Trends are everything in the fashion world. What’s hot one summer will almost certainly look outdated by the next — when it’s been priced to move.  #-ad_banner-#Investors know a little something about trends, too — along with buying the hottest stock versus the one on sale. Value investors pride themselves on finding out-of-favor companies selling at discounted prices and holding them until the market realizes the stock’s intrinsic value. They also know that all trends, no matter which way it’s heading or how strongly it’s moving, eventually reverse direction. One small retailer has had a tumultuous year, dropping… Read More

Trends are everything in the fashion world. What’s hot one summer will almost certainly look outdated by the next — when it’s been priced to move.  #-ad_banner-#Investors know a little something about trends, too — along with buying the hottest stock versus the one on sale. Value investors pride themselves on finding out-of-favor companies selling at discounted prices and holding them until the market realizes the stock’s intrinsic value. They also know that all trends, no matter which way it’s heading or how strongly it’s moving, eventually reverse direction. One small retailer has had a tumultuous year, dropping nearly half its value. Disappointing first-quarter earnings didn’t help investors’ confidence, sending the stock down as much as 10% in a single day.  Yet considering that consumers are spending more as the economy picks up its pace, and industry competitors are making bold acquisitions in anticipation of growth, there’s clearly more to the story here. New York & Co. (NYSE: NWY) is a $219 million woman’s fashion and apparel company with about 500 retail locations and a growing e-commerce base. The company has incorporated many celebrities into its marketing efforts over the years, with its latest a clothing collection in… Read More

I’m a huge fan of science fiction novels and films. Having grown up on Star Wars movies and books by authors like Alastair Reynolds and Philip K. Dick, I marveled at the possibilities and envisioned living in a similar world.  #-ad_banner-#Fast-forward to 2014, and the very things I thought were the stuff of fiction have become modern-day technologies. Any proper fan of sci-fi will note certain similarities in near-future stories — hand-held computers, holograms and self-driving cars.  Many of these things have already come to pass or are on the verge of doing so. Smartphones… Read More

I’m a huge fan of science fiction novels and films. Having grown up on Star Wars movies and books by authors like Alastair Reynolds and Philip K. Dick, I marveled at the possibilities and envisioned living in a similar world.  #-ad_banner-#Fast-forward to 2014, and the very things I thought were the stuff of fiction have become modern-day technologies. Any proper fan of sci-fi will note certain similarities in near-future stories — hand-held computers, holograms and self-driving cars.  Many of these things have already come to pass or are on the verge of doing so. Smartphones have many times the computing power of those used by the Apollo astronauts, a holographic keyboard is available for some hand-held devices, and Google’s (Nasdaq: GOOG) campus is known to house a self-driving car. Looking to the future, technologies across many industries will undoubtedly surprise us all with inventions that will amaze us — and that our children and grandchildren will take for granted.  However, investors are more interested in futuristic developments with real-world applications.  Telecommunications has received the most attention from futurist investors, which shows in the sector’s average price-to-earnings (P/E) ratio of 37. Value-minded shoppers look to other sectors… Read More

Have you ever been shopping and found one of your favorite items marked down to a price you couldn’t pass up?  #-ad_banner-#Then you know how value investors feel when they spot a small-cap stock with double-digit growth expectations trading well below its intrinsic value.  Investment guru Peter Lynch famously coined the phrase “10-bagger,” referring to an investment that returned 10 times its initial purchase price, by using a specific methodology to identify undervalued stocks. From 1977 to 1990, his flagship company, the Magellan Fund, netted average annual returns of 29.2% using his innovative investment formula. … Read More

Have you ever been shopping and found one of your favorite items marked down to a price you couldn’t pass up?  #-ad_banner-#Then you know how value investors feel when they spot a small-cap stock with double-digit growth expectations trading well below its intrinsic value.  Investment guru Peter Lynch famously coined the phrase “10-bagger,” referring to an investment that returned 10 times its initial purchase price, by using a specific methodology to identify undervalued stocks. From 1977 to 1990, his flagship company, the Magellan Fund, netted average annual returns of 29.2% using his innovative investment formula.  The criteria for finding a deeply undervalued stock are simple. It should have a price-to-earnings (P/E) ratio below the averages for its industry and the broader market. Its projected five-year growth in earnings per share (EPS) should be high, but less than 50% to weed out unsustainable growth. Finally, the stock shouldn’t have a debt load that could prevent it from growing.  PC Connection (Nasdaq: PCCC) meets all Lynch’s criteria for value. It has a current P/E of 14.5, under the industry average of 15.4 and well under the S&P 500 average of 19.3. EPS growth forecasts for the next… Read More

