop at $22, then the next upside target becomes $24.50.

Keep these levels in mind in the weeks or even months ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Upside Fibonacci Price Projections for Silver SLV

ETF, Uncategorized

Are Americans Seeking Wealth Distribution More Like Sweden?

September 26th, 2010

New research on perceptions of wealth in the US — from Michael Norton and Dan Ariely at Harvard Business School and Duke University, respectively –  is worth a closer look. At first blush, it would seem that 92 percent of respondents rather live in a quasi-socialist economy more resembling Sweden than the US. The explanation they offer is that the gap between the rich and the poor has become far greater than surveyed Americans both think it is and would like it to be. Here are the findings, according to The Raw Story:

“…the study also found that respondents preferred Sweden’s model over a model of perfect income equality for everyone, ‘suggesting that Americans prefer some inequality to perfect equality, but not to the degree currently present in the United States,’ the authors state. Recent analyses have shown that income inequality in the US has grown steadily for the past three decades and reached its highest level on record, exceeding even the large disparities seen in the 1920s, before the Great Depression. Norton and Ariely estimate that the one percent wealthiest Americans hold nearly 50 percent of the country’s wealth, while the richest 20 percent hold 84 percent of the wealth.

“But in their study, the authors found Americans generally underestimate the income disparity. When asked to estimate, respondents on average estimated that the top 20 percent have 59 percent of the wealth (as opposed to the real number, 84 percent). And when asked to choose how much the top 20 percent should have, on average respondents said 32 percent — a number similar to the wealth distribution seen in Sweden.

“‘What is most striking’ about the results, argue the authors, is that they show ‘more consensus than disagreement among … different demographic groups. All groups – even the wealthiest respondents – desired a more equal distribution of wealth than what they estimated the current United States level to be, while all groups also desired some inequality – even the poorest respondents.’”

The main issue appears to be that people in the US, rich and poor alike, are not fully aware of how pronounced income inequality has become. It’s probably a stretch to say that Americans want a system more like Swedes simply because the wealth distribution in Sweden is more similar to what respondents expect in the US.

That said, it’s no surprise the average citizen doesn’t estimate offhand that the wealthiest 20 percent of Americans hold 84 percent of the nation’s wealth. It’s a huge chunk of prosperity in a very few hands… and it shows how over recent decades the US has become quite the lopsided nation, much more so than most people expect. You can read the details in The Raw Story’s coverage of the new study on how most Americans want wealth distribution similar to Sweden.

Best,

Rocky Vega,
The Daily Reckoning

Are Americans Seeking Wealth Distribution More Like Sweden? 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:
Are Americans Seeking Wealth Distribution More Like Sweden?




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

Are Americans Seeking Wealth Distribution More Like Sweden?

September 26th, 2010

New research on perceptions of wealth in the US — from Michael Norton and Dan Ariely at Harvard Business School and Duke University, respectively –  is worth a closer look. At first blush, it would seem that 92 percent of respondents rather live in a quasi-socialist economy more resembling Sweden than the US. The explanation they offer is that the gap between the rich and the poor has become far greater than surveyed Americans both think it is and would like it to be. Here are the findings, according to The Raw Story:

“…the study also found that respondents preferred Sweden’s model over a model of perfect income equality for everyone, ‘suggesting that Americans prefer some inequality to perfect equality, but not to the degree currently present in the United States,’ the authors state. Recent analyses have shown that income inequality in the US has grown steadily for the past three decades and reached its highest level on record, exceeding even the large disparities seen in the 1920s, before the Great Depression. Norton and Ariely estimate that the one percent wealthiest Americans hold nearly 50 percent of the country’s wealth, while the richest 20 percent hold 84 percent of the wealth.

“But in their study, the authors found Americans generally underestimate the income disparity. When asked to estimate, respondents on average estimated that the top 20 percent have 59 percent of the wealth (as opposed to the real number, 84 percent). And when asked to choose how much the top 20 percent should have, on average respondents said 32 percent — a number similar to the wealth distribution seen in Sweden.

“‘What is most striking’ about the results, argue the authors, is that they show ‘more consensus than disagreement among … different demographic groups. All groups – even the wealthiest respondents – desired a more equal distribution of wealth than what they estimated the current United States level to be, while all groups also desired some inequality – even the poorest respondents.’”

The main issue appears to be that people in the US, rich and poor alike, are not fully aware of how pronounced income inequality has become. It’s probably a stretch to say that Americans want a system more like Swedes simply because the wealth distribution in Sweden is more similar to what respondents expect in the US.

That said, it’s no surprise the average citizen doesn’t estimate offhand that the wealthiest 20 percent of Americans hold 84 percent of the nation’s wealth. It’s a huge chunk of prosperity in a very few hands… and it shows how over recent decades the US has become quite the lopsided nation, much more so than most people expect. You can read the details in The Raw Story’s coverage of the new study on how most Americans want wealth distribution similar to Sweden.

Best,

Rocky Vega,
The Daily Reckoning

Are Americans Seeking Wealth Distribution More Like Sweden? 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:
Are Americans Seeking Wealth Distribution More Like Sweden?




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

Bill Bonner on Deflation, U.S. Treasury Bonds and the Trade of the Decade

September 26th, 2010

Welcome to the DR Video Series. A few times a month, we will post interviews, video shorts and insights from today’s top minds. As a Daily Reckoning reader, you’ll have first crack at these exclusive videos — we’ll let you know each time one is posted.

