Uncategorized

Market Preview: Alibaba, Gap, and Foot Locker Earnings, and an Early Look at PMI Numbers

The markets took the news that two of President Trump’s former staffers had been found guilty of several crimes in stride Wednesday. Though the news has been fodder for the pundits, thus far the markets have focused more on a great earnings quarter. Indices are daily flirting with new highs. News that a NAFTA deal with Mexico may be imminent, and the start of trade negotiations with China, are not hurting this juggernaut of a market either.

Thursday the market will see earnings from Alibaba (BABA) before the open, and the heavy retail earnings week continues after the close when Gap (GPS) reports. Alibaba is expected to give a good report on its core business, but those earnings are being overshadowed by spending to expand in bricks-and-mortar retail. Given the blowout earnings from companies like Target (TGT) and Walmart (WMT) investors may be in a forgiving mood to see the Chinese company putting more effort into physical stores. Inventory issues hampered Gap in the first quarter, but analysts expect those issues to be resolved this quarter. After great numbers from other retailers, Gap is expected to deliver an upbeat report. Analysts will be looking for continued strength in the Old Navy brand, as store openings have accelerated due to strong demand.

Thursday’s economic calendar is heavily loaded with the FHFA House Price Index and new home sales data released in the morning. Prices were down and supply was up in June, which analysts believe will bode well for the July report, after buyers have been reporting a dearth of available inventory. Both numbers are expected to rise slightly. Also released on Thursday are weekly jobless claims and the PMI Flash Index. The PMI number has been running up against capacity constraints, and analysts will be listening for anecdotal information from the flash number which is released 10 days before the final report. Thursday also marks the beginning of the Jackson Hole Annual Economic Symposium which often brings market moving commentary from its participants. Durable goods orders will be released Friday morning. The street is expecting a pullback in orders overall, but this is due to a dip in aircraft numbers. Ex-transportation analysts are expecting a .5% increase.

As it is a late Friday in August, only six companies are reporting earnings Friday morning. Among the group are Foot Locker (FL) and Hibbett Sports (HIBB). Analysts are looking for a continuation of improving numbers at the retail shoe chain. Foot Locker has been benefiting from an improved product offering mix from big names like Nike (NKE). FL is not expected to slip as its comeback continues. Although same-store sales and earnings dipped slightly at Hibbett last quarter, the small-town sports store is expected to recover this quarter. Analysts will be looking for increased traffic, and listening for commentary for how the economic recovery is fairing in small town America.

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Uncategorized

Should You Buy During The Stock Market’s August Angst?

Once again, stock market jitters worldwide have emerged in August when trading desks are thinly manned with junior staff. This year, the worries emanated from the self-inflicted economic woes in Turkey brought on by its leader, President Recip Tayyip Erdogan.

He thinks he knows more than markets and has taken full control of the Turkish economy. Even though its economy needs much higher interest rates and tough austerity measures, he will not hear of that and is leading his country down the path of Venezuela toward economic oblivion.

Turkey’s troubles then spread to much of the emerging world even though many countries hit by selling (by those junior staffers) have solid fundamentals. I cover all the details for you in an article that will appear on Monday at the Investors Alley website.

Why do I say the selloff in emerging markets was not justified? Because Turkey is ‘small potatoes’.

The country is not a significant player in the global economy. Last year its GDP was $900 billion, or about 1% of global GDP at market exchange rates. And when it comes to foreign exposure to Turkish assets, the impact is equally limited. Non-residents hold 20% of Turkey’s equity market, which has a market capitalization less than 2% the size of the U.K. stock market. In terms of debt, foreigners hold about 40% of Turkish government bonds – and Turkey’s public debt is quite low, at 30% of its GDP.

There’s been much talk about the exposure of certain European banks to Turkey. But even there, the exposure is quite limited. Of the Eurozone’s roughly €175bn claims on Turkish assets, Spanish banks have the largest exposure, with one of the country’s biggest, BBVA, having the most at risk. French and Italian banks are next, a very distant second. Korea barely slides into the top ten, and no other Asian country has any significant exposure to Turkey.

Market Effects

Emerging market stocks last Wednesday that their worst day in six months, sending the FTSE Emerging Index to a decline of more than 20% from its January 26 peak – a classic definition of a bear market.

The decline was exacerbated by a plunge in one of China’s tech giants, Tencent, as pressure from the Chinese government on video games and e-sports led to the company reporting its first quarterly drop in profits in over a decade.

The selloff also spread to developed markets on Wednesday, with Wall Street experiencing its steep decline since late June. And more importantly, a widely watched measure of the yield curve briefly dipped to a new decade low on Wednesday morning, as the fallout from Turkey’s escalating economic crisis ricocheted around the world.

The difference between two- and 10-year yields on U.S. Treasuries dropped to only 23.4 basis points. That was below its previous low of 23.6 basis points reached in mid-July. This spread is important because of its reliability as an economic indicator. It has turned negative, with the yield curve inverting, before every recession of the past 50 years.

Related: Buy These ETFs Setting Up for Profit’s from a Strong U.S. Dollar

Markets did stabilize and enjoy a robust rally on Thursday though after word that the U.S. and China are to resume formal trade talks in late August.

Time to Play Defense?

One interesting item I want to bring to your attention has been happening even before the Turkish turmoil. . .that is that investors around the world have turned more defensive. Some investors seem to be bracing themselves for some sort of economic slowdown or financial stress.

That can be seen in the recent outperformance of healthcare stocks. Globally, healthcare stocks have outperformed the technology sector to the greatest extent since mid-2016. Healthcare stocks have gained 8.5% in the three months through mid-August, according to data from Thomson Reuters. In comparison, the former leaders – global tech stocks –  rose only 4.1%. This is a classic sign of portfolio re-positioning to a more defensive posture.

This is good news if you’re invested in the sector. I’ve seen in my personal portfolio some European healthcare stock ADRs that have hit all-time highs recently.