Investing in value stocks often means making counterintuitive decisions. We buy when everyone is selling and staying far away.  #-ad_banner-#Experienced investors know this as a truism, but it seems downright silly if you compare it to other situations. For example, if everyone is running away from a building, it probably makes sense to also keep away. You wouldn’t disregard the possible danger and rush in yourself, right? We have a built-in auto-response to stick with groups when facing the unknown. That crowd mentality is deeply ingrained in our psyche, and for good reason. That natural instinct to group… Read More

Investing in value stocks often means making counterintuitive decisions. We buy when everyone is selling and staying far away.  #-ad_banner-#Experienced investors know this as a truism, but it seems downright silly if you compare it to other situations. For example, if everyone is running away from a building, it probably makes sense to also keep away. You wouldn’t disregard the possible danger and rush in yourself, right? We have a built-in auto-response to stick with groups when facing the unknown. That crowd mentality is deeply ingrained in our psyche, and for good reason. That natural instinct to group together has kept us alive throughout the evolution of our species — those who ignored it aren’t here today. The environment of the financial markets is not the wild savannah, however. If you invest like everyone around you, your performance will match everyone around you as well. You have to break free of the pack and realize that, to quote the movie “Men in Black”: “A person is smart. People are dumb, panicky, dangerous animals.” Following the crowd may give you a little peace of mind in the moment, but it’s unlikely to profit you in the long run. Buying… Read More

If you think back to your school days, you may remember a kid or two who constantly had their hands raised and contradicted the teacher at every opportunity. The kid questioned everything, to an irritating extent: Why couldn’t they just accept what they were being told and move on? #-ad_banner-#However, I usually had another thought that crept into my mind. What if they were right about everything? Could they really be that much smarter than everyone else? Years later, you might still hear that same kid’s voice, contradicting your investment ideas and your research — only this time, that kid… Read More

If you think back to your school days, you may remember a kid or two who constantly had their hands raised and contradicted the teacher at every opportunity. The kid questioned everything, to an irritating extent: Why couldn’t they just accept what they were being told and move on? #-ad_banner-#However, I usually had another thought that crept into my mind. What if they were right about everything? Could they really be that much smarter than everyone else? Years later, you might still hear that same kid’s voice, contradicting your investment ideas and your research — only this time, that kid is known as something else… a short seller.  Short sellers have the reputation of being smarter than everyone in the room. Wall Street calls these investors the “smart money” because of the presumption that they must have sophisticated knowledge to predict when a stock is going to fall.  It doesn’t necessarily make them right, though. Shorting a stock is a dangerous game, which is why only the “smart money” usually engages in it. If the stock begins to rise, short sellers will have to cover their positions by buying stock, an action that puts upward pressure on an already rising… Read More

Science — it’s responsible for everything we take for granted these days.  #-ad_banner-#We trade on global platforms made possible by scientific innovations. Companies constantly look for new ways to stay competitive by taking advantage of new technologies and more efficient processes. From telecommunications to green energy to agriculture, scientific breakthroughs have advanced human knowledge, increased workers’ productivity and allowed us to create a world that until recently would’ve seemed the stuff of fiction. Before the technological revolution, though, there was another branch of science dedicated to the idea of making money from nothing. It was called alchemy. Using… Read More

Science — it’s responsible for everything we take for granted these days.  #-ad_banner-#We trade on global platforms made possible by scientific innovations. Companies constantly look for new ways to stay competitive by taking advantage of new technologies and more efficient processes. From telecommunications to green energy to agriculture, scientific breakthroughs have advanced human knowledge, increased workers’ productivity and allowed us to create a world that until recently would’ve seemed the stuff of fiction. Before the technological revolution, though, there was another branch of science dedicated to the idea of making money from nothing. It was called alchemy. Using a legendary substance known as the philosopher’s stone, alchemists believed they could transform lead into gold.  As farfetched as it might sound, the idea turned out to have some valid scientific basis. Lead has an atomic number of 82 while gold’s is 79. Before you dismiss the idea as pure quackery, the same transformation occurs naturally in nature in the form of radioactive decay.  In fact, just recently, a team of scientists were actually able to accomplish the alchemists’ dream of turning lead into gold. Before you think about creating a lead portfolio, it took the use of a particle… Read More

I love fried catfish. There’s a tiny hole-in-the-wall restaurant on a back road that you could drive by and not know what it was that serves the best catfish I’ve ever had in my life. The owner is a jovial man who’s quick with a joke and an unassuming smile. Imagine my surprise when in the course of conversation, I learned that he can’t even eat his own food. He’s allergic to catfish. It’s not his fault, but how could he honestly stand behind his product if he couldn’t even sample it? To my thinking, any business owner who wants… Read More