In the first part of this two-part interview, the Daily Reckoning’s own Eric Fry sits down with Bill Bonner at the Agora Financial Investment Symposium in Vancouver to discuss a multitude of topics: what the speakers had to say at this year’s event, Bill’s thoughts on the credit deleveraging cycle, why he remains anti-Treasury…and why his “Trade of the Decade” still looks like a great bet. Enjoy!

Bill Bonner on Deflation, US Treasury Bonds and the Trade of The Decade

Eric Fry: Hello.  I’m Eric Fry.  I’m here with Bill Bonner.  And Bill, I just wanted to check in with you after the recently concluded investment symposium in Vancouver – you were there –

Bill Bonner: I was there.

Eric Fry: You saw the speakers.

Bill Bonner: I was there, yes.

Eric Fry: So who was right, who was wrong, who was just plain nuts?

Bill Bonner: Oh, boy.  That’s a loaded gun you’ve given me there.

Eric Fry: I know.  I want to elicit an answer here.

Bill Bonner: Well, I think the thing was – I found myself agreeing with just about everybody, but not necessarily coming to the same conclusion.  And, I think what I saw is that there is very good evidence and lots of documentation for the credit deleveraging cycle that I think everybody sees, and beyond that there’s a lot of speculation about what that means. I mean, in terms of the government response to it, in terms of investor response, and as you know, the bond market and the dollar rests on confidence.  So there’s a lot of worry that confidence will give way when they see the federal government continuing to run huge deficits year after year.

I personally came to the conclusion that that was probably not a worry for the near term.  In fact, you know, I feel myself being much more optimistic than most analysts and I see ourselves working our way through this in the classic Japanese way, which just happens to be the worst possible way.

Eric Fry: Right.  Okay.  Well, that suggests the kind of lengthy deflation or disinflationary period.  Is that what you’re looking for?

Bill Bonner: That’s what I see.  Now, I told the audience myself that that’s all you can see, and it’s important to remember just because you don’t see something doesn’t mean it’s not coming and from what we’ve  seen and what we’ve experienced over the last few years is a realization that the unintended consequences of government actions are sometimes very sudden and very powerful, so we could see a crisis at any moment.  And I told the people in the audience that even though I personally do not see a blow-off in the gold market, for example, I would sure want to hold some gold just in case.

Eric Fry: Right.  Right.  Well, a lot of the speakers also seem to want to have it both ways on the question of deflation and inflation and many of them were saying, yes, I think there’s going to be a deflation so I want to buy Treasuries, but only for two-and-a-half years and then there’s going to be inflation.  Now, you are on record as being relatively anti-Treasuries as a Trade of the Decade.

Bill Bonner: I’m totally anti-Treasury.

Eric Fry: How does that coincide with your expectation for a deflationary environment?

Bill Bonner: Well, this expectation has evolved over the last six months, and six months ago if you had asked me, I would have been more anti-Treasury than I am today because now what I see — which I didn’t see before, which didn’t exist before — was the ability of the world to finance Treasuries over a long period of time. Before we weren’t in the Japan situation because we didn’t have the savings to finance all those deficits.  We’re talking about deficits of 1.5 trillion dollars a year over the next 15, next 10 years. And anybody would have said a year ago, maybe six months ago, ‘Well, that’s impossible, you can’t finance that much.’  I think I did say that.

But now, what we’re seeing is that there’s a huge increase in savings that the savings, even of the Japanese, are still going to the U.S. Treasury market and then, if we’re right, generally about the bear market in stocks, bear markets in equities, generally it’s going to mean that investors are scared and they’re going to look for safety in the safest credit in the world.

You know that – and I made this point too – that printing press, that Bernanke’s famous printing press, the technology that it’s got, is that they can always guarantee inflation.  Well, the thing is, they can’t always guarantee inflation, not in a credit deleveraging cycle, and that’s what we’re seeing.  They cannot get it.

They’re getting lower and lower rates and now they’re getting uncomfortably low rates of consumer price inflation, even to the point of absolute deflation, which seems to be coming, seems to me will be here next quarter or quarter afterwards.

Eric Fry: Right.

Bill Bonner: But that printing press thing, it works both ways because on the one hand, people say, well, I don’t want Treasury bonds because I know they’ve got that printing press and they can just print up dollars at will.  But in a fear situation, people say I want Treasury bonds because I know they can print up dollars at will.

Eric Fry: Right.  Well, and does that mean that your Trade of the Decade, then, is not a trade of the next five years, or should we restart the Trade of the Decade here in August and –

Bill. Bonner: Now, look, a Trade of the Decade is a Trade of the Decade.  You stick with it and you –

Eric Fry: And dance with the one you brought in.

Bill Bonner: Yeah, that’s right.  You just stick with – you go home with the one you came with.

Eric Fry: Right.

Bill. Bonner: And besides, it’s too early to know, but I’d say that as the trade, it still looks pretty good.  You know I modified that trade, by the way.  I said, buy Japanese small cap stocks and sell Japanese bonds.  I changed it from U.S. bonds to Japanese bonds just to get the currency thing out of the way.

Eric Fry: Neutralized?

Bill Bonner: Neutralize the currency problem and so now I still feel pretty good about that.