Related: Dump These Healthcare Stocks Getting Amazoned

It looks like prolonged trade war talk is unfortunately slowing the global economy. “We are seeing a lot of leading indicators already starting to turn down; year-on-year trade growth is now decelerating quite rapidly and we are starting to see a rotation within markets,” said Ian Harnett, chief strategist at Absolute Strategy Research to the Financial Times.

And indeed, the rate of growth in world trade is slowing. The volume of world trade increased a mere 0.4% in the six months to May, according to the latest figures from CPB, the Netherlands Bureau for Economic Policy Analysis — down month on month from 2.8%. It was the slowest growth rate since the six months to October 2016.

Hints of slowing can be seen here in the U.S. too, if you know where to look. If the economy starts to grow more slowly, the impact will show up first in the price of refined fuels such as road diesel, marine gasoil and jet fuel that play a central role in the freight transport system.

These middle distillate fuels are principally burned in the high-powered engines used in trucks, ships, railroads, barges and aircraft to move freight around the world, as well as in factories, on farms and at mines and oilfields. Mid-distillates actually account for more than a third of the oil used around the world every day, and are the single-largest category of refined products.

In other words, distillate fuels are closely correlated with the global economic and trade cycle, and at the moment they confirm other indications the rate of growth is slowing. Even here in the U.S., distillate stocks, which had been drawing down faster than usual during the first four months of 2018, have now been building faster than normal since late May.

Even the mighty U.S. tech sector could become more and more vulnerable to the rising geopolitical and trade tensions. As Mr. Hartnett said to the Financial Times, “Trade wars could morph into tech wars, with a lot more talk about the tech sector and whether the U.S. administration will remain relaxed about how tech companies are fostering the globalization that it seems Trump is looking to reverse.”

Even if that doesn’t happen, I will be looking for more high-quality companies in the healthcare sector to add to the Growth Stock Advisor portfolio in the months ahead. In the meantime, stay tuned for more volatility – the historically volatile period of August, September and October is far from over.

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Pot Stocks

5 Marijuana Stocks to Watch

Source: Shutterstock

To be honest, I’m not entirely thrilled about investing in marijuana stocks at the moment. Movement toward legalization at the state level in the United States and at the national level in Canada has sent a number of pot stocks soaring. But not all marijuana stocks necessarily are going to be winners. The sector may not be an outright bubble — yet — but there’s certainly a case that rising marijuana-related optimism has lifted all boats, including several that have some leaks.

As is so often the case in “hot” sectors, investors need to focus on quality stocks and the best companies. These five marijuana stocks offer ownership in companies that at least have proven their ability to drive revenue growth and have a coherent, solid plan for future profits.

Valuations are generally high across the space, and these stocks are not immune to that trend. But all at least have a chance to grow into those valuations — and don’t have the questionable business models or tactics of some of the smaller operators that have sprung up over the past couple of years.

5 Marijuana Stocks to Watch: GW Pharmaceuticals (GWPH)

5 Marijuana Stocks to Watch: GW Pharmaceuticals (GWPH)

GW Pharmaceuticals (NASDAQ:GWPH) might not be considered a marijuana stock by some investors. Rather, GW really is a biopharmaceutical company whose lead product happens to be derived from cannabinoids — a compound found in the marijuana plant.

That said, GW is a real biopharmaceutical company with a very attractive pipeline. Initial products such as Epidiolex and Sativex are used to treat epilepsy and spasticity caused by multiple sclerosis. And the growing acceptance of medical — and even recreational — marijuana likely will help GWPH longer term.

More patients will be willing to try marijuana-derived drugs, particularly as GW expands its indications. In the U.S., marijuana’s inclusion as a “Schedule 1” recreational drug still creates regulatory hurdles for the company. And down the line, the headline risk of an acquisition by a company like Pfizer (NYSE:PFE) or Merck (NYSE:MRK) would seem to be lessened as marijuana’s reputation turns from “evil” to “helpful.”

GWPH remains a high-risk play, like most early stage drug companies. Profits remain negative, and will remain so for several years. But GW Pharmaceuticals also has real promise — and an intriguing pipeline.

5 Marijuana Stocks to Watch: Canopy Growth (CGC)

5 Marijuana Stocks to Watch: Canopy Growth (CGC)

Source: Shutterstock

Canopy Growth (NYSE:CGC) has changed the recreational marijuana sector. In May, it became the first marijuana pure-play to be listed on the New York Stock Exchange. Last week, a major deal gave the entire industry a new level of credibility. Constellation Brands (NYSE:STZ, NYSE:STZ.B) — owner of Corona and Modelo beer, Svedka vodka, and other wine & spirits brands — is investing some $4 billion into CGC for a 38% stake in the company.

CGC shares soared on the news and have kept gaining, reaching a new all-time high on Monday. The only concern at this point is valuation. Canopy obviously has a huge growth opportunity in front of it, as Dana Blankenhorn detailed last month. But valuation is simply huge: at a market cap around $8 billion, CGC is trading at something like 170x trailing-12-month revenue.

If Canopy turns out to be a dominant wholesaler and retailer of marijuana, the current price could be cheap. But CGC is not a stock for the faint of heart. Indeed, few marijuana stocks are.

5 Marijuana Stocks to Watch: Tilray (TLRY)

5 Marijuana Stocks to Watch: Tilray (TLRY)

Source: Shutterstock

Canadian producer Tilray (NASDAQ:TLRY) went public last month. Soon after the IPO, I wrote that TLRY stock looked overvalued — and that it probably didn’t matter.

Indeed, TLRY has continued to push higher after initially falling back. Citron Research — better known as a short-selling firm — helped stoke the rally last week. In the wake of the Constellation-Canopy deal, Citron cited a $45 price target for TLRY — still 25% above Monday’s close (and an all-time high).