I love fried catfish. There’s a tiny hole-in-the-wall restaurant on a back road that you could drive by and not know what it was that serves the best catfish I’ve ever had in my life. The owner is a jovial man who’s quick with a joke and an unassuming smile. Imagine my surprise when in the course of conversation, I learned that he can’t even eat his own food. He’s allergic to catfish. It’s not his fault, but how could he honestly stand behind his product if he couldn’t even sample it? To my thinking, any business owner who wants to sell their product or service should also be an avid consumer as well. If they don’t use it, how can they expect me to believe in its value? The same idea can be applied to stock picking. When I look for potential breakout stocks, one key giveaway that it’s undervalued is recent insider buying. No one knows a company better than the people who run it, so investors should pay attention when management starts buying stock.   One tiny micro-cap company looks like it has all the right ingredients for value investors. In March, a director purchased $1.5 million… Read More

Bond investors have a good thing going for them. They finance part of a company’s operations in exchange for a return of capital at a later date and pocket steady interest payments along the way.  #-ad_banner-#True, they miss out on any growth the company might have, but for the most part they’re exposed to minimal risk. But what if you could have both an equity position and receive a high yield as well? Enter the master limited partnership (MLP). This asset class behaves much like common stocks do; they’re highly liquid, and as a shareholder, you benefit from… Read More

Bond investors have a good thing going for them. They finance part of a company’s operations in exchange for a return of capital at a later date and pocket steady interest payments along the way.  #-ad_banner-#True, they miss out on any growth the company might have, but for the most part they’re exposed to minimal risk. But what if you could have both an equity position and receive a high yield as well? Enter the master limited partnership (MLP). This asset class behaves much like common stocks do; they’re highly liquid, and as a shareholder, you benefit from the growth of the company. The secret to the appeal of MLPs lies in the tax treatment. Unlike a standard corporation, MLPs aren’t required to pay any taxes; instead they pass it on to unit holders.  The net effective tax rate for corporations in the U.S. is 40%. Dividends are issued only after all taxes have been taken out. Because MLPs bypass taxation, they pay out 90% or more of profits to the shareholder resulting in higher than average dividend yields.  MLPs are primarily tied to energy commodities, a sector that’s been red-hot for the past couple of years. Thanks… Read More

The real estate investment trust (REIT) is one of more misunderstood asset classes. #-ad_banner-#There’s an undue amount of confusion with these companies — but they may be some of the simplest types of stocks out there. A REIT is a company that owns a portfolio of real estate properties that generate income from rentals and capital appreciation when the property is sold. A REIT must pass on 90% or more of its profits on to investors because of its unique tax structure, making them a staple in any dividend-oriented portfolio. Investors have shied away from anything remotely attached to mortgages… Read More

The real estate investment trust (REIT) is one of more misunderstood asset classes. #-ad_banner-#There’s an undue amount of confusion with these companies — but they may be some of the simplest types of stocks out there. A REIT is a company that owns a portfolio of real estate properties that generate income from rentals and capital appreciation when the property is sold. A REIT must pass on 90% or more of its profits on to investors because of its unique tax structure, making them a staple in any dividend-oriented portfolio. Investors have shied away from anything remotely attached to mortgages since the 2008 financial crisis. This can be clearly seen by looking at the Vanguard REIT Index ETF (NYSE: VNQ). In the past two years, this exchange-traded fund rose just 15% compared with the S&P 500’s climb of about 38%. Adding to the issue is the Federal Reserve’s taper of its quantitative easing program and expected rise in interest rates, which is adding more skepticism to the sector. REITs have been a “hated” sector for years, but the trend should start to reverse. Interest rates may be rising, but they are still at historic lows, and… Read More

The stock market is quickly closing in on new highs despite looking overvalued. The S&P 500’s Shiller price-to-earnings (P/E) ratio is now over 25 — around 52% above its historical average of 16.5. Investors looking for clues in the CBOE Volatility Index (VIX) aren’t getting much useful information. Just this month, the index has ranged from an alarming high of 21.44 to a deceptively safe low of 13.57. #-ad_banner-#While the bull market marches forward toward its penultimate climax, savvy investors are looking for stocks that will perform well no matter what the macroeconomic environment is. These defensive stocks have non-cyclical… Read More

The stock market is quickly closing in on new highs despite looking overvalued. The S&P 500’s Shiller price-to-earnings (P/E) ratio is now over 25 — around 52% above its historical average of 16.5. Investors looking for clues in the CBOE Volatility Index (VIX) aren’t getting much useful information. Just this month, the index has ranged from an alarming high of 21.44 to a deceptively safe low of 13.57. #-ad_banner-#While the bull market marches forward toward its penultimate climax, savvy investors are looking for stocks that will perform well no matter what the macroeconomic environment is. These defensive stocks have non-cyclical businesses with a non-discretionary product, which allows them to perform well during recessions and down economies. The best defensive-oriented investors can hope for is to have a company with an essential product or service that’s not tied to the overall economy be in short supply. When the price of oil rises, it may hurt consumers, but it also helps lift the stock price of companies like Exxon Mobile (NYSE: XOM). But it’s not oil that consumers are suddenly craving. The demand for chicken is the catalyst that could drive one company’s stock price higher no matter what the stock market… Read More