Friday, August 31, 2012

Sirius XM Wants Your Lemon

Sirius XM Radio (Nasdaq: SIRI  ) isn't just about reaching out to drivers of shiny new cars.

The satellite radio giant struck a deal with leading auto retailer AutoNation (NYSE: AN  ) this week, offering free three-month trial subscriptions to anyone buying a pre-owned car with a factory-installed receiver.

This isn't a new strategy. Sirius XM has been working with individual carmakers for years to make sure their showroom sales teams have incentives to promote satellite radio on secondhand cars. There is no such thing as a permanently dormant receiver to Sirius XM. Every eventual buyer of a car that just happens to have a Sirius or XM receiver is a potential subscriber.

Three months is shorter than Sirius XM typically offers new car buyers, but the media maven knows what it's doing. That's more than enough time to sample the service and see whether it's worth paying for. One would also imagine that conversion rates are lower on used cars, since many of those buyers may be either tight on money or simply out to get more bang for their buck by aiming for a better car that they would not be able to afford as a new ride.

Inking a deal with AutoNation will make the free trials standard throughout its 257 showrooms. AutoNation's presence is larger than CarMax's (NYSE: KMX  ) 107 superstores, though CarMax only sells used cars. AutoNation's specialty is new cars. Either way, Sirius XM has had a similar deal in place with CarMax for years.

This is a win-win-win situation. A car buyer who may not even know that a dormant satellite radio receiver came with the car can now check it out for three months without having to pay. Sirius XM has a shot at a cheaper lead than what it typically has to shell out for a new car activation, establishing direct contact with the new owner. Showrooms have a new incremental revenue stream.

Sirius XM has been growing its subscriber base at a slow yet steady pace since slipping for a few quarters during the recessionary lull of 2009. This week's AutoNation deal is unlikely to lead to an immediate windfall, but it keeps the satellite radio darling moving in the right direction. �

If you like to stay on top of what happens next -- and I'm guessing you do because you're reading this article -- how about checking out Motley Fool's top stock for 2012? Spoiler alert: It's not Sirius XM. However, it is a free report, but only for a limited time, so check it out now.

As Goldman Fraud Case Raises SEC Self-Funding Issue and Reform Bill Looms, Schapiro Talks Reform

This news article originally appeared on InvestmentAdvisor.com on 4/19/2010.

As the SEC leveled new charges against Goldman Sachs on April 16, alleging that Goldman engaged in fraud in building and selling collateralized debt obligations (CDOs) tied to subprime residential mortgages, SEC Chairman Mary Schapiro and Senator Chuck Schumer (D-New York) are making last-ditch efforts to urge the Senate to approve legislation that would provide a self-funding mechanism for the SEC. A spokesperson for Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, told Investment Advisor on April 19 that Dodd's financial services reform bill could go to the full Senate floor for debate by the end of this week. During a press conference on April 15, Schapiro, Schumer, and five former SEC chairmen noted the urgency in allowing the SEC to fund itself by retaining the fees it collects.

In her statements at the press conference, Schapiro said that currently, "the SEC raises millions more dollars every year in registration and transaction fees than it is allocated through the appropriations process. But its budget is limited to the amount approved by Congress. In 2007, the SEC brought in $1.54 billion in fees, but secured just $881.6 million in funding from Congress. Had the agency simply been able to hold onto all the fees it collected, it would have represented a 75% increase over the budget it was allotted through the appropriations process." Self-funding is particularly critical now, Schapiro said, given that financial reform will likely expand the SEC's role to include oversight of hedge funds and some OTC derivatives.

Schapiro told Washington Bureau Chief Melanie Waddell in an early April interview how important it is the final financial services reform bill to include such self-funding mechanism, and also detailed her opinions on the current state of financial services reform, lessons the SEC has learned post Madoff, when action will be taken on 12b-1 fees, and her conviction for continuing to push hard for a fiduciary standard for brokers in the final reform bill.

Are you waiting to see the outcome of financial services reform before you make a final determination on how to proceed with harmonizing the rules for broker/dealers and advisors?
At the heart of that issue of harmonizing rules for broker/dealers and advisors is a fiduciary duty, and having the same standard of care for broker/dealers and investment advisors, and that requires legislation. So we've been working very hard in the House and the Senate, to mixed results honestly, to try to get that grant of authority to have a fiduciary duty across both categories of financial professionals. So until we have the legislation, it's hard for us to get very much else done. That said, we have other issues that we're moving ahead on: 12b-1 fees, point of sale disclosure, things in and around that space that we think are important. But our attention right now is focused on fighting for the legislative provision that would mandate a uniform fiduciary standard.

So you will continue to fight for a fiduciary duty for both brokers and advisors? Absolutely. We sent a letter on March 9, a very strong letter, to the Senate again pushing the issue and we worked hard on it in the House as well. It's an important issue for us.

As far as the Dodd bill asking for the SEC to study the issue of broker and advisor obligations again, do you think the SEC should be studying this issue again?
We're happy to study whatever Congress would like us to study. The Rand study was done; I think we have a very good handle on the issue. The key thing from our perspective is that if Congress wants us to study the issue again, that's fine. But at the end of that study we need the authority to go ahead and take action. [The legislation] doesn't give us that authority. That's the real flaw from our perspective. There is not a grant of authority when the study is done to go beyond our existing authority in respect to rule writing.

So you'd have to go back to Congress?
That's the issue.

That could take a long time.
Yes. The bill needs to give us the ability to create the fiduciary standard of conduct for all professionals at the conclusion of the study, and that's the piece that's so critical that's missing.

When will something happen with 12b-1 fees?
I'm hoping we're going to go forward this summer. Timing is always hard to predict. But we got a big one out of the way today (April 8) with the new [asset] securitization rules that were proposed. But we have some things in the pipeline that we're finishing up this year. With 12b-1s, we're going to try and address the issues that have been perennially raised about 12b-1 fees. Without getting too specific, I would hope we would go beyond disclosure and clarity, which has always been a complaint about, 'What's a 12b-1 fee'....but also with the level of fees; we want to look closely at that as well.

What's your view on how financial services reform is moving forward now?
There are a lot of great things in these bills--a lot of things that are really important for our financial system and for our economy. For example, bringing over-the-counter derivatives under regulation for the first time is critically important. That's not to say there aren't so gaps that I think still need to be filled and that deserve more attention in the bill. For example, we've got some pretty big end-user exemptions in the House and the Senate bills that would have a lot of swaps not centrally cleared. So I think we have some work to do to narrow some of the gaps and exemptions that exist. I think that the bill creates confusion with respect to securities-based swaps because it doesn't treat all securities-based swaps like securities even though they are an economic substitute for securities. Some of them will be treated as commodities even though they have securities as their reference point. So we think the lines could have been drawn in a way that was more effective than currently.

We've talked about the fiduciary standard part of the bills--on the Senate side we'd like to see that much stronger.

Are you confident you might get somewhere with that?
I'm always confident. I know we will push very, very hard on this. We're going to continue to make the case.

Another thing that's great in the bills is the registration of hedge funds and private equity. But again, there are some exemptions for private equity and venture capital that I'm concerned about, because I think it's easy enough to restructure your business to fit under one of those exemptions. So we won't achieve the full benefits of hedge fund registration. So those are specific examples, but I think there's a lot that's good in the bills, but there is work to do and gaps to close and we are committed to working on that.

Are you satisfied with the SEC funding mechanisms provided in the House and Senate bills?
No. The House did not do a self-funding or an independent funding model. They did an authorization, which is great but it doesn't mean appropriators have to follow it. They would double the SEC's appropriation over five years. The Senate bill does have independent funding for the SEC and we're obviously very much supportive of that and would love to see independent funding. This agency has had a feast or famine existence for many years. It's extremely difficult to plan and impossible to ramp up in a face of crisis when you're subject to an annual appropriation and you can't bring on more people when you need them absent going back to Congress. That puts us in a very difficult position and we already return in fees to the government well in excess of our annual appropriation anyway. Except for the CFTC, all of the other financial regulators have independent funding. So when the FDIC needed to bring on 1,000 people last year, they brought on 1,000 people. We can only bring on as many people as we have vacancies, and that means in a market crisis or when markets are growing rapidly as they were over the last few years, there was no flexibility here to grow. It's not the reason for all of our woes, but it's a significant contributor to our inability to keep up with Wall Street.

Do you have confidence that state regulators could examine advisors if the SEC registration level was increased to $100 million from $25 million, as set out in both the House and Senate bills?
Here's my worry about it. That increase to $100 million results in about 40% of investment advisors who are currently subject to SEC registration being state regulated--about 4,000 plus advisors. I worry very much about whether the states have resources, particularly at this time, to take on an additional 4,000 registrants who are very much dealing with the public day in and day out. We haven't had sufficient resources to do the kind of job in this area that I would love for us to do, but I'm not sure we should feel great about pushing this issue to the states if they don't have the resources either to do it. I think it's a difficult issue.