Here, too, valuation is a concern. TLRY trades at over 100x sales. But I might actually like Tilray’s business model more than that of Canopy. The company already produces medicinal marijuana for customers in ten countries. According to its prospectus, it was the first company to export marijuana (legally) from North America. It has a pharmaceutical partnership with Novartis(NYSE:NVS), and is moving quickly and heavily into the recreational space.

Tilary has a solid “first mover advantage” and a huge opportunity. I’d still worry about the stock price and margins: this is an old-line manufacturer at the end of the day, not a high-flying tech stock. But for investors who see the Canadian market as a multi-billion-dollar opportunity, TLRY is one of the better plays.

5 Marijuana Stocks to Watch: Cronos (CRON)

5 Marijuana Stocks to Watch: Cronos (CRON)

Source: Shutterstock

Cronos Group (NASDAQ:CRON) is another manufacturer with a nosebleed valuation. CRON has a market cap over $1 billion — and generated around US$3 million in revenue in its second quarter.

Admittedly, that figure rose 430% year-over-year, so there is some reason for optimism here. Cronos’ smaller size could make it a takeover target down the line, with Canopy off the table for now and Tilray perhaps looking to go it alone. Molson Coors (NYSE:TAP) has been looking for a deal in the space, and recently set up a joint venture for cannabis-infused beverages. It could theoretically be a suitor as well.

From here, CRON looks stretched, even by the standards of the sector at the moment. But with huge growth and a perhaps lower profile than the leaders, the company does have time and potential to one of the best, if not the best, performers in the space.

5 Marijuana Stocks to Watch: Scotts Miracle-Gro (SMG)

5 Marijuana Stocks to Watch: Scotts Miracle-Gro (SMG)

Source: Shutterstock

Unlike seemingly every other stock even tangentially related to marijuana, Scotts Miracle-Gro(NYSE:SMG) has struggled in 2017. SMG shares are down 27% so far this year, and hit a nearly two-year low earlier this month before a recent bounce.

But SMG still represents an intriguing “picks and shovels” play for the marijuana gold rush. The company’s Hawthorne Gardening unit targets the cannabis industry, and is acquiring Sunshine Supply to accelerate its growth and scale. Unfortunately, performance hasn’t been great of late, leading Scotts Miracle-Gro CEO Jim Hagedorn to unleash an expletive-filled tirade on his company’s fiscal Q3 conference call.

That said, as Will Healy pointed out, the long-term opportunity remains intact. SMG isn’t exactly cheap — but it’s certainly cheaper, and at 18x forward EPS cheap enough for investors to have some patience. (A 2.7% dividend yield helps as well.) Growth investors likely will go for the headline manufacturing stocks, but value investors seeking a back door to marijuana growth should take a long look at SMG.

As of this writing, Vince Martin has no positions in any securities mentioned.

Source: Investor Place 

Dividends

4 Unstoppable Megatrend Stocks to Buy Now (and 2 to Avoid)

You’ve no doubt seen tons of articles splashed across the Web (over)hyping the hottest investing trends to jump on now. But which promising technologies can we actually tap for payouts and dividends (preferably today)?

The “mainstream” list is endless: cryptocurrencies, marijuana stocks—even gene editing (where the white coats actually alter DNA to wipe out diseases like cystic fibrosis).

I hope you’re not taking the bait, because gambling on shaky themes like these can put a huge dent in your nest egg. Check out the stomach-churning ride pot stock Aurora Cannabis (ACBFF) has been on this year:

Aurora’s Bad Trip

That nasty fall even includes a 19% gain last week after Constellation Brands (STZ) invested $5 billion in Canopy Growth (CGC), the biggest marijuana stock by market cap.

And don’t even get me started on Bitcoin!

Bitcoin Crushes Retirement Dreams

Of course, we know neither of these wagers will put dividend cash in our pockets.

Big-Picture Thinking Is Key

That’s why, if you want to profit from huge trends remaking society, you need to zero in on megatrends like exploding energy demand, surging online shopping and retiring baby boomers. Shifts like these will power our price gains and dividends (with yields up to 9.2%, as I’ll show you below)—for decades.

Today we’re going to dive into 4 of these megatrends, plus my 4 top stock picks for cashing in on each one, starting with…

The Megatrend: The Web Beats Brick and Mortar

If you watch CNBC, you’ve may have heard Mad Money host Jim Cramer preach about the stay-at-home economy, where more folks entertain themselves, shop and order meals from home instead of going out.

And he’s right.

You only need to look at the sales of Netflix (NFLX), in blue below, and Amazon.com (AMZN), in red, over the last five years compared to their brick-and-mortar counterparts, AMC Entertainment Holdings (AMC) and Wal-Mart (WMT).

Online Sellers Pull Ahead

Too bad many of Cramer’s top “stay-at-home” stocks, like Take-Two Interactive Software (TTWO) and ConAgra Brands (CAG)—the latter due to its frozen-food business—pay low (or no) dividends. Heck, CAG even recently cut its payout!

CAG’s Stale Dividend

That’s far from the case for my favorite way to play this trend.

The Stock: Duke Realty

Imagine being Amazon’s landlord—collecting rent as the e-commerce giant spreads across the world … filling your warehouses as it does.

Well, imagine no more, because you can start (indirectly) collecting those checks through Duke Realty (DRE), a 46-year-old real estate investment trust (REIT) with 499 warehouses in 20 markets.

Amazon is Duke’s No. 1 tenant, and the REIT knows its best customer well, having worked with the online retailer for more than a decade:

A “Prime” E-Commerce Play

Source: Duke Realty NAREIT REIT Week Presentation

You are only getting a 2.8% dividend yield here, but Duke has been raising the payout in recent years and handed shareholders a nice $0.85 special dividend last December, after unloading its medical-office business.

That was a canny move that frees up management to smoke out more opportunities in its core warehouse operation.

