Companies that take radical steps in pursuit of growth are often accorded very rich valuations. Case in point: Amazon.com, Inc. (Nasdaq: AMZN), which as I recently wrote, has a valuation that bears no relation to it’s financial measures, such as free cash flow. #-ad_banner-#In one respect, such companies are fortunate. In the absence of traditional valuation measurements, they are often given a free pass from a fundamental analysis perspective. Of course, when a once-hot growth company starts to mature, such valuations start to matter a lot. A deep look at grocer Whole Foods Market, Inc. (NYSE: WFM) provides an example… Read More

Companies that take radical steps in pursuit of growth are often accorded very rich valuations. Case in point: Amazon.com, Inc. (Nasdaq: AMZN), which as I recently wrote, has a valuation that bears no relation to it’s financial measures, such as free cash flow. #-ad_banner-#In one respect, such companies are fortunate. In the absence of traditional valuation measurements, they are often given a free pass from a fundamental analysis perspective. Of course, when a once-hot growth company starts to mature, such valuations start to matter a lot. A deep look at grocer Whole Foods Market, Inc. (NYSE: WFM) provides an example of an absurdly overvalued stock — one you should avoid or outright short. The Air Pocket Becomes Permanent Roughly a year ago, shares of Whole Foods hit an air pocket as heightened competition from firms such as The Fresh Market, Inc. (Nasdaq: TFM) and Sprouts Farmers Market, Inc. (Nasdaq: SFM) led to slowing growth. Yet, in recent months, shares of Whole Foods have staged a remarkable rebound. The explanation for this stock’s sudden renaissance is quite simple: Whole Foods has delivered 8% same stores sales growth and 23% annual profit growth since 1994, and investors have recently… Read More

I have been in the investment business for more than two decades. In that time, I’ve heard many debates about the relative importance of high levels of insider ownership. The arguments against it are indeed compelling. #-ad_banner-#First, management may own so much stock that they feel compelled to aggressively talk up a company’s prospects, solely to boost the value of shares. Second, when management controls a lot of stock, they may start to ignore the wishes of outside investors and take steps that enrich themselves ahead of other shareholders (such as board-approved excessive compensation levels). Lastly, a high concentration of… Read More

I have been in the investment business for more than two decades. In that time, I’ve heard many debates about the relative importance of high levels of insider ownership. The arguments against it are indeed compelling. #-ad_banner-#First, management may own so much stock that they feel compelled to aggressively talk up a company’s prospects, solely to boost the value of shares. Second, when management controls a lot of stock, they may start to ignore the wishes of outside investors and take steps that enrich themselves ahead of other shareholders (such as board-approved excessive compensation levels). Lastly, a high concentration of shares in the hands of a few may lead to thin trading floats, which boost volatility and bid-ask spreads. My view: high levels of insider ownership are mostly a good thing, because you want management to have the same goal as you: a higher stock price. But I was never fully convinced of that view, until I came across a landmark study on the topic. A pair of finance professors (hailing from Sweden and Germany) found that “investing in firms in which the CEO owns a substantial fraction of shares (for example more than 10% of outstanding… Read More

When I arrived in Canada in 1970, one of the first investment maxims I was taught by the old pros was, “Put your money in the bank stocks, not the banks.” #-ad_banner-#The point was I would see far better returns holding bank shares than I would earning interest in a savings account. As this bull market rages on with the S&P 500 about 215% higher than its early 2009 low, I want to update the maxim. While this bull market continues, I say, buy the brokerage stocks. As the market trends higher, investors gain more confidence. With increased confidence, they… Read More

When I arrived in Canada in 1970, one of the first investment maxims I was taught by the old pros was, “Put your money in the bank stocks, not the banks.” #-ad_banner-#The point was I would see far better returns holding bank shares than I would earning interest in a savings account. As this bull market rages on with the S&P 500 about 215% higher than its early 2009 low, I want to update the maxim. While this bull market continues, I say, buy the brokerage stocks. As the market trends higher, investors gain more confidence. With increased confidence, they invest and trade more. As the market rises, there is more trading equity in their accounts and they can make bigger bets. Brokers benefit from this virtuous cycle. The ability to trade from virtually any mobile platform, anytime, anywhere is another reason trading activity at many online brokers is rising. One of the most innovative online brokers is Interactive Brokers (NASDAQ: IBKR). The company was rated highest in Barron’s survey of the best online brokerage for the third straight year. Ranked on categories such as trading cost, portfolio analysis and trading platform usability, the company scored 36.7 out of a… Read More

Some chart patterns are pauses that will eventually resolve in the direction of the preceding trend. Some are pauses that signal a change in trend. The trick is to wait for the market to tell us which it is before we act. To be sure, most patterns can go either way. That makes waiting for the breakout/breakdown a critical step, because even a pattern with a bullish name, such as an ascending triangle, can lose to the bears.  Right now, consumer products giant and member of the blue-chip Dow 30, Procter & Gamble (NYSE: PG), offers such a… Read More