What's the biggest lesson that you think the SEC has learned from the Bernie Madoff scandal?
It's hard to pinpoint one post Madoff lesson. If you look at our Web site you'll see the litany of things that we've done to try to respond to the root causes at the agency for failing to shut down Madoff much sooner. I would say they really go to collaboration and communication within the agency. They go to having the right kinds of skill sets and the necessary tools for people to pursue suspicious behavior and suspicious activity. We've been trying to hire people with very different skill sets and we have virtually all new leadership across the agency. People are committed to working in a very collaborative and collegial way, sharing information; we have a lot of cross agency task forces now to try to move things ahead as a way to break down the stove pipes. Again, a problem in the Madoff area was in communication among different parts of the SEC. A problem was whether we had people who could really understand the information that was being presented to them and the red flags that it may have been showing them--hence the new skill sets. We have new rules on investment advisor custody and the requirement for surprise exams if you custody with an affiliated custodian or have power of attorney over a customer's account. Those I think will be very helpful. It's leveraging our scarce resources by using accounting firms to help us police the market. So we've taken the handcuffs off of our enforcement people; we've brought talent into OCIE. It's a combination of things and we've tried to be as expansive as we can in dealing with the tragedy of this failure and learning from it. We talk about it here; we talk about what the lessons learned are; it's one of those things that I think with shape the psyche of the agency for a long time, and I'm not sure it's a bad thing.

In my recent interview with Harry Markopolos, he said that the SEC Commissioners should not be securities lawyers. What do you say to that?
We have very good commissioners and of course those aren't decisions that I get to make, those are for the President. But I would say that I've talked with Harry and I agree that we need to broaden our expertise and skill set. So we've created a new division of Risk, Strategy and Innovation, we have quite different people there. But if you look at our job postings in OCIE and enforcement's specialized units, you will see us looking for, and we are successfully bringing on board, people of quite different backgrounds. So the new head of OCIE in New York comes from a hedge fund. We're finding that this is a good time for us to be hiring, both because it's a good market for us, but also because people are anxious to do something in the public's interest. So I would agree with Harry that bringing in people who think quite differently is very helpful.

Want to Grow Your Numis Network Business? You Have To Ask

If you are in Numis Network or any Network Marketing Business and you want to get people to join your team you must ask them to join. You don’t have to sell them on the network marketing industry. You don’t even have to sell them on your Numis Network business, but you must ask some questions. Asking questions is the only way to find out if someone is really interested in what you have to offer and worth your time.

There are a lot of people out there telling you that all you have to do is invite people to a presentation. The problem is that when you invite someone to presentation they will ask you what it is about. This is when most network marketers will start talking and talking about their opportunity, they are telling selling. The products are cutting edge, the compensation plan is the most lucrative, the timing is perfect and on and on.

What happens next is the person you are inviting will tell you they are not really interested at the moment, or they will slap you with how much are you making? This all easily avoided if you begin by asking a question to find out if a person is open to looking for a way to make additional income. If you get a yes invite and if you get a no then move on. Do not get seduced into talking about the specifics of your opportunity because you cannot possibly present it in a short phone conversation. Invite and move on.

When you have gotten someone to see a presentation then you can ask him or her what he or she thought about it. You will almost never have a lay down sale. What I mean is that rarely does someone see a presentation and ask if you take MasterCard or Visa. You have to ask questions. Start with, what did you like about the presentation? You will find that most people are polite and will tell you something they liked. What ever they say they liked you can ask another question about it.

People won’t work with you unless you ask them. If you don’t know what to ask or how to ask, don’t worry you can learn. There are books you can buy and companies like My Lead System Pro that offer training on this subject specifically. Take the time to develop your asking skill. If you learn to ask bigger and better questions you will discover that your Numis Network business will grow beyond your dreams.

Bruce Holmes is a Marketing Professional. It it possible to make money in Numis Network? No other coin seller offers the Guarantee that Numis Network offers.

Thursday, August 30, 2012

Top ETFs and Stocks to Buy Now

For the second consecutive day, stocks jumped on the opening, but unlike Monday�s aborted rally, buying was maintained at a steady pace throughout the day. Buying was attributed to the fall ofLibya�s dictator, the increased oil supplies, and the positive impact on the economy of lower energy prices.

But it was the expectation that the Fed�s quarterly meeting would produce another stimulus package that also attracted buyers. And even though the market hesitated when an earthquake hit the east coast of theUnited States, it quickly regained its momentum and closed at the high of the day.

The Dow gained 322 points (2.97%), the S&P 500 rose 39 points (3.34%), and the Nasdaq gained 101 points (4.29%). But volume was light compared with recent sessions. The NYSE traded 1.2 billion shares and the Nasdaq crossed 593 million shares. Advancers exceeded decliners on the Big Board by 4.2-to-1 and on the Nasdaq by 4.66-to-1.

As the saying goes, �One robin doesn�t make a spring,� and neither does a single triple-digit rally on the Dow Jones Industrial Average turn a bear to a bull. But the last three days do tell us that the recent lows at the S&P 500�s 1,118 to 1,123 are significant and match the lows of early August, as well as the top of last summer�s consolidation.

Resistance to yesterday�s rally first comes into play at the short-term downtrend line at around 1,178 (red dash line), and then at 1,204 to 1,262 (the blue 50-day moving average). On Monday, we discussed the support zone for the S&P 500.

From the current depressed levels we could see a rally resulting from a new initiative by the Fed or better economic numbers. But the Fed has few tools left to combat the forces of recession, and poor economic data is what caused the recent sell-off.

Technically a rally could take the S&P 500 to as high as 1,262. But so far rallies have not been supported by higher volume; instead higher volume has supported declines and declines have been driven by negative breadth. Despite the negative overtones, our internal indicators are grossly oversold, and this usually precedes a bounce.

Yesterday�s reactive bounce focused on energy and agriculture with higher-than-average volume on the buy side. Therefore, these ETFs and stocks could benefit from an oversold bounce and are in a position to benefit from a trade or long-term investment:

  • iShares Dow Jones US Oil Equipment Index (NYSE:IEZ)
  • Oil Services HOLDRs (AMEX:OIH)
  • SPDR S&P Oil & Gas Equipment & Services (NYSE:XES)
  • SPDR S&P Oil & Gas Exploration & Products (NYSE:XOP)
  • Energy Select Sector SPDR (NYSE:XLE)
  • ELEMENTS Rogers International Commodity Agricultural ETN (NYSE:RJA)
  • PowerShares DB Agriculture Fund (NYSE:DBA)
  • Potash (NYSE:POT)
  • Mosaic Co. (NYSE:MOS)
  • CF Industries (NYSE:CF)

10 ETFs on a Run

The following is a list of ten ETFs with an uptrend formation during the past 10 trading days (from Dec14 to 28, 2010). The broad economic indicators suggest mild bullish to mild bearish momentum in the market for the near future.

click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Algorithm Cabinet LLC and/or STOOKLE, is not a registered investment advisor and does not provide investment advice.

Verizon Closes Frontier Deal; VZ Holders To Get FTR Shr Div

Verizon (VZ) this morning said it has completed the spin-off and sale of New Communications Holdings, a collection of local phone businesses in 14 states. The business was merged into Frontier Communications (FTR); the result is that Verizon holders will end up with a 68% stake in Frontier. Verizon holders will receive on share of Frontier for every 4.165977 Verizon shares held as of June 7. (That’s 0.24 shares of FTR for each share of VZ.) Holders will receive cash in lieu of fractional shares.

Total value of the deal to Verizon is about $8.6 billion. Holders get $5.247 billion in Frontier common, and Verizon gets $3.333 billion in “value,” mostly $3.083 billion in cash. The company also reduced its debt position by $250 million for borrowings tied to the units being sold to Frontier.

VZ holders will receive their FTR shares on July 8.

VZ today is up 26 cents, or 1%, to $26.61; FTR is down 27 cents, or 3.5%, to $7.38.

TriMas Outruns Estimates Again

TriMas (Nasdaq: TRS  ) reported earnings on Feb. 27. Here are the numbers you need to know.

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

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

Gross margins expanded, operating margins contracted, and net margins expanded.

Revenue details
TriMas logged revenue of $259.7 million. The four analysts polled by S&P Capital IQ expected to see net sales of $234.2 million on the same basis. GAAP reported sales were 17% higher than the prior-year quarter's $222.7 million.

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

EPS details
Non-GAAP EPS came in at $0.25. The five earnings estimates compiled by S&P Capital IQ predicted $0.21 per share on the same basis. GAAP EPS of $0.38 for Q4 were 138% higher than the prior-year quarter's $0.16 per share.

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

Margin details
For the quarter, gross margin was 29.1%, 10 basis points better than the prior-year quarter. Operating margin was 10.1%, 20 basis points worse than the prior-year quarter. Net margin was 5.1%, 250 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $285.5 million. On the bottom line, the average EPS estimate is $0.40.

Next year's average estimate for revenue is $1.14 billion. The average EPS estimate is $1.81.

Investor sentiment
Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on TriMas is outperform, with an average price target of $25.40.

Over the decades, small-cap stocks like TriMas have provided market-beating returns, provided they're value priced and have solid businesses. Read about a pair of companies with a lock on their markets in "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Click here for instant access to this free report.

  • Add TriMas to My Watchlist.

5 Great Long-Term Growth Stocks

If a company is successful in being a leader in an expanding industry, it can perform even if it reinvests more of its profits rather than paying you a bigger dividend.

But just because a company is successful at reinvesting to provide growth in further business assets and revenues doesn�t guarantee the market will pay attention. Countless companies around the world are solid and improving their business values, but their stock doesn�t perform in line with their improved fortunes.

Therefore, it really doesn�t matter if management is great and the company is a global leader if the stock market doesn�t deliver the returns to justify buying it without a bigger dividend.

This is why this collection of “Long Haulers” is very short and selective — the stock markets of the globe have little patience for even the best of businesses.

And with the recent series of gut-wrenching plunges and bounces in stock markets, investing for the long haul can be downright hazardous right now for your retirement.

Despite some of the recent price gyrations, the Long Haulers have been proving their mission by delivering not just positive performance, but solid gains that work with dividend stocks to offset inflationary threats and other pricing challenges for your own retirement expenses now and for the years to come.