The payout was the second special dividend in three years—and Duke can do much more, with the regular dividend eating up just 52% of funds from operations (FFO, the REIT equivalent of earnings per share), a very low ratio for a REIT.

Finally, Duke trades at 21.7-times the midpoint of management’s just-boosted 2018 FFO forecast. That’s still a decent level for a company that truly is Amazon’s landlord. You won’t find a more direct tie to the online shopping megatrend than that—and it will light up Duke’s share price and dividend for decades to come.

The Megatrend: Aging Baby Boomers

No matter what happens with the Affordable Care Act, we can be sure of one thing: healthcare spending will keep spiking higher. There’s no other way for it to go!

According to recent numbers from the Centers for Medicaid and Medicare Services, the nation will spend 5.5% more on healthcare every year through 2026. By then, we’ll be dropping $5.6 trillion on it annually.

Much of that rise will come from huge increases in costs for Medicare (up 7.4% annually) and Medicaid (up 5.8% a year). I don’t have to tell you who’s driving that increase: boomers, 10,000 of whom are turning 65 every day.

The Stock: Physicians Realty Trust

Our play to watch on retiring boomers is Physicians Realty Trust (DOC), which has 249 medical-office buildings, almost all of which (96%) are rented out to doctors, hospitals and healthcare systems.

One thing I love about DOC is its long tenant list, with no one client chipping in more than 6% of annualized base rent. That means the REIT avoids getting stuck with a big, trouble-prone tenant, a problem that’s beggared healthcare REITs in the past.

Here’s another plus: its tenants specialize in the services elderly folks need most, like orthopedic surgery and oncology, so you can bet its buildings will stay full.

Which brings me to the trust’s dividend, which clocks in at a gaudy 5.5%. And before you ask, yes, that payout is safe, accounting for a manageable (especially for a well-run REIT like DOC) 86% of FFO.

The real kicker is that you can buy in at just 16-times FFO. That’s a smoking deal, given DOC’s top-notch portfolio, price upside from the “gray wave” that’s surging our way, and it’s superb 5.5% dividend.

The Megatrend: Soaring Energy Demand

The strong global economy is goosing energy use, with demand rising 2.1% last year, doubling 2016’s rate, according to the International Energy Association.

All sources of power saw higher demand: coal, natural gas, oil and renewables. And that trend will continue: the US Energy Information Administration sees global energy demand spiking 28% by 2040.

The Stock: Duff & Phelps Global Utility Fund

Our play here is the Duff & Phelps Global Utility Fund (DPG), a closed-end fund (CEF) that owns major US utilities like NextEra Energy (NEE) and Enterprise Products Partners (EPD), along with big global names like French electric utility ENGIE (ENGI) and Canadian telecom BCE (BCE).

Two numbers stick out here. The first is DPG’s outsized 9.2% dividend, which is as consistent as they come.

A Retirement-Friendly Payout

Source: CEFConnect.com

The other? DPG trades at a ridiculous 10.1% discount to net asset value (NAV). That’s another way of saying that its market price is lagging the value of its portfolio by 10.1%. And since this fund has traded at narrower discounts (and even premiums) in the past, we can expect price upside as that markdown narrows.

But even if it stays where it is, you’re still getting 9.2% every year in cash. That discount also helps steady the dividend. Because while DPG’s yield on market price is 9.2%, its yield on NAV is 8.2%, a figure that’s easier for management to cover with investment returns.

The Megatrend: US Economic Growth

Finally, while I’d never go as far as to say recessions are a thing of the past, as my colleague Michael Foster recently reported, US economic numbers are sparkling. And I’m betting we’ve got plenty of room to run.

To wit:

  • The economy grew 4.1% in the second quarter, the fastest since 2014.
  • The unemployment rate fell to 3.9%, near 18-year lows.
  • According to FactSet, 73% of S&P 500 companies are reporting second-quarter sales that top analysts’ expectations.

So we’re going to bet on the roaring economy with a fund that gives us “one-click” exposure to the picks of one Warren E. Buffett.

The Stock: Boulder Growth & Income Fund

You won’t find a bigger cheerleader for America’s economy than Buffett, and that

shows up in the stock portfolio of Berkshire Hathaway (BRK.A), which is riddled with US success stories like Apple (AAPL), Costco Wholesale (COST) and Johnson & Johnson (JNJ).

And thanks to a CEF called the Boulder Growth & Income Fund (BIF), you can get access to Berkshire itself and Buffett’s top picks, while pocketing a 3.7% dividend—more than twice the payout on the average S&P 500 stock.

The best part: BIF is far cheaper than it should be, trading at a 15% discount to NAV, which basically means you can buy every dollar of the shares BIF holds for 85 cents.

As with DPG, that markdown builds in price upside as it erodes away, as it’s been steadily doing for more than two years.

Investors Slowly Catch on to BIF

That narrowing markdown has helped BIF crush the market as a whole.

Shrinking Discount Slingshots BIF Higher

The bottom line?

I expect BIF’s discount to keep narrowing (and its outperformance to continue) as the US economy rolls on and more folks realize how easy it is to double their dividends by swapping their miserly blue chips for this Buffett-friendly fund.

That means your buy window is still open—but it may not be for long.

Yours Now: An Entire 19-Stock Portfolio With Safe Cash Payouts Up to 10.4%

As I showed you above, REITs and CEFs are the solution to your income worries if you feel trapped “grinding out” dividend income with the pathetic sub-2% payouts paid by your typical stock.

And the great thing—as you can see with BIF and DPG—is that you can often make the switch to these cash-rich dividend buys without actually switching investments!

$40,000 in Income on $500k

I’ve got 6 more life-changing dividend plays to give you—all REITs and CEFs—that tap into the same bulletproof trends as the 4 picks above, with one crucial difference:

I’ve hand-picked these 6 dividend powerhouses to give you a steady $40,000 a year in income on a $500k nest egg! That’s an 8% average yield—and it’s why I call this my “8% No-Withdrawal Portfolio.” I can’t wait to show it to you.