Some chart patterns are pauses that will eventually resolve in the direction of the preceding trend. Some are pauses that signal a change in trend. The trick is to wait for the market to tell us which it is before we act. To be sure, most patterns can go either way. That makes waiting for the breakout/breakdown a critical step, because even a pattern with a bullish name, such as an ascending triangle, can lose to the bears.  Right now, consumer products giant and member of the blue-chip Dow 30, Procter & Gamble (NYSE: PG), offers such a setup.  Not only does it sport a very clear symmetrical triangle pattern, but it is now trading between trendline and moving average support and resistance levels. Indeed, it is at a crossroads with both long- and short-term implications (although today’s trade will be limited to the short term). As we can see in the chart, PG recently broke down sharply below the short-term rising trendline from July. However, it is also sitting just above a long-term trendline from the June 2012 bottom, which coincides with horizontal chart support from late last year. #-ad_banner-#In other words, the… Read More

I’m a pen and paper kind of guy. If I had my pick, I’d sit down with the newspaper or a book over reading from a screen any day.   #-ad_banner-#But this preference is becoming less and less common. Today, with Kindles, iPads, laptops and smartphones increasingly popular, we can now access entire libraries worth of information from a single, tiny device.   Newspapers and physical books have become — dare I say — inefficient. And it’s left me wondering, “What’s happening to traditional publishing? Is there still money to be made from physical publications?”   As it… Read More

I’m a pen and paper kind of guy. If I had my pick, I’d sit down with the newspaper or a book over reading from a screen any day.   #-ad_banner-#But this preference is becoming less and less common. Today, with Kindles, iPads, laptops and smartphones increasingly popular, we can now access entire libraries worth of information from a single, tiny device.   Newspapers and physical books have become — dare I say — inefficient. And it’s left me wondering, “What’s happening to traditional publishing? Is there still money to be made from physical publications?”   As it turns out, there is. But not in the way you might expect.   You see, when I started looking into this, I began with an assumption that turned out to be completely false.   These companies don’t rely on readers for revenue. Advertisers, not subscribers, drive their earnings.   And as I dug deeper into the business models of companies like The New York Times, The Wall Street Journal, and McGraw Hill to name a few, that insight helped me discover something even more important.   That is, the real reason the internet and mobile technologies have made it hard… Read More

As a technical analyst, I am more concerned with a stock’s reaction to news than I am with the news itself. And with a stock such as that of chicken producer Tyson Farms (NYSE: TSN), the chart is showing positive reactions following all sorts of news. #-ad_banner-#For example, the day China banned the import of American chicken and eggs due to a bird flu scare, many stocks in the sector tumbled. Tyson was off 3.1% on Jan. 12, but just two days later it began a rally that would go on unabated for eight trading days and gain… Read More

As a technical analyst, I am more concerned with a stock’s reaction to news than I am with the news itself. And with a stock such as that of chicken producer Tyson Farms (NYSE: TSN), the chart is showing positive reactions following all sorts of news. #-ad_banner-#For example, the day China banned the import of American chicken and eggs due to a bird flu scare, many stocks in the sector tumbled. Tyson was off 3.1% on Jan. 12, but just two days later it began a rally that would go on unabated for eight trading days and gain back more than was lost. That is what I would call “shrugging it off,” and it is a positive sign for the stock. However, since the major trend was still sideways, sellers once again got active and prices eased. Then, on Jan. 30, the company topped analysts’ earnings estimates on surging sales. The bullish reaction to the news was to be expected, as TSN jumped more than 3% at the open.  But then something strange happened. Investors got cold feet and turned on the stock, sending prices tumbling to close the day off nearly 3% and 7% below the day’s… Read More

Investors know that there are multiple ways to approach stock-picking. Momentum investors, for example, identify hot stocks that have the support of key technical patterns. It’s a strategy that has been put to great use in StreetAuthority’s Maximum Profit newsletter. #-ad_banner-#I tend to identify investment opportunities through a different tack: contrarian investing, which is used by Warren Buffett and many other gurus. At the simplest level, such an approach targets out-of-favor stocks that may possess ample latent upside, or exceedingly popular stocks that appear ripe for a pullback. As an example, that approach recently led me to conclude that shares… Read More

Investors know that there are multiple ways to approach stock-picking. Momentum investors, for example, identify hot stocks that have the support of key technical patterns. It’s a strategy that has been put to great use in StreetAuthority’s Maximum Profit newsletter. #-ad_banner-#I tend to identify investment opportunities through a different tack: contrarian investing, which is used by Warren Buffett and many other gurus. At the simplest level, such an approach targets out-of-favor stocks that may possess ample latent upside, or exceedingly popular stocks that appear ripe for a pullback. As an example, that approach recently led me to conclude that shares of Amazon.com, Inc. (Nasdaq: AMZN) were now fully valued or even overvalued. Yet, I don’t always consider popular stocks to be overvalued — if they have the catalysts in place for more upside. Companies, such as Netflix, Inc. (Nasdaq: NFLX) or Salesforce.com, Inc.  (NYSE: CRM), continue to revolutionize their respective industry niches, and you simply can’t bet against them, even as they remain near all-time highs. Contrarian investing works so well with dot-com stocks, simply because these stocks can trade all over the map. As an example, I was a big fan of LinkedIn Corp. (NYSE: LNKD) when its shares… Read More

