With the price of West Texas Intermediate crude falling to its lowest levels since June 2012, you might be tempted to think that things couldn’t get any worse for the energy sector. After all, the U.S. energy revolution has just begun and oil production is forecast to increase until 2020 before topping out at 9.6 million barrels per day (bpd), an increase of 48% in daily production from 2012. How bad could things get if the increase in U.S. oil production accounts for 197% of the total increase in global… Read More

With the price of West Texas Intermediate crude falling to its lowest levels since June 2012, you might be tempted to think that things couldn’t get any worse for the energy sector. After all, the U.S. energy revolution has just begun and oil production is forecast to increase until 2020 before topping out at 9.6 million barrels per day (bpd), an increase of 48% in daily production from 2012. How bad could things get if the increase in U.S. oil production accounts for 197% of the total increase in global production? According to the BP Statistical Review of World Energy 2014, the United States booked a production increase of 1.1 million bpd last year. The rest of the world saw production fall by 554,000 bpd, for a net global gain of 557,000 bpd. #-ad_banner-#​But all the good news in energy is assuming that the United States can keep production increasing. Cracks in the shale story are leading some investors to doubt that assumption, making falling oil prices the least of your worries. The Premature Demise Of… Read More

One of my favorite screens for stock ideas is to look at the most heavily shorted companies in the market. For one reason or another, the market has gotten severely pessimistic on these stocks and traders are borrowing millions of shares to sell short.  Most of the time, the short attack on the company is for good reason. Maybe management has squandered an advantage or the company just operates in a deteriorating industry. But every once in a while, I come across a company that does not deserve the negative sentiment and is actually a strong buy rather than a… Read More

One of my favorite screens for stock ideas is to look at the most heavily shorted companies in the market. For one reason or another, the market has gotten severely pessimistic on these stocks and traders are borrowing millions of shares to sell short.  Most of the time, the short attack on the company is for good reason. Maybe management has squandered an advantage or the company just operates in a deteriorating industry. But every once in a while, I come across a company that does not deserve the negative sentiment and is actually a strong buy rather than a sell target.  #-ad_banner-#That is exactly what I found when I looked at my screen of heavily shorted companies this week. Not only is today’s pick a leader in two of the three markets it covers, but it just announced plans to triple the size of one of those markets. A Market Leader Opening New Markets ADT Corporation (NYSE: ADT) is a leader in security and automation. Its 25% share of the $11 billion residential security market gives it more than six times the share of its next largest competitor in a market with just 19% penetration.  The company also holds… Read More

We spend a lot of time here at Profitable Trading showing you how to use options to generate income and hedge your portfolio. Investors are slowly opening up to the idea of actively using options for market-beating returns and consistent income.  For example, my colleague, Amber Hestla, has generated 54.5% average annualized gains with a simple put selling strategy on her way to a perfect track record. You can see the details here. While many have shed their reservations about using options for trading, there is another use for derivatives that we haven’t talked about much. … Read More

We spend a lot of time here at Profitable Trading showing you how to use options to generate income and hedge your portfolio. Investors are slowly opening up to the idea of actively using options for market-beating returns and consistent income.  For example, my colleague, Amber Hestla, has generated 54.5% average annualized gains with a simple put selling strategy on her way to a perfect track record. You can see the details here. While many have shed their reservations about using options for trading, there is another use for derivatives that we haven’t talked about much.  One of my favorite uses for options is not for direct buying or selling, but as a gauge of market sentiment. #-ad_banner-#While no indicator is perfect, this is one of the most widely followed by professional traders and can actually help you time the market. In fact, it is by using this powerful options indicator that I avoided much of the sell-off in stocks when the market crashed in 2008. This indicator started flashing warning signals in 2006 that the market was too exuberant about future returns. I gradually started to hedge my positions in 2007, and waited… Read More

Investors are on edge lately as the prospect of higher interest rates threatens their investments in real estate investment trusts, or REITs.  And they have good reason to worry. When the market dropped 5.6% on the taper tantrum in 2013, the Vanguard REIT ETF (NYSE: VNQ) plunged 15.5% over the five-week period, and that was simply from investor sentiment ahead of rising rates.  Not only might investor sentiment hit REITs further, but rising rates could hit the shares from an operational point-of-view as well. While the rest of the market bickers about whether the increase in rates will come in… Read More