Bill Bonner on Deflation, U.S. Treasury Bonds and the Trade of the Decade 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:
Bill Bonner on Deflation, U.S. Treasury Bonds and the Trade of the Decade




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

How to Manage Risk in Your Portfolio

September 25th, 2010

There are many strategies for making money in the market. Very few of them work all of the time. Put another way, the vast majority of them work almost none of the time. Or, to put it still another way, many of them work…until the time comes when they don’t.

Of course, we only know which ones don’t work (or, more precisely, when exactly they stop working), with the benefit of hindsight. It’s all well and good to advocate a healthy skepticism toward loading up on toxic, mortgage-backed securities (MBS) now, for instance. But before they blew up in 2007-’08, too few investors even realized that skepticism was healthy. Investing in MBS made a few people very rich…until it made a lot of people very poor.

One investor who did warn (and quite loudly) about the build up of excessive debt and the increasing complexity of a derivative-laden system was Nassim Nicholas Taleb, author of Fooled by Randomness, and, later, The Black Swan. Taleb specializes in what he calls “low probability, high impact” events; events such as those the financial world witnessed during and after the collapse of Lehman Bros., a seemingly rock-solid institution that had survived the Great Depression and a couple of World Wars before a series of apparently “mathematically implausible” events conspired to take it down.

Of course, few listened to Taleb before the events he predicted took place. More strikingly, the remedies he publicly advocates were not only NOT implemented in the wake of the crisis but, in many cases, the exact opposite course of action was prescribed. The US system now has vastly more debt than when it started – and a lot of that new debt hangs around the necks of taxpayers. Meanwhile, most of those individuals who are most responsible for creating the crisis remain in critical decision-making positions. And that’s to say nothing of the increased scope and power subsequently granted to the embarrassingly inept regulatory bodies…but that’s a subject for another day.

It could fairly be argued, therefore, that there is far more reason to be cautious today than there was even before the crisis began. The optimistic corollary to this grim assessment, however, is that, historically speaking, periods of extreme volatility often produce highly profitable opportunities. It’s just that the rewards tend to be concentrated around a much smaller group of investors…investors who took the “other side” of the larger group’s insane bets. When markets are calm, the majority of investors generally muddle along, making “OK” returns and sleeping pretty well for it. The big money is often made during what is sometimes referred to as the “mania” stage of the cycle, when prices reach mega-bubble proportions on the way up, and burst spectacularly on the way down.

In such an environment, it probably doesn’t hurt to learn a little from Mr. Taleb, a man who specializes in “expecting the unexpected”…or at least attempting to prepare for it.

Taleb has long been advocating what he calls “The Barbell Strategy.” He explained his thinking, once again, at The Russian Forum Debate earlier this year, where he appeared alongside Dr. Marc Faber and a host of other “doomsday” investors.

Put simply, Taleb suggests allocating the majority of your portfolio to low-risk or “no-risk” investments. (“No risk” investments imply using options to hedge against even incremental moves in the market, much like putting a dollar on red and a dollar on black at the roulette wheel. In reality, of course, there is no such thing as an absolute “no risk.”) This, he says, is primarily for the purpose of capital preservation.

The smaller portion of your portfolio (and exact ratios will differ from one investor to another), according to Taleb, should be at “maximum risk.” These are the kind of investments that, as he explains, “I know I’m going to lose money on…but boy, if you get it right, it’s going to be big.” The kind of speculative plays where, if you are on the money, “you’d never see a public [commercial] plane again.”

In other words, as the theory goes, you want to expose a small portion of your portfolio to the maximum upside potential of “low probability, high impact events” – those events Taleb refers to as “Black Swans” – while protecting the majority of your portfolio from the associated downside risk.

As Doug Casey, founder of Casey Research explains, “Most people invest 100% of their capital in hope of a 10% return. I prefer to wait until I can invest 10% of my capital for a 100% return.”

Speculating, it is important to note, is not the same thing as gambling. “They’re very different,” says Doug. “Speculation is the art of capitalizing on politically created distortions in the market.”

As individual investors, there’s little we can do to influence the level of risk in the overall market. After all, politicians will be politicians and their decisions, boneheaded as they almost always are, will usually reflect that. We can, however, manage the risk within our own portfolios, both to protect our capital and, with a bit of luck, help it grow.

Regards,

Joel Bowman
for The Daily Reckoning

How to Manage Risk in Your Portfolio 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:
How to Manage Risk in Your Portfolio




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.

OPTIONS, Uncategorized

How to Put a Stronger Yuan to Work for You

September 25th, 2010

Jeff Manera

China has perpetually managed its currency, the yuan, to be undervalued. Estimates range from 30 percent to 40 percent on the amount the currency would appreciate if it was allowed to freely float with market forces.

This “management” has given China’s exporters an unfair advantage over other export-driven countries, such as Japan and South Korea, and has provided much of the rocket fuel that made China’s incredible expansion and growth possible.

Until recently China had been extremely stubborn about keeping its currency weak. But of late it has allowed the yuan to start ticking higher, although it’s clear the currency is still being managed.

A stronger yuan gives China a buyer's advantage over weaker currencies.
A stronger yuan gives China a buyer’s advantage over weaker currencies.

Don’t think for one minute, though, that this turnaround is because the U.S. and other world governments have finally worn China down with repeated requests for appreciation — or that China has suddenly decided to be nice and play fair in the global marketplace.