Monsanto

Agricultural technology company Monsanto (NYSE:MON) has more than delivered during the past year as the market has begun to catch up with its new mission to focus on seed technologies and higher-value-added chemicals.

The result is that — with soaring demand for more food and other crops, and limited acreage — Monsanto continues to build up sales and build up its business value.

And the stock market is recognizing it. During the past year — including the recent market mayhem — Monsanto has delivered a return in excess of 24%. And you can expect a lot more from this company in the year to come.

Samsung

Other companies have had some setbacks in the near term with the massive market moves of recent weeks. But there still is the long-term proven track record of matching rising sales to the near lockstep performance of the stock.

Samsung (PINK:SSNLF) is such a stock. With concerns about consumer and industrial demands in the U.S. and Europe, the stock has taken some hits recently.

But given that Samsung’s markets are much broader than that of just the U.S. or Europe — even if we do see anemic expansion in general terms — the company still should continue to provide offsetting sales gains in Latin America, Africa, and — most importantly — Asia.

So, for now, look at the recent price action as an opportunity to reinvest some of the cash into this long-term success company.

Siemens

Siemens (NYSE:SI), the German industrial giant, is in a similar situation with Samsung as concerns about U.S. and European economic slowdowns have taken the stock down over the recent series of volatile trading.

But for the trailing year, the company�s stock has delivered a 12%-plus return, largely on the back of its solid customer bases in the still very-high-growth markets beyond the so-called first-tier economies of the U.S. and Europe.

Keep buying Siemens — particularly in the current market price conditions.

China Mobile

China still is the fastest-expanding economy in the world and continues to see a ramp up in income and spending — not just in the higher end of their wealthy population, but more importantly in their middle to lower classes.

This is why China Mobile (NYSE:CHL) — the workhorse phone company of the market — continues to get both broad business demand for its services and growth in the consumer markets. It�s a broad, nationwide base of continuing and renewing customers.

The share price has taken some hits. But for now, the proof for me is that the market always has caught up with the rising business values and revenue growth, resulting in higher stock prices.

Expressscripts

Last among what�s working is a new member of the Long Haulers that comes up from the farm team of the Nibblers.

The key for Expressscripts (NASDAQ:ESRX) is it is right in the sweet spot of what the private sector and the government want– lower medical costs. The pharmacy manager continues to chomp down on costs, and in turn garners more and more of the market — resulting in massive sales gains.

And it�s plugged in to the government as well as business leaders, enabling it to expand not just on its own, but by buying out its lesser rivals. This, in turn, gives it the opportunity to expand in size and gives it greater efficiency.

Having proven itself, it should be bought in larger amounts over the coming months.

Play it Safe: Jeweler Stocks

  • Risk level: 25
Also See
  • 7 Tips for Buying an Engagement Ring

Diamond dealers and traders thought the world's consumers were finally feeling wealthier after the recession, so they started hoarding stones. In the first six months of 2011, diamond prices soared more than 30 percent, to nearly $11,000 for a 1-carat stone, according to the widely followed Rapaport-RapNet Diamond Index. But when consumers didn't flock back, diamond prices plummeted. These days, a 1-carat stone runs about $9,400, about the same price as in spring 2011. Experts still think diamonds have a bright future, due to growing demand in Asia and the Middle East. One of the safest ways for investors to jump in is through the stocks of jewelers, says Paul Swinand, an equity analyst at Morningstar. Profits at Harry Winston Diamond (HWD) more than tripled in the most recent quarter. Meanwhile, more than half of Tiffany & Co.'s (TIF) sales come from goods containing the stones, and the store is increasing sales in China.

Go for Broke: Jewels

  • Risk level: 95

Unlike gold or silver, diamonds are not easy to trade on the open market; there's an exchange-traded fund tracking diamond prices in the works, but for now, to truly speculate on diamond prices, investors essentially have to get the stones themselves. Of course, experts warn that this method is particularly risky (and that's assuming cat burglary isn't involved in acquiring the diamonds). No two diamonds are alike, and many dealers sell stones at a premium -- or discount -- to the prices reported by Rapaport, Swinand says. But for those willing to try, a basket of investment-grade diamonds (typically round, polished, 1- to 5-carat stones) are the most direct way to invest, says Saul Singer, a partner at Fusion Alternatives, an investment advisory firm specializing in diamonds. Plus, there's one great perk: showing off the stones. "Put them in safe keeping, and then take them out for a gala or an event," Singer says.

Risk, Dinosaurs And The Lucky Sperm Club: JPMorgan Is A Joke

Clownishness, much like beauty, stands in the eye of the beholder. So let's gather together to behold a clownish trade. Granted: playing Monday Morning quarterback to lame stock trades is a bit selective, even venal. But in the end, you learn from analyzing mistakes. Plus, what's more fun than making fun of missteps and pratfalls? With all that said, welcome to the next installment of The Clownish Trade of the Day …

JPMorgan (JPM), transforming before our eyes from financial object of reverence to one of ridicule, was essential flat yesterday -- and that's a joke.

Hear this: Wall Street's newest minted laughingstock held gains after a couple of up days, even with a long-weekend lurking and the underlying reality ever present: while a good story keeps getting better, a bad story gets even worse.

And JP Morgan is one bad story. The latest chapter made it the butt of even more jokes.

News just broke that directors of the risk committee at JPMorgan included a the president of The American Museum of Natural History in New York City, which has really cool dinosaurs, but who sat on American International Group's (AIG) governance committee in 2008, helping drive it into a ditch. Also taking a seat at the table of mitigated risk was James Crown who, as a charter member of the lucky sperm club, is the grandson of a billionaire, but hasn't worked on Wall Street since those museum dinosaurs were actually roaming Central Park West. There is also the chief executive officer of a company that makes flight controls and work boots. I knew something smelled.

The point is not to encourage outrage. That will come along naturally. But it's a bad joke to think that so soon after admitting to a reputation ruining $2 billion loss, JPMorgan -- or Citigroup (C) or Bank of America (BAC) or Goldman Sachs (GS) or any of the other sad clowns of Wall Street -- could hold gains going into the slow news period of a holiday weekend.

This story is just going to keep getting worse. And over Memorial Day Weekend, there's a lot of time to tell it.

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

RIM: Morgan Stanley Says Sell, BB10 Won’t Offset Long Decline

Shares of Research in Motion (RIMM) are�down 70 cents, or over 7%, at $9.16, after Morgan Stanley’s Ehud Gelblum this morning cut his rating on the shares to Underweight from Equal Weight, writing that “the only way RIM remains a viable entity is at a fraction of its current size, a transformation that erases much of its earnings power.”

The immediate danger is that RIM will miss the consensus for this quarter, the fiscal Q2 that ends in August, as it gets hit with a “triple whammy,” writes Gelblum, suffering with an aging device portfolio, seeing a “pause” in buying ahead of the introduction of new models based on its forthcoming “BB10” software, and contending with an overall weakening smartphone market.

Gelblum models the company adding 2.8 million new subscribers this quarter, and selling 5.8 million devices. That’s actually up from his prior estimates, and his revenue goes higher as well, to $2.19 billion, with a net loss of 26 cents. But that’s still below the consensus for $2.92 billion in revenue and a 2-cent loss.

Gelblum thinks BB10 won’t be enough to shore up the company’s devices sales, writing,

Jabil, which likely continues to supply into RIMM post RIMM�s supply chain rationalization, guided on June 19th its high velocity sales down 22% q/q, implying RIMM�s business (which accounts for slightly less than half of Jabil�s high velocity business) is likely down over 50% q/q. We therefore believe that BB10 is unlikely to be manufactured until September with retail availability in October at the earliest, leading BB10 to miss back to school and to compete head-to-head with the next iPhone in mid-fall. In addition, we believe BB10 is likely to use QCOM�s popular but highly supply-constrained 8960 28nm LTE integrated application processor, which could remain in short supply until CQ4, creating additional downside risk to shipment estimates, while RIMM�s announcement that BB10 has no keyboard (which we believe is a key feature of blackberries that is keeping the existing blackberry faithful strong) is equally worrisome.

He also thinks that as market share losses accelerate next fiscal year, the company’s cash made from services will be consumed trying to keep devices afloat:

Cash generated by the valuable Services business is essentially consumed going forward by the money losing Devices business implying that the lucrative Services business is worth very little as long as the Device business continues to operate.

Current assets yield a fair value of $15.50, on a sum-of-the-parts basis, he writes, but that’s unlikely to provide a floor for the stock, he thinks:

RIMM is trading below its SOTP valuation mostly because the stock is anticipating the company continuing to run the Devices business, negatively impacting future cash flows in the process. We also do not believe any strategic decision would come fast enough to salvage the current SOTP value in the company � to wit, the split of Motorola into MMI and MSI took well over two years to complete. A more detailed analysis of the value of the services business and the patents follow.

Gelblum’s note today comes amidst a report from the U.K.’s Sunday Times stating that RIM could split up its handset and services businesses.

Update: Gelblum wasn’t the only one with glum things to say about RIM. Goldman Sach’s Simona Jankowski cut her outlook for smartphone industry growth overall, while noting that she expects RIM to report its first-ever subscriber decline this quarter.

On the bright side, Jankowski expects BlackBerry shipments of 9.9 million last quarter, which is better than the Street consensus, which she pegs at 8.8 million units. Consequently, her fiscal Q1 estimate is at $3.16 billion in revenue and a break-even profit line, compared to the consensus $3.15 billion and a penny profit.

