This from Smart Profits Report:

Congratulations… you’ve almost survived the most volatile stock market of our generation.

At least for 2008 anyway.

And if you’re asking yourself whether it’s time to buy stocks as the CBOE Volatility Index (VIX) is receding and valuations are at record lows, I offer this: Before jumping back in the water, be sure the sharks have fattened up and left the area. Forget “blood in the streets”… make sure there’s no “blood in the water.”

And amid the gloom and doom, I’m also going to offer up a more bullish, optimistic outlook: While the economic outlook remains very weak, the stock market is, after all, a market.

By that, I mean that the main factor that drives prices up or down is supply and demand (with a hearty dose of fear and greed tossed in for good measure, too, of course). So what do we really know about supply and demand? And more importantly, how can we profit from it?

Look Forward, Not Back

Let me put it this way: The view ahead is better than the one in the rear view mirror. In fact, even over the past week, we’ve seen many examples of how the lack of supply for stocks is driving prices higher – even in the face of terrible fundamental news.

The issues are worth noting, in order to keep the impact in context…

• On the political front, we’ve seen the bribery of government officials in an attempt to sell a decision-making seat in one of our top governing bodies.
• We’ve seen one of the most highly regarded hedge fund managers be exposed as a charlatan, wiping out individual and seasoned professional investors alike.
• On the economic front, we’ve seen massive job losses that were substantially worse than expectations – and while this is a backward looking indicator, economists are now talking about double-digit unemployment.
• The Federal Reserve has hacked interest rates to the lowest level ever in what seems like the latest in a series of desperate reactionary tools to stave off the expanding and increasingly ugly recession.

The current climate resembles a rugby scrum, with each new issue piling on top of other existing ones. And they throw up questions about the very stability of our investing framework.

But underneath the bad news, there is still some resilience…

So Much For Selling Pressure: These Two Stocks Reported Awful Bad News… And Investors Loved It!

For example, we’ve recently seen Texas Instruments (NYSE:TXN) and Nokia (NYSE:NOK) dramatically reduce their earnings estimates for the current quarter and offer a dour outlook for 2009.

Specifically, Texas Instruments expects revenues to slump by 26% to 32% sequentially. Yet investors “rewarded” the stock with a 5% boost the day after the announcement.

Nokia has reduced its guidance twice so far this quarter – once on the earnings call and again at its capital market day on December 4. Expectations for fourth-quarter handset shipments are now a negative 5%. And while the stock initially dropped by 3%, it’s up 6% since the latest reduction.

What does this say? To me, it’s clear that the downward pressure on stock prices that we’ve seen from forced selling is over. So is this just cause to get back in the investing saddle? Consider these three reasons…

Three Reasons To Resume Your Investing… But With A Caveat

• All three major stock indexes closed above their 50-day moving averages for two straight days – the first time that’s happened since August.
• There’s also a lack of selling pressure for tax-loss purposes.
• Dow Jones reports that 344 funds liquidated in the third quarter. That was the first time on record that more funds disappeared than launched. It also means that there’s likely to be less selling pressure ahead.

All three of these reasons for buying stocks are valid. But beware… with a potentially disastrous earnings season on the horizon and volume drying up as we head into the Christmas season, short sellers may take the opportunity to drive stocks back below their 50-day moving averages if for no other reason than a lack of buyers. Larger funds may also take the opportunity to reduce potentially volatile positions.

Corporate America’s New Tagline: Aim Low!

At this time of year, thoughts turn to the jolly fat man who represents gift-giving and good cheer. Question is: Will he hit Wall Street this year?

Investors are hoping for the oft-mentioned “Santa Claus Rally,” but in a thin market like this one, it’s easy to be shaken out of a 10% stop-loss simply due to increased volatility.

The next fundamental opportunity to invest will be after we have a feel for what first quarter corporate earnings will bring in terms of growth rates and profit levels.

The January earnings will provide management teams with the opportunity to reduce expectations to a point where they will be easily achievable. Once the bar is set low enough and investors are comfortable with growth rates, they will begin to take longer-term positions and the stock market will likely stop behaving like a casino.

If you prefer to look at the technicals, simply wait until the indexes prove they can hold their 50-day moving averages under increased volume – and be ready to sell if earnings season proves to be worse than we are currently expecting.