That’s not all, either.

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I want to send all 19 of these cash-rich plays your way, too. This latest issue just went out to members a few days ago, and your copy is waiting for you now.

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!

Source: Contrarian Outlook 

Market Preview

Market Preview:Earnings from TJX, Kohl’s and Target, Mixed with Housing Numbers Mid-week

With the S&P 500 trading near record highs set at the beginning of the year, the market rallied further on Monday. Much of the action was based on a glimmer of hope in the U.S. / China trade war. Low-level officials began negotiations on what investors hope will be the genesis of a solution to tariff escalations on both sides.  Shares of Tesla battled back into positive territory at over $308 after Mr. Musk’s beleaguered company briefly dropped below $290 early in the session. Doubts are rising that the electric car company can be taken private, and a consensus is starting to build that the outspoken CEO should either step down or take a leave of absence to give the stock time to settle.

After Estee Lauder’s (EL) strong report Monday morning, investors will be looking for more strong numbers as the retail earnings parade continues this week. Tuesday analysts will parse earnings from both TJX Companies (TJX) and Kohl’s Corporation (KSS). Kohl’s grew same-store sales 3.6% last quarter but gave guidance for a flat Q2. Analysts will be looking for the clothing and home goods retailer to control inventory to drive earnings growth. With strong reported U.S. retail sales in clothing and clothing accessories, both TJX and Kohl’s could pleasantly surprise investors with earnings beats this quarter.

Tuesday investors will get to compare their favorite retailer’s earnings with the Redbook retail sales numbers. The report tracks comparable store sales at chain stores, discounters and department stores. Year-over-year retail sales are expected to rise 4.5%. On Wednesday analysts will take a short break from retail sales and focus on housing data. Wednesday morning existing home sales for July are expected to be a slight improvement over the June release. New mortgage application numbers will also be released. Analysts are trying to get a handle on how housing will impact the economy in the second half of the year, and these numbers may provide some direction. Also released on Wednesday afternoon will be the minutes from the last FOMC meeting. Investors do not expect any surprises as the Fed has been telegraphing its moves in a straightforward manner this year.

Wednesday earnings include numbers from Lowe’s (LOW) and Target (TGT). Investors will be focused on comparable store sales at Lowe’s after Home Depot (HD) blew this number out of the water earlier this earnings season. Both stores indicated that buyers were purchasing spring items later than usual this year, leading to more sales in Q2 than usual. Analysts will be expecting good numbers from new CEO Marvin Ellison. The market is also expecting positive news from Target which is trading near multi-year highs. Analysts will be looking to see if in-store traffic continued to accelerate at the same torrid pace as last quarter, or if this number is flattening. Anything less than a blowout quarter will be disappointing.

Pay Your Bills for LIFE with These Dividend Stocks

Get your hands on my most comprehensive, step-by-step dividend plan yet. In just a few minutes, you will have a 36-month road map that could generate $4,804 (or more!) per month for life. It's the perfect supplement to Social Security and works even if the stock market tanks. Over 6,500 retirement investors have already followed the recommendations I've laid out.

Click here for complete details to start your plan today.
ETF

Buy These ETFs Setting Up Profits from a Strong Dollar

August – a month with many market participants on vacation – is well known for its bouts of volatility and markets in a tizzy about things not so important.

This year is holding to form with a selloff triggered by worries that turmoil in Turkey – mainly caused by a steep fall in its currency – will spill over into more important emerging markets and then eventually developed markets.

But as usual with August angst, it is much ado about nothing and it merely offers you an opportunity to pick up stocks on sale in some of the better emerging markets. More on that later. First, I want to give you a quick look at Turkey.

Turkey Tantrum

The crisis in Turkish markets was triggered by the geopolitical standoff between the U.S. and Turkey, or more specifically, its leader – President Recip Tayyip Erdogan.

A leader I might add that believes he knows better than the markets and has taken full control of the economy. Turkey needs much higher interest rates and tough austerity measures, but he will not hear of that. So he leads his country down the path of Venezuela toward economic oblivion.

Even with that said, the contagion effects emanating from Turkey are very limited. The sell-off we’ve seen in most other emerging markets is not justified by the fundamentals. First, Turkey is not a significant player in the global economy. Last year its GDP was $900 billion, or about 1% of global GDP at market exchange rates. And when it comes to foreign exposure to Turkish assets, the impact is equally limited. Non-residents hold 20% of Turkey’s equity market, which has a market capitalization less than 2% the size of the U.K. stock market. In terms of debt, foreigners hold about 40% of Turkish government bonds – and Turkey’s public debt is quite low, at only 30% of its GDP.

There’s been much talk about the exposure of certain European banks to Turkey. But even there, the exposure is quite limited. Of the Eurozone’s roughly €175bn claims on Turkish assets, Spanish banks have the largest exposure, with one of the country’s biggest, BBVA, having the most at risk. French and Italian banks are next, a very distant second. Korea barely slides into the top ten, and no other Asian country has any significant exposure to Turkey.

But what about those other emerging markets that the talking heads on CNBC (that know little about Ems) are worried about? The most exposed will be the countries that lack sound and coherent fiscal and economic policies. And there are several of those…

Brazil, faces a very contentious election this autumn and looks particularly at risk. South Africa has a highly respected finance minister and central bank, but faces doubts over its determination to stick to economic orthodoxy. Russia will be helped by the credibility its central bank gained through its handling of the 2014 rouble crisis, but is hampered by unpredictable U.S. sanctions policy. Another problem area is countries that have high non-bank dollar-denominated debt. And here Chile, Mexico and Malaysia all are worrisome.

But all of this does NOT mean that this is not a great time for you to invest into some other emerging markets.

