2 Set and Forget High-Yield Stocks with a Long History of Raising Dividends

Fear of Missing Out (FOMO) has become a psychological phenomenon mostly affecting younger generations. However, FOMO has become a driving force for many investors, and it is not a plan for long term success. You can save yourself a lot of mental anguish and investment losses by sticking with a fundamentals driven dividend focused investment strategy.

Here is one definition of FOMO: ‘‘the uneasy and sometimes all-consuming feeling that you’re missing out – that your peers are doing, in the know about, or in possession of more or something better than you’’. For younger folks its this feeling that keeps them glued to their phones, constantly checking on their social media accounts. For investors, FOMO can be spotted by the habits of having one of the financial news networks running on a TV most of the day and by constantly checking brokerage account values and individual stock prices.

One sign I see from individual investors that they are in the clutches of FOMO is that each time one of their stocks drops by a few percent they must know the reason for the decline. The belief is that with a reason they will then know whether to keep the shares or sell. Since most stock market movement is not driven by actual news from the individual companies, these investors can let their fears take over and sell the stock positions for losses. The financial news puts out a lot of information that tries to explain why stock prices are moving. The explanations are just a way after the fact to try to explain the random movement of share prices in the short term. To be a successful long-term investor, it is a better practice to mostly or completely ignore the day to day news items that “experts” claim are moving the market.

To be a successful investor, instead of a short-term trader, you need to have a strategy based on the underlying fundamental financials of the companies in which you buy and own shares. There are different strategies to choose from including growth stocks where the companies are growing faster than the economy, value stocks where the market does not see the value of a company’s assets, or bets on future technologies with stocks such as Tesla or drug stock IPOs.

The strategy I employ and share with my Dividend Hunter readers is to earn dividend income from companies with stable and growing per share cash flows. I search the stock market universe for those companies whose shares have attractive yields, current dividends are well covered by free cash flow, and there is a plan or potential for continued cash flow growth.

With these companies you don’t need to check share prices every day. Once a quarter when earnings come out, you check the cash flow per share, the dividend announcement, and the income statement to see if the company is staying on plan. If that is the case, you continue to own the shares. This strategy lets you stay invested through the ups and downs of the stock market. When share prices do drop, your knowledge of the companies’ underlying financial strengths allows you to confidently purchase more shares. You get to adhere to the rarely followed investing rule to buy low and earn more dividends.

Here are two stocks that just released their 2017 earnings result that illustrate the dividend growth investing strategy.

Simon Property Group Inc. (NYSE: SPG) is an owner of Class A and outlet center type of malls. With a $51 billion market cap, SPG is the largest publicly traded REIT. When evaluating a REIT, funds from operations (FFO) is the metric the shows dividend paying ability. For 2017, Simon reported FFO of $11.21 per share. This was up 6.4% over 2016. Management provides 2018 FFO guidance of $11.96 per share at the midpoint. If guidance is met, the cash flow per share will grow by 6.7% this year. With the 2017 fourth quarter earnings, the quarterly dividend was increased by 11.4% to $1.95 per share. The annual dividend rate of $7.80 per share is handily covered by almost $12 of FFO cash flow. This is a stock that is growing free cash flow and growing the dividend. An investor just needs to check in once a quarter to make sure the numbers are on track.

On Wednesday management declared a dividend of $1.95. The payout date is February 28th with an ex-dividend date of February 13th. SPG yields 4.5%.

Eastgroup Properties (NYSE: EGP) is a $3 billion market cap industrial properties REIT. For 2017 this company saw FFO increase by 6% to $4.26 per share. Industrial properties are the commercial property segment most benefitting from the shift to e-commerce retail sales. It takes three times as much warehouse space to fulfil e-commerce orders compared to traditional brick and mortar retail warehouse needs. Eastgroup increased its dividend by 3.2% in 2017 and the current dividend rate is just 59% of FFO. The company has paid dividends for 25 consecutive years, increasing the dividend in 22 of those years. This is an income stock you can count on to pay and grow the dividends. Current yield is 2.9%.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.

Source: Investors Alley 

2 Stocks Set to Soar 25%+ in 2018 and 3 to Sell Now

nterest rates are soaring, the market is panicking … and dividend stocks are yesterday’s news. Right?

Yes and no.

While some double-digit paying dogs should be sold immediately—market meltdown or no—there are other stocks (here I’m talking about top-notch dividend growers) that are ripe to be bought for 25%+ upside in the next 12 months.

There’s no doubt the 10-year Treasury yield’s recent run to 2.8%, an 18% rise since January 1, has slammed the brakes on the stock-market rally and hit high-yield plays like REITs particularly hard.

10-Year Rises, High-Yielders Wobble

If you hold high-yielders in your portfolio, you know what I’m talking about.

So should you be worried? No way—and that goes double if you’re investing for the long haul

Which brings me back to the  top-notch  dividend plays I just mentioned; today I want to show you two  (including a bargain real estate stock with a 5.5% yield and incredible dividend growth).

First, if you’ve followed my articles on Contrarian Outlook, you probably know what I’m going to say next: while a rise in rates may temporarily hit dividend payers, they’re actually a long-term plus because they signal a strong economy. And that way more than cancels out the resulting higher borrowing (and other) costs these companies will face.

It’s been proven over and over, including when REITs pummeled the market in the-last rising-rate period, from 2004–06.

Some Dividends Are Still Sucker’s Bets

But we still need to be careful, because some companies pay out more than they bring in through earnings per share (EPS) or free cash flow (FCF). And others are so hobbled by debt—and feeble growth—that even the slightly higher (but still low, by historical standards) rates we’re seeing now could tip their payouts over the cliff.

We’ll look at 3 of these toxic stocks now. Then we’ll move on to those 2 dividend champs I mentioned earlier.