You see, China is beginning to shift from a pure “low-cost” exporter to a more balanced society, with rapidly growing domestic consumption and a burgeoning middle-class. These factors drive up the country’s need for imports. And those imports will cost less if the Chinese are purchasing them with a stronger currency.

But there is more than consumer consumption to the China story. China must also import an immense amount of raw materials. For example:

  • Fuel to feed its voracious energy appetite.
  • Construction supplies and materials to build its massive expansion and infrastructure projects.
  • Raw materials to produce the finished goods it ultimately exports.
chart How to Put a Stronger Yuan to Work for You

China Is Setting Itself Up to
Become the Dominant M&A Player

Another benefit of a strong yuan would be China’s purchasing power clout in foreign mergers and acquisitions (M&A) …

China has been buying up key companies across the globe, even though it has effectively been paying much more than the stated value due to its discounted currency.

According to an August report by accounting firm PricewaterhouseCoopers, 99 deals were announced in China foreign M&A, representing a 50 percent spike during the first six months of 2010. Seven of these were valued at more than $1 billion. The biggest was the $4.7 billion deal by China Petroleum & Chemical Corp. or “Sinopec,” of ConocoPhillips.

Natural resources remain the main focus of these acquisitions. This multi-year buying spree by China’s state-owned companies of metals companies and oil fields helps ensure the country’s continuing industrial and economic growth.

And as China allows the yuan to appreciate, you can bet it will start to ramp up acquisitions of key foreign natural resource companies.

China's demand for uranium will be like the world has never seen before.
China’s demand for uranium will be like the world has never seen before.

However, there is one natural resource China requires that isn’t being as widely discussed as much as the others. And that is uranium.

As the country slowly starts to shift from dirty energy, such as coal and oil, there are big plans for nuclear energy and a growing requirement for uranium to fuel those reactors.

Nuclear energy only accounts for about 2 percent of China’s installed energy capacity. But that’s expected to grow substantially in the coming years …

Right now China has 11 reactors up and running. Twenty-four more are under construction and a whopping 120 more proposed. So you can easily understand why China’s demand for uranium is bound to skyrocket!

Where will China get all this uranium? I expect we’ll see some strategic acquisitions to supplement the agreements China already has with Kazakhstan and other uranium producing countries.

Who are the big players in uranium mining that could profit most?

Areva SA and Cameco Corp. are the world’s largest, with Rio Tinto Group the next in line. Of the three, I think Cameco (U.S. symbol CCJ) offers the best potential as a Chinese takeover target.

Best wishes,

Jeff


About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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Commodities, ETF, Mutual Fund, Uncategorized

One of Most Undervalued Sectors of the Market is Beginning to Rebound

September 24th, 2010

One of Most Undervalued Sectors of the Market is Beginning to Rebound

In tough economic times, a high debt load can cripple a company. But when business is good, that debt can actually be a real benefit. That's because equity comprises just a small part of the company's total enterprise value (market value plus debt minus cash) and profits can become quite large relative to that small equity base. But investors remain wary of debt-laden companies, recalling that these were among the stocks that appeared to be headed toward bankruptcy when the economy started heading south two years ago.

As a result, shares of companies that buy and then lease airplanes to the major airlines, all of which carry lots of debt, are among the cheapest in the stock market. Yet if the global economy stays aloft and can finally grow, then these companies could see impressive profit and dividend growth.

Right now, the stars are aligning for this industry. Airline traffic is up +10% from a year ago, banks have become very supportive by providing very low interest rates for asset-backed loans for airplanes, and the key players are generating strong cash flow that is helping to reduce debt levels. Most importantly, a glut of unused airplanes that sat idle are returning to service, and with fewer airplanes available, lease rates are rising.

The industry is dominated by the finance arms of GE (NYSE: GE) and AIG (NYSE: AIG). But investors can play the sector through smaller players such as Aercap Holdings (NYSE: AER), Aircastle (NYSE: AYR), FLY Leasing (NYSE: FLY) and Willis Lease Finance (Nasdaq: WLFC). And as this table shows, all of these stocks appear quite cheap on a price-to-earnings basis:

Company Recent Price Market Cap Enterprise Value Price/
Book
Div. Yield 2010 P/E 2011 P/E Est.
Aercap
(NYSE: AER)
$11.93 $1,420M $4,811M 0.8 none 6.3 6.1
Aircastle
(NYSE: AYR)
$8.32 $661M $2,860M 0.5 4.7% 9.1 9.1
FLY Leasing (NYSE: FLY) $12.48 $353M $1,468M 0.7 6.5% 7.8 10.1
Willis Lease (NYSE: WLFC) $9.83 $92M $742M 0.5 none 28.9 5.6

But these stocks are also inexpensive relative to their assets. For example, the value of Aircastle's fleet of planes, even after subtracting the company's debt, is around $1.02 billion, more than 50% above the company's $661 million market value, according to analysts at Citigroup. They think shares should reflect that value and trade up to about $13 from a current $8.40. In a recent note to clients, they wrote that “with its share price trading as almost half of book value, and given more demonstrable evidence of a rise in aircraft market values, it is possible that Aircastle could spend surplus cash on buying back shares or raising the dividend.”