Like Gelblum, she focuses some of her discussion on the takeaways from RIM’s manufacturing partner Jabil Circuit (JBL), which on June 19th forecast this quarter below consensus:

Supply chain manufacturer Jabil noted that RIM fell below 10% of sales in the May quarter. Jabil�s High Velocity System�s (HVS) segment, of which RIM is about 35% of the total, fell by 7% qoq vs. our estimate of down 2% qoq. Jabil also guided HVS down 12% qoq for the August quarter vs. our prior estimate of flat. Jabil commented that its HVS business ex-RIM is healthier, implying RIM is worse than the overall market. This compares to our hardware sales estimates for RIM of -33% qoq in the May quarter and -18% qoq in the August quarter. Finally, our channel checks suggest that in-store and online Blackberry model availability fell slightly during the quarter while ASPs remained relatively stable.

Jankowski has a $13 fair-value, sum-of-the-parts estimate, with the most significant difference between her and Gelblum being that she views RIM’s intellectual property being worth $3 billion, more than twice what Gelblum assigns to it. Other parts of her model are lower, however.

Wednesday, August 29, 2012

JPMorgan Posts Big Gains but Financial Reform Threatens Profitability

JPMorgan Chase & Co. (NYSE: JPM) posted a 55% rise in first-quarter net income led by fixed-income trading and investment banking. But to ensure its profits remain in tact, the bank continues to fight against proposed financial reform.

JPMorgan, the second-largest U.S. bank by assets, beat analysts' estimates with net income of $3.33 billion, or 74 cents a share. Estimates averaged 64 cents a share.

Investment banking brought in $2.47 billion, 74% of total net income. The area is usually a strong contributor to profits, kicking in 57% in the previous quarter and 75% in the first quarter of 2009.

JPMorgan claims the results are a strong indication of global financial economic improvement.

"There is clear and broad-based improvement in the economic factors in the United States and around the world," Chief Executive Officer Jamie Dimon, told reporters on a conference call. "It appears to be strengthening, not weakening. It is possible that they will strengthen enough to end up with a strong recovery."

JPMorgan is the first of the big banks to post first-quarter earnings and it has set the benchmark now for the rest of the industry. Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C) will release their numbers April 16 and April 19, respectively.

The banking industry is also taking JPMorgan's results as a sign that credit loan losses are diminishing. Banks can decrease their reserve amounts while enjoying fewer payment delinquencies and loan defaults.

"The key factor for this quarter for banks will be to say reserve builds are largely behind us and the outlook for lower problem loans and loan losses has improved for the second half of the year," Anthony Polini, an analyst at Raymond James & Associates, Inc. told Bloomberg . "It's the outlook that matters."

Increase in Regulation Means Decrease in Revenue JPMorgan's big profit comes at a time when financial reform threatens to drastically alter the profitability of large financial institutions.

The current Senate bill could cost JPMorgan billions in fees and revenue losses. Proposed reform includes contributing to a fund for the potential collapse of other financial firms, increasing payments to regulators, restricting account fees, and having to sell off trading divisions.

Separation of banking and trading activities - which would mirror the goal of the Glass-Steagall Act - is one of the most hotly debated topics of financial reform.

JPMorgan was the first bank to receive permission from the Federal Reserve Board in 1990 to underwrite securities. The rest of the �90s saw a handful of corporate mergers uniting the commercial banking and securities industries.

JPMorgan was the number one underwriter of stocks and bonds in the United States in 2009.

Also threatening JPMorgan's future profits is the Volcker Plan. President Barack Obama announced in January he planned to include elements of former Fed chairman Paul Volcker's plan in a financial reform proposal that would limit banks' proprietary trading and hedge fund activity.

"While the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near collapse," Obama said at the White House. "Never again will the American taxpayer be held hostage by a bank that is too big to fail."

It's uncertain how much regulation will actually change as the bill moves through Congress. The most recent financial reform bill presented by Sen. Christopher J. Dodd, D-CT, is not expected to have trouble getting approval - a sign that it might not include enough regulation to prevent another financial meltdown.

"[T]hat should immediately raise our suspicions," said Money Morning Contributing Editor Martin Hutchinson. "After all, the U.S. financial-services business has a very effective lobby, so if there isn't huge opposition to the legislation, it probably won't achieve all that much. It won't fix Wall Street."

Post-financial crisis, both investors and Washington have beaten up Wall Street, and many executives are staying quiet - except for JPMorgan CEO Dimon.

After supporting such practices like the Troubled Asset Relief Program (TARP) and accepting $25 billion in bailout funds, Dimon argues that there are enough protections in place, and wrote that in regards to financial regulation, "we must also be cognizant of the danger of the pendulum swinging too far."

Dimon has been a regular presence in Congress during financial reform hearings and contributed $6.2 million to lobbying efforts in 2009. He has called some of the reform proposals "un-American" and argues customers would suffer.

"The incessant broad-based vilification of the banking industry isn't fair and it is damaging," said Dimon to The Wall Street Journal. "Punishing whole industries, whether you were reckless or not, just isn't the way to do things."

One of my Stock Picks Made a 23% Gain in 10 Days -- Now's Your Second Chance

About a month ago, I told you about a company that could potentially spell the death of the gasoline engine as we know it. That's good news for drivers -- who have been feeling it at the pump lately -- but it's even better news for investors who can remain patient with this stock.

In fact, when I first profiled this stock in my Game-Changing Stocks newsletter, it was around $24.11. Ten days later -- shares rose as high as $29.63, for a short-term gain of 23%, before pulling back.

Like any game-changing, innovative company still in the early stages of growth, shares of this stock are going to be volatile. It happens. But I'm convinced that this company's long-term growth potential outweighs the risks. After all, we're talking about the death of the gasoline engine...

The company I'm talking about is Westport Innovations (Nasdaq: WPRT), which makes natural-gas engines for semi-trucks and other heavy-duty applications. 

The Canadian manufacturer's engines were the star of recent trucking trade shows as the captains of industry and independent truck operators alike saw a way to dramatically decrease fuel costs, as well as to comply with ever-stricter (and costly) environmental regulations.

Some of the largest U.S. fuel retailers have pledged to add natural gas to their truck stops, and Energy Secretary Steven Chu has said the nation will soon have a natural gas filling station every 150 miles -- easily enough to support national over-the-road routes. The engines have even drawn the support of President Obama, who likes that natural gas is cleaner than diesel, that it is domestically produced, and that new enginesmean new "green-collar" jobs.

So with industry support, a push to upgrade fuelling infrastructure and a cheerleader in the White House, natural gas is a hot area, and Westport Innovations is clearly a company with game-changing potential. As these new engines begin to establish a toehold, then a footprint, within the trucking industry, Westport could see shares grow as dramatically as its revenue, which was up 53% in 2011 in comparison with the year before and is on pace to grow at least 40% this year. 

But let me be clear -- with this outstanding growth potential comes a commensurate level of risk. That's always true, of course, but investors in this space need to realize that they are dealing with emerging new technology as well as with commodity risk. Westport's shares will be influenced by the price of natural gas. 

The good news for Westport is that the price of natural gas is likely to stay low, as increasing shale production has created a huge supply glut. I am confident in maintaining my recommendation on these shares. 

Tips>> Expect volatility with this stock. The beta on these shares is nearly twice the market average (meaning they are twice as volatile as the overall market). I think Westport is an extremely strong buy at any price under $37.50, unless the price of natural gas, currently at about $2.50, exceeds the $5 mark. Patient and watchful investors are likely to be rewarded with a lower entry point.

[Note: Andy is known for finding stories no one else is covering... and making bold calls. This includes a price spike for a key commodity (responsible for 10% of U.S. electricity), Warren Buffett making a major investment in Japan ... and one of the most widely-owned stocks in America dropping like a rock.

Graham Corp.: In the Sweet Spot of the Energy Bull-Market

When the Canadian dollar is trading at $1.20 U.S. and they’ve just announced Exxon has taken out Imperial Oil and plans to double their investment in the Canadian tar sands, this will get on the radar screen.

--Jeff Rubin, former chief economist at CIBC World Markets[1]

I believe the U.S. is going to continue to import oil for decades to come. They consume 10 million barrels per day. . . . I do believe that the Canadian oil sands are going to continue to develop, that growth is going to accelerate, and that there's going to be a need for new pipeline out of there.

The key trend will ride on the oil side, and that's going to lead to all kinds of laterals and tankage and all kinds of things in that business for us.

-- Russ Girling, CEO, TransCanada[2]

I have seen the future.

It skulks nervously and just tracked tar across your carpet.

It’s been touched by a bitumen that snakes down from northern Alberta, a gummy substance that presents the American polity with a stark near-term dilemma. Yes, Green may be the angel of our better nature, but the “golden arm” still screams out for another hit of ol’ petrol.

Canada’s oil sands will be a big topic of discussion in early 2011. The Athabasca oil sands hold almost 1.7 trillion barrels of oil. It’s been called a “new Saudi Arabia.” TransCanada’s (TRP) proposed Keystone XL pipeline will profoundly re-direct this oil southward. This $7-billion expansion would lay another 1,800 miles of new 36” diameter pipe across the continental US and double TRP’s heavy crude deliveries into the U.S. to 1.1 million barrels per day. Since it transgresses a national border, the contentious project presently awaits U.S. State Department approval.

Keystone XL is a project reminiscent of the Alaskan pipeline in scale and circumstance. Both are reactions to higher oil prices, local depletion and geo-political instability. Both are mega-level infrastructural projects, spanning a good portion of the continent. Both will be sired by meta-level Washington operative Bechtel Corp.

