Investing Basics

In the investment business, we’re very good at talking about when to buy. We can wax poetic about the single-digit piece-to-earnings (P/E) ratio and the deep-discount to book value or the return on equity. It’s the selling part we all need to work on… The reasons investors hang on to a stock are so vast and complex, it would take a team of psychiatrists at least a decade to begin analyzing them. Typically, the two major reasons are greed and emotional attachment. Greed is… Read More

In the investment business, we’re very good at talking about when to buy. We can wax poetic about the single-digit piece-to-earnings (P/E) ratio and the deep-discount to book value or the return on equity. It’s the selling part we all need to work on… The reasons investors hang on to a stock are so vast and complex, it would take a team of psychiatrists at least a decade to begin analyzing them. Typically, the two major reasons are greed and emotional attachment. Greed is simple: we like making money and we want to make more. The emotional attachment is the weird part. I’ve always been a big fan of the Warren Buffett philosophy on how to deal with the emotions involved in holding stocks: that stock doesn’t know that you own it. The hundred shares of Cisco (Nasdaq: CSCO) doesn’t tell you it loves you when you come home from work. If it does, we’ve got bigger problems. It’s OK to sell stuff. Look at it like you would a party. Eventually you have to… Read More

Business school professors often speak of the “efficient-market hypothesis,” which posits that stock prices reflect all available public information and therefore are never overvalued or undervalued; they’re, instead, are perfectly valued. These professors are wrong. In many instances, the market gets it wrong, and a stock can remain mispriced, even after an important piece of news is digested by buyers and sellers. I was reminded of this after looking at the stock action of Assured Guaranty (NYSE: AGO) on Friday, April 15. The company’s stock rose 24% in just one day, but as you more… Read More

Business school professors often speak of the “efficient-market hypothesis,” which posits that stock prices reflect all available public information and therefore are never overvalued or undervalued; they’re, instead, are perfectly valued. These professors are wrong. In many instances, the market gets it wrong, and a stock can remain mispriced, even after an important piece of news is digested by buyers and sellers. I was reminded of this after looking at the stock action of Assured Guaranty (NYSE: AGO) on Friday, April 15. The company’s stock rose 24% in just one day, but as you more deeply analyze the news that affected the stock, it’s easy to conclude that shares should have risen by a good deal more than that. The process may take several weeks or months, but when complete, this $17 stock could shoot up into the low to mid-$20s. Bank of America’s mea culpa Assured Guaranty provides insurance to bond buyers. If those bonds default, then the buyers can make a claim. It’s been a very lucrative business for many years, controlled by Assured Guaranty, MBIA (NYSE: MBI) and Ambac Financial (Nasdaq:… Read More

“Beat and Raise.” The pattern of beating estimates and raising forward guidance has been the key theme in each earnings season of the past two years. This time will be different. The “beat” part will likely hold as companies and the analysts that follow them continue to play the game of low expectations that then get exceeded. The “raise” part? That just got much trickier. Companies raise guidance when they have a lot of certainty about what the coming months will bring. Right now, few can say with certainty about how… Read More

“Beat and Raise.” The pattern of beating estimates and raising forward guidance has been the key theme in each earnings season of the past two years. This time will be different. The “beat” part will likely hold as companies and the analysts that follow them continue to play the game of low expectations that then get exceeded. The “raise” part? That just got much trickier. Companies raise guidance when they have a lot of certainty about what the coming months will bring. Right now, few can say with certainty about how the wide range of domestic and global events will play out. Here’s a checklist of the issues these companies face. Later on, I’ll look at the potential impact on specific sectors.   Oil prices bring caution. Expect a number of companies, especially those that are focused on consumers or have high transportation costs, to express real concern about surging oil. Stressed consumers are in no mood to help shoulder the burden. For example, airlines had successfully pushed through six fare hikes since the start of the year. On the seventh try, consumers appear to have balked and airlines had… Read More