Investors are on edge lately as the prospect of higher interest rates threatens their investments in real estate investment trusts, or REITs.  And they have good reason to worry. When the market dropped 5.6% on the taper tantrum in 2013, the Vanguard REIT ETF (NYSE: VNQ) plunged 15.5% over the five-week period, and that was simply from investor sentiment ahead of rising rates.  Not only might investor sentiment hit REITs further, but rising rates could hit the shares from an operational point-of-view as well. While the rest of the market bickers about whether the increase in rates will come in the spring or the summer, nothing short of another economic collapse is going to keep the Fed from raising rates next year.  When it does, REITs could be in for a tough time even against stronger economic growth.  REITs & Rates — A Mixed Bag About the only positive thing you can say about rising interest rates for REITs is that it generally occurs against a strengthening economic backdrop. Economic growth should allow property owners to increase rents and vacancy rates generally come down, especially for commercial property. The problem is that most properties are leased on long-term contracts… Read More

Geo-political tensions, historic monetary programs and a global economy that has yet to show us much have all helped to quiet the drone of worries over the effect from the coming retirement of the boomer generation. But those worries are still there. #-ad_banner-#Almost daily I read a new article warning about how the exodus of 76 million boomers could bring the next market meltdown. Will they withdraw all their money from stocks, favoring the safety of cash or bonds, leading to an abrupt selloff in equity prices? Will reduced spending lead to decades of subpar economic growth and disappointing returns?… Read More

Geo-political tensions, historic monetary programs and a global economy that has yet to show us much have all helped to quiet the drone of worries over the effect from the coming retirement of the boomer generation. But those worries are still there. #-ad_banner-#Almost daily I read a new article warning about how the exodus of 76 million boomers could bring the next market meltdown. Will they withdraw all their money from stocks, favoring the safety of cash or bonds, leading to an abrupt selloff in equity prices? Will reduced spending lead to decades of subpar economic growth and disappointing returns? While I wouldn’t count myself as one of the doomsayers, there is good reason to be fearful. Seniors are becoming an increasingly large proportion of the U.S. population, those 65 years and older will account for 19% of the population in 2030 from just 13% in 2010. Researchers at the University of Missouri found that tolerance for risk decreases approximately 2% for each year above the median age of 47 years old. This would back up the belief that boomers could switch their investment allocations from stocks to safer investments over the coming years. Data from the… Read More

There is a saying in the media that “content is king,” meaning if you produce entertaining and useful material for your audience, then the money will follow.   Yet, if a company is not actively engaged in making money, then all the content in the world will not make it a success.  Case in point: King Digital Entertainment (NYSE: KING) plummeted 23% on Aug. 13, when the social game maker reported disappointing second-quarter results and cut its 2014 outlook. Despite having some of the most popular games on the Internet, including the Candy Crush Saga, the company is struggling to… Read More

There is a saying in the media that “content is king,” meaning if you produce entertaining and useful material for your audience, then the money will follow.   Yet, if a company is not actively engaged in making money, then all the content in the world will not make it a success.  Case in point: King Digital Entertainment (NYSE: KING) plummeted 23% on Aug. 13, when the social game maker reported disappointing second-quarter results and cut its 2014 outlook. Despite having some of the most popular games on the Internet, including the Candy Crush Saga, the company is struggling to generate revenues. Or consider Yahoo (NASDAQ: YHOO), which was the leader in quality content but could not figure out a way to monetize it. The shares went nowhere for more than two years until Marissa Mayer took over as CEO in July 2012. #-ad_banner-#Mayer led the charge to monetize mobile through targeted advertising and strategic acquisitions. Investors liked the new emphasis on making money, and the shares have surged more than 160% since she took over. Monetization of content is especially important for the old-guard media companies. In particular, the broadcast television industry has… Read More

An article by StreetAuthority’s David Sterman recently caught my attention. It highlighted an indicator that I haven’t looked at for a while —  it measures the market cap of the Wilshire 5000 relative to gross domestic product of the United States. It is one of Warren Buffett’s favorites, has been incredibly prescient in detecting changes in the market and is now flashing a sell signal. The measure, shown in the chart below, is simple and intuitive. When the value of the stock market surpasses the value of the economy, it indicates that investors are… Read More

An article by StreetAuthority’s David Sterman recently caught my attention. It highlighted an indicator that I haven’t looked at for a while —  it measures the market cap of the Wilshire 5000 relative to gross domestic product of the United States. It is one of Warren Buffett’s favorites, has been incredibly prescient in detecting changes in the market and is now flashing a sell signal. The measure, shown in the chart below, is simple and intuitive. When the value of the stock market surpasses the value of the economy, it indicates that investors are paying a premium for assets. Going back to the last two market busts, when the indicator crosses the 100% threshold, the 12-to-18 month outlook has not been promising. This threshold was breached in March of last year and now signals stocks are about 15% overvalued. While the indicator defied all reason to reach nearly 137% before the 2000 selloff, it only made it to 105% before the last market bust. With the Federal Reserve set to raise rates next year, and global growth not picking up the slack, 2015 could bring the… Read More