Toxic Dividend Stock #1: CenturyLink (12% yield)

I just don’t understand what the dividend crowd sees in CenturyLink (CTL), which is still beating the S&P 500 since January 1, even with the latest market rout:

An Undeserved Win

There’s one number driving this: 12%. That’s the absurd dividend yield this telecom stock pays. And as I told you on January 23, CenturyLink’s payout is having a classic Wile E. Coyote moment.

That’s because the company can’t count on rising sales (revenue dropped 8% in the third quarter), EPS (down 39%) or FCF (down 41.4%) to backstop its payout. No wonder it’s paying out a totally unsustainable 253% of trailing-twelve-month FCF and 373% of EPS as dividends!

My take? Don’t be taken in by CenturyLink’s eye-popping yield and deceptively cheap forward P/E of 12. This stock is cheap for a reason: its payout is on borrowed time.

Toxic Dividend #2: Tupperware Brands (5.0% yield)

Tupperware Brands’ (TUP) dividend yield has lurched to 5.0%, but that’s not because the plastic-container peddler just gave investors a fat raise—it’s because the stock has cratered 20% since January 30!

Not the Payout Pop You Want

The reason? On top of the broader market wipeout, TUP’s Q4 earnings report left the herd cold: even though adjusted EPS jumped 10%, to $1.59, revenue fell 2%, meaning cost cuts, not sales growth, puffed up the bottom line.

The company’s forecast was also bland: the midpoint of expected 2018 EPS, $4.58, was just 4% higher than the $4.41 TUP earned last year! That’s just not enough to lift the dividend. And if TUP comes up short, a payout cut is definitely in play, given the 96% of FCF the dividend ate up in the last 12 months.

One thing that could whack TUP’s earnings forecast is its high exposure to volatile emerging markets (and their currencies): around 67% of sales. That’s just too risky for my taste—especially when there are fast-growing (and safe) payouts available, like the two I’ll show you further on.

Meantime, we need to talk about…

Toxic Dividend #3: Kraft-Heinz (3.2% yield)

Kraft-Heinz (KHC): To see how the game has changed for food stocks like KHC, look no further than the closest supermarket; people are clearly craving more natural food and less processed fare.

And Kraft-Heinz’s banners are way behind the curve.

Yesterday’s Brands

Source: kraftheinzcompany.com

No wonder the consumer-staples giant is showing the same pattern we saw with Tupperware: rising earnings propped up by cost cuts, not growth. In Q3, Kraft-Heinz’s sales dipped 1.7%, while adjusted EPS soared 15%.

Which brings me to the dividend: in the last 12 months, Kraft-Heinz paid out a worrying 92% of earnings and 126% of FCF to shareholders!

Sure, Berkshire Hathaway (BRK.B) is a major KHC shareholder, but that’s not enough to offset the company’s weak growth, ho-hum 3.2% yield and the very real chance payout growth will stall—if not reverse—knocking down the share price when it does.

Which brings me to…

2 Cheap Dividend Champs to Put on Your Buy List

Now that we know what to keep out of our portfolio, let’s pivot to 2 dividend payers positioned to thrive as rates head higher, starting with one you really need to move on in the next couple days.

Dividend Champ #1: Brookfield Property Partners (5.5% yield)

I recommended Brookfield Property Partners (BPY), owner of malls, office towers, warehouses and apartments the world over, in a September article for 3 reasons:

  1. A healthy dividend (5.5% as I write).
  2. Strong payout growth, with the dividend up 18% since BPY was spun off from Brookfield Asset Management (BAM) in 2013; and
  3. Low volatility. You can practically set your watch by this one!

A Steady Course

Don’t take this to mean you would have lost money with Brookfield! Because when you add in that nice dividend, you get this:

BPY’s True Gain

I know what you’re thinking: that rise still trails the S&P 500, which was up some 85%in that time. But keep in mind that BPY’s return was in cash, while folks holding your average S&P 500 name were stuck with a pathetic sub-2% payout.

Besides, that disrespect is what’s behind our opportunity. Because BPY (technically a partnership, not a REIT) trades at 72% of book value (or what it would be worth if it were broken up and sold off today).

That’s ridiculous for the company’s top-notch portfolio, which is throwing off high-single-digit growth in funds from operations (FFO, a better measure of BPY’s performance than EPS) and a soaring dividend payout!

Management knows the score: they’re calling for 8% to 11% yearly FFO growth through 2021, and yearly dividend hikes of 5% to 8% to match. With BPY’s next payout increase set to be announced February 8, the time to buy is now.

Dividend Champ #2: Ecolab (1.2% Yield)

Ecolab (ECL) isn’t the sexiest company out there: it peddles water-treatment products, cleaners and lubricants, as well as services that help cut use of water and other resources. It has clients in dozens of industries, from manufacturers to food makers.

The stock’s yield is also a yawner for most dividend fans, at just 1.2%.

But if either so-called weakness keeps you away, you’re making a mistake.

For one steady demand for Ecolab’s products mean the company is a free-cash-flow machine, with FCF more than doubling in the last decade:

A Cash Cow

And don’t be fooled by that low dividend yield; it masks a payout that’s surged higher every single year for the last 25 years. It’s nearly doubled in the last 5 years alone, including a hefty 11% hike in December.

Those payout hikes will continue, thanks to growing sales as the global economy takes off. Ecolab saw higher revenue across all 3 of its divisions—Global Energy, Global Industrial and Global Institutional—in Q3.

Wall Street thinks the party’s just starting, too, and for once, I agree. The average analyst estimate calls for EPS of $5.34 for 2018, up nearly 14% from a forecast $4.69 in 2017. (ECL reports Q4 earnings February 20).