As this new pipeline and its oil soon take center stage, its opponents and allies are already prepping for total war in the court of public opinion. Expect Newsweek covers and annoying TV ads.

Imagine Keystone XL as a bulging new artery set to expand and re-orient US energy security. Tapping this oil will have consequences. There are plans to route cheap Asian steel to Alberta down from the MacKenzie River’s icy mouth; there are miles of pipe over major aquifers; there are refineries being revamped in Houston’s Ship Channel area; there are vast lakes of toxic waste water that kill birds on contact.

The transport, refinement, and remediation issues of this oil will be the basis for a new economic model that stretches north-south across the continent, literally from the Arctic Sea to the Gulf of Mexico. A few companies will do very well.

click to enlarge

Approval for XL was delayed in 2010 and is now expected to occur by early 2011. Why am I confident of approval? Is it the $20 billion that refineries in the U.S. Midwest and along the Gulf Coast have already invested in heavy crude refining assets? Is it that Paul Elliot, a close Clinton confidante and her former campaign director, heads the TransCanada lobby effort in Washington? Was it in the quiver of Hillary Clinton’s voice in response to an XL question at a conference last month, or that she said she was “inclined” to approve it back in October? Yes, all of the above. But there is something a bit bigger going on.

Environmental fears of water and air pollution will be vetted, but the issue of Keystone XL has already entered the crush zone of geopolitics.

According to the US Energy Information Administration, the top five oil suppliers to the United States in May 2010 were --in descending order--Canada, Mexico, Venezuela, Saudi Arabia and Nigeria. They represented 59% of imports collectively.

Fortunately, our two top suppliers of crude oil are Canada and Mexico. According to the latest statistics, Canada contributed 21%, while Mexico supplied 11.7%.

Unfortunately, Mexico’s oil depletion continues. Like the following chart suggests, it will see serious declines next year as will the UK, Norway, and the US.

The country has seen steady oil depletion over the past seven years. Cantrell, its mega-field, has become the textbook example of Peak Oil.

According to Mexican Energy Minister Georgina Kessel, output will likely average 2.55 million barrels a day in 2011, down from 2.58 million in 2010. In her December 6th address she went on to assure the audience that, “From there on, we’ll continue to increase, very gradually, our production.”

Analysts are not so sanguine. Alejandra Leon, an analyst with Cambridge Energy Research Associates, based in Mexico City, responded to the report saying that Pemex “was betting in the implementation of new contracts to revert the falling production.” She estimates that Pemex won’t be able to stop output declines until 2018. New innovative techniques will be needed but investment has been slow to move.

Not only will Mexico’s imports to the US be drying up, but this may have consequences for the country’s GDP and tax base. Pemex is the government’s greatest source of income, responsible for financing 40% of the federal budget.[3] The government celebrates its ownership of the industry. It has long subsidized gasoline prices, a venerable plank of its state populism that has existed for decades. Depletion will hurt the tax base and a repeal of the subsidy would likely cause unrest.

Iran just recently repealed its Khomeini-era gasoline subsidies and prices quadrupled. (It’s still unclear whether this effort at furthering oil sales abroad will create social instability as protests have been curtailed with truly iron-fist police action). Imagine what might happen if Mexico, already a “failed state” candidate according to CIA white papers, saw its gasoline price quadruple. Its law enforcement agencies have enough problems coping with the cartels.

The Keystone XL termini at Houston and Port Arthur will allow for a profitable export of diesel to Europe in the near future. It may also offer Washington the more distant hedge of using Canadian oil to prop up Mexican prosperity after 2020.

When we look to our third provider, Venezuela, we also see production problems in 2011. Back in heady days of “21st century socialism,” Chavez took over PDVSA and declared it a revolutionary instrument.

Though a recession and 30% inflation blighted the country undeniably in 2010, the government still insists that PDVSA is thriving. But according to a leaked Oct. 2009 U.S. Embassy report, "equipment conditions have deteriorated drastically" since the government expropriated some 80 oil service companies earlier that year. It said safety and maintenance at the now state-owned oil facilities were in a "terrible state."

According to another source (also exposed via Wikileaks):

Chevron (CVX) was funneling profits to the U.S. and no longer investing in Venezuela, the manager said. An executive at oil exploration company Baker Hughes Inc (BHI) said the firm had a similar strategy and “received a congratulatory message from BHI corporate headquarters for not growing the business (and increasing its risk exposure).[4]

A senior manager from Chevron estimated the state oil company’s output at 2.1m to 2.3m barrels per day, well below official declarations of 3.3m.

Declines in production will further US need to tap more Canadian sources, though Venezuela’s eventual pumping of more heavy oil will synch well with our refinery investments in Houston and Port Arthur. According to a December 2 report, China is moving on Venezuela’s heavy fields. Beijing is investing more than $40 billion in the oil- and gas-rich eastern Orinoco belt by 2016. The new found economic viability of this heavy oil is complicated by China’s own voracious needs.

With declines expected in the US, Mexico, and Venezuela, where can we expect a pickup in production? OPEC production capacity will be tight, though Iraq is a wildcard. I see only Canada, Iraq and maybe Columbia in a position to alter the near-term supply.

Let’s not underestimate the impact of the Gulf spill for putting the limelight on Alberta. As Jeff Rubin, former chef economist at CIBC, colorfully suggested last month:

If you’re the board of Exxon or Chevron, you’re saying look, 'Those guys at BP just messed up, they were the No. 1 at deep water drilling, and they lost $40 billion—is this really worth it to us? Let’s go to Edmonton. Let’s go to Fort McMurray'.

Exxon (XOM) is making massive investment in the oil sands, moving so many mega-loads of equipment from Idaho to Canada that last month it became an issue of the governor’s office. So many slow-moving wide-load trucks were likely to cripple traffic lanes and crimp commercial activity in the state.

At present, 16% of US oil imports comes from Alberta, but that number should expand drastically in the near future. Collectively, the oil majors BP, Royal Dutch Shell (RDS.A) and Exxon have already committed $125 billion to Alberta production over the next 20 years. And that number will rise.

Of the 1.25 million barrels extracted daily from the oil sands, 1 million of it goes directly to the United States. According to the National Resource Defense Council, by 2020, the total US imports from Alberta could be as high as 5 million.[5]

How does one play this historic re-orientation towards heavy and unconventional Canadian crude?

One under-the-radar choice is Graham Corporation (GHM), a designer and manufacturer of critical equipment for the oil refining, petrochemical, and power industries. As I discussed in my December report, 2011 is likely to be a banner year for the company as the “$100 oil” mantra becomes an inevitability and more robust investments in heavy crude refining pile on.

Three recent orders suggest the firm’s new found connection to the oil sands market. The first order was for a custom-engineered surface condenser and liquid ring pump package at an oil sands processing facility in Alberta, serving as a “vapor recovery unit” for bitumen storage tanks. A second order is for a similar package destined for a U.S. refinery and designed to reduce the sulfur content in transportation fuel. And just days ago, on January 7, the company reported an ejector system that will be bound for yet another refinery being revamped for Alberta’s oil.

According to Graham CEO James R. Lines:

We were encouraged to see several large orders break loose during the quarter, particularly our win for the oil sands project. I believe that the oil sands order is important because it is Graham’s first in the extraction/production process. Investment in new oil sands production is expected to ultimately lead to increases in capacity for the upgrade process where Graham has historically had a strong presence. . . .Graham continues to benefit from sulfur reduction initiatives in North America.[6]

Graham’s business is very cyclical and highly dependent on the energy markets. By the firm’s own admission, Graham’s markets tend to bottom 18 months after the bottom of a recession. Back in early 2010, Graham forecasted that the next two quarters would mark the bottom in their market. The post-drop upswing is now occurring.

This cyclicality –with its lumpy excesses at a certain span of each recovery—is what will put the stock in the “sweet spot” within the next two quarters. More heavy oil usage, more LNG facilities, more diesel sent to Europe –these issues will drive the sector’s growth. Like Chart Industries (GTLS), another of my December report picks, it is positioned for these exact developments.

While Graham is currently is very wedded to oil refineries and other petrochemical powered projects, they are technically “energy agnostic” --their products work for geothermal, natural gas, and bio-fuel power. They also do fertilizer-related facilities and their new acquisition (see below) adds nuclear installations to the mix.

A lot of the company’s new growth in revenue should fall to the bottom line. Normalized cap-ex for GHM runs between $1 and $2 million per year. As small 204 M cap company, Graham can generate lots of excess capital and cash when it is at this point in the cycle. It’s a financially strong company with a cash balance of over $70 million, no bank debt, impressive inventory turnover, and gross margins standing at near 30%.

GHM

Industry

Quick Ratio

2.76

0.27

Current Ratio

2.89

0.39

LT Debt to Equity

0.17

6.09

Total Debt/Equity

0.25

8.19

Inventory turnover TTM)

9.88

1.13

Last quarter (2Q11), GHM reported earnings of $0.16, beating the consensus estimate of $.07 set by analysts a full 128.57%. Revenue increased 18% from the 1Q11.

For the coming quarter –the third quarter 2011-- analysts estimate GHM will earn $0.13 per share, an increase of 67.01% over the prior year third quarter results. Revenue is expected to be $18.4 million, an increase of 50.90% over the prior year third quarter results. Fourth quarter revenue should really pop, with analysts expecting between 20.2 and $25.5 million.

Fears that the GHM might make a poor acquisition with its growing war chest ended December 15 when they purchased Energy Steel and Supply. It was -- I believe-- an excellent choice. The firm brings in expertise and demand from the “nuclear build-out” space, an area that is seeing real growth in Asia, and one that –like GHM’s refinery business—privileges exacting, “systems critical” quality over price. It will also smooth out earnings.

