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A Four-Point Investing Plan to Beat the Bear

William Patalon III — Wed, 08 Oct 2008 14:51:11 +0000

William Patalon III says the US economy is heading into recession and there is little the Fed or Treasury can do to stop it.

But that doesn’t mean contrarian investors can’t make a profit. History is littered with examples of investors that made a fortune during the darkest days for the economy.

William has a four-point plan to beat the bear this time round: 1) Load up on high dividend stocks; 2) Buy gold; 3) Stick to ‘global titan’ companies; and 4) Stay relaxed…

This report from Money Morning:

No. 1 – Stock up on Dividend stocks

Many investors are so scared by the wild gyrations the stock market has seen of late that they’ve jettisoned everything in their search for safety.

Not only is this a massive mistake from a timing standpoint, it’s also a major misstep because of all the dividend income those folks are going to forego.

Dividend-paying stocks tend to be more stable than their non-dividend paying brethren -particularly during rocky stock markets. In other words, stocks that have income streams attached are treated better, especially when the going gets tough.

They also outperform non-dividend paying stocks by even more in down markets than they do in up markets.
By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they always eventually do.

And the savvy investors who owned them watched as their own portfolios easily outperformed the market averages and roundly trounced the returns of portfolios that were devoid of or light on dividend-paying shares.

And there are some excellent investment candidates. Two of the best are the PowerShares International Dividend Achievers Fund (AMEX:PID) and the Alpine Dynamic Dividend Fund (MUTF:ADVDX), two exchange-traded funds (ETFs) that we like a great deal.

The PowerShares International Fund is a global-income portfolio that can help you spread your risk, while also earning income. The Alpine fund is a more-specialized fund that uses a “dividend harvest strategy” that can boost the fund’s yield.

Both funds invest in companies that have survived countless business cycles, and that are likely to survive this downdraft, too.

Because dividend-paying stocks tend to be downdraft resistant, portfolios with higher yields tend to last longer and pay stronger. That’s something that’s important to all of us, but especially to investors who are nearing retirement, or who have already retired.

No. 2 – Go for Gold

When times are tough, gold soars.

And frankly, the economy has been tough: $4 gasoline, the housing crisis, rampant inflation, plummeting stocks…

But all the while, gold prices vaulted a cool 26.5% in the past year.

Missing out on gold is already costing investors a pretty penny. What’s more, most experts are forecasting gold prices to rise at least another 75.6% by the end of this year.

So, how does one profit from gold? It’s simple. You don’t have to wade through a plethora of flashy websites offering bullion or risk it all on a junior mining company.

Instead, here are five ways to profit from gold right away – from the most lucrative to the least risky.

Gold Fields Ltd. (NYSE:GFI): South Africa’s Gold Fields Ltd. is the world’s fourth-biggest gold producer – with about 90 million ounces in reserve from its operations in Africa, South America and Australia.

It recently reported that its fourth-quarter production would beat its previous forecast by up to 120%.

Overall, the company has a solid balance sheet and ample reserves. But if anything scares investors away, it’s Gold Fields’ location.

South Africa mines are frequently a political tool between the country’s labor unions and state-owned utility provider Eskom Holdings Ltd. (OTC: ESKAY), which controls 95% of the country’s power.

Eskom recently jacked electricity prices up 27.5%, and unions decided to hit the government where it hurts – by striking- thus gutting the government of taxes from its vast gold profits.

That is just one example of why this stock is a risky gold play. Gold could reach another record but Gold Fields may not see a penny of it if its miners are on strike.

Yamana Gold Inc. (NYSE:AUY): When gold prices are high, investors should pay extra attention to mining companies with increasing production levels because they translate into a bigger bottom line.

For its second quarter this year, Yamana Gold Inc. produced almost 10% more gold than it did in the previous quarter.

What’s more, its gold production is expected to double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

That’s because Yamana Gold went on a spending spree in the past two years, buying up junior mines around the world to lock in reserves.

“Now it is about production, cash flow and earnings,” Chief Executive Officer Peter Marrone told Reuters.

It’s also about dividends. The company recently kicked up its investor payout by 300%, a strong vote of confidence to its production and stock performance.

Barrick Gold Corp. (NYSE:ABX): Like Yamana, Barrick Gold Corp. has also been on a spending spree. Over the past year, it has gobbled up stakes in a half-dozen mines, multiplying its reserves and production capacities in light of record gold prices.

