Many investors look to buy and sell stocks based solely on near-term business conditions. If management raises guidance for the next quarter, shares rally. And if management takes note of some near-term headwinds, investors flee. A great example: Shares of insurance giant American International Group (NYSE: AIG) fell 6.5% on the day of its earnings release in late October when CEO Robert Benmosche noted that the company’s property and casualty insurance businesses were far healthier than a few years ago but still not generating the returns that they should. Investors were also disappointed that a planned asset sale of its… Read More

Many investors look to buy and sell stocks based solely on near-term business conditions. If management raises guidance for the next quarter, shares rally. And if management takes note of some near-term headwinds, investors flee. A great example: Shares of insurance giant American International Group (NYSE: AIG) fell 6.5% on the day of its earnings release in late October when CEO Robert Benmosche noted that the company’s property and casualty insurance businesses were far healthier than a few years ago but still not generating the returns that they should. Investors were also disappointed that a planned asset sale of its aircraft lease finance business may not happen. AIG could instead sell part of that business in an IPO and retain a majority stake. As a result, shares have now fallen below their 100-day moving average for the first time this year. Yet there is a simple reason to expect AIG to resume its upward move. The upside from here: a 40% gain over the next 12 months, and a lot more than that down the road. That reason: Shares still trade at a sharp discount to tangible book value. Over the past few years, this stock has posted… Read More

By many measures, 2013 is shaping up to be the best year for initial public offerings (IPOs) since 2007.#-ad_banner-# The volume of new offerings has surged, and hot new issues such as FireEye (Nasdaq: FEYE), Rally Software (Nasdaq: RALY) and Epizyme (Nasdaq: EPZM) have already bagged triple-digit gains. This week’s well-received IPO from Twitter (NYSE: TWTR) is merely icing on the cake. Yet amid the good news, some IPOs have been duds. Companies with short track records or an open-ended path to operating losses have been tossed in the IPO dust bin. But in the rubble, you can find some… Read More

By many measures, 2013 is shaping up to be the best year for initial public offerings (IPOs) since 2007.#-ad_banner-# The volume of new offerings has surged, and hot new issues such as FireEye (Nasdaq: FEYE), Rally Software (Nasdaq: RALY) and Epizyme (Nasdaq: EPZM) have already bagged triple-digit gains. This week’s well-received IPO from Twitter (NYSE: TWTR) is merely icing on the cake. Yet amid the good news, some IPOs have been duds. Companies with short track records or an open-ended path to operating losses have been tossed in the IPO dust bin. But in the rubble, you can find some deep value plays — and building products firm Ply Gem Holdings (NYSE: PGEM) is one of them. The recent IPO has traded down but now holds considerable upside. What Went Wrong? Ply Gem makes a range of products used in home construction and the repairs and upgrades of existing homes. The company has strong market share in windows, doors, paving stone, vinyl siding, and fencing. And as you’d suspect, sales have been rising for the past few years in tandem with the housing recovery: Sales rose 8% in 2012 to $1.12 billion, and operating income rose 56%… Read More

Legendary activist investor Carl Icahn has had a tremendous run. In recent years, he’s made a quick fortune on many of his investments, thanks to a combination of savvy stock-picking and occasional cage-rattling.#-ad_banner-# But even Icahn has an off day. Earlier this year, he bought 6 million shares of oil refiner CVR Refining (NYSE: CVRR) just as the entire refinery industry was at a multi-year peak. Shares were trading above $30 when Icahn bough CVR, though as I cautioned in this mid-summer article, refinery stocks subsequently took it on the chin as pricing spreads narrowed between Brent crude and West… Read More

Legendary activist investor Carl Icahn has had a tremendous run. In recent years, he’s made a quick fortune on many of his investments, thanks to a combination of savvy stock-picking and occasional cage-rattling.#-ad_banner-# But even Icahn has an off day. Earlier this year, he bought 6 million shares of oil refiner CVR Refining (NYSE: CVRR) just as the entire refinery industry was at a multi-year peak. Shares were trading above $30 when Icahn bough CVR, though as I cautioned in this mid-summer article, refinery stocks subsequently took it on the chin as pricing spreads narrowed between Brent crude and West Texas Intermediate (WTI) crude. Although other refiners such as Valero (NYSE: VLO), HollyFrontier (NYSE: HFC) and Marathon Petroleum (NYSE: MPC) have stabilized or risen since I wrote that piece, Icahn’s pick has really fallen out of bed. The fund manager is now sitting on a 28% loss on CVRR. At this point, Icahn shouldn’t think of selling CVRR. Instead, he should be backing up the truck, as better days lay ahead, both in terms of potential gains and the projected divided yield. A Perfect Storm As I noted this summer, refiners were hurt by a narrowing spread… Read More

In the go-go days of 1999, Warren Buffett grew very concerned. Not because his value style of investing had grown unpopular, but because investors were becoming delusional in their zeal for further gains.#-ad_banner-# In a speech he made to friends, as recounted in a 1999 article in Fortune magazine (that was published just a few months before the market peaked and then plunged), Buffett warned that “once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to… Read More

