I have been a huge fan of real estate investment trusts (REITs) and master limited partnerships (MLPs) since I began investing. These tax-advantaged entities avoid paying corporate-level taxes as long as they pass on a certain level of income or fulfill other requirements. #-ad_banner-#There’s certainly been no shortage of interest in these and other income-producing investments over the past few years. But these days, some income-producing investments are looking a little risky. Shares of consumer staples and utility companies are trading at multiples well above their historical averages. Many have been warning of frothiness in the market for junk-rated debt… Read More

I have been a huge fan of real estate investment trusts (REITs) and master limited partnerships (MLPs) since I began investing. These tax-advantaged entities avoid paying corporate-level taxes as long as they pass on a certain level of income or fulfill other requirements. #-ad_banner-#There’s certainly been no shortage of interest in these and other income-producing investments over the past few years. But these days, some income-producing investments are looking a little risky. Shares of consumer staples and utility companies are trading at multiples well above their historical averages. Many have been warning of frothiness in the market for junk-rated debt and bank loans. But even those groups may be a better bet than a new yield structure that recently caught my eye. This new type of income-producing company is getting a lot of attention from dividend investors — but might not be all it’s cracked up to be.  The alternative energy industry (such as solar power and hydroelectric) hasn’t been able to use the MLP structure like traditional energy companies. Yield-hungry investors, eager for the income they see in MLPs and the growth in alternative energy, have been disappointed, but the Yieldco has stepped in to fill the gap. (My… Read More

My personal portfolio is packed with mature sectors like energy, consumer staples and utilities for their higher income yield. Most of the industries within these sectors have fairly stable sales and cash flows and can afford to spin out tons of cash to shareholders.  #-ad_banner-#Share prices don’t shoot to the moon on surging growth, but they’re also not as prone to a sell-off when the market tumbles, either. It’s a slow ride to getting rich, but the constant cash flow is great. That is except for one industry in the group: coal. Despite being one of the cheapest… Read More

My personal portfolio is packed with mature sectors like energy, consumer staples and utilities for their higher income yield. Most of the industries within these sectors have fairly stable sales and cash flows and can afford to spin out tons of cash to shareholders.  #-ad_banner-#Share prices don’t shoot to the moon on surging growth, but they’re also not as prone to a sell-off when the market tumbles, either. It’s a slow ride to getting rich, but the constant cash flow is great. That is except for one industry in the group: coal. Despite being one of the cheapest sources of fuel, coal producers have fallen on hard times. So why am I increasing my position in a coal producer and looking for double-digit returns even if industry fundamentals remain weak? The past few years have not been good for coal. The Market Vectors Coal ETF (NYSE: KOL) is up just 6% in the past year and has lost a stunning 63% since its 2011 high. The Environmental Protection Agency (EPA) continues to propose new guidelines that will reduce coal use as a percentage of total U.S. electricity production, and production in China has flooded the market with coal… Read More

Rock-bottom interest rates and huge cash stockpiles have led to a rebirth in the market for mergers and acquisitions (M&A) over the past few years. Faced with a weak economic recovery and a lack of organic growth opportunities, companies have used acquisitions to increase sales by gobbling up competitors and firms in related industries.  #-ad_banner-#As enterprise values creep up and this external growth strategy becomes expensive, we may be entering a new stage for the market. This next stage could be defined by internal reviews by companies looking for ways to improve the bottom line through cost-cutting and… Read More

Rock-bottom interest rates and huge cash stockpiles have led to a rebirth in the market for mergers and acquisitions (M&A) over the past few years. Faced with a weak economic recovery and a lack of organic growth opportunities, companies have used acquisitions to increase sales by gobbling up competitors and firms in related industries.  #-ad_banner-#As enterprise values creep up and this external growth strategy becomes expensive, we may be entering a new stage for the market. This next stage could be defined by internal reviews by companies looking for ways to improve the bottom line through cost-cutting and integration of acquisitions.  It’s these transformational companies that you should be watching for now. Potential transformational targets are companies that have seen sales jump after a series of acquisitions but that may still have operating margins and profitability that trail well behind their peers. These companies’ shares may perform well enough, but management is leaving money on the table due to poor efficiency.  Once leadership decides to make a change, that’s when the real opportunity starts. I’ve found just such a company. In a bid to change its industry focus, this manufacturer has acquired 21 other companies over the past… Read More

A business professor once told me that a successful business is 1% idea and 99% execution.  #-ad_banner-#Sure, it helps to have an innovative or useful product, but you absolutely must be able to run the business efficiently and effectively. Lack of a valid business strategy is why nearly 80% of small businesses fail within the first 18 months.  Thinking about this recently, I was struck by a great investment idea: What if I could find a company that let others do the work — a company that benefited from other companies’ research or marketing spending? A company that… Read More