All totaled, Barrick owns 27 mines in five continents and produces over 8 million ounces of gold a year, making it the world’s largest gold miner.

We consider this a medium-risk investment because – despite its solid operations, profitability and efficiency – it’s vulnerable like any tradable stock.

But since it’s the world largest gold producer, its stock will move closest in line with gold compared to other gold miners.

And as an added bonus, it just kicked up its biannual dividend by 33%.

SPDR Gold Trust (NYSE:GLD): Some investors want to buy gold but feel uneasy about storing it overseas, by another person… and for a commission nonetheless. But at the same token, not many
want to make their homes a burglary target by stashing gold reserves in their basements.

Enter SPDR Gold Trust (GLD), an ETF that trades like a stock, but whose value directly tracks the price of gold bullion. Only 1.82 percentage points separate the gains made by gold price and Gold Trust in the past year.

Gold Trust has a $17 billion-plus market cap, giving it ample liquidity. Simply put, it’s the easiest way to buy gold without buying physical bullion or coins.

EverBank Select Metals Account has a minimum deposit that is 98% lower than its competitors, and its commission costs are up to 86% lower than other metals brokers and bullion banks.

Second, it offers two types of gold accounts:
Unallocated: Your purchased gold is pooled with that of other investors, eliminating storage and maintenance costs. The minimum deposit amount for unallocated accounts is a scant $5,000.
Allocated: You directly own the gold you purchase, held in your own private account. The minimum deposit for allocated accounts is $7,500.

Both types of accounts can be set up 24/7 online. But if you prefer the phone, call 866-326-6241, and be sure to give them the code 12608 when setting up an account.

We should point out that the publisher of Money Morning has a marketing relationship with EverBank, but that’s because its products are best in show.

No. 3 – Grab the “Global Titans”

There are a handful of companies that are either located in, or focused on, overseas markets that remain poised for growth – even if the U.S. market slows down. We call those companies “Global Titans” because they usually derive a hefty portion of their sales and profits from outside U.S. borders.

The old adage that “when the U.S. economy sneezes, the rest of the world catches a cold” is becoming increasingly less valid, due to an economic process known as “decoupling.” This means that – eventually – such economies as China and others will be able to show respectable growth, even if the U.S. economy slows down or even drops into a recession.

In the immediate term, even the partial decoupling we’ve seen means that these other economies could continue to grow, even if we get mired down by the housing meltdown, subprime crisis and ensuing credit woes.

While those markets may take a near-term hit because of the maladies of the U.S. economy, their longer-term growth is much less dependent than ever before on the U.S.-centric model of the global markets.

And Money Morning has identified a portfolio of Global Titans whose quarterly earnings and stock prices are laughing in the face of the gloomy U.S. market: The Coca-Cola Co. (NYSE:KO), PepsiCo Inc. (NYSE:PEP), Diageo PLC (NYSE:DEO), Yum! Brands Inc. (NYSE:YUM), McDonald’s Corp. (NYSE:MCD) and The Boeing Co. (NYSE:BA).

No. 4 – Relax, Breathe

No one knows how long this economic vortex will last, but two things are dead certain:

• We’ve been here before.
• No matter how bad it gets, it will pass.

So far, we’ve gone through the Price/Earnings (P/E) Ratio peak crash of 1901; the Great Crash of 1929, the “Black Monday” stock market crash of October 1987, the Asian Contagion of 1997, loan defaults in South America and Russia, and even then 9/11 terrorist attacks.

And not only did we survive each; our economy rebounded to become bigger, stronger and leaner.

Source: US Economy: Are We Nearing the End of the American Dream?

4 Ways To Recession Proof Your Portfolio

William Patalon III — Mon, 15 Sep 2008 13:38:22 +0000

Wall Street is on its knees, and the taxpayer is on the hook for well over a trillion dollars to prop up the financial system.

Meanwhile, the wider US economy is sliding into a recession.

William Patalon III says there are four solid ways to protect your portfolio from these forces: 1) Buy dividend-paying stocks; 2) Buy gold; 3) Buy companies focused on overseas market; and 4) Don’t panic…

The following extract is taken from a research report published over the weekend by Money Morning…

No. 1 – Stock Up on Dividend stocks

Many investors are so scared by the wild gyrations the stock market has seen of late that they’ve jettisoned everything in their search for safety.