Throw in a ridiculously low payout ratio of 33% of earnings (and 41% of FCF), and further dividend growth is a lock. And that, in turn, will drive more of the market-crushing share-price gains ECL shareholders love:

Stock Price Climbs the Dividend Ladder

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Source: Contrarian Outlook 

Here’s Why Crypto Is Correcting… and Why It’s Temporary

Last week, I was at my son’s friend’s birthday party, and one of the dads there brought up crypto.

We were discussing various coins when another parent overheard and broke into the conversation. “I hope you guys don’t own any bitcoin, because that thing is crashing hard!” he said with a grin.

I nodded politely and acknowledged that crypto is going through a rough patch, with prices correcting practically across the board.

Then I asked the other dad if he knew what a bitcoin cost a year ago. He didn’t.

So I told him that bitcoin was trading for around $948 one year ago. And that despite the recent pullback, bitcoin is still up around 9X to 10X over the last 12 months.

The entire crypto market, as tracked by Coinmarketcap, has risen from around $15 billion early last year to around $400 billion today.

I don’t know of any other asset that even comes close to these returns. And the further back you go, the more insane the returns get. When I first bought in the spring of 2013, bitcoin was trading for $84. And it had just run up to that price from around $5 only months before.

My point is that if you paid attention only to mainstream news sources, you might think bitcoin was trading at multiyear lows. It’s “crashing,” “plummeting “… it “won’t survive.”

I believe this pullback is completely natural. Here’s why…

A Natural (Yet Nasty) Correction

I look at the crypto market like this: 15 steps forward, nine steps back.

When an asset increases in value 20X, as bitcoin did last year, it’s only natural for some owners to take profits. Others who bought in at $15,000 or $19,000 are likely panic-selling.

This is simply how markets operate. Weak hands are shaken out during these times.

Yet a significant portion of the investors who bought in over the last year will hold strong. And they will continue to hold for years because historically, that’s the most proven way to make money in crypto. This is the sturdy base of crypto owners, and it continues to grow steadily.

Let’s look beyond price action for a moment and recognize that huge developments are taking place in the crypto world.

First, governments appear to be closer to regulating crypto markets. If done correctly, this will be a very positive development.

The fact that South Korea, for example, is banning anonymous cryptocurrency trading, is arguably a good thing.

We need trust to make these new markets work long term. And that will never happen if naysayers can point to crypto as a haven for hackers and criminals.

So, just as banks are required to verify accounts under “know your customer” laws, cryptocurrency exchanges around the globe are now moving in that direction as well.

We also got news this week that Robinhood, the commission-free stock trading service with millions of users, is moving into the crypto markets. Soon, users will be able to buy and sell crypto with zero commission.

Still, there’s clearly some other factor holding cryptocurrency markets back. And it’s not what you might expect…

Exchanges Are Growing Too Fast

A primary factor in the crypto pullback that most people haven’t recognized is this: Most exchanges are growing far too fast.

So many people are entering the market that many exchanges have had to shut down new user registrations. Most others can’t keep up with customer support.

Bittrex, Bitfinex, CEX. IO and Binance (four of the largest crypto exchanges in the world) have been forced to deny new customer accounts due to explosive growth.

Binance, for example, added 240,000 new accounts in a single hour on January 10. It has since stopped accepting new accounts and only recently began allowing a small number of new users per day.

Coinbase, the largest U.S.-based exchange, continues to experience major growing pains. Its customer support is flooded, and it can’t verify new accounts fast enough.

Exchanges simply can’t keep up with the massive influx of new crypto investors.

Naturally, this has put a damper on markets. When the flow of new buyers is bottlenecked by exchange capacity, it’s of course going to cause a temporary pullback in prices.

Behind the scenes, however, crypto exchanges are furiously upgrading their systems and hiring to meet demand. Due to security requirements and the fact that exchanges are now required to verify all customers, this takes time.

The point is that exponential user growth is a great problem to have. Exchanges are working diligently to accommodate new users, and I suspect that soon, most of them will reopen new account registrations and clear their customer service backlogs.

When this happens, I expect to see a sharp rebound in crypto markets. And then we can begin the next leg up. If we get more clarity on government regulation, even better. There’s also the X-factor of institutional buyers, who I still believe will start moving into the crypto market in the next few months.

By the end of the year, I’m fairly certain we’ll look back at this dip and say, “Damn, that was a great buying opportunity.” But in the midst of a nasty correction, the opportunity is hard to recognize.

It seems like the end of the world for crypto, but I assure you… it’s not.

We’re still at the very beginning.

Have a great weekend, everyone.

Adam Sharp
Co-Founder, Early Investing

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Source: Early Investing 

2 Reasons You Need to Dump Apple Now

Apple (Nasdaq: AAPL) just set a record for the most profitable quarter in the company’s history. Not surprising since Apple executives said in November that they were expecting its “biggest quarter ever” and a return to double-digit revenue growth for the first time in years.

But not all is well with the world’s largest company by market capitalization. One needs look no further than the stock’s relative performance to the S&P 500 index over the last three month period. Apple has been a definite laggard.

I expect that relative underperformance to continue. Here are two reasons why:

Reason #1 – Overpriced iPhoneX?

Apple may have made a classic mistake and priced the new iPhoneX too high, thinking its fans would pay any price for its phones.

This phone is the first from Apple with an organic light-emitting diode (OLED) display. It also features facial recognition and wireless charging. But many complain it lacks groundbreaking new technologies when compared to some of Apple’s previous models. In other words, the same old complaint under the leadership of Tim Cook – a lack of innovation.

The iPhoneX price starts at $999 here in the U.S. And in the very important China market, the cost starts at a whopping $1,334! This is crucial since, in December, the flagship Mate 10 Pro from China’s Huawei was launched at a starting price of just over half the cost of the iPhoneX. In the latest survey of Chinese consumers, Apple still lags Huawei in what brand their next smartphone purchase will be. As recently as 2015, Apple was named by twice as many consumers as Huawei was.