In the go-go days of 1999, Warren Buffett grew very concerned. Not because his value style of investing had grown unpopular, but because investors were becoming delusional in their zeal for further gains.#-ad_banner-# In a speech he made to friends, as recounted in a 1999 article in Fortune magazine (that was published just a few months before the market peaked and then plunged), Buffett warned that “once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks.” A simple test of how much stocks were loved: The aggregate value of the largest 5,000 U.S. companies (as measured by the Wilshire 5000) exceeded the GNP of the U.S. economy. In fact, a market melt-up took this ratio up to 150% by early 2000 (meaning the Wilshire 5000 was 50% larger than the U.S. economy), which set the stage for one of the most painful corrections ever for investors. This ratio eventually dipped well below 100%, which for Buffett, has… Read More

The bungled initial public offering (IPO) for Facebook (Nasdaq: FB) was a real eye-opener for any company looking to go public.#-ad_banner-# Facebook’s shares famously plunged soon after they started trading, in large part because the $16 billion offering was so large that it created a great deal of investor confusion as share allocations were misdirected.  Lesson learned. Twitter’s (NYSE: TWTR) IPO valued the company at just $1.8 billion. Sure, that’s far higher than the initial $1 billion planned offering, but still a much smaller fish for the markets to digest. In a sure sign that investors must own this company,… Read More

The bungled initial public offering (IPO) for Facebook (Nasdaq: FB) was a real eye-opener for any company looking to go public.#-ad_banner-# Facebook’s shares famously plunged soon after they started trading, in large part because the $16 billion offering was so large that it created a great deal of investor confusion as share allocations were misdirected.  Lesson learned. Twitter’s (NYSE: TWTR) IPO valued the company at just $1.8 billion. Sure, that’s far higher than the initial $1 billion planned offering, but still a much smaller fish for the markets to digest. In a sure sign that investors must own this company, shares were initially set to be priced at around $20, the deal was eventually bumped to around $26, and opened at an eye-popping $45.10 a share. At that price, Twitter is now valued at more than $25 billion. Most of the company is still in private hands. Look for Twitter to slowly offer more shares in various secondary offerings, but the initial scarcity factor is going to make huge instant profits for some investors. But if you missed out on this morning’s offering, then you should wait. Twitter is now valued at more than 30 times projected 2014 sales, a… Read More

There are two major concerns facing investors right now. First, the global economy is not yet showing signs of a long-awaited upturn. Indeed, the U.S. is shaping up to be on much more solid footing than its peers (at least as evidenced by U.S. corporate profit growth in the current earnings season). That argues for companies that more squarely focused on the U.S., which usually means small-cap stocks.#-ad_banner-# Second, the rising market tide has lifted many boats, and it’s getting harder to find true bargains. But they still exist. I went scanning for GARP (growth at a reasonable… Read More

There are two major concerns facing investors right now. First, the global economy is not yet showing signs of a long-awaited upturn. Indeed, the U.S. is shaping up to be on much more solid footing than its peers (at least as evidenced by U.S. corporate profit growth in the current earnings season). That argues for companies that more squarely focused on the U.S., which usually means small-cap stocks.#-ad_banner-# Second, the rising market tide has lifted many boats, and it’s getting harder to find true bargains. But they still exist. I went scanning for GARP (growth at a reasonable price) stocks among the S&P 600 (small-cap index) and found more than a dozen stocks that are poised for robust profit growth in 2014, while trading at reasonable earnings multiples. (I only included companies with a market value between $250 million and $1 billion to exclude micro-caps or mid-caps that may be hiding in this small-cap index). A quick review of the list reveals no clear themes. We don’t find a cluster of stocks in any given industry, and instead need to look at these companies on a case-by-case basis. Here’s the select group. GARP Small Caps… Read More

Despite a series of boulders thrown in its path, the market has managed to march steadily higher throughout 2013. The 23% gain for the S&P 500 Index thus far in 2013 is higher than even the most bullish forecasts anticipated. Yet a look at why the market is reaching new heights can give us a clear read into what to expect in the year ahead. The S&P 500 has risen in eight of the past 10 months Here’s a look at five key themes from this year, and what to expect in 2014. 1. The Fed’s long-awaited… Read More

Despite a series of boulders thrown in its path, the market has managed to march steadily higher throughout 2013. The 23% gain for the S&P 500 Index thus far in 2013 is higher than even the most bullish forecasts anticipated. Yet a look at why the market is reaching new heights can give us a clear read into what to expect in the year ahead. The S&P 500 has risen in eight of the past 10 months Here’s a look at five key themes from this year, and what to expect in 2014. 1. The Fed’s long-awaited tapering For the past six months, the Federal Reserve has inched ever closer to ending the massive quantitative easing (QE) program that has pumped $85 billion into the economy every month. The Fed seemed poised for an imminent move in the spring, which led the markets to slump in late May and early June. The fact that Fed decided to wait a bit longer led investors to conclude that it was still safe to buy into a liquidity-fueled market. Few have expressed concern that the Fed’s inaction is the result of an economy that just can’t build… Read More