Not only is this a massive mistake from a timing standpoint, it’s also a major misstep because of all the dividend income those folks are going to forego.

Dividend-paying stocks tend to be more stable than their non-dividend paying brethren -particularly during rocky stock markets. In other words, stocks that have income streams attached are treated better, especially when the going gets tough.

They also outperform non-dividend paying stocks by even more in down markets than they do in up markets.
By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they always eventually do.

And the savvy investors who owned them watched as their own portfolios easily outperformed the market averages and roundly trounced the returns of portfolios that were devoid of or light on dividend-paying shares.

And there are some excellent investment candidates. Two of the best are the PowerShares International Dividend Achievers Fund (PID) and the Alpine Dynamic Dividend Fund (ADVDX), two exchange-traded funds (ETFs) that we like a great deal.

The PowerShares International Fund is a global-income portfolio that can help you spread your risk, while also earning income. The Alpine fund is a more-specialized fund that uses a “dividend harvest strategy” that can boost the fund’s yield.

Both funds invest in companies that have survived countless business cycles, and that are likely to survive this downdraft, too.

Because dividend-paying stocks tend to be downdraft resistant, portfolios with higher yields tend to last longer and pay stronger. That’s something that’s important to all of us, but especially to investors who are nearing retirement, or who have already retired.

No. 2 – Go for Gold

When times are tough, gold soars.

And frankly, the economy has been tough: $4 gasoline, the housing crisis, rampant inflation, plummeting stocks…

But all the while, gold prices vaulted a cool 26.5% in the past year.

Missing out on gold is already costing investors a pretty penny. What’s more, most experts are forecasting gold prices to rise at least another 75.6% by the end of this year.

So, how does one profit from gold? It’s simple. You don’t have to wade through a plethora of flashy websites offering bullion or risk it all on a junior mining company.

Instead, here are five ways to profit from gold right away – from the most lucrative to the least risky.

Gold Fields Ltd. (GFI): South Africa’s Gold Fields Ltd. is the world’s fourth-biggest gold producer – with about 90 million ounces in reserve from its operations in Africa, South America and Australia.

It recently reported that its fourth-quarter production would beat its previous forecast by up to 120%.

Overall, the company has a solid balance sheet and ample reserves. But if anything scares investors away, it’s Gold Fields’ location.

South Africa mines are frequently a political tool between the country’s labor unions and state-owned utility provider Eskom Holdings Ltd. (OTC:ESKAY), which controls 95% of the country’s power.

Eskom recently jacked electricity prices up 27.5%, and unions decided to hit the government where it hurts – by striking- thus gutting the government of taxes from its vast gold profits.

That is just one example of why this stock is a risky gold play. Gold could reach another record but Gold Fields may not see a penny of it if its miners are on strike.

Yamana Gold Inc. (AUY): When gold prices are high, investors should pay extra attention to mining companies with increasing production levels because they translate into a bigger bottom line.

For its second quarter this year, Yamana Gold Inc. produced almost 10% more gold than it did in the previous quarter.

What’s more, its gold production is expected to double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

That’s because Yamana Gold went on a spending spree in the past two years, buying up junior mines around the world to lock in reserves.

“Now it is about production, cash flow and earnings,” Chief Executive Officer Peter Marrone told Reuters.

It’s also about dividends. The company recently kicked up its investor payout by 300%, a strong vote of confidence to its production and stock performance.

Global Investing Roundups Friday, August 29th, 2008

William Patalon III — Fri, 29 Aug 2008 13:50:07 +0000

Lukoil Counts on Artic Find; Gourmet-Cookware Seller Burned by 2Q Results; FGIC Prolongs the Inevitable; Diageo’s Strong Sales; Lehman Bros. Plans Layoffs; Toyota’s 10 Million Goal Just Out of Reach

Lukoil (OTC ADR: LUKOY), Russia’s second-largest oil producer said its new Artic oilfield would allow it to match last year’s production, Reuters reported. Oil output from Russia fell in the first six months of the year for the first time in a decade, due to aging infrastructure, maturing fields and heavy taxes.