As long as these stocks remain below book value, share buybacks make plenty of sense. And that's what FLY Leasing is doing. The company's fleet of planes (minus its debt) is worth more than $17 a share, well above the recent $12.50 share price. Of course, any weakening in the economy would change that equation. (In 2008, when the economy was sliding, airline lease rates fell sharply, dragging down the value of planes, so FLY Leasing's book value then was just $12 a share.)

Action to Take –> If the economy weakens anew, then these debt-laden stocks would be especially vulnerable. But all signs now point to a healthier airline industry. Lease rates should continue to rise as demand for new and used planes exceeds production from Airbus and Boeing (NYSE: BA). If you're in search of dividend yields, then Aircastle and FLY Holdings should hold great appeal, as these firms look set to hike their dividends further in 2011 as cash flow rises. Aercap is likely the most stable name in the group due to its relative size, which helps it to arrange special banks loans on especially favorable terms.


– David Sterman

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
One of Most Undervalued Sectors of the Market is Beginning to Rebound

Read more here:
One of Most Undervalued Sectors of the Market is Beginning to Rebound

Uncategorized

One of Most Undervalued Sectors of the Market is Beginning to Rebound

September 24th, 2010

One of Most Undervalued Sectors of the Market is Beginning to Rebound

In tough economic times, a high debt load can cripple a company. But when business is good, that debt can actually be a real benefit. That's because equity comprises just a small part of the company's total enterprise value (market value plus debt minus cash) and profits can become quite large relative to that small equity base. But investors remain wary of debt-laden companies, recalling that these were among the stocks that appeared to be headed toward bankruptcy when the economy started heading south two years ago.

As a result, shares of companies that buy and then lease airplanes to the major airlines, all of which carry lots of debt, are among the cheapest in the stock market. Yet if the global economy stays aloft and can finally grow, then these companies could see impressive profit and dividend growth.

Right now, the stars are aligning for this industry. Airline traffic is up +10% from a year ago, banks have become very supportive by providing very low interest rates for asset-backed loans for airplanes, and the key players are generating strong cash flow that is helping to reduce debt levels. Most importantly, a glut of unused airplanes that sat idle are returning to service, and with fewer airplanes available, lease rates are rising.

The industry is dominated by the finance arms of GE (NYSE: GE) and AIG (NYSE: AIG). But investors can play the sector through smaller players such as Aercap Holdings (NYSE: AER), Aircastle (NYSE: AYR), FLY Leasing (NYSE: FLY) and Willis Lease Finance (Nasdaq: WLFC). And as this table shows, all of these stocks appear quite cheap on a price-to-earnings basis:

Company Recent Price Market Cap Enterprise Value Price/
Book
Div. Yield 2010 P/E 2011 P/E Est.
Aercap
(NYSE: AER)
$11.93 $1,420M $4,811M 0.8 none 6.3 6.1
Aircastle
(NYSE: AYR)
$8.32 $661M $2,860M 0.5 4.7% 9.1 9.1
FLY Leasing (NYSE: FLY) $12.48 $353M $1,468M 0.7 6.5% 7.8 10.1
Willis Lease (NYSE: WLFC) $9.83 $92M $742M 0.5 none 28.9 5.6

But these stocks are also inexpensive relative to their assets. For example, the value of Aircastle's fleet of planes, even after subtracting the company's debt, is around $1.02 billion, more than 50% above the company's $661 million market value, according to analysts at Citigroup. They think shares should reflect that value and trade up to about $13 from a current $8.40. In a recent note to clients, they wrote that “with its share price trading as almost half of book value, and given more demonstrable evidence of a rise in aircraft market values, it is possible that Aircastle could spend surplus cash on buying back shares or raising the dividend.”

As long as these stocks remain below book value, share buybacks make plenty of sense. And that's what FLY Leasing is doing. The company's fleet of planes (minus its debt) is worth more than $17 a share, well above the recent $12.50 share price. Of course, any weakening in the economy would change that equation. (In 2008, when the economy was sliding, airline lease rates fell sharply, dragging down the value of planes, so FLY Leasing's book value then was just $12 a share.)

Action to Take –> If the economy weakens anew, then these debt-laden stocks would be especially vulnerable. But all signs now point to a healthier airline industry. Lease rates should continue to rise as demand for new and used planes exceeds production from Airbus and Boeing (NYSE: BA). If you're in search of dividend yields, then Aircastle and FLY Holdings should hold great appeal, as these firms look set to hike their dividends further in 2011 as cash flow rises. Aercap is likely the most stable name in the group due to its relative size, which helps it to arrange special banks loans on especially favorable terms.


– David Sterman

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
One of Most Undervalued Sectors of the Market is Beginning to Rebound

Read more here:
One of Most Undervalued Sectors of the Market is Beginning to Rebound

Uncategorized

How China is Saving This Luxury Retail Icon

September 24th, 2010

How China is Saving This Luxury Retail Icon

The economy stinks.

More than a year after the worst recession since the Great Depression, the economy is sputtering again. Unemployment still hovers at 9.6% and the housing market continues to languish.

Economic growth is so sluggish in fact that the Federal Reserve considers the risk of deflation to be greater than the risk of inflation at this point.

Yet, amidst this stagnation, business is somehow booming for a company that sells wildly expensive and completely unnecessary extravagances.

How can this be?