What really caught my eye though was the article last week in the Nikkei Asian Review that revealed Apple had told its Asian suppliers it was slashing its production target for the iPhoneX by half for the first three months of 2018. Production was slashed because sales had failed to meet Apple’s lofty expectations. If sales are faltering, that means the whole Wall Street tale about the iPhoneX supercycle was a myth.

And let’s not forget that there continues to be intensifying competition in the premium smartphone market. Alphabet (Nasdaq: GOOG) officially closed its $1.1 billion deal with HTC Corp., adding more than 2,000 smartphone specialists in Taiwan. This is expected to help Google chase Apple in the increasingly cut-throat premium handset market.

Reason #2 – Smart Speaker Delay

In relation to the entire innovation question, I do wonder what Apple’s next act will be after the iPhone? The iPhone is still responsible for about 70% of the company’s revenues.

One bright hope was the smart speaker market. After all, Apple’s Siri was the leader in the virtual assistant space. But it has now taken a back seat to smart speaker products from both Google (Home) and, of course, Amazon.com (Nasdaq: AMZN)and Alexa. Amazon’s Echo speaker was launched in 2014 while we still wait for Apple’s entry.

Apple’s HomePod smart speaker will finally be launched on February 9, after missing the Christmas selling season. But unlike the debut of the iPhoneX, Apple Watch Series3 or AirPods, pre-orders for the HomePod have not sold out ahead of the launch date.

That is likely due to the relatively high price tag (again). The HomePod will sell for $349 while you can get a speaker from Amazon for $50 to $150. This market will be extremely important long-term as the hub in many people’s homes. Canalys Research forecast that sales for smart speakers will soar by 70% in 2018 to 56.3 million. In other words, it is the biggest consumer electronics products since the smartphone.

Performance will matter when it comes to the virtual assistants in our homes.

Tests comparing Alexa to Siri to Google Home’s assistant have shown Google the winner in general knowledge with Siri performing the worst. And when it comes to shopping, Alexa was tops with the HomePod again bringing up the rear. The only areas where the HomePod came out on top was in regard to privacy and music.

Apple’s Future

Another growing negative for Apple is that sentiment toward the company has shifted, albeit slightly so far. The whole incident regarding the company intentionally slowing down its older devices was handled very poorly. So poorly in fact that now Apple faces a wave of class-action lawsuits as well as regulatory inquiries from both the Department of Justice and the Securities and Exchange Commission.

Money-wise, the investigations will be nothing Apple can’t handle. But the danger is there of a major sentiment shift against Apple from both the public at large and the investment community.

If sentiment further shifts, you may see Apple’s stock continuing to underperform the general market.

For me, that turns the race between the stocks of Apple and Amazon into a very real one. Already, Amazon is within $190 billion and closing very rapidly. . .the gap at the end of 2017 was $326 billion. And I expect to close further in 2018, unless Apple begins to innovate again, justifying the premium pricing on its products.

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Source: Investors Alley 

Apple Inc.: So Much For The iPhone Supercycle

Apple Inc.’s (NASDAQ:AAPL) earnings report was certainly awaited with trepidation from investors. And yes, it was justified. The fiscal first-quarter was fairly mixed. So far today, AAPL stock is off about 3.86%.

But keep in mind there had already been ample selling off. Over the past few weeks, AAPL stock has gone from $180 to $163. (And is now about $161).

So let’s take a look at the quarter. Earnings rose 16% to $3.89 a share, up from the Wall Street forecast of $3.86 per share. As for the top line, the revenues jumped by 13% to $88.3 billion, which beat the consensus of $87.28 billion.

But there were two big-time issues with the quarter for AAPL.

First there was the guidance. For the current quarter, the company expects revenues to range between $60 billion to $62 billion. However, analysts were looking for a more robust $65.73 billion. There was also disappointment with gross margins. AAPL predicts they will be 38% to 38.5%, below the Street’s 38.9%

Next, the company showed weakness with the iPhone. Note that units sales reached 77.3 million, down from 78 million in the year-ago quarter. Oh, and Wall Street was looking for 80 million.

But this should be no surprise. AAPL was late with the launch of the iPhone X. And besides, there weren’t as many must-have features to gin up demand, especially in light of the hefty $999 price tag.

AAPL Stock And The iPhone

AAPL has been working hard to expand its revenue base. The “Other Products” segment — which includes the Apple Watch, Apple TV and AirPods — posted an impressive 36% increase in revenues to $5.5 billion.

There was also strength in the services business — including the App store, Apple Pay and Apple Music — which saw revenues rise by 18% to $8.47 billion. So Apple is certainly having a lot of success monetizing its base of 1.3 billion phone users.

Yet the diversification efforts have not been without issues. Just look at the HomePod — Apple’s smart speaker. The company delayed its launch, which meant missing the all-important holiday season. The result was that rivals like Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc(NASDAQ:GOOGL) have been able to capitalize on this massive opportunity.

Now despite all the diversification efforts, the fact remains that more than two-thirds of revenues come from the iPhone. So the sluggishness with unit volumes is definitely worrisome.

For the most part, the anticipated “upgrade supercycle” just never materialized.

Bottom Line On Apple Stock

Already analysts are getting cautious on AAPL stock. For example, KeyBanc Capital Markets’ Andy Hargreaves has noted: “Soft iPhone sell-through suggests a saturated market and the lack of gross margin upside reduces our view of potential profit growth.” His price target on Apple stock is $178 and he has lowered his rating from overweight to sector weight.

Now it’s true that AAPL has a massive cash hoard, which will likely mean more share buybacks and dividends increases. There may even be some interesting acquisitions.

What’s more, AAPL stock is at a reasonable valuation. Consider that the forward price-to-earnings ratio is at 13X. By comparison, Facebook Inc (NASDAQ:FB) is at 22X and GOOGL trades at 23X.