Williams-Sonoma Inc. (WSM), America’s biggest gourmet-cookware retailer, yesterday (Thursday) announced second quarter net income fell to $18.4 million or 16 cents per share, from $26 million or 23 cents per share in the same period the year prior. Sales worsened through the quarter as the “macro-economic environment deteriorated,” Chief Executive Officer Howard Lester said, Bloomberg News reported.

Financial Guaranty Insurance Co. (FGIC) avoided regulatory intervention by having MBIA Inc. (MBI) reinsure a portion of its municipal bond debt, but still faces solvency issues according to CreditSights. “While the deal will boost capital supporting the remaining FGIC policy-holders, it does little to solve the company’s longer-term solvency issues,” CreditSights analyst Rob Haines said in a report issued yesterday (Thursday), Reuters reported.

Diageo PLC (ADR: DEO), London-based maker of Smirnoff vodka, Captain Morgan rum and others, yesterday (Thursday) said it earned $2.8 billion (1.52 pounds), an increase of 2.7% over the prior year. Diageo shares traded in London closed up 2% on the day of the announcement, the Associated Press reported.

Lehman Brothers Holdings Inc. (LEH) plans to layoff 1,500 employees. The battered investment bank will cut 6% of total employees prior to its announcement of third-quarter fiscal earnings on Sept. 15, The New York Times reported on its website yesterday (Thursday).

Toyota Motor Corp. (ADR: TM) lowered its 2009 sales forecast to 9.7 million vehicles from a previous estimate of 10.4 million based on slower global demand. “The business environment is rapidly becoming more difficult. Things remain very uncertain, not just in the United States but in emerging countries and resource-rich nations as well,” Toyota President Katsuaki Watanabe told a press conference, AFP reported.

Source: Global Investing Roundups Friday, August 29th, 2008

6 Reasons to Invest in China and 5 China Profit Plays

William Patalon III — Fri, 22 Aug 2008 12:40:57 +0000

Investors who abandon China now will live to regret their decision, says William Patalon III in Money Morning.

William says every successful investor needs a China investing strategy, despite the fact that China’s benchmark index, the Shanghai stock index, is down 56% so far this year.

Following Jim Rogers’ bullish comments on China in a recent exclusive interview with Money Morning, Bill gives six reasons to invest in China and five solid China profit plays.

In an exclusive interview with Money Morning, global investing guru Jim Rogers said that giving up on that country now would be like selling all your U.S. stocks at the start of the 1900s – before America created massive wealth by evolving into a world superpower.

“I have never sold any of my Chinese companies,” Rogers said. “You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% – so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.”

Even if the U.S. economy skids into a recession, China’s long-term growth outlook remains strong – and that’s after nearly 30 years of double-digit growth that country has already logged.

Here are some of the key points – as well as some profit plays – to consider:

First, China remains one of the strongest economies in the world. Even after China reduced its growth outlook, the country remains on track for an economic expansion of better than 9% for the year to come. We aren’t so naïve as to expect a straight path of uninterrupted growth. But neither do we expect a U.S. downturn to squelch the Red Dragon’s long-term growth prospects.

For broad exposure to China’s growth, consider the China Region Opportunity Fund (USCOX), managed by the San Antonio-based U.S. Global Investors Inc. (GROW).

Second, China remains awash in liquidity, with $1.68 trillion in foreign reserves. And much of that excess capital is being focused on the upside, particularly when it comes to boosting disposable income and then building brand awareness for its own products.

And now that liquidity is allowing the country to go on a global shopping spree, enabling its companies and its state-run sovereign wealth funds to pick up such choice assets at bargain prices. One beneficiary of such outside capital: Companies such as MGM Mirage (MGM), which is being positioned as a high-profit play on China.

Third, China’s markets are quickly becoming much “narrower.” Money is being reallocated from highly risky ventures into more-predictable enterprises. That’s an important trend for investors to track, for history shows time and again that these more-predictable ventures fare the best during uncertain, volatility-laced markets. One advantage that these companies have, believe it or not, is that they don’t have to tap into the credit markets at a time when credit is costly, or not available at all. Weaker companies won’t be able to get financing, even if it is available. Consider such potential “New Dragon” companies as online media player SINA Corp. (SINA) or fast-growing advertising play Focus Media Holding Ltd. (ADR: FMCN), for instance. As the economy becomes more “normalized,” consumers will increasingly need such products as insurance, so take a look at China Life Insurance Co. Ltd. (ADR: LFC).