New income investors sometimes make the mistake of looking no further than a stock’s current dividend yield. After all, a stock such as biotech firm PDL BioPharma (NASDAQ: PDL) looks mighty enticing, based on its 10% yield. But looks can be misleading. A closer look at PDL reveals a dividend that may be in trouble. The company’s net income fell by more than 50% last year, and PDL paid out more in dividends than it earned as income. The company earned $92 million, but paid $130 million in… Read More

New income investors sometimes make the mistake of looking no further than a stock’s current dividend yield. After all, a stock such as biotech firm PDL BioPharma (NASDAQ: PDL) looks mighty enticing, based on its 10% yield. But looks can be misleading. A closer look at PDL reveals a dividend that may be in trouble. The company’s net income fell by more than 50% last year, and PDL paid out more in dividends than it earned as income. The company earned $92 million, but paid $130 million in dividends. When earnings decline sharply, even blue-chip companies can sometimes find their dividends in danger. A good example is General Electric (NYSE: GE), which was forced to trim its dividend by two-thirds during the economic downturn. Quarterly payments dropped from $0.31 to just $0.10. [See: “Forget GE, Buy These Stocks Instead”] Another high-profile casualty of the downturn was oil refiner Valero Energy (NYSE: VLO). Valero cut its quarterly dividend from $0.15 to $0.05, which is where the dividend remains today. So how do you protect yourself… Read More

Many investors tend to focus on how a stock will fare in coming weeks and months. Company executives have a very different task. They need to stay focused on a much bigger picture, building a business that can grow for years to come. If investors push a stock down due to near-term issues, then executives have a clear move to make: Buy company shares while they’re not fully appreciated. Here are two stocks that have been pursued by insiders in recent weeks. Later on, I’ll give my take on whether or not they are compelling “buys”… Read More

Many investors tend to focus on how a stock will fare in coming weeks and months. Company executives have a very different task. They need to stay focused on a much bigger picture, building a business that can grow for years to come. If investors push a stock down due to near-term issues, then executives have a clear move to make: Buy company shares while they’re not fully appreciated. Here are two stocks that have been pursued by insiders in recent weeks. Later on, I’ll give my take on whether or not they are compelling “buys” right now… Rentrak (Nasdaq: RENT) When information and media-measuring firm Nielsen Holdings (Nasdaq: NLSN) pulled off an initial public offering (IPO) in January, many institutional investors gave the $10 billion (in market value) company a fresh look. But they may be wiser to give industry upstart Rentrak their attention instead. This $300 million company is slowly stealing business away from Nielsen and some analysts think the company can be an earnings powerhouse in a few years. If you came… Read More

Did you know the United States withholds a portion of dividends paid to many foreign investors? This amount comes right off the top, before the payment even hits an investor’s account. Even after this cut, the foreign investor will still have to pay taxes on what’s left. But the United States isn’t just being greedy. Just about every nation does something similar. Switzerland withholds up to 35% of dividends paid to foreign investors… Israel withholds up to 25%… Canada takes 15% off the… Read More

Did you know the United States withholds a portion of dividends paid to many foreign investors? This amount comes right off the top, before the payment even hits an investor’s account. Even after this cut, the foreign investor will still have to pay taxes on what’s left. But the United States isn’t just being greedy. Just about every nation does something similar. Switzerland withholds up to 35% of dividends paid to foreign investors… Israel withholds up to 25%… Canada takes 15% off the top. Typically the higher yields found abroad can make up the difference. For instance, the high yields on foreign utilities can still make them worthwhile to most investors, even with the withholding. And truth be told, you can get this withheld money back. Investors filing for a foreign tax credit via IRS Form 1116 can reclaim foreign dividends withheld. But you won’t receive this cash until you file your tax return, sometimes up to a year after the… Read More

[Editor’s Note: On Wednesday, Andy Obermueller, editor of Game-Changing Stocks, gave his take on the resignation of David Sokol, one of the frontrunners to replace Warren Buffett at the helm of Berkshire Hathaway. Now, it looks like Ajit Jain, Buffett’s insurance man extrordinaire, may be “the man.” Funny enough, StreetAuthority’s… Read More