The main reason is China. More than 20 years of stratospheric economic growth has catapulted Chinese incomes “particularly at the top end,” according to one Oxford University economist. These nouveau riche have risen to the forefront of conspicuous consumers lately as the Chinese economy still booms while Western economies sputter. In London, wealthy Chinese citizens are reportedly spending three to four times more than last year's level in the wealthy shopping districts, outspending even Arab royalty.

The newly rich have always displayed an insatiable appetite for the trappings of luxury, and the Chinese are no different. This new and growing class of big spenders is helping turn bad times into boom times for one of the world's most iconic luxury brands.

Tiffany & Co. (NYSE: TIF), or Tiffany's, is an international jeweler and specialty retailer. The company designs and sells its own distinctive brand of primarily fine jewelry (90% of 2009 sales) as well as china, timepieces, fragrances and other luxury items. Operating since 1837, Tiffany's is one of the world's most recognized luxury brands. The jeweler sells its goods exclusively through its stores and boutiques (as well as the Internet) in more than 20 countries all over the world and at its flagship store located in Manhattan.

Tiffany's world famous “little blue box” high-end brand helps it stand out among the competition and command a price premium.

The company is geographically diversified, as most of sales come from outside the United States. For 2009, sales were generated in the following regions: The Americas (52%), Asia-Pacific (35%) and Europe (12%). The main tenet of Tiffany's growth strategy is to expand in the most promising markets.

Why buy it now?

Tiffany's is as much associated with luxury as just about any other brand in the world, and luxury items have been outselling regular mass market items in this market. For example, Wal-Mart (NYSE: WMT) reported second quarter same store sales that were lower than the year ago quarter. By contrast, luxury department store chain Neiman Marcus recorded a +7.6% rise in second-quarter sales. For a closer comparison, take Zales Corporation (NYSE: ZLC), a seller of lower-priced mass market jewelry. Zales has recorded lower sales so far in 2010 than in 2009, while Tiffany's reported a +9% increase in revenue and profits that were +19% higher in the second quarter versus a year ago.

In fact, the same dynamic has been true within Tiffany's itself. The company reported solid growth in sales of items priced at $50,000 and higher, while sales of items below $500 are slowing. Perhaps wealthier spenders aren't feeling the soft economy as badly or perhaps wealthy Chinese spenders are tipping the balance.

In fact, the company reported that higher profits were driven by strong overseas sales and tourists, both of which bear the fingerprint of wealthy Chinese. The strongest region in the quarter was Asia, led by China, where sales rocketed +21% from last year. Sales increased +8% in the New York flagship store, largely because of Chinese tourists. Sales in Europe increased +14%, largely because of strong sales in the U.K., where the Chinese have reportedly been spending like crazy.

Looking forward, there is good reason for optimism. Tiffany's raised 2010's earnings guidance by $0.05 after the second quarter from $2.60 to $2.65 per share. The jeweler opened seven new stores in Asia in the past year and plans to open seven more before the year is over. The company also said that sales were already up by the low single digits so far in the third quarter.

Tiffany & Co. shares have gained +22% in the past year, and has outperformed Morningstar's jewelry store category by a whopping margin (the category has returned less than +5% in the same period). Yet despite the recent outperformance, Tiffany's multiple of 16 times 2010 earnings is much lower compared to the jewelry store sector's multiple of more than 26. The stock also pays a quarterly dividend that has risen more than +500% in the past decade and now yields about 2.3%.

Action to Take –>Tiffany's operates in what has turned out to be a relatively defensive niche in today's environment — the rich. The stock is about 15% off its recent high, pays a growing dividend and should continue to grow earnings in the “new normal.” The stock is a buy anywhere under $45.


– Tom Hutchinson

Tom has a 15-year history as a financial advisor with UBS constructing investment portfolios. Tom's background includes a NASD Series 7 and 63 certifications…

Uncategorized

How China is Saving This Luxury Retail Icon

September 24th, 2010

How China is Saving This Luxury Retail Icon

The economy stinks.

More than a year after the worst recession since the Great Depression, the economy is sputtering again. Unemployment still hovers at 9.6% and the housing market continues to languish.

Economic growth is so sluggish in fact that the Federal Reserve considers the risk of deflation to be greater than the risk of inflation at this point.

Yet, amidst this stagnation, business is somehow booming for a company that sells wildly expensive and completely unnecessary extravagances.

How can this be?

The main reason is China. More than 20 years of stratospheric economic growth has catapulted Chinese incomes “particularly at the top end,” according to one Oxford University economist. These nouveau riche have risen to the forefront of conspicuous consumers lately as the Chinese economy still booms while Western economies sputter. In London, wealthy Chinese citizens are reportedly spending three to four times more than last year's level in the wealthy shopping districts, outspending even Arab royalty.

The newly rich have always displayed an insatiable appetite for the trappings of luxury, and the Chinese are no different. This new and growing class of big spenders is helping turn bad times into boom times for one of the world's most iconic luxury brands.

Tiffany & Co. (NYSE: TIF), or Tiffany's, is an international jeweler and specialty retailer. The company designs and sells its own distinctive brand of primarily fine jewelry (90% of 2009 sales) as well as china, timepieces, fragrances and other luxury items. Operating since 1837, Tiffany's is one of the world's most recognized luxury brands. The jeweler sells its goods exclusively through its stores and boutiques (as well as the Internet) in more than 20 countries all over the world and at its flagship store located in Manhattan.