A business professor once told me that a successful business is 1% idea and 99% execution.  #-ad_banner-#Sure, it helps to have an innovative or useful product, but you absolutely must be able to run the business efficiently and effectively. Lack of a valid business strategy is why nearly 80% of small businesses fail within the first 18 months.  Thinking about this recently, I was struck by a great investment idea: What if I could find a company that let others do the work — a company that benefited from other companies’ research or marketing spending? A company that helped other companies in exchange for a slice of the pie… a middleman, in other words. Granted, no company is completely without execution risk, and there will always be operational challenges, but distributors and business service companies are the closest I’ve found to a risk-reduced middleman. These companies do not need to spend billions of dollars on research or product development — the manufacturers do it for them. They also do not need to spend billions on advertising to push products out to retail or enterprise consumers — the resellers do that job. Some of these companies do not even… Read More

Of all the IPOs that have taken place since 2007, the consumer sector has accounted for the least.  #-ad_banner-#And small wonder: An environment of stagnant employment and wage growth that is only now recovering after five years doesn’t inspire a lot of demand for new issues of consumer stocks.  The results for restaurant IPOs have been mixed in recent years. Shares of Dunkin’ Brands (Nasdaq: DNKN) have fallen 18% from their March high but are still up 125% from their 2011 offer. Shares of sandwich-maker Potbelly (Nasdaq: PBPB) surged 131% from the company’s offer price during… Read More

Of all the IPOs that have taken place since 2007, the consumer sector has accounted for the least.  #-ad_banner-#And small wonder: An environment of stagnant employment and wage growth that is only now recovering after five years doesn’t inspire a lot of demand for new issues of consumer stocks.  The results for restaurant IPOs have been mixed in recent years. Shares of Dunkin’ Brands (Nasdaq: DNKN) have fallen 18% from their March high but are still up 125% from their 2011 offer. Shares of sandwich-maker Potbelly (Nasdaq: PBPB) surged 131% from the company’s offer price during the first week of trading but are now down 64% from that high to below the offer price. But one restaurant issue has beaten all the rest. Shares of Chipotle Mexican Grill (NYSE: CMG) have exploded nearly 3,000% from their offer price of $22 per share in 2006, jumping 67% in the past year alone.  Chipotle has some strong tailwinds behind its restaurants, which number nearly 1,600 and counting. The Hispanic population is the fastest-growing demographic in the United States and is expected to reach 78.7 million by 2030. That may have something to do with the growth of the… Read More

There is little doubt that the energy revolution is one of the most powerful themes in investing today. The United States has surpassed Saudi Arabia as the world’s top producer and production is set to surge to 13.1 million barrels a day by 2019.  #-ad_banner-#While the whole country has benefited from lower oil imports, two regions are disproportionately benefiting from the increase in production.  There’s Texas, of course, with the Permian, Barnett and Eagle Ford formations — and industry infrastructure that dates back more than a century.  But the other region, the Williston Basin in North Dakota, might… Read More

There is little doubt that the energy revolution is one of the most powerful themes in investing today. The United States has surpassed Saudi Arabia as the world’s top producer and production is set to surge to 13.1 million barrels a day by 2019.  #-ad_banner-#While the whole country has benefited from lower oil imports, two regions are disproportionately benefiting from the increase in production.  There’s Texas, of course, with the Permian, Barnett and Eagle Ford formations — and industry infrastructure that dates back more than a century.  But the other region, the Williston Basin in North Dakota, might be even more attractive for investors. Until the past decade, the region had never been a significant producer, so the need for infrastructure was minimal.  The need for that infrastructure is changing faster than anyone imagined and could mean strong cash flows for several midstream giants in the area. A Troubling Trend The number of railcars shipping petroleum products has surged to more than 15,000 carloads a week, more than double the 7,000-carload average through 2010. Crude shipments by rail set a record of 110,000 carloads in the first quarter of this year.  While transportation by rail involves lower… Read More

Sometimes the markets just make no sense. Fortunately, those are also the times when a perceptive investor can make the best returns.  #-ad_banner-#Case in point: The most recent minutes of the Federal Open Market Committee (FOMC) contain an explicit call for the central bank to end its bond-purchase program by October of this year. Like most market opportunities, this may mean little on its own — but when paired with other facts and testimonies, it gives investors a clear view of how things could play out over the next year.  The market plunged 1.2% in March when Fed… Read More

Sometimes the markets just make no sense. Fortunately, those are also the times when a perceptive investor can make the best returns.  #-ad_banner-#Case in point: The most recent minutes of the Federal Open Market Committee (FOMC) contain an explicit call for the central bank to end its bond-purchase program by October of this year. Like most market opportunities, this may mean little on its own — but when paired with other facts and testimonies, it gives investors a clear view of how things could play out over the next year.  The market plunged 1.2% in March when Fed Chairman Janet Yellen, pressed by Congress for a timetable for raising rates after the end of the purchase program, said that Fed language “probably means something on the order of around six months.”  Pair this with remarks by several Fed presidents lately, and you might get the impression that interest rates would start creeping higher in advance of an eventual Fed exit from its easy-money policies.  But the market just doesn’t see it that way. And why should the market see anything but easy money and blue skies ahead? Evidenced in the chart below, the Fed has been extremely accommodative… Read More