Emerging Markets Are Fast-Growing, Cheap Markets

Especially since the Turkey tantrum has made them very cheap relative to a very expensive U.S. stock market without really changing their strong fundamental story.

According to the highly respected stock market research firm, Research Affiliates, the cyclically adjusted earnings multiple of the MSCI EM index is now 13.7, putting it in the 25th percentile. In other words, emerging stocks have been more expensive than they are now 75% of the time. In comparison, U.S. stocks trade at a cyclically adjusted multiple of 31.9, putting it in the 97th percentile. That means U.S. stocks have only been more expensive than now 3% of the time in history.

Let’s look too at some valuation metrics – price-to-book, price-to-sales, and price-to-earnings. For the U.S., the numbers are 3.3, 2.1 and 21.7 respectively. For Hong Kong, the numbers are 1.6, 2.1 and 14.2 respectively and for South Korea, the numbers are 1.0, 0.7 and 10.3 respectively. The markets that are relatively cheap are pretty obvious.

You may wonder why I’m emphasizing valuations measures? It’s because these measures, such as CAPE (cyclically adjusted price-to-earnings ratio), are often a good indicator of coming outperformance.

For example, the 10 cheapest stock markets at the end of 2016 returned an average of 29.5% in 2017. That outpaced the return from the 10 most expensive markets of 23.4% and the S&P 500 return of 21%. And the 10 cheapest stock markets at the end of 2015 returned 19% in 2016 while the 10 most expensive markets actually declined by 1%.

As far as economic growth goes, there is no comparison between developing countries like China and India when compared to developed nations like the U.S. The percentage increase (in dollar terms) for the GDP between 2002 and 2017 for China is 713% and for India, 398%. In comparison, the U.S. economy only grew by the same as Germany – 76%, and below Canada’s 118%.

And for stock market performances, there really is no comparison. For the G7 major economic powers, the average stock market gain over the period from 2002 has been nearly 200%. But if you look at the markets contained in the Shanghai Cooperation Organization countries – China, Russia, India, Pakistan and other smaller countries, the stock market gain has averaged about 1,500% in the same time period.

These are just some of the reasons I have always been an investor in emerging markets.

Where to Invest

I’ve already mentioned to you places in the developing world to avoid such as Turkey, Russia, South Africa, Brazil and Mexico. But what about the places where I would invest?

For that, you have to look at Asia. And here’s why…

For decades, the U.S. was far and away the biggest driver of growth in global GDP. But today, the lion’s share of global growth is coming from emerging Asia. Consider this data from the investment firm KKR…

It says that the U.S. share of contribution to global real GDP will fall from 25% in the 1992 to 2000 period, to just 9% in the 2010 to 2020 period. Meanwhile, China’s contribution will jump from just 20% in the 1992 to 2000 period, to 34% in the 2010 to 2020 period. And for Asia as a whole, the number leaps from 43% in the 1992 to 2000 period to an impressive 62% in the 2010 to 2020 period.

That’s where I want to be as a long-term investor – where the growth is.

There a number of individual stocks that are and will continue to benefit from the economic growth across Asia. But for now, let me just cover broad ways to participate in that growth through ETFs.

The first ETF is one that I personally own – the WisdomTree China ex-State-Owned Enterprises Fund (Nasdaq: CXSE). The top three positions in the fund, comprising about a third of the portfolio, are the most well-known Chinese companies – Alibaba (NYSE: BABA), Tencent Holdings (OTC: TCEHY) and Ping An Insurance Group (OTC: PNGAY). With the recent selloff in China, the fund is down 19% year-to-date and 3% over the past year.

For India, an ETF to consider is the Columbia India Consumer ETF (NYSE: INCO). This is down 8% year-to-date, but is still up 7% over the last year. Its top three positions include local subsidiaries of well-known consumer brands – Nestle India and Hindustan Unilever. Number three is perhaps India’s best-known food company, Britannia Industries.

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Source: Investors Alley

Dividends, Energy

3 High Yield, High Growth Clean Energy Stocks to Jump on Now

Although the rate of growth has slowed, developing and operating renewable energy facilities remains on a growth trajectory. A more moderate pace will allow the industry to better sustain growth over an extended number of years. Developers of renewable energy projects use high-yield business structures as the final owners of the projects. The pass-through renewable energy companies provide the capital for development and investors receive attractive dividend streams.

The chart below recently published by the U.S. Energy Information Agency (EIA) shows the agencies short-term forecast for renewable energy supplies through 2019. You can see that new solar and wind energy sources will continue to be develop and go online at a steady pace. Longer term, there are forecasts for continue growth in renewable energy sources through 2050.

After a renewable energy project is up and running, the generated power is typically sold through long term contracts. This ensures the project will generate a return on the capital invested. There are a handful of public companies that focus on owning renewable energy assets and paying attractive dividends to investors. Here are three to consider.

NRG Yield Inc. (NYSE: NYLD) owns a nationally diverse portfolio of conventional, solar, thermal, wind, and natural gas electricity production assets. The company was spun out in 2012 by NRG Energy (NYSE: NRG), a regulated electric utility company. Renewable energy assets developed by NRG were sold to NYLD to support the growth of NYLD.

Currently, the controlling sponsor interest in NYLD is being acquired by Global Infrastructure Partners. Along with control of NYLD, Global will purchase NRG Renewables 6.4 GW project backlog. This means the NYLD double digit per year dividend growth story will continue.

The shares yield 6.5%.

Enviva Partners, LP (NYSE: EVA) is a publicly traded master limited partnership (MLP) that takes a different type of natural resource, wood fiber, and processes it into a transportable form, wood pellets. The pellets are sold on long term contracts to companies in the UK and Europe where they are burned to produce electricity.

Enviva owns six processing plants that can produce three million metric tons of pellets per year. The company also owns the marine terminals used to export pellets. Enviva has increased its distribution every quarter over the three years since its IPO.

EVA currently yields 8.2%.