Tiffany's world famous “little blue box” high-end brand helps it stand out among the competition and command a price premium.

The company is geographically diversified, as most of sales come from outside the United States. For 2009, sales were generated in the following regions: The Americas (52%), Asia-Pacific (35%) and Europe (12%). The main tenet of Tiffany's growth strategy is to expand in the most promising markets.

Why buy it now?

Tiffany's is as much associated with luxury as just about any other brand in the world, and luxury items have been outselling regular mass market items in this market. For example, Wal-Mart (NYSE: WMT) reported second quarter same store sales that were lower than the year ago quarter. By contrast, luxury department store chain Neiman Marcus recorded a +7.6% rise in second-quarter sales. For a closer comparison, take Zales Corporation (NYSE: ZLC), a seller of lower-priced mass market jewelry. Zales has recorded lower sales so far in 2010 than in 2009, while Tiffany's reported a +9% increase in revenue and profits that were +19% higher in the second quarter versus a year ago.

In fact, the same dynamic has been true within Tiffany's itself. The company reported solid growth in sales of items priced at $50,000 and higher, while sales of items below $500 are slowing. Perhaps wealthier spenders aren't feeling the soft economy as badly or perhaps wealthy Chinese spenders are tipping the balance.

In fact, the company reported that higher profits were driven by strong overseas sales and tourists, both of which bear the fingerprint of wealthy Chinese. The strongest region in the quarter was Asia, led by China, where sales rocketed +21% from last year. Sales increased +8% in the New York flagship store, largely because of Chinese tourists. Sales in Europe increased +14%, largely because of strong sales in the U.K., where the Chinese have reportedly been spending like crazy.

Looking forward, there is good reason for optimism. Tiffany's raised 2010's earnings guidance by $0.05 after the second quarter from $2.60 to $2.65 per share. The jeweler opened seven new stores in Asia in the past year and plans to open seven more before the year is over. The company also said that sales were already up by the low single digits so far in the third quarter.

Tiffany & Co. shares have gained +22% in the past year, and has outperformed Morningstar's jewelry store category by a whopping margin (the category has returned less than +5% in the same period). Yet despite the recent outperformance, Tiffany's multiple of 16 times 2010 earnings is much lower compared to the jewelry store sector's multiple of more than 26. The stock also pays a quarterly dividend that has risen more than +500% in the past decade and now yields about 2.3%.

Action to Take –>Tiffany's operates in what has turned out to be a relatively defensive niche in today's environment — the rich. The stock is about 15% off its recent high, pays a growing dividend and should continue to grow earnings in the “new normal.” The stock is a buy anywhere under $45.


– Tom Hutchinson

Tom has a 15-year history as a financial advisor with UBS constructing investment portfolios. Tom's background includes a NASD Series 7 and 63 certifications…

Uncategorized

A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks

September 24th, 2010

A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks

One of the mega growth companies of the past few years is Salesforce.com (NYSE : CRM). Since 2008, sales have spiked from $748.7 million to $1.3 billion. And investors have piled into the stock, which has gone from $34 to nearly $120 since early 2009.

Salesforce.com builds software to help companies improve the results of their sales teams. While this is not new, the company has taken different approach to delivering its solutions through something known as “cloud-computing.” And while much of the gains to be had in this stock have already been made, the good news is that there are other stocks in the sector that are also growing at a rapid clip and should provide nice returns for investors.

To understand cloud-computing, it is important to take a look at the traditional approach to business software. Known as on-premise software, this involves installing complex applications on a company's servers. This means there are large expenses for information technology (IT) systems as well as technical support staff and outside consultants.

On-premise software is far from cheap. A company must pay an upfront licensing fee and then ongoing maintenance fees. So if a company implements an enterprise resource planning (ERP) system — which handles things like the general ledger, inventory, payroll, and so on — the costs can easily amount to several million dollars.

But cloud computing takes a much different approach. First of all, the software is typically installed on the software provider's own servers. The customer simply accesses the software via the Internet. The result is that it is much easier to update the application and there is also no need to invest huge amounts of money on an IT infrastructure.

Even the business model is different. For example, cloud-computing providers charge an ongoing subscription fee, which is usually based on the number of users. For the most part, this is cheaper than the licensing/maintenance approach.

All in all, cloud-computing looks like a disruptive technology, and the market opportunity is enormous. Consider that the International Data Corporation (IDC) pegs the cloud computing market at $16 billion this year and forecasts it to reach $56 billion by 2014.

So what are some top cloud-computing operators that are attractive investment opportunities? Here's a look at three:

1. SuccessFactors (Nasdaq: SFSF) develops business execution software. That is, it helps communicate key strategies throughout an organization and measure the ongoing results.

Since 2008, revenue has grown about +27% each year. For the current year, SuccessFactors is expected to post revenue of $198 million to $200 million and has actually raised guidance twice. More than half of new revenue comes from existing customers, which shows that the software is providing a strong value proposition. SuccessFactors also continues to invest heavily in its technology and has purchased several companies. The company estimates its market opportunity at a whopping $36 billion. It helps that the company's software can scale from small businesses to global enterprises.

2. NetSuite (NYSE: N) develops an ERP system for the cloud. While the market is dominated by large companies like SAP (NYSE: SAP), Oracle (Nasdaq: ORCL) and Microsoft (Nasdaq: MSFT), they have been slow to move to the cloud.