One of the strongest themes since the recession has been the remarkable amount of cash returned to shareholders through increased dividend payments. With corporate profits rising, investors hungry for yield are being rewarded for their hard-earned dollars. That is, except for investors in bank stocks. #-ad_banner-#While dividends from companies in the S&P 500 have increased at an annual rate of 4.7% since 2007, dividends paid on the Financial Select Sector SPDR (NYSE: XLF) have declined an annualized 12% over the period. Dividend growth on the financial ETF has picked up, growing… Read More

One of the strongest themes since the recession has been the remarkable amount of cash returned to shareholders through increased dividend payments. With corporate profits rising, investors hungry for yield are being rewarded for their hard-earned dollars. That is, except for investors in bank stocks. #-ad_banner-#While dividends from companies in the S&P 500 have increased at an annual rate of 4.7% since 2007, dividends paid on the Financial Select Sector SPDR (NYSE: XLF) have declined an annualized 12% over the period. Dividend growth on the financial ETF has picked up, growing an annualized 22% over the last three years, but the yield is still a feeble 1.6%. That is under the 1.9% yield on the broader market and well under the 3% yield paid on the fund at the end of 2007. Financials are just now beginning to feel comfortable with increasing their cash payouts and investors may be in for a surprise as the sector boosts its yield over the next year. Acquisitive Growth And  A Strong Yield That Could Go Higher What’s better than increasing sector-level yields? Finding a best-of-breed company that… Read More

You do not get to be one of the world’s wealthiest investors without being able to make some pretty amazing deals. Shares of Berkshire Hathaway (NYSE: BRK-A) have returned an annualized 18.7% over the last three decades and it is in no small thanks to Warren Buffett’s stock market prowess. So when people ask, “Is it possible to beat Buffett at picking stocks?” the answer is usually, “not likely.” #-ad_banner-#​Of course, that is why his advice is so closely followed and why I spend hours every year studying the annual shareholder report he pens for Berkshire… Read More

You do not get to be one of the world’s wealthiest investors without being able to make some pretty amazing deals. Shares of Berkshire Hathaway (NYSE: BRK-A) have returned an annualized 18.7% over the last three decades and it is in no small thanks to Warren Buffett’s stock market prowess. So when people ask, “Is it possible to beat Buffett at picking stocks?” the answer is usually, “not likely.” #-ad_banner-#​Of course, that is why his advice is so closely followed and why I spend hours every year studying the annual shareholder report he pens for Berkshire investors. In his most recent letter, Buffett laid out a set of instructions for his estate and what I saw was shocking — a rare opportunity to set up a portfolio that can beat the Oracle of Omaha. Warren Buffett and the Simplest of Investment Strategies On page 20 of the Berkshire annual report, Buffett lays out a plan for what will happen to a bequest for his wife. “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds… Read More

If you want an explanation on how the market has been able to keep running higher even against a tepid economic recovery and spiraling geopolitical crises, look no further than activist investors. #-ad_banner-#​These billionaire hedge fund managers buy stakes in companies that are mismanaged or underperforming and push for shareholder value. Before just a few years ago, the group was not relatively well known and limited funding meant limited power to provoke change. That is all changing and a wave of funding for activists like Carl Icahn and Daniel Loeb… Read More

If you want an explanation on how the market has been able to keep running higher even against a tepid economic recovery and spiraling geopolitical crises, look no further than activist investors. #-ad_banner-#​These billionaire hedge fund managers buy stakes in companies that are mismanaged or underperforming and push for shareholder value. Before just a few years ago, the group was not relatively well known and limited funding meant limited power to provoke change. That is all changing and a wave of funding for activists like Carl Icahn and Daniel Loeb is giving them the power to unlock billions in shareholder value. Case in point: After shares of Yahoo (Nasdaq: YHOO) went nowhere for the three years to 2012, Loeb’s Third Point LLC acquired shares and pushed for three seats on the board. That May, Loeb uncovered that CEO Scott Thompson had misrepresented his resume with a computer science degree. Marrisa Mayer was championed as the new chief executive and the shares boomed 167% in the 15 months to the beginning of this year. Read More