Short sellers love to focus on major themes, and one of their favorite themes involves unsustainable dividends. The shorts know that any time a dividend must be cut or eliminated, shares can drop sharply as the primary appeal of such high-yielders disappears. Case in point: Frontier Communications (NYSE: FTR), which currently has a short position in excess of 200 million shares. (I recently discussed this telecom’s impending dividend woes.) But Frontier’s not alone. A few of its peers in the telecom industry are also at risk of a painful dividend cut, and it’s unwise to focus on their current unsustainable… Read More

Short sellers love to focus on major themes, and one of their favorite themes involves unsustainable dividends. The shorts know that any time a dividend must be cut or eliminated, shares can drop sharply as the primary appeal of such high-yielders disappears. Case in point: Frontier Communications (NYSE: FTR), which currently has a short position in excess of 200 million shares. (I recently discussed this telecom’s impending dividend woes.) But Frontier’s not alone. A few of its peers in the telecom industry are also at risk of a painful dividend cut, and it’s unwise to focus on their current unsustainable dividend yields. 1. Consolidated Communications (Nasdaq: CNSL )  Current yield: 8.3% This local and long-distance phone company has supported an impressive $1.55 a share annual dividend since 2006. Trouble is, over the years, business has steadily deteriorated as its client base slowly defects to large wireless service providers. In years past, Consolidated typically generated around $15 million in annual operating cash flow, which was just enough to support the dividend. But operating profit fell 40% in 2012 to below $10 million, and of greater concern, free cash flow turned negative for only the second time in the past eight… Read More

With a 23% spike since Labor Day, the Spanish stock market may be the hottest in the world right now.#-ad_banner-# Considering that Spain has one of the world’s highest unemployment rates (exceeding 25%), and that its economy that grew a scant 0.1% this summer, the euphoria is simply unexpected. But investors are often well-served by focusing on distressed assets that may have hit bottom. In fact, three of the world’s richest men (Warren Buffett, Bill Gates and Mexico’s Carlos Slim) are taking the plunge. They’re not buying Spanish companies because business conditions are good. They’re doing it because Spanish assets… Read More

With a 23% spike since Labor Day, the Spanish stock market may be the hottest in the world right now.#-ad_banner-# Considering that Spain has one of the world’s highest unemployment rates (exceeding 25%), and that its economy that grew a scant 0.1% this summer, the euphoria is simply unexpected. But investors are often well-served by focusing on distressed assets that may have hit bottom. In fact, three of the world’s richest men (Warren Buffett, Bill Gates and Mexico’s Carlos Slim) are taking the plunge. They’re not buying Spanish companies because business conditions are good. They’re doing it because Spanish assets are quite cheap in relation to both the money that has been invested in them already, and in comparison to other European assets. News of an emerging Spanish revival among global investors was triggered by a $150 million purchase by Gates’ investment firm of Fomento de Construcciones y Contratas (FCC), which is not traded on U.S. markets. The company has cleaned up its balance sheet and diversified its country exposure, but more than half of sales are tied to Spain, mostly in cement-making. Yet Spain, like China, has a massive glut of unsold homes that were built at the height… Read More

The notion of a wide moat around your castle has been around for centuries. The early moats were designed to repel rivals and prevent them from invading and conquering. Today’s moats also keep rivals at bay. Companies that have built a solid moat around their business, limiting the threat of competition and price wars to some degree, tend to garner higher valuations from investors. How do we know that? Because the Market Vectors Wide Moat ETF (NYSE: MOAT) exchange-traded fund (ETF), which debuted in April 2012, is handily outperforming its benchmark, the S&P 500 Index. The question for… Read More

The notion of a wide moat around your castle has been around for centuries. The early moats were designed to repel rivals and prevent them from invading and conquering. Today’s moats also keep rivals at bay. Companies that have built a solid moat around their business, limiting the threat of competition and price wars to some degree, tend to garner higher valuations from investors. How do we know that? Because the Market Vectors Wide Moat ETF (NYSE: MOAT) exchange-traded fund (ETF), which debuted in April 2012, is handily outperforming its benchmark, the S&P 500 Index. The question for investors: Is it better to own this fund, or to try to find your own companies with solid moats? To answer this, let’s first look at how this ETF is constructed. Deep Concentration Unlike many ETFs that own a tiny slice of hundreds of companies, this ETF has a roughly 5% weighting in just 20 companies. In the portfolio, you’ll find household names such as Coca-Cola (NYSE: KO), Cisco Systems (Nasdaq: CSCO), eBay (Nasdaq: EBAY) and Bank of New York (NYSE: BNY). It’s immediately clear why companies like Cisco or eBay get the nod as they possess the products… Read More