Pattern Energy Group (Nasdaq: PEGI) owns and operates wind and solar power generating assets in the U.S., Canada and Japan. The company currently owns 25 facilities that can generate 2,862 MW of power. There are nine projects in the development pipeline.

A separate company, Pattern Development constructs new projects, puts them on long term power purchase contracts, and then transfers the assets to PEGI. Pattern Energy Group has an ownership stake in Pattern Development, so it also participates in the capital gains of development.

The current dividend rate has been flat for several quarters, but management expects to resume distribution growth in 2019.

PEGI yields 8.7%.

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Source: Investors Alley

Market Preview

Market Preview: Earnings from Retailers TJX, Target and Gap, and Housing Market Numbers in Focus

The market went on a wild ride this week, with investors trying to navigate the crisis in Turkey combined with some conflicting economic numbers in the U.S. Productivity and retail sales were strong, but he housing market may be starting to weigh on the economy. A dearth of inventory, combined with a flight to safety in the bond market, is driving down mortgage rates. Home buyers are finding it difficult to find homes to purchase, which is starting to negatively impact businesses around the housing sector. Think home remodeling companies, real estate agents, and mortgage brokers.

As investors catch up over the weekend with what is happening in Turkey and whether Elon Musk violated securities laws via social media, analysts are preparing for earnings next week from Estee Lauder (EL), BHP Billiton (BBL), TJX Companies (TJX), Lowe’s (LOW), Target (TGT), Gap (GPS), and Foot Locker (FL). The wave of retail earnings should give some indication of how consumers are feeling about the economy, after some surprisingly low recent consumer sentiment numbers.

The economic calendar is clear on Monday, but Tuesday investors will examine the Redbook weekly retail sales numbers juxtaposed with the retail earnings coming next week. Wednesday the market will focus on new mortgage applications and existing home sales numbers to determine what impact the housing market is having on overall economic health. The housing focus will continue on Thursday when new home sales numbers are released along with the FHFA House Price Index. Last month the index was up .2 percent. Thursday also sees the release of weekly jobless claims, and kicks off the Jackson Hole Annual Economic Symposium. Friday the focus will be on durable goods orders and any news out of the Jackson Hole gathering.

When Estee Lauder releases earnings on Monday analysts are expecting a slowing of both top and bottomline growth. Oppenheimer recently put out a note explaining their long-term upbeat stance on the stock, but warned of near term headwinds. Investors will be interested in any prognostication from management for direction headed into Q3. Investors will also hear from Sasol (SSL) on Monday. The company ran into power outage issues last quarter which impacted production and earnings. The company projected the second half of the year would be much better than the first, with rising oil prices aiding the bottom line. Analysts will not want a repeat of last quarter’s excuse-filled conference call.

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Dividends, Uncategorized

A Shocking Market Crash; Here’s What to Do

If you noticed American stocks selling off last week and you’re confused as to why, it’s because of an obscure corner of financial markets that might become one of the biggest stories of 2018: the Turkish lira.

Turkey’s Money Implodes

Where a dollar would get you less than four lira at the start of the year, it now gets you more than six lira—in other words, Turkey’s currency has lost nearly half of its value in 2018 alone!

This is something some investors need to fear a lot. And today I’m going to show you how to avoid being on the losing end of this crisis (including 11 funds you need to sell or avoid now, before they get crushed).

But first, let’s dig into what exactly is happening in the eastern Mediterranean.

Turkey Right Now

These kinds of moves in emerging market currencies aren’t all that unusual, but Turkey’s a special case.

Hardly a distant frontier, the country’s location, between the Middle East and Europe, makes it a key cultural and economic bridge. And Turkey’s economy has benefited; with a $10,800 USD per capita annual income (before the currency crisis), Turkey’s citizens were more prosperous than those of Russia, Mexico or even China—and its economy had been growing at a healthy rate since 2009.

But that’s changed, for a few reasons, including that Turkey’s central bank is not as autonomous as it should be or used to be, resulting in a mismanaged economy that’s turning from weakening growth to a potential mess of hyperinflation, along with slashed purchasing power for its citizens.

At this point, analysts broadly agree that the question of “if” Turkey faces a recession or depression has become a question of “when.” And that’s not good for a lot of banks.

The European Connection

Turkey’s economy is small, so the odds of its crisis spreading to the rest of the world are low. But Turkey has received a lot of credit from yield-starved European banks—and that makes Europe’s financial sector dangerous now.

Of course, the market knew this was going to happen long ago, which is why shares of Europe’s biggest banks are in the toilet.

Europe’s Banking Sector Is in Freefall

If Europe’s banks keep falling, this could result in less credit being available for European companies, which could stunt growth. There’s also a risk of European banks facing a panic that could spread to the continent’s economy as a whole. Americans should be cautious.

Conclusion: Avoid European banks and, just to be safe, European anything.

The Tide Turns on Emerging Markets

The Turkish situation is adding to emerging markets’ woes, too, and making 2018 a huge contrast to what we saw from these countries last year.

After years of lagging, foreign stocks, bonds, currencies and funds soared in 2017. Take, for instance, the BlackRock Enhanced Global Dividend Trust (BOE), one of my favorite picks last year:

BOE Is so 2017

This fund’s net asset value (NAV) grew so much that it paid out a $1.43 special dividend at the end of 2017, bringing its annualized yield to an eye-watering 18.3% for anyone who bought at the start of the year!

But all good things must end, and BOE has struggled due to a stronger dollar in recent months. As a result, it cut its dividend in July and may have to cut its payout again.

This isn’t a problem with just BOE—all global funds, whether they focus on bonds or stocks, have fallen in 2018, and those focused on emerging markets are doing even worse.