Source: As Wall Street Selling Pressure Eases, Three Reasons To Invest Cautiously

This from Smart Profits Report:

Here in the U.S., the mess continues unabated. The government had to reshape its bailout for AIG, including forking over an extra $40 billion. But despite the floundering company’s fourth consecutive negative quarterly report, the markets reacted positively to the story.

That didn’t help avert the crisis other areas, as Detroit’s automakers repeated their increasingly desperate pleas for some financial muscle and Circuit City (NYSE:CC) filing for Chapter 11 bankruptcy in order to seek protection from its creditors.

This came just a week after the electronics giant announced that it will close 155 of its 1500 stores. No wonder investors aren’t showing any confidence in the markets.

The fact that a mismanaged institution like Circuit City would declare bankruptcy wouldn’t be all that disconcerting at most times of the year. But when it’s right before Christmas…

However, this news might not be as bad as it seems. Smart investors know that Circuit City is an anomaly rather than a harbinger of the retail sector’s future…

Black Friday Or Red?

Black Friday – the traditional post-Thanksgiving excuse to shop until you drop – is only a couple of weeks away. Retailers like Circuit City, which depend on the holiday season for the bulk of its annual revenues, typically capitalize on the bargain-buying hordes in a number of ways. First, it opens the doors before the birds have started their early morning wake-up call and offers free prizes for the first few customers.

Even mismanaged companies can breathe a sigh of relief during holiday season, as they know exactly what to expect: Customers and cash.

But Christmas isn’t coming early for Circuit City. Not when Hewlett-Packard (NYSE: HPQ) and Samsung reduced or canceled its lines of credit at the very time when the retailer needed it the most. Sony (NYSE: SNE) even went as far as stopping delivery trucks in transit.

Why Circuit City Can’t Compete With The Big Boys

Take a look at the chart of the three-month LIBOR trend below. It indicates that the credit markets are beginning to loosen. The cost of inter-bank lending appears to have peaked on October 8 at just under 5.4% and has trended downward since.

As far as Circuit City is concerned, its pressing need for cash unfortunately happened to coincide with the credit crisis, and peaked shortly after LIBOR began to fall.

The threat of liabilities off the balance sheet has haunted both the company and its creditors for some time now. Circuit City is tied into multi-year leases that resulted in $116 million worth of termination cost liabilities as of August 31. And last week’s announcement of 155 store closures will probably account for $183 million more.

Even if the company were able to liquidate everything, the liability related to closing stores would be devastating, as the firm’s 1,500 locations are reduced. How many other companies can say they share those same sad stats?

In A Changing World, Circuit City Lacks Foresight

To top it all off, Circuit City showed a fatal inability to evolve with its industry.

Over the past few years, the Apple (Nasdaq:AAPL) database has emerged as the central point for music purchasing, edging out the previously popular CD. And folks who still like CDs usually rely on Wal-Mart (NYSE:WMT) and Internet retailers such as Tigerdirect and Buy.com, which offer lower prices compared to, say… Circuit City.

Cast the financial aspect aside for a second and chief competitor, Best Buy (NYSE:BBY) offers enviable customer service in its Geek Squad and personal shoppers. By contrast, Circuit City didn’t have the capital to capture the high-end of the market and, with pricing pressured at the low-end, the firm has quite simply languished until its cash reserves have disappeared.

Sure, the credit crisis didn’t help. But Circuit City can only blame it as a catalyst and not as a primary reason, since it’s been losing ground to Internet companies ever since iTunes made its debut.

Circuit City Had It Coming… But Its Main Rival Should Benefit

So at the risk of sounding blunt, Circuit City had this Chapter 11 coming. It’s simply a logical conclusion to six months of trouble, in which the company had to cut its dividend, lost an opportunity to be acquired due to lack of disclosure, and put plans for a new distribution facility on hold.

In this gloomy economic environment, most onlookers may see Circuit City as a prime example of what is going to happen to the rest of the retail sector, as we slide further into a recession. And with the critical holiday season around the corner, who can blame them?

A closer look, however, shows that while those fears are understandable, they’re not well-grounded. For some retailers like Best Buy, which will undoubtedly benefit from consumers not wanting to buy gift cards and extended warranties from Circuit City, this may actually be the end of the beginning rather than the beginning of the end.

Source: Circuit City Blows A Fuse… But Here’s Why Its Bankruptcy Doesn’t Spell Holiday Doom For Retailers

More from Smart Profits Report:

Amid the market’s mess, many pundits have touted the benefits of dividend paying stocks.