But again, the iPhone is what matters for AAPL stock. And for the most part, it looks like there will not be much momentum — which means that the shares may wind up languishing for awhile.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.

Source: Investor Place

Where to Invest For the Next Correction.

My grandfather, William Paul Smith was an ordinary dairy farmer with a degree in common sense. One of his favorite sayings was, “It’s the same thing, only different.” 70 years ago, he warned me not to throw rocks at a wasps’ nest. As I cried and put ice on the sting, he explained what happened always happens – and I got stung! I thought I was different – and could outrun a wasp – and had to learn the lesson the hard way.

His sage wisdom does not just apply to children. Why is it that many lessons are constant, yet even as adults, we choose to ignore warnings and learn the hard way?

“The four most expensive words in the English language are this time it’s different” – Sir John Templeton

Good friend Chuck Butler, writes for Dow Theory Letters, a terrific publication. Chuck recently asked, “Will This Time Be Different?”

His headline reminded me of my grandfather. Warnings are appearing regularly – are they being ignored?

Subscribers are concerned. Mike L. recently asked:

“What do you think will happen with the dollar and today’s retirement plans if bonds tank, no one buys our debt, and other nations continue to conduct trade deals without using the reserve currency, etc.?”

Chuck warns:

“I’m only going to say this once … This is all headed for a Minsky moment. … A Minsky Moment is when a market fails or falls into crisis after an extended period of market speculation or unsustainable growth. I’ve moved that over to debt accumulation instead of a market.”

I contacted Chuck. Will the Minsky Moment appear in the stock or bond market? What can individual investors do to avoid getting stung?

DENNIS: Chuck, on behalf of our readers, thank you for taking your time for our education. Let’s get right to it.

Before I get into specific questions, you discussed a ratio of household net worth to income. I’ve never heard of that before. Can you explain it, and what it means for our readers?

CHUCK: Dennis, thank you for inviting me to share my opinions and thoughts from many years of investment experience with your readers. I get a kick from doing these interviews, just so you know!

Anyone with a home mortgage falls into this ratio… Basically, you take the house’s value, (easily obtained from Zillow.com) and you subtract what you owe on it. Simple, right?

Add up all of your income and divide it into the net worth figure you just calculated. The higher the number the higher the risk. If the house’s value falls, the income could be eaten away with just mortgage payments or increase the chance of defaulting on the mortgage.

Before we got crazy with home values in 2004-2007, this ratio was around 5.1%. In 2007 it peaked to 6.5%, and we all know what happened then. Lo and behold right now it’s 6.75%!

Some pundits and economists are saying, “This time will be different”… I just cringe when I hear those words!

DENNIS: I’ve noticed a lot of ads encouraging people to refinance their homes while rates are still low, suggesting they can take some of the equity and pay off their credit cards. That only works if they cut up the damn credit cards. If millions of consumers refinance, basically taking equity out of their home, what impact will that have?

CHUCK: In 2005, I told my readers that consumers were using their houses like ATM machines, taking equity out of their homes to buy SUV’s, big screen TV’s, and fancy clothes. That was all fine until the house values began to fall, and now the consumers owed more on their house than it was worth.

Never in a million years would I have thought that we would again fall for that idea that house values will never fall, especially so soon after the last crisis and collapse. But here we are again…. And it’s all going to end up just like the last crisis, but this time, it will be worse, because we never cleaned out the excesses of the last boom period.

Banks and financial institutions have more derivatives on their books now, than they did before 2007…. Like your grandfather said, same thing, only different…and worse.

DENNIS: Our mutual friend, Dr. Lacy Hunt echoed your remarks about consumer credit growing at the fastest rates in 16 years when he recently wrote:

“Consumer spending, the economic heavy lifter of U.S. economic growth, has expanded by 2.7% over the past year…. Real disposable personal income rose by only 1.9% over the past year. It was only the ability to borrow that supported the spending increase. In economic terms,borrowing is a form of dissaving.

…. the only period in which the saving rate was lower than it is today was 1929-1931…” (Emphasis mine)

Chuck, I know you call it the “stupid” Consumer Confidence Index. It’s currently 94.4, which is doggone high. Consumers are so confident, they are “dissaving” at a historically high pace.

You are warning a lot of overconfident investors they may get stung – and badly! If debt is the issue, wouldn’t the Minsky Moment start in the bond market?

CHUCK: It just may do that Dennis. You see a Minsky Moment happens when everyone is complacent about the assets and thinks that nothing bad could happen, so they get overconfident and decide to take on more risk. At that point, the Minsky Moment is just around the corner.

What could cause a Minsky Moment in bonds? Well, think about this for a minute. The U.S. Fed has been a very large bond buyer since the first round of Quantitative Easing began in 2009. They bought boatloads of both U.S. Treasury bonds and Mortgage-backed bonds. Look at their balance sheet, it increased five-fold to over $4.6 Trillion in 2017.

The Fed announced a “tapering” in 2015, but they kept buying Treasuries to replace bonds that matured. Late last year they announced that they were going to stop buying bonds altogether. No replacement bonds, no auction window buying.

The question was… “Who is going to take the Fed’s place”? Well, there has been no one, to date, and the 10-year Treasury yield has risen from 2.05% on Sept. 8, 2017, to 2.65% on Jan. 18, 2018. That’s just the beginning, in my opinion!

The Fed may not be the only “no show” at the auction window. China is considering slowing down their Treasury purchases or halting them altogether! Guess who else has been slowing down their Treasury purchases? Saudi Arabia, and Russia… Oh-no! Say it ain’t so, Joe!

This is the Minsky Moment for bonds…no big Central Bank buying, will drive yields much higher. It could easily be followed with another Minsky Moment for stocks.

When interest rates hit historic lows, money flooded into the market as investors were desperately searching for yield. As yields rise, the tide will quickly turn, and mom and pop stock investors will take the risk out of their investments and go back to bonds.