Take, for instance, one of the best emerging-market funds, the Templeton Emerging Markets Income Fund (TEI),which has a strong record of outperformance. In the last few days, its value has plummeted:

Turkey’s Crash Sideswipes TEI

Keep in mind that Turkey is a small portion of TEI’s portfolio, but that doesn’t matter. Totally unrelated currencies, like the Mexican peso, are losing value against the dollar alongside the Turkish lira.

Lira Catches a Cold; Peso Starts to Cough

The market is turning its back on emerging markets after 2017’s blowout performance. The conclusion for investors is pretty clear.

Conclusion: Avoid emerging market debt and stocks, as well as the funds that trade them.

The 11 Foreign-Focused Funds You Need to Avoid Now

With emerging markets particularly exposed to investor panic right now, all the specialty funds in the table below (including BOE and TEI) should be avoided. And that is a shame, because some have huge yields (up to 14%) and incredibly strong long-term returns.

And that means when the market’s panic has gone too far, they’re worth picking up. But we aren’t there yet. Until we get there, these 11 funds are kryptonite for your portfolio, and you should avoid them for now:

11 Lira Victims to Dodge

Until there’s more clarity from the Turkish government, its central bank, the IMF and European banks, these funds are suddenly up for some big potential losses. Avoid them for now.

4 Cheap “Red, White and Blue” Plays for 8.0% Dividends and FAST 20% Upside

Of course, I’m not going to leave you hanging here, by telling you what to avoid without showing you what to buyinstead.

And I’m not going to give you just ONE buy, either—I’m going to give you nothing less than my 4 top CEF picks right now!

Each of these 4 terrific high-yield funds focuses on the USA and, best of all, boasts a market price that’s way below its “true” value (that would be its NAV, financial-speak for what each fund’s portfolio is worth).

The takeaway? This completely abnormal price gap points to massive 20%+ price upside in the next 12 months!

PLUS, these 4 amazing funds also pay dividends 3 or 4 TIMES higher than your typical stock—up to 8.0%!

So you’re getting paid very handsomely while you wait for these funds’ discount windows to slam shut … and slingshot us to those huge 20%+ price gains.

Here’s a quick look at each of these hidden income (and growth) buys:

  • The real estate mogul: This fund has DOUBLED the market’s return since inception—including during the financial crisis—by investing in real estate, the very thing that caused the meltdown in the first place! It pays you 7.8% in cash today, and its silly discount points to a shockingly big price rise ahead.
  • The bond play with a fat 7.2% payout: This one trades at a totally unusual 14.9% discount to NAV. And it has something I love in a CEF: management with skin in the game. The team at the top includes a Wall Street vet with $250,000 of his own cash in the fund, so you can bet he’ll be working for you.
  • The perfect buy for rising rates: This one holds floating-rate loans, whose rates adjust higher with interest rates. If you want to hedge your portfolio against the Fed’s next move (and collect 6.4% in cash while you do) this fund is for you.
  • The preferred-stock player: Preferred stocks trade around a par value, like a bond, but pay outsized dividends, fueling this fund’s amazing 6.9% payout. Better yet, preferreds have gone on sale in the last few months, driving this fund to a rare discount—and giving us our in.

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Source: Contrarian Outlook 

Options

Big Money Is Betting On A Big Move In Financials

I always find it fascinating to see what kind of big trades are being made in the options markets.  Some of the smartest strategists in the world use options markets as their playground, so generally speaking, you can assume a lot of research went into these blockbuster type trades.

It’s also interesting to guess what the goal of a particular block trade is.  Of course, we can never know for sure.  A trade could be a hedge or a speculative bet.  It could be part of a much larger strategy with multiple pieces in different markets and asset classes.  Unless you’re talking something like a covered call (which is self-contained), we can only make an educated guess as to what a trade’s purpose is.

Nevertheless, we can often glean important information about an asset or asset class from associated options action.   For example, when you see a large straddle being purchased, it can be a useful indicator that there’s going to be an increase in volatility or movement in the underlying instrument.

A (long) straddle is an options strategy where the trader buys a call and put at the same strike in the same expiration in an underlying asset.  By purchasing both the call and put, the trader is not reliant on the asset moving just up or just down.  The straddle allows the buyer to make money in either direction, as long as it has moved far enough from the strike.

Essentially, going long a straddle is a bet on volatility.  A buyer doesn’t have to be correct about a direction, just that the stock/ETF/etc. is going to be at a different spot than it is now.  (It’s typical for straddles to be purchased at the at-the-money price.)  Professionals will often hedge their straddle when it moves using stock.  However, there’s no reason you can’t just trade the straddle and let it ride.

Just this week, an interesting straddle hit my block trade screener which I believe is worth a second look…

A well-funded trader purchased the 28 strike January 2019 straddle (28 call plus 28 put) in the Financial Sector SPDR ETF (NYSE: XLF) for $2.51 per straddle with the stock at $27.75.  XLF is the most popular ETF for trading the financial sector.  It covers banks, insurance companies, investment companies, and a few other related industries.

This particular straddle shows that the trader likely is expecting financials to be in a very different spot in the next five months.  Of course a lot can happen in 5 months, and there’s a significant election day during that period where control of Congress will be decided.

At $2.51 per straddle, this trade will break even above $30.51 or below $25.49.  At expiration, if XLF is between those prices, the trade will lose money – although max risked is just the $2.51 spent on premium.

Still, the straddle was bought 5,000 times, which costs over $1.2 million dollars.  That’s no small amount being risked.  On the other hand, the trade will generate $500,000 in profit for every dollar above or below the breakeven points.

Besides elections, there’s also plenty of economic news and data expected in the coming months.  There will also be a handful of widely followed FOMC meetings where rate increases could occur.  In other words, there are a multitude of potential catalysts for an increase in volatility in the financial sector.

If you agree that XLF could be on the move for the remainder of the year, then this isn’t a bad way to position yourself.  $2.51 for a straddle is not an unreasonable price to pay with five months of time left until expiration.   Most importantly, you don’t have to pick a direction.

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Source: Investors Alley

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