Graham gets less Street scrutiny due to its niche size and intense cyclicality. That is why you are prone to see wild upside surprises at certain time periods.

Remember: from April 2008 to July 2008, a similar moment of expensive oil and intense energy capacity build-out, Graham blasted from 18 to 53 in four months.

As we saw last month with GE’s purchase of Wellstream, companies offering specialty products for the energy market may be acquisition targets this season. Though there was a Brazilian angle to that purchase, GE (GE) will continue to expand its oil services business into areas where it can deploy its “technological edge.”

Graham’s clean balance sheet, its focus on Tier 1 products of exacting quality and a demand that now spans a wide spectrum of the energy market might make it similarly attractive.

[1] thestar.com/business/article/911469--oil...

[2] Read more: http://www.calgaryherald.com/business/TransCanada+Corp+looking+more+oily/4034414/story.html#ixzz19oqflc3G

[3] cnbc.com/id/40382280/Mexico_Peak_Oil_and...

[4] halilintarblog.blogspot.com/2010/12/wikileaks-cables-oil-giants-squeeze.html

[5] gcmonitor.org/article.php?id=747

[6] thedailynewsonline.com/news/article_cdf15c05-cf81-5e56-8e84-5e5b44ccc741.html

Disclosure: I am long GHM, BP, XOM, GE, GTLS.

Think Twice About Investing in These 5 Hot Stocks

It's been a great year to be a shareholder in poorly rated, highly volatile stocks. In my opinion, that means the time is ripe to get out of said investments -- or at least think twice before putting new money into them. If any of the five stocks I'm highlighting below are on your watchlist, I suggest investing with eyes wide open, and a thorough understanding of the risks involved.

Here's a look at my candidates, what they do, and how far they've climbed in 2012. And if super-growth investing is your game, I'll finish up by offering access to a stock that we believe is the next great American growth story.

Company

Industry

Return (YTD)

DryShips (Nasdaq: DRYS  ) Shipping 55%
National Bank of Greece (NYSE: NBG  ) Finance 98%
Affymax (Nasdaq: AFFY  ) Pharmaceuticals 64%
Zynga (Nasdaq: ZNGA  ) Social Gaming 42%
Corinthian Colleges (Nasdaq: COCO  ) For-Profit Education 130%

Source: Fool.com. YTD = year to date.

Greece rising?
The first two stocks on my list come from the epicenter of the European debt crisis. I'll admit that when it comes to DryShips, I've done some poor analysis in the past. I called the stock a "perfect short" in August, and failed to appreciate the fact that the company could be a serious bargain based on its drilling interests through spinoff Ocean Rig.

That being said, the stock is up almost 70% in just the last eight trading days. I wouldn't short the stock, as it could come out of its current situation a winner, but there are three big red flags that worry me. First, I'm not a huge fan of management at the company. CEO George Economou has already let it be known that he thinks Americans are the dumbest investors around. Second, the stock's immediate future is likely tied -- fairly or not -- to the constantly shifting winds in Greece. And finally, DryShips is carrying a massive amount of debt -- $4.5 billion at last count -- versus just $400 million in cash on hand.

The National Bank of Greece, on the other hand, has had an even more meteoric rise -- climbing almost 120% since Jan. 10. That's great news for investors, but they need to consider what they're investing in: a financial institution that gives out loans to a government that can't honor its obligations, and a people that have a terrible record of fiscal responsibility.

Does the market know something I don't?
When it comes to pharmaceutical companies, large jumps in share price are commonplace, as the golden touch of an FDA approval usually sends shares skyrocketing. But in the case of Affymax, which develops products to treat serious cases of anemia, the recent 64% hike in its shares didn't come on the approval of a new drug. In fact, the only news I could find associated with the company is the promotion of Cynthia Smith to vice president of market access and commercial development. Either the market knows something I don't, or it's acting very irrationally.

And speaking of acting irrationally, how about Corinthian Colleges' 130% spike since the new year? I understand that earnings came in better than expected, but consider that the report still revealed a 14% decline in revenue, a 10% drop in enrollment, and an 82% drop in adjusted earnings per share. Though I've softened my stance on for-profit education, my research tells me that Corinthian is the worst of the bunch.

The Facebook effect
Finally, we have Zynga, the social-gaming company that benefited the most from Facebook's IPO filing. While the numbers revealed in that filing have impressed some investors, our very own Tim Beyers is unconvinced. He believes Zynga to be a faker -- primarily because it lacks innovation, often copying others' gaming efforts -- with unsustainable competitive advantages and a lack of truly excellent management. I'm with Tim on this one; you'd better be sure you know what you're getting into before putting your money here.

Where the great growth stories truly are
But don't worry, I'm not here just to be pessimistic. I believe there are plenty of great growth stories out there. Our highly acclaimed Rule Breakers newsletter has put together a special free report -- Discover the Next Rule-Breaking Multibagger -- that highlights what it thinks is the best opportunity out there right now. To find out which company that is, get your copy of the report today, absolutely free!

St. Jude Falls on Cautious Guidance

Device maker St. Jude Medical (STJ) is down 3.7% this afternoon as the company’s cautious guidance appears to be spooking investors.

St. Jude’s second quarter report contained some positive highlights: earnings narrowly beat expectations, as the company’s ICD sales were stronger than expected and management said it had gained market share. St. Jude has struggled in recent months because of safety concerns related to leads attached to its ICDs.

But guidance was another story, as BMO Capital Markets analyst Joanne Wuensch noted.

“But things got tricky when management started to discuss guidance. It talked about a more conservative view of the cardiac rhythm management (CRM) market (down 3%-4%, versus previous guidance for low-single digits) as well as its share in that market (gain � point of market share versus � to 1 point previously). It also talked about softer utilization, not just in CRM, but in atrial fibrillation (AF) and cardiovascular division (CVD) as well, largely in Europe, leading to a more reserved 2H of the year. And then there was FX, which frankly was anticipated by us and many on the Street: looking for $1.20 to $1.25 per euro (versus $1.28 to $1.33) and 78 to 83 yen per $1 (versus 80 to 85), lowering 2H12 revenue by $35 to $40 million and EPS by 4 to 5 cents.”

Wuensch nonetheless rates the stock at outperform as the company’s pipeline is strong and its valuation remains attractive.

Single Stock VIXs?

Bill Lubyfrom the Vix and More blog stumbled across what I think can be very useful if it catches on. The Chicago Board Option Exchange will start calculating a VIX-like index for five individual stocks. Specifically a "VIX" will be calculated for Amazon (AMZN), Apple (AAPL), Google (GOOG), Goldman Sachs (GS) and IBM (IBM).

From Bill's post and the CBOE announcement it seems that the intent is to provide information for options traders to base decisions upon, or at least to contribute to the decision-making process. I saw nothing to imply that these single stock VIXs will themselves become tradeable instruments.

In the last few months, or longer, we have seen a slew of ETPs tied one way or another to the VIX index. It seems like they are marketed as tools for speculation and tools for hedging. I have no interest in using them as hedges, because unlike an inverse fund it is not a certainty that if the market goes down 2% today that a VIX fund will go up. Likely is not the same as certain. Also, VIX has a lot of moving parts; its relationship to the S&P 500 index ebbs and flows over time. And we haven't even gotten to the various issues with the ETPs.

This does not mean there is no utility here, because there is. Also, with the single stock VIXs (should they proliferate), obviously we are only talking stocks; with active options markets, we could see this spill over to some active ETFs as well.

One example of the utility I can envision is that if there were to be a dramatic change in the VIX-like index for a stock or ETF you own -- without much price change -- you could take that as a warning. This would be evidence of the market thinking something was going on (good or bad) and could serve as a catalyst to spend extra time on a holding to try to figure it out.

For example, the other day Chile announced a program of buying dollars with pesos in an effort to cap price appreciation of the peso. This has hit both the bank we own for some clients and the ETF we own for other clients (the ETF a little more). If VIX-like indexes existed for these two, they might have warned of something coming. For me this is likely going to be more for informational purposes than to trade (I'll take all the information on all of our holdings that I can get), as a spasm like this doesn't invalidate what I believe is a multi-year -- decade-long, even -- investment theme ... but some folks would trade off of such a warning.

This sort of innovation, regardless of whether we see more single stock VIXs and ETF VIXs, is evidence of the evolution of capital markets and investing in capital markets. Products and information, when used correctly, make us more knowledgeable, give us access to more sophisticated portfolios, give the opportunity for better risk adjusted returns and a better chance for having enough money when it is needed.

I've mentioned countless times the number of markets or specialized niches that had normal decades during the oughts. These markets and niches have been investable all along, but the ETFs now make the access much easier. Anyone with exposure to these places and themes probably did just fine during the last decade -- and "just fine," combined with a proper savings rate, can get the job done.

A High-Yielding Investment You’re Probably Overlooking

The breakout of the major indices has built a platform from which stocks can leap higher. Support now rests at the old breakout lines. For the S&P 500, that is the former resistance line at 1,340 to 1,344. And since that was such a formidable wall to break, it should also prove to be a strong line of bullish stability.

 

The bullish significance of this week’s breakouts cannot be overstated. All of the Russell indices — including the Russell 3000, which is comprised of 98% of all stocks traded in the United States — have broken their resistance lines.

And the Nasdaq, which was the prior leader in the major run-up from August to February, is almost at a 10-year high having already jumped 10 points above the October 2007 high at 2,862.

The major indices have confirmed that the long-term bull market is alive and well. It may not be a textbook move to new highs with strong volume and broad participation, but “the trend is your friend,” and the trend is up.