DENNIS: One final question. Many of our readers are clearly seeing the signs, fearing a Minsky Moment is inevitable, but not sure about imminent. They don’t want to get hurt. When the Minsky Moment eventually happens, I believe it will be different – it will be uglier than most investors have seen in their lifetime.

What advice would you give our readers to protect themselves?

CHUCK: Well, you know me well enough Dennis that you could answer this question for me! But here it goes…

First of all, the dollar is going to be held hostage by all this chaos, expect high inflation. Diversify into euros, sterling, Aussie dollars, kiwi and some others would be prudent. In addition, either a new purchase of up to 20 to 25% of your investment portfolio in Gold & Silver, or an increase in your holdings.

I feel that Gold & Silver are going to replace all the hoopla of Bitcoin, and I also feel that once that happens there will be supply problems, thus raising the prices of these metals even higher.

There is a positive side. Those who heed the warnings will be presented with some terrific buying opportunities.

I thank you for allowing me to give my opinions and thoughts, Dennis. You have very astute readers, and I’m sure they will hear the calls to take defensive moves in their investment portfolios. As I said before, I get no kick from champagne, flying too high with some gal in the sky, is my idea of nothing to do, but I get a kick out of writing for you!

DENNIS: (chuckles) That was clever! Chuck, once again, on behalf of our readers, thank you.

Both Chuck and Lacy Hunt clearly point to similar warning signs of previous “Minsky Moments” where millions of people lost a lot of money. The same thing, only different?

We have a new generation that’s not been stung badly enough and learned a lesson. The warnings are there for all to see – some will heed them, take precautions, diversify, keep debt under control, keep stop losses current – and take advantage of some great opportunities when they appear. Others will ignore the warning signs. Why do so many of life’s lessons have to be learned the hard way? You can’t outrun a wasp!

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Source: Investors Alley 

10 Secret Stocks Top Investors Are Betting On

Top Investor Stock: Tesla (TSLA)

Top Investor Stock: Tesla (TSLA)

Tesla’s big ambitions and disruptive potential have clearly struck a chord with top investors. This volatile auto stock boasts a “Very Positive” investor sentiment. Over the last 30 days, the best-performing investors have increased their TSLA exposure by no less than 10.8%.

But the Street does not share this optimism — quite the contrary. Right now, the stock has a hold analyst consensus rating with only six recent buy ratings. This is versus eight hold and nine sell ratings. Meanwhile, the $309 price target suggests big downside potential of 10% from the current share price.

Top Jefferies analyst Philippe Houchois has just slashed his 2018 revenue estimate for Tesla by 14%. He has also cut his fiscal 2018 Model 3 delivery forecast by 35% to just 175,000 units. In a bearish report (entitled “Another Curve Ball”) the analyst reiterates his “sell” rating and $240 price target (30% downside).

And he isn’t feeling overly impressed by CEO Elon Musk’s new merit-based compensation package. Houchois says the new deal sends “mixed messages” and is “overly incentivized on valuation multiples rather than financial performance.”

Top Investor Stock: Allergan (AGN)

Top Investor Stock: Allergan (AGN)

Irish based Allergan Plc. (NYSE:AGN), maker of Botox, has a “Very Positive” signal from top-performing investors. Indeed, top investors have upped their exposure to this pharma giant by almost 3% over the last 30 days. Plus, investors who hold AGN on average dedicate 4.3% of their portfolio to the stock.

Perhaps these top investors are onto something. We can see that Barclays’ Douglas Tsao has just upgraded Allergan from “hold” to “buy.” The move comes with a bullish $230 price target (28% upside) up from $220 previously. Tsao’s shift in sentiment, after over three years on the sidelines, comes from the company’s market-leading Botox position. A survey of physicians revealed that patients are much more satisfied with Allergan’s Botox than rivals Dysport and Xeomin.

Overall the stock has a cautiously optimistic “Moderate Buy” analyst consensus rating. These analysts (on average) see the stock rising 18% to hit $212 in the coming months.

Top Investor Stock: Apple (AAPL)

Top Investor Stock: Apple (AAPL)

Top investors still have faith in the market-leading power of iPhone maker Apple Inc.(NASDAQ:AAPL). Both in the last week and in the last 30 days, top investors have upped their Apple shareholdings (by 0.5% and 3.9% respectively). Plus Apple tends to make up a considerable chunk — 9% — of these portfolios.

However, the Street is not quite as bullish on AAPL stock as it used to be. The consensus is no longer “Strong Buy” but “Moderate Buy.” Analysts believe iPhone X sales peaked early and say Apple will guide for a lower March quarter than previously expected.

With this in mind, top Atlantic Equities analyst James Cordwell downgraded AAPL to “hold” with a $190 price target. He explains:

“This better than anticipated supply means that a greater proportion of demand was able to be served in the December quarter, leaving March quarter expectations (which were predicated on significant pent-up demand) for ~20% iPhone unit growth now looking somewhat aggressive (~20% iPhone unit growth).”

Top Investor Stock: Applied Materials (AMAT)

Top Investor Stock: Applied Materials (AMAT)

I am very bullish on chip equipment maker Applied Materials, Inc. (NASDAQ:AMAT). And I am not alone. Top investors are also piling into the stock, which also has 100% Street support right now. Indeed, in the last three months, no less than 11 analysts have published buy ratings on AMAT. Most promisingly, their average price target of $69 indicates upside potential of over 28%.

The No. 2 analyst on TipRanks, B.Riley FBR’s Craig Ellis has just met with AMAT management. He left the “upbeat” session with renewed conviction. Ellis explains why here: “We expect Memory spending sentiment to improve through 2018, and with that, we expect large-cap Semi Caps like AMAT (and KLAC and LRCX) to enjoy multiple expansion even as sell-side EPS grind higher.”