One mantra has overridden everything else for the past five years. It has proved even the most astute bears wrong and made money for anyone with a dime in the markets.  #-ad_banner-#Don’t fight the Fed! Stocks have jumped every year since 2009 — and every year pundits say we are due for a major correction. Subpar job growth and annual GDP growth under 2% cannot possibly support asset prices, they say, and a slowing China can’t pick up the slack. And every year they are wrong. Why? Because for the past five years, we have had the most… Read More

One mantra has overridden everything else for the past five years. It has proved even the most astute bears wrong and made money for anyone with a dime in the markets.  #-ad_banner-#Don’t fight the Fed! Stocks have jumped every year since 2009 — and every year pundits say we are due for a major correction. Subpar job growth and annual GDP growth under 2% cannot possibly support asset prices, they say, and a slowing China can’t pick up the slack. And every year they are wrong. Why? Because for the past five years, we have had the most influential central bank in the world saying they’ve got a monetary defibrillator… and they’re going to keep shocking the economy until it jumps back to life. The economic resuscitation has been in the form of more than $3 trillion pumped into the system. While the general economy may still seem to be on life support, asset prices have more than doubled since the Federal Reserve began its assorted quantitative easing (QE) programs.  What’s Next? As Fed winds down its historic monetary support, I can’t help but wonder: What’s next for stocks? Fortunately for investors, it looks like… Read More

Shares of Brazilian companies listed on U.S. exchanges have made a remarkable comeback since March. The reasons given in the financial press would be comical if they were not so ridiculous.  #-ad_banner-#For instance, one pundit says the World Cup, though well over budget and a spectacular failure for the home team, will mean faster economic growth in the second half of the year. That’s just a sample from a list that goes on and on… but nobody’s acknowledging the economic reality that is poised to bring stocks down again.  Stocks Bounce — But Not For Long In… Read More

Shares of Brazilian companies listed on U.S. exchanges have made a remarkable comeback since March. The reasons given in the financial press would be comical if they were not so ridiculous.  #-ad_banner-#For instance, one pundit says the World Cup, though well over budget and a spectacular failure for the home team, will mean faster economic growth in the second half of the year. That’s just a sample from a list that goes on and on… but nobody’s acknowledging the economic reality that is poised to bring stocks down again.  Stocks Bounce — But Not For Long In November, I examined the country’s deep fiscal problems and predicted lower economic growth on higher rates. Since then, analysts have downgraded estimated 2014 economic growth to just 1.2%, down from expectations well above 2% last year. In March, the country’s debt was downgraded to BBB- (one level above junk) by Standard & Poor’s, and the government will likely miss budget targets this year. Shortly after my article came out, Brazilian stocks plummeted, with the iShares MSCI Brazil Fund (NYSE: EWZ) falling 18% in just three months. Shares of Petrobras (NYSE: PBR), forecast to be the hardest-hit for its role as… Read More

Master limited partnerships (MLPs) have been the hottest sector within the U.S. energy revolution theme over the past several years.  #-ad_banner-#Units of these companies give investors exposure to the infrastructure that is driving U.S. energy independence while benefiting from volume-based contracts and stable income. Shares of the ALPS Alerian MLP Fund (NYSE: AMLP) are up nearly 5% over the past year on top of the 5.8% yield. Units of individual partnerships are soaring as the hunt for assets drives mergers and acquisitions. Units of Williams Cos. (NYSE: WMB) are up more than 75% over the past… Read More

Master limited partnerships (MLPs) have been the hottest sector within the U.S. energy revolution theme over the past several years.  #-ad_banner-#Units of these companies give investors exposure to the infrastructure that is driving U.S. energy independence while benefiting from volume-based contracts and stable income. Shares of the ALPS Alerian MLP Fund (NYSE: AMLP) are up nearly 5% over the past year on top of the 5.8% yield. Units of individual partnerships are soaring as the hunt for assets drives mergers and acquisitions. Units of Williams Cos. (NYSE: WMB) are up more than 75% over the past year on higher distribution and a merger with Access Midstream Partners (NYSE: ACMP). The United States has surpassed Saudi Arabia as the world’s largest oil producer, and the growing demand for energy transportation and storage should continue to drive distribution growth in the sector.  That is great news for unitholders — but one hidden condition in the business model for these partnerships could soon create a conflict… and take money from your pocket. As my colleague Chuck Marvin wrote recently, MLPs own pipeline and storage assets but many have no employees. A general partner (GP) manages… Read More