Next week, I’ll focus on targets for the bull market and sectors that are emerging as leaders. But today, I’d like to include a bonus for those investors who are not traders or even growth-stock buyers, but rather those who have been ravaged by low interest rates “while the world was awash in liquidity” (AAII Journal, August 2010).

Investors seeking higher yields with acceptably lower risk have had a couple of tough years. And yet preferred stocks, a class of high-yielding securities that have been around for over 100 years, receive very little attention from the investing public. Preferreds are senior to common stock, but subordinate to debt, and so they normally pay higher rates of return than bonds. And like common stock, their dividends aren’t guaranteed and they generally have no maturity date. But most can be redeemed by the issuer at a specified date and price. And many can be bought and sold on the NYSE.

Sam Stovall of S&P did a comparison study of the performance of the U.S. Preferred Stock Index, the S&P 500, and the Barclays U.S. Aggregate Bond Index over a long period and found that preferreds had a very low correlation with bond prices and a modest correlation with stocks. This means that even though preferred prices could fall if interest rates rise, their price is more directly correlated to the issuer’s common stock price.

In today’s environment of low interest rates and recovering stocks, this investment seems ideally suited for buyers who seek income, relative safety and diversification.

Sources: AAII Journal, December 2010; Standard & Poor’s Global Equity Strategy: U.S. Sector Watch, Nov. 8, 2010.

For an ETF that seeks to mirror the performance of the U.S. Preferred Stock Index, see the Trade of the Day.

Will Index Buyers Rescue Facebook?

The Facebook (Nasdaq: FB  ) IPO has inspired more scorn and derision than most people ever would have imagined before its first shares traded last month. Just a few weeks in, and after billions of dollars in losses, millions of those who once dreamed of owning the stock now probably want nothing to do with it.

Yet many of those investors could well see part of their fortunes tied to the social-media giant before the month is out. With the annual rebalancing of the Russell indexes, Facebook stands to gain a place among some of the most-followed indexes in the world -- and after the changes take effect, index funds that you own could well hold Facebook shares.

Why you'll own Facebook
Index funds give you a cheap, easy way to invest. By having you own a portion of every single member of a given index, you'll get a diversified set of investments that includes companies from every corner of the market.

But as I pointed out back in February shortly after Facebook announced its IPO, index funds are slaves to the indexes they track. So as newly public stocks qualify for inclusion in various indexes, the funds that track those indexes will have no choice but to buy shares.

Russell's annual June rebalancing makes it the first major index to pick up Facebook. In addition to the social-media company, the Russell 1000 index of large-cap stocks will also likely include payment processing company Vantiv (Nasdaq: VNTV  ) , which Fifth Third spun off in 2009, and Allison Transmission Holdings (Nasdaq: ALSN  ) , which produces truck and bus transmissions. Yet neither of those companies has the size or public awareness that Facebook has.

Much ado about little
Compared with previous years, 2012's Russell rebalancing looks to be relatively minor in scope. In 2010, for instance, Berkshire Hathaway (NYSE: BRK-B  ) got added after its share-split made the company eligible for the Russell 1000 Index. That caused a big impact, as the company made up more than 1% of the index's value. Similarly, Sirius XM Radio (Nasdaq: SIRI  ) got a lot of volume when it was restored to the Russell 1000 after getting taken out of the index in 2009 because of its huge share-price swoon during the financial crisis.

But this year, an estimate from Credit Suisse suggests that just 1.5% of the value of the Russell 1000 will be affected by additions and deletions, which is the smallest such percentage in eight years. Still, given that about $3.9 trillion tracks various global Russell indexes, there's plenty of money at stake.

Getting a good deal?
The good news for Russell index investors is that at least for now, funds have an opportunity to buy the estimated 13.5 million shares they'll need at a much cheaper price than IPO participants paid. In the past, excitement about IPOs often led to index funds having to pay premium prices for shares -- only to watch them fall once index-based demand fell off.

But the big question for Facebook investors is what will happen when other indexes get around to adding the stock. The Nasdaq 100 changed its rules to cut the period a company has to trade on public markets from two years to just three months, potentially making Facebook eligible to join the index later this year.�The S&P 500, meanwhile, has a more fluid set of guidelines governing additions, but even with Facebook's decline, its market cap is still more than high enough to justify inclusion at its earliest opportunity. All the buying pressure from those other index funds and ETFs could push Facebook's price higher -- at least in the short run.

The downside of index funds
Unfortunately, there's not much you can do to avoid having Facebook in your index funds, short of boycotting the products entirely. Given how useful the products are for low-maintenance, cheap investing, begrudging Facebook its place among highly valued companies probably isn't worth the hassle of finding other ways to replace index funds in your portfolios.

All the buzz around Facebook doesn't change the challenge the social-media giant will face in producing revenue from its millions of members. We've created a new report, "Forget Facebook -- Here's the Tech IPO You Should Be Buying," which details a much better social-media stock with a longer runway for growth than Facebook. The report won't be available forever, so click here to get access today -- it's totally free.

How to Cope If the Bear Bites Santa

Monday’s impressive rally notwithstanding, recent market action and news out of Europe have been scary to say the least, and one can only wonder if we�re heading back to a wider version of 2008 — a �subprime� crisis on a national and international scale.

Overall fundamentals and technical indicators look terrible. However, the �powers that be� — including the IMF and European Central Bank — continue to stick their fingers in the dike in hopes of containing their ongoing financial crisis.

Furthermore, we now are approaching the beginning of December, and I probably am not the only investor who is wondering if Santa will appear for the seasonal �Santa Rally� or if a new bear market will send him scurrying to the North Pole for safety.

If Santa should suffer a bear bite in this traditionally strong period for stock markets, it could be a bad omen, indeed, and signal a long, hard grind for the stock market as we head for 2012.

As always, investors need to consider ways to cope with the ongoing volatility and market turmoil, and it is my personal view that we�re in a long-term, secular bear market that will take years to resolve — a market that will be punctuated by sharp rallies and sharp declines.

Click to Enlarge But for today, Santa does have some hope this year in the retail sector, as there were 10% more Black Friday shoppers this year than last, and the SPDR S&P Retail Index ETF (NYSE:XRT) could provide investors with enough cash to spend under the tree.

Despite the fact that XRT closed down Friday, Monday was a new day as Black Friday reports streamed in and the retail index jumped 4% in early going. Apparently people are buying big this year, so there�s still hope that the bear will not maul Santa in the retail sector this year.

The retail sector might be Santa�s savior this year. However, taking a look at today�s market, we see current measures of momentum and moving averages indicating we�re very likely still in a down phase in these ongoing cycles.

Click to Enlarge In this chart of the S&P 500 we can see that momentum is declining, with MACD on a downward slope, and the index has broken below both the critical 50- and 200-day moving averages. Also, the �death cross� — wherein the 50-day average is below the 200-day — still is in play. All of this points toward the bear coming out of his cave and Santa retreating to his icy lair despite today�s strong bounce.

In dangerous times like these, conservative investors can flock to an old standard �safe haven,� the U.S. dollar. Although we have plenty of problems at home, the U.S. dollar still is widely viewed as a safe haven because it�s still the world�s reserve currency and the Fed has the power of a seemingly unlimited printing press behind it.

Click to Enlarge In this chart, we can see how the dollar — represented by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) — has taken off on a steady climb this month and is in a bull market as indicated by its positioning above both the 50- and 200-day moving averages.

So, while the days ahead might be scary and fraught with danger, opportunities always exist to fill one�s stocking, and investors with a plan can use ETFs such as UUP and XRT to seek profits in whatever market environment we face.

Disclosure: Wall Street Sector Selector actively trades a wide range of exchange-traded funds, and positions can change at any time.

Tuesday, August 28, 2012

Putting the Fright Into U.K. Banks and Bondholders

If the UK’s banks don’t increase lending to small business, then the government is going to give them a serious kicking. At least so says Business Secretary Vince Cable, who will go on the “war path” and impose financial penalties such as an increase in the banking levy or taxes. However, because of political imperatives to increase inflation, Cable, like the Bank of England seems to be willfully misinterpreting the economic evidence, while the risk of higher interest rates grows.

click to enlarge

Rather like Cable, the Bank of England remains fixated on its quantitative easing program, even as inflation continues to rise in response to VAT hikes and inflation imported by the weakness of Sterling. Incredibly, Monetary Policy Committee member Adam Posen is now talking about “heavy-duty credit easing,” which would target specific sectors, as the US is (unsuccessfully) doing with the housing market – should its buying of government bonds prove ineffective in stimulating economic growth.

Talk about further quantitative easing, and increasing lending – even as inflation continues to pick up in the UK – probably reflects the coalitions desire to see the cost of government eaten away in real terms – given that it has frozen many budgets, and only given the NHS 2.5% annual increases – and a failure to understand that lending cannot be nor should be restored to the levels that were seen in the credit bubble.

Companies and individuals need to save more now rather than borrow. That is why small companies may be cutting their borrowing rather than struggling to access credit, as Cable thinks, and why mortgage lending is down and the housing market is weakening. Mortgage approvals for house purchases by the UK’s major lenders fell to a 16-month low of 45,000 in August from 47,000 in July, a bigger-than-expected fall. And gross mortgage lending reported by the Council of Mortgage Lenders fell to £11.4bn in August, from £13.3bn in July, the lowest level for the month of August in a decade.

Extending the Bank of England’s £200bn quantitative easing program because of faltering money supply growth – which fell to the 1.8% August, the lowest level since the series began – would be like “pushing on a piece of string” – as has the Fed’s own program has been likened to – and only store up potential inflationary trouble for the future.