As for AMAT specifically, he says “AMAT’s vast portfolio breadth and large revenue scale positions mgmt well to frame industry spending potential and we sense CFO Durn remains justifiably upbeat.” Indeed, Ellis’ $71 price target indicates big upside lied ahead of 28%.

Top Investor Stock: Netflix (NFLX)

Top Investor Stock: Netflix (NFLX)

Netflix, Inc. (NASDAQ:NFLX) has just experienced a beautiful quarter. The company posted very strong earning results for Q4, suggesting that 2018 is going to be a key inflection year. And we can see from the screenshot above that investors love NFLX stock as much as they love its content. Not only are investors seriously upping their NFLX holdings, they also dedicate a relatively big portfolio proportion to this stock (4.9%).

A slew of price target increases show that the Street is also growing increasingly bullish on Netflix’s potential. Currently, the stock has a “Moderate Buy” analyst consensus rating.

Top RBC Capital analyst Mark Mahaney just ramped up his price target to $300 (11% upside potential). He says: “We believe secular demand for internet TV is ramping rapidly globally, and Netflix has positioned itself extremely well to benefit from this, with a compelling value proposition to consumers.”  He notes that the company’s guidance for Global Streaming Revenue of $3.59B in Q1 2018 implies very impressive 43% Y/Y growth.

Top Investor Stock: First Solar (FSLR)

Top Investor Stock: First Solar (FSLR)

Top investors are snapping up First Solar, Inc. (NASDAQ:FSLR) stock — with shares up a whopping 118% over the last year. Indeed, this solar panel maker represents a savvy tax play according to Roth Capital’s Philip Shen. U.S. President Donald Trump looks set to impose a new 30% tariff on fully assembled solar panel imports from abroad. As a U.S. manufacturer, First Solar’s panels will be exempt from these new import taxes. The result: a golden opportunity for FSLR to boost U.S. sales and margins.

Apparently First Solar is already seeing sales soar as utility customers rush to complete orders before the tariff imposition.

From a Street perspective, this “Moderate Buy” stock has only 10% upside ahead. However Shen’s $80 price target suggests a more agreeable 19% growth potential.

Top Investor Stock: Incyte (INCY)

Top Investor Stock: Incyte (INCY)

Investors aren’t giving up on pharma stock Incyte Corporation (NASDAQ:INCY) anytime soon. Shares may be down 20% in the last three months, but the stock is still trending high with the market’s top players. We can see that these investors are happy to take a low speculative position and see what unfolds.

The pharma sells Jakafi for bone marrow disorders and boasts a deep and promising pipeline, leading to sustained takeover speculation.

Luckily best-performing analysts are also very bullish on INCY, with seven recent buy ratings. Given the pullback in prices, these analysts now see the stock spiking a massive 60% to $150 in the year.

Take five-star Leerink analyst Michael Schmidt. He believes that concerns over Incyte’s cancer treatment epacadostat, its most advanced late-stage pipeline candidate, are overblown. INCY is developing epacadostat with Keytruda. He is reassured by management confidence in recent data and, as a result, reiterated his buy rating earlier this month.

Top Investor Stock: Nvidia (NVDA)

Top Investor Stock: Nvidia (NVDA)

With Nvidia Corporation (NASDAQ:NVDA) shares exploding by an incredible 125% in the last year, it’s no surprise that top investors are feeling super bullish. In the last 30 days alone, the number of top portfolios holding NVDA is up by 4.4%. Not only that, these investors dedicate a sizable portion (almost 8%) of their portfolio to this fast-growing chip stock.

However, Susquehanna analyst Christopher Rolland isn’t convinced that the party can last. He calculates that NVDA benefited from approx. $500 million Ethereum-related GPU sales in Q4. This would boost Q4 results and near-term guidance. But ultimately, he sees substantial longer-term risks resulting from this unsustainable mining profitability.

In contrast, Vivek Arya — a five-star analyst — singles out Nvidia as a top pick. He ups his price target to $275 (11% upside). Arya believes there is 1) a large-scale upgrading opportunity 2) continued strength in crypto and 3) upside in high-performance computing. Note that Arya’s approach is paying off with an eye-dropping 94% success rate and 102% average profit across his NVDA stock ratings.

Top Investor Stock: Boeing (BA)

The world’s largest aerospace company, Boeing Co (NYSE:BA) has a “Very Positive” top investor sentiment right now. But with shares on a tear this year, upside potential seems relatively limited (according to the Street’s average price target). However, the stock does boast a “Strong Buy” analyst consensus rating. And top Cowen & Co analyst Cai Rumohr isn’t backing down anytime soon. He has just ramped up his price target from $320 to $415 (22% upside potential).

According to Rumohr: “Strong demand, a favorable production outlook, and above-average est. Tax Act benefits suggest 2018 CFPS [cash flow per share] near $23, ramping to $28 by 2020.” He explains that the $415 price target is based on a 2018 cash flow yield of 5.5%; and — the best part for investors — adds “we can envision a $455 potential valuation on 2019 cash flow.”

Top Investor Stock: Alibaba (BABA)

Chinese e-commerce king Alibaba Group Holding Ltd (NYSE:BABA) ticks all the boxes. Both top investors and the Street love this fast-growing stock. In fact, in the last eight months, BABA has received 100% buy ratings from the Street. And even with the stock soaring, analysts still see further upside potential ahead. Five-star Oppenheimer analyst Jason Helfstein has a $230 price target on BABA (7% upside).

He explains why he is such a fan of BABA here: Alibaba remains one of our top picks in our coverage universe as the company continues to execute well in driving growth in core commerce, with a strong opportunity to improve monetization.”

Indeed, Helfstein sees big potential for Alibaba’s online-offline Hema retail stores. Customers can shop, dine and order grocery delivery from their mobile phones in-store and use Alipay to pay.