While it’s true that dividends bring you a form of income, does it really put a floor under a stock? The argument is pretty simple. Many companies have products that are such an integral part of day-to-day life that they are…

1. Very unlikely to disappear.
2. They’ve built up balance sheets that are strong enough to survive a multi-year downturn.

So instead of high share price appreciation, they repay their shareholders by passing along the profits in the form of dividends.

However, as cash flows dry up, companies cannot always support their dividends and investors can suffer a second whammy as the dividend gets cut and the stock finds a new level at the same yield.

Here’s the way to do it…

Follow The Cash

You have to be tactical. Buying dividend stocks in this type of prolonged downturn does provide a good return if the stock remains stable. But if a cash flow shock occurs, dividends could suffer and the stocks that were supported at the beginning of the bear market substantially underperform later on.

You can avoid this trap by looking at the key driver of dividends – cash flow.

In the heat of a bear market, investors will always be concerned about how far top-line growth can drop, but good management teams can handle this by cutting expenses.

However, the fixed depreciation of hard assets that are stuck to the balance sheet can make profit look worse than cash flow. While profit may look bad in the short-term, I have never seen a company cut a dividend that was 50% of free cash flow (or less).

The bottom line is that as long as free cash flow holds up, the management team has options and the dividend will be safe.

The last thing a company with a historically stable dividend will do is cut its dividend, as it would entirely change the shareholder base by boxing out value investors that have a yield hurdle.

So when it comes to dividend-paying stocks, while revenue and earnings growth are obviously important, be more concerned with the money on the cash flow statement.

Source: Beware The Dividend Trap… Here’s The Most Important Number You Should Consider

This from the Smart Profits Report:

I believe there are opportunities to buy technology stocks if you have a long-term outlook.

In the current climate, however, the best strategy to use is to buy the shares, then buy a put (known as a “married put”) as a hedge against the stock position.

You can also buy technology sector-specific ETFs, or a market index like the PowerShares QQQ Trust (NASDAQ:QQQQ), which eliminates the risk from a specific company.

As the market indexes eventually find a bottom and rebound, tech company shares — and indeed shares of other companies — will also stabilize over the next 12 months.

However, if a highly influential heavyweight company like General Motors (NYSE:GM), which plunged 33% to its lowest level since 1950 on Thursday, or Morgan Stanley (NYSE:MS), is forced into bankruptcy (despite GM defiantly stating that this won’t happen), there’s a real possibility that we could see a four-digit decline for the Dow Industrials index.

In sum, the longer-term trend is up but the path to stability may hide some sizeable potholes.

That’s why it’s essential you give yourself the best chance to emerge from this mess with as few bruises as possible.

Source: 3 Safe Ways to Invest In Technology… Despite the US Economy and Fuzzy Math

I’ve reviewed the Nasdaq Composite index’s returns over the past ten years in two different time segments: The first eight months of the year and the last four months of the year.

If history is any guide, it shows that a year-end rally is likely and offers clues as to where investors should look to put their money to work.

As you can see, technology firms are particularly likely to enjoy an end-of-year rally, as corporate IT managers spend any budget dollars set aside for the year to that point, and online advertising and commerce companies benefit from the shift toward online retail and away from traditional retailers.

Let’s break down the numbers…

The End-Of-Year Tech Rally

Right now, the Nasdaq Composite index is down about 11% on the year. But history shows that this trend doesn’t necessarily continue until the end of the year.

As you can see, there have been six instances over the past ten years where the Nasdaq Composite’s returns over the first eight months of the year were negative.

But on all six occasions, the index promptly rallied into the end of the year. Not only were the returns positive, they were impressive, notching up an average of 14.6%.

This unusual occurrence could be due to several factors…

• The benefit of stocks being oversold
• Optimism about the coming year
• The expectation for outperformance as companies experience budget flush
• Fund managers putting more capital to work in order to aggressively chase year-end performance

Regardless of the cause, a correlation exists. And here’s how you can take advantage…

15% Gains from the Last Four Months

In a post tech bubble economy, by being invested in the sector over the final four months of the year, rather than throughout the entire year, you could outperform the market by 15%.

This may be a short period to draw conclusions from but it represents a solid view of a stable environment for investing in technology stocks.

The years of the bubble, crash, and the first year of recovery misrepresent the growth prospects of the environment we’re in today. And the numbers clearly show that the potential for negative returns are in the early part of the year, when companies have less visibility into financial results, drags on the overall performance.

Therefore, you could outperform the