There are risks, says Bank of America Merrill Lynch in its latest economics report, of interest rates rising notably faster than current market expectations. Using its Taylor Rule estimates (see chart), it calculates there’s a 25% chance of interest rates rising to 3% or more by early 2012: “Interest rates rising that fast is by no means our central projection, but with the level of GDP in the UK currently around 4.5% below its peak in early 2008, such risks may be underappreciated.”

Moody’s (MCO), which has endorsed the UK’s austerity plans, thinks that the UK “appears sufficiently flexible and robust to grow, even in the face of austere fiscal consolidation.” Challenges remain, from “private sector deleveraging, the uncertain state of the financial sector and slower growth in the UK’s main trading partners,” but if a moderate pace of growth is maintained, the primary budget balance will be in surplus by around 2014.

GDP growth will continue to remain above trend, and private sector output should rise slightly faster, agrees Lombard Street Research. This is because exporters are continuing to do well, as the weak pound finally makes its impact felt. As expected new orders are some way above ‘normal’, the rebound in industrial activity may indeed be based on a more fundamental shift in the demand for UK exports.

A net balance of 12% of manufacturers are expected to raise output over the next three months, according to the latest Industrial Trends Survey, compared with a long-run average of 7%. Only 4% reported that current inventories were sufficient given expected demand, so they are restocking.

For the time being, the Bank of England maintains that the 3.1% rate of inflation is not being passed through to general rises in inflation, as it is only due to temporary factors like Sterling’s decline, and because growth is likely to weaken. But the Bank of England’s forecasting record is, though, no better than your guess or mine.

“The events of the last three years provide ample evidence of the benefits of considering the whole distribution of risks: perhaps particularly those far away from central expectations,” says Bank of America Merrill Lynch. In due course, the MPC’s central forecasts from its August Inflation Report (.pdf) could be consistent with interest rates rising notably faster than current market expectations through 2012 and 2013.

So the real question is how long it will be before the market realizes that the probability of further quantitative easing is slim, and responds to the rising inflation by forces up yields on UK government debt.

Disclosure: No positions

Market Glides Joyfully into the Weekend

We are living in interesting times — tumultuous, confusing, even violent — but why worry about any of that when you’re making money.

For the fourth week in a row, the Dow posted gains — the S&P 500 is on a three-week streak. On Friday, the Dow rose 267 points, or 2.31%, to 11,808.8. The S&P 500 was up 22.9 points, or 1.9%, to 1,238.3.

The Dow is now up 2% for the year after jumping 9.6% in the past four weeks, although the S&P 500 is still down 1.5% for the year.

Today, Travelers (TRV) rose 5.2% and American Express (AXP) was up 4.9% to lead the Dow ahead. McDonald’s (MCD) was up 3.2% after posting strong earnings.

Travelers had a very strong week, rising 12%, as the company said on Wednesday that� it plans to raise prices after taking heavy losses in the past year from a series of catastrophes.

Euro Zone leaders will meet in Brussels this weekend to hash out disagreements over how to establish a bailout fund for the region’s banks, and investors are optimistic. Of course, the momentum heading into the weekend could also set the market up for a bad fall in the event that leaders can’t find common ground.

How to Predict – And Profit From – the Bursting of the Gold Bubble

Gold last week careened to a record high $1,414.85 an ounce in a surge that was sparked by the U.S. Federal Reserve's plan to purchase $600 billion of U.S. Treasuries in a second phase of quantitative easing (QE2).

The yellow metal may have yet more room to run, as uncertainty in the marketplace remains high and the dollar low.

Still, at this pace gold is increasing too quickly to account for inflationary concerns.

That's saying a lot, because there are some pretty serious reasons to be concerned about inflation. With these new rounds of quantitative easing, the massive debt loads the U.S. has incurred, and Treasury Inflation-Protected Securities (TIPS) going into a negative yield structure, you'd have to be a little off to expect stable growth.But gold has a history of bubbles in situations like this. It's a metal that's prone to a little bit of excitement. In the late 1970s the United States was on the heels of an oil embargo, and facing massive inflationary pressures. To help combat inflation, the U.S. Federal Reserve tightened the money supply shooting interest rates through the roof.

Of course, there's a downside to high interest rates when, say, you're looking to buy a house.

Housing traditionally has been the most stable hedge against inflation. Assuming the house is liquid after the round, it appreciates at a rate at or near par with inflation. When interest rates go through the roof, however, it suddenly becomes wholly impractical to buy a house. Few can afford to secure credit at such an astronomically high cost, nor should they.

When real estate becomes impractical to buy, we see a rush to gold. From 1976 to 1980, gold appreciated by roughly 700%, far out of line with long-term inflationary pressures.

Current conditions in real estate and the economy in general have left the market in much the same condition as in the late 1970s. We're facing stagflation as we were in the late '70s, and we're hesitant or unable to buy real estate, just as we were in the late '70s. Gold has appreciated as it did in the late '70s. And sooner or later, as logic has it, the bubble will burst just as it did in the early 1980s.

What to Look For Just Before The End of The Bubble It's important to realize this bubble burst will happen in stages that depend more on group dynamics than on pure valuation theories.

First, we'll have to see either the restoration in value of the preferred holding for inflationary concerns (like real estate), or the creation of an alternative holding. In short, the money that's tied up in the gold is going to have to be put somewhere else. Moreover, people are going to have to want to put it somewhere else.

Second, we'll have the "fall-guy," or the first of fall guys. It will be something seemingly innocuous: An analyst at one firm calls another analyst's recommendation to buy gold, silver, or platinum "ill advised," and will go on to explain that the commodity is over-invested, simultaneously hocking the alternative store for value. At first, the mainstream will shun the analyst, but other analysts will soon join rank and a full out media blitz will ensue.

Finally, we'll see the sell-off.

Protecting Yourself from a Sell-OffThe downside of bubbles can happen pretty quickly, and being the last person out can mean losing everything. But if you're smart about how you structure your entry and exit, you can make a small fortune from the collapse.

It may sound cliché, but remember to buy the rumor and sell the news. When you see the news on gold start to head south, it's time to consider a change in strategy. It's infinitely better that you capture your gains near the top and miss out on a little upside, than inadvertently give back earnings and not be able to exit cleanly.

If you insist on holding on to your long position through the down news cycle, hedge your position by buying put options. Puts will allow you to hold on to your gains for a modest price. You'll pay a premium to the market, and as a result, you can lock in your gain if you want. If gold decides to take a dive, you can exercise your option and deliver your long shares at the pre-negotiated contract price, or close the put with a call. If gold rebounds through the news, you can choose not to do anything.

Finally, if you're just now investing in gold, take positions that you can easily close.

If you're scared of getting stuck behind a massive sell-off, don't be afraid to buy the calls instead. You can always close out your call and take the earnings before the expiration date. Look for smaller exchange-traded funds (ETFs) that trade at a fraction of the price if you don't have the capital to drop on the larger investments. The percentage gains will stay the same, but you won't have to deal with the massive options premiums. The downside of buying more, cheaper ETFs is dealing with the higher trade commissions. Be sure you weigh your cost of entry.

Capture the DownsideIf you're not looking to profit on the downside of a market, you're only considering half of the picture. While betting on the downside requires twice the amount of research, you stand to make twice as much money. When things start to go south, look at these strategies:

First, buy more puts.

Puts become more and more valuable the closer to zero, and farther from strike, the underlying instrument goes. It's important to try to beat the market to the punch when trying to time the purchase of derivatives, though. Smart people write those contracts; they're not in this to lose money. If you wait too long, be ready to pay a premium.

There are two great places to buy puts on the downside of gold:

  • Companies that produce gold.
Companies that produce gold may see a drop in their underlying equity prices as valuations on the companies themselves return to their pre-bubble level. As a result, if you can time the derivative contract at-or-near the stock's high, you could make a pretty penny.

  • Gold ETFs.
Gold ETFs are highly traded, and generally very liquid. People are in gold to make money, and as a result, the derivatives traders keep a close eye on expectations. If you can beat them to the punch, however, you should capture some, if not all, of the downside.

You might also go long on ETFs that short gold.

A reasonable, and often advised, alternative to investing in options yourself is to let someone else do it for you: You can go long on inverse ETFs and exchange-traded notes (ETNs) that are designed to short in a market.

Great examples of these include the PowerShares DB Gold Short ETN (NYSE: DGZ), which mimics a single leveraged short position, and the PowerShares DB Gold Double Short ETN (NYSE: DZZ), which seeks to double the expected gain from a short position.

[Editor's Note: Amos Richards is a former IT professional, who helped with the startup of two middle market Internet companies before attending college. After graduating from the University of Arkansas's Walton College of Business with a Bachelor of Science (BSBA) degree in Economics, Richards worked for A.G. Edwards and Wachovia Corp., which is now a division of Wells Fargo & Co.]

Apple: S&P Upgrades Shares to Strong Buy

Apple (AAPL) shares are now down 11% from the April 26 high and that’s spurred Standard & Poor’s Equity Research to upgrade the stock to Strong Buy from Buy. Analyst Clyde Montevirgen writes this afternoon that strong iPad sales, a resurgence of the iMac line, and a possible iPod refresh offers greater visibility for his projections.

“Although shares may be impacted by market sentiment, we see above-peer growth in the fast-growing smartphone and notebook markets as a compelling theme that should drive share prices higher,” Montevirgen says.

He has a price target of $300 for the stock.

Apple shares are down 2.3%, or $5.65, today to $242.69.