Fourth, many of China’s companies are now reporting real profits. For decades, most Chinese companies operated on the slimmest of margins, with profits that were actually based on taxes or export-incentive “loopholes.” They were kept on life support with an endless stream of bank loans. All of this is being eradicated by Beijing. Money is being taken out of highly risky ventures, or the uncompetitive, state-run enterprises that are ridden with debt. In China, that capital is now being redeployed into the innovative, more-promising ventures that we refer to as the “New Dragons” – many of which are destined to rival the U.S.-based “Global Titans” as the dominant global brands and investor stalwarts of tomorrow. One New Dragon that’s already making a global splash is solar-energy player First Solar Inc. (FSLR). Also consider Huaneng Power International Inc. (ADR: HNP), the domestic China power producer that’s also getting involved in projects outside its home market.

Fifth, the still-weak U.S. greenback will make brand-name imports (both products and services) even more popular in China. And rapidly growing consumer income will give China’s consumers the cash to spend on such one-time luxuries as travel and tourism. One big beneficiary: The Boeing Co. (BA) of the United States, which says that China and other Asian nations will need $340 billion worth of new aircraft over the next two decades.

Sixth, look for companies that generate revenue “from” China, even if they’re not based “in” China. This is a great risk-management strategy: It’s a way for investors to profit from China, while enjoying the investor protections and regulatory oversight of such developed markets as the United States and Europe. The Global Titans are our No. 1 choice here. Many pay a dividend, as well.

If you’re seeking some solid, specific picks, some of the best ones to consider include PepsiCo Inc. (PEP), Diageo PLC (DEO), Yum! Brands Inc. (YUM), McDonald’s Corp. (MCD), The Coca-Cola Co. (KO), and a few others.

The bottom line is this: These days, and forever more, every investor has to have a China investing strategy. And while choosing to sit on the sidelines certainly qualifies as a strategy, remember this: Over the long haul, it’s probably not a profitable plan to follow.

P.S. The first part of this two-part story, Why Every Investor Should Have a China Investment Strategy, appeared in the Aug. 8 issue of Money Morning.

Source: How to Profit From A China Investing Strategy

JPMorgan Cuts Major Asian Indices’ Forecasts by Double Digits

Mike Caggeso — Mon, 05 May 2008 12:59:53 +0000

Citing the global inflation epidemic as a key threat to growth, JPMorgan Chase & Co. (JPM) made double-digit cuts to its 2008 stock index forecasts for several major Asian economies.

Chirowth this year – and that’s after China’s government has taken steps to slow the country’s economy down. Other Asian countries such as India, Vietnam and the Philippines are following in near lockstep.

“Investors who abandon China now will live to regret their decision,” Money Morning Investment Director Keith Fitz-Gerald said. “China will continue to grow for decades to come. And that’s after nearly 30 years of double-digit growth that country has already logged into the history books.”

China Profit Plays

With many indices beat down significantly by the Asian bubble burst and global credit crisis, now may be a time for investors to get in while prices are significantly reduced from their 52-week highs.

However, economic underpinnings are still uncertain – both in Asian and U.S. markets. And only the strongest companies are best suited to grow during good times and bad.

A still-weak greenback will make brand-name imports [both products and services] even more popular in China. And rapidly growing consumer income will give China’s increasingly image conscious consumers the cash to buy them with.

We’ve been predicting that these two trends would converge for some time. That’s one reason why, all the way back in September, we said that brand-name companies such as MGM Mirage (MGM) were actually high-profit plays on China. And we still feel that way.

So the bottom line is that if controlling risk is key to your overall investment strategy, as you sift through China-oriented investment opportunities, look for companies that generate revenue and profit “because” of China including those that are based in more-highly regulated markets such as the United States and Europe.

Look, too, for companies with a solid dividend yield because the cold hard cash you receive can go a long way towards reducing your downside.

Consider the so-called “Global Titans,” including PepsiCo Inc. (PEP), Diageo PLC (DEO), Yum! Brands Inc. (YUM), McDonald’s Corp. (MCD), The Coca-Cola Co. (KO), The Boeing Co. (BA), and a few others.

Every investor must have a China strategy these days.

And while choosing to sit on the sidelines is certainly a viable decision, longer term it’s probably just not a profitable one.