Last Tuesday, all eyes were on Federal Reserve Chief Janet Yellen. In prepared testimony, she offered a few hints that interest rate increases may begin this summer.   #-ad_banner-#While the crowd is thinking about rate hikes, few are thinking about U.S. interest rates heading lower, or possibly even turning negative.   The idea may seem absurd, but is it?   The notion of negative interest rates is surely controversial. Some analysts think the Fed would never let it happen, as the massive U.S. money market system would be unable to function efficiently and profitably in… Read More

Last Tuesday, all eyes were on Federal Reserve Chief Janet Yellen. In prepared testimony, she offered a few hints that interest rate increases may begin this summer.   #-ad_banner-#While the crowd is thinking about rate hikes, few are thinking about U.S. interest rates heading lower, or possibly even turning negative.   The idea may seem absurd, but is it?   The notion of negative interest rates is surely controversial. Some analysts think the Fed would never let it happen, as the massive U.S. money market system would be unable to function efficiently and profitably in a negative rate environment.   Then there’s the relative strength of the U.S. economy, which is seemingly strong enough to counter the need for more aggressive Fed actions. An alternative view: recessionary pressures from the soaring dollar and weak foreign economies could eventually prove powerful enough to force the Fed into more rate cuts.   Thanks to decade-high strength, the dollar is squeezing U.S. multinational firms as profits earned in weaker foreign currencies are worth substantially less in dollars. Thus, analysts see U.S. corporate profits only growing about 7% overall this earnings season, down from the 11% gain projected a… Read More

Heading into the 2013 holiday season, the Amazon.com, Inc. (Nasdaq: AMZN) juggernaut could not be stopped.   #-ad_banner-#The company’s website was so busy that shippers United Parcel Service, Inc. (NYSE: UPS) and FedEx Corp. (NYSE: FDX) were overwhelmed, leading to missed delivery dates. In December 2013, investors saw that as a nice problem to have and pushed Amazon’s stock above $400 for the first time in its history. The rally seemed logical: few companies can boast of 18 straight years of at least 20% sales growth, as Amazon did that year.   Soon after, investors concluded that consistently strong sales… Read More

Heading into the 2013 holiday season, the Amazon.com, Inc. (Nasdaq: AMZN) juggernaut could not be stopped.   #-ad_banner-#The company’s website was so busy that shippers United Parcel Service, Inc. (NYSE: UPS) and FedEx Corp. (NYSE: FDX) were overwhelmed, leading to missed delivery dates. In December 2013, investors saw that as a nice problem to have and pushed Amazon’s stock above $400 for the first time in its history. The rally seemed logical: few companies can boast of 18 straight years of at least 20% sales growth, as Amazon did that year.   Soon after, investors concluded that consistently strong sales growth wasn’t enough to justify nosebleed valuations. The company’s roughly $185 billion valuation was hard to square with just $2 billion in free cash flow. A few months later, when management warned that 2014 free cash flow would actually drop from 2013 levels, investors began to head for the exits. By the middle of spring, shares moved below $300, as investors grew weary of yet more growth for its own sake. “Show us the money” demanded investors. But investors are a fickle lot, and concerns about a lack of free cash flow are evidently no longer a concern. Since bottoming… Read More

Whether you enjoy fast-food or not, there’s something interesting going on in the industry. #-ad_banner-#It’s so interesting in fact that I did a deep dive and found a great way to profit from the changing dynamics. If I’m right, then savvy investors stand to pocket some nice gains from this opportunity. As you may have recently heard, effective March 1, McDonald’s (NYSE: MCD) CEO Don Thompson will resign from the fast-food giant, which had been languishing for some time under his leadership. The straw that broke the camel’s back appears to be McDonald’s recently… Read More

Whether you enjoy fast-food or not, there’s something interesting going on in the industry. #-ad_banner-#It’s so interesting in fact that I did a deep dive and found a great way to profit from the changing dynamics. If I’m right, then savvy investors stand to pocket some nice gains from this opportunity. As you may have recently heard, effective March 1, McDonald’s (NYSE: MCD) CEO Don Thompson will resign from the fast-food giant, which had been languishing for some time under his leadership. The straw that broke the camel’s back appears to be McDonald’s recently reported drop in same-store sales, the first since 2002. Shares of the storied company have fared poorly — losing about 3% in the past year, greatly underperforming the S&P 500, which is up 13.9% in the same time period. But this poor performance isn’t new. For the past five years, MCD shares are up 51.6%… still a pretty paltry showing given the market’s 94% advance in the same period. Many market pundits are faulting McDonald’s soon to be ex-CEO for the poor performance. While there were likely some… Read More