No doubt, this has been a boon for NetSuite. In the latest quarter, revenue increased +17% to $47.1 million, which was above the $45.3 million guidance. A driver for the company is its OneWorld system. This is focused on the needs of global customers who are willing to pay premium prices for a strong ERP system.

As a sign of the growth prospects, NetSuite said it will be boosting expenditures on its platform and also increasing the ranks of its sales team.

3. Taleo (Nasdaq: TLEO) develops a cloud-computing offering for talent management applications, helping with things like recruiting, management and tracking of employees.

Even with a prolonged high rate of unemployment, Taleo continues to grow its business. In the latest quarter, revenue increased +14.6%. As the economy comes back, expect the growth rate to ramp up even more.

Taleo has also made several smart acquisitions to bolster its offerings. For example, the company recently shelled out $125 million for Learn.com, which is a top provider of learning management tools for employers. With the deal, Taleo was able to pick-up more than 500 customers.

Action to Take –> While these three cloud operators are top performers, I would give priority to NetSuite as an investment. The company has a comprehensive solution, which has taken more than 10 years to build, and the barriers to entry are significant. As NetSuite goes up-market in terms of targeting customers, there should be a nice boost in revenue, which should drive significant returns for investors.

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

This article originally appeared on StreetAuthority
Author: Tom Taulli
A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks

Read more here:
A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks

Uncategorized

A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks

September 24th, 2010

A New Tech Revolution Could Lead to Triple Digit Gains for These Stocks

One of the mega growth companies of the past few years is Salesforce.com (NYSE : CRM). Since 2008, sales have spiked from $748.7 million to $1.3 billion. And investors have piled into the stock, which has gone from $34 to nearly $120 since early 2009.

Salesforce.com builds software to help companies improve the results of their sales teams. While this is not new, the company has taken different approach to delivering its solutions through something known as “cloud-computing.” And while much of the gains to be had in this stock have already been made, the good news is that there are other stocks in the sector that are also growing at a rapid clip and should provide nice returns for investors.

To understand cloud-computing, it is important to take a look at the traditional approach to business software. Known as on-premise software, this involves installing complex applications on a company's servers. This means there are large expenses for information technology (IT) systems as well as technical support staff and outside consultants.

On-premise software is far from cheap. A company must pay an upfront licensing fee and then ongoing maintenance fees. So if a company implements an enterprise resource planning (ERP) system — which handles things like the general ledger, inventory, payroll, and so on — the costs can easily amount to several million dollars.

But cloud computing takes a much different approach. First of all, the software is typically installed on the software provider's own servers. The customer simply accesses the software via the Internet. The result is that it is much easier to update the application and there is also no need to invest huge amounts of money on an IT infrastructure.

Even the business model is different. For example, cloud-computing providers charge an ongoing subscription fee, which is usually based on the number of users. For the most part, this is cheaper than the licensing/maintenance approach.

All in all, cloud-computing looks like a disruptive technology, and the market opportunity is enormous. Consider that the International Data Corporation (IDC) pegs the cloud computing market at $16 billion this year and forecasts it to reach $56 billion by 2014.

So what are some top cloud-computing operators that are attractive investment opportunities? Here's a look at three:

1. SuccessFactors (Nasdaq: SFSF) develops business execution software. That is, it helps communicate key strategies throughout an organization and measure the ongoing results.

Since 2008, revenue has grown about +27% each year. For the current year, SuccessFactors is expected to post revenue of $198 million to $200 million and has actually raised guidance twice. More than half of new revenue comes from existing customers, which shows that the software is providing a strong value proposition. SuccessFactors also continues to invest heavily in its technology and has purchased several companies. The company estimates its market opportunity at a whopping $36 billion. It helps that the company's software can scale from small businesses to global enterprises.

2. NetSuite (NYSE: N) develops an ERP system for the cloud. While the market is dominated by large companies like SAP (NYSE: SAP), Oracle (Nasdaq: ORCL) and Microsoft (Nasdaq: MSFT), they have been slow to move to the cloud.

No doubt, this has been a boon for NetSuite. In the latest quarter, revenue increased +17% to $47.1 million, which was above the $45.3 million guidance. A driver for the company is its OneWorld system. This is focused on the needs of global customers who are willing to pay premium prices for a strong ERP system.

As a sign of the growth prospects, NetSuite said it will be boosting expenditures on its platform and also increasing the ranks of its sales team.

3. Taleo (Nasdaq: TLEO) develops a cloud-computing offering for talent management applications, helping with things like recruiting, management and tracking of employees.

Even with a prolonged high rate of unemployment, Taleo continues to grow its business. In the latest quarter, revenue increased +14.6%. As the economy comes back, expect the growth rate to ramp up even more.

Taleo has also made several smart acquisitions to bolster its offerings. For example, the company recently shelled out $125 million for Learn.com, which is a top provider of learning management tools for employers. With the deal, Taleo was able to pick-up more than 500 customers.

Action to Take –> While these three cloud operators are top performers, I would give priority to NetSuite as an investment. The company has a comprehensive solution, which has taken more than 10 years to build, and the barriers to entry are significant. As NetSuite goes up-market in terms of targeting customers, there should be a nice boost in revenue, which should drive significant returns for investors.

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

This article originally appeared on StreetAuthority
Author: Tom Taulli
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