Helfstein anticipates Alibaba having 30-40 of its Hema stores in each of China’s major cities. This is a big deal when each hypermarket can serve up to roughly 50k consumers.

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Source: Investor Place

3 Companies Working to Destroy the Blockchain with Quantum Computing

It pays sometimes to listen what comes out of the annual meeting of the world’s elite at Davos, Switzerland. This year was a prime example.

Satya Nadella, the CEO of Microsoft (Nasdaq: MSFT), gave the stark warning that the world is rapidly “running out of computing capacity”. He added that Moore’s Law – the maxim that the power of computer chips doubles every two years – is “rapidly running out of steam.”

Nadella said the problems the world faces today need superfast quantum computers to solve them. As the head of the company’s quantum computing team, Todd Holmdahl, said to the Financial Times, “We have an opportunity to solve a set of problems that couldn’t be solved before. On a classical computer, they would take the life of the universe to solve.”

This is breakthrough technology that will change our world, making quantum computing (a subject I’ve touched on previously) a topic worth revisiting.

Related: Here’s Where to Invest in The Promise of Quantum Computers

Quantum Computers

Building a quantum computer has stumped scientists and engineers for about 35 years due to the complicated physics involved.

Qubits – the basic units of quantum information – are highly susceptible to ‘noise’ and therefore error. For qubits to be useful, they must achieve both quantum superposition (a property something like being in two physical states [0 and 1 in computing] simultaneously) and entanglement (a phenomenon where pairs of qubits are linked so that what happens to one can instantly affect the other, even when they’re physically separated). These delicate conditions are easily upset by the slightest disturbance, like a slight vibration or a fluctuating electric field.

Quantum computers will be particularly suited to factoring large numbers (making it easy to crack many of today’s encryption techniques and probably providing uncrackable replacements), solving complex optimization problems, and executing machine-learning algorithms. And there will be other applications no one has yet even thought about.

The cracking of encryption techniques may even push current blockchain technologies to the dustbin of history quickly. More on that later.

Until now, scientists have only been able to build fully programmable five-qubit computers and more fragile 10- to 20-qubit test systems. Neither kind of machine is capable of much. But the head of the quantum computing effort at Alphabet (Nasdaq: GOOG), Harmut Neven, says his team is on target to build a 49-qubit system perhaps within a year.

That would be close to the minimum target set by scientists of around 50 qubits. This 50 qubit target isn’t an arbitrary one. It’s a threshold, known as quantum supremacy, beyond which no current supercomputer would be capable of handling the exponential growth in memory and communications bandwidth needed to simulate its quantum counterpart. In other words, the top supercomputer systems can currently do all the same things that five- to 20-qubit quantum computers can do, but at around 50 qubits this becomes physically impossible.

The Threat to Blockchain

Before I tell you about some of the breakthroughs in quantum computing coming from the likes of Microsoft, let me first fill you in on the greatest threat to blockchain out there. It’s not regulations, it’s quantum computers. Let me explain…

Much of the allure of blockchain comes from its security benefits. The technology allows a ledger of transactions to be distributed between a large network of computers. No single user can break into and change the ledger, making it both public and secure.

Public key cryptography uses a pair of keys to encrypt information: a public key which can be shared widely and a private key known only to the key’s owner. Anyone can encrypt a message using the intended receiver’s public key, but only the receiver can decrypt the message using their private key. The more difficult it is to determine a private key from its corresponding public key, the more secure the system is.

Even if today’s supercomputers tried to figure out what the private key is, it would take it an estimated 785 million times longer than the age of the universe. In other words, it’s impossible. But with quantum computers possibly 100 million times faster than classical computers, they could possibly break today’s public key cryptography, rendering the blockchain technology that relies open to hacking and obsolete.

So naturally research into quantum-resistant cryptographic systems has already begun at places like the National Security Agency (NSA). But I doubt these systems will be available before the advent of quantum computers.

Breakthroughs Around the Corner

That is thanks to efforts from companies like International Business Machines (NYSE: IBM), Google and Microsoft, which make quantum computers likely and commercially viable within several years. Previous estimates were that quantum computing was still decades away.

But two impending milestones – from Microsoft and Google – will show that the frontiers of theoretical physics are quickly being turned into practical reality. Google’s revelation involves that aforementioned machine that will be the first demonstration of quantum computer solving a problem that is at the very limit of what is possible for a classical computer.

IBM has been a pioneer in the field and actually achieved a working qubit in 1998. It announced in December a long list of partners to help it develop practical applications for the technology. The partners include a number of universities, government research institutions and major companies, such as JPMorgan.

I would say that IBM is ahead of Google in that it has already programmed a supercomputer to simulate a quantum machine with more than 50 qubits. A feat, I might add, most did not think was possible.

Both Microsoft and IBM are offering simulations of quantum computers that run on today’s “classical” machines, while IBM is also giving its partners access to a rudimentary quantum system.

Microsoft’s Different Approach

Now let’s focus on Microsoft, which began working on producing a working qubit (quantum bit) 12 years ago. And now finally, it is “imminently close” to announcing that it has reached that goal.

I find Microsoft the most interesting of the three leaders in quantum computing because of the unique approach it is taking. It apparently has developed a type of qubit that effectively fragments electrons. That means the same piece of information is held in multiple places at the same time. If one part of the qubit goes through quantum decoherence, the information it contained is not lost.

This will likely lead to a more stable system than its competitors’ systems. Microsoft will likely need only one qubit compared to 1,000 or 10,000 (mainly unstable) qubits.

For me, if Microsoft does indeed reveal that working qubit, it will place them ahead in the race for quantum computing supremacy. It would be my choice as a major future beneficiary of quantum computing.

But don’t forget about Google and IBM, as well as Intel and the Canadian private firm, D-Wave Systems. All are working on developing the leading computing technology.

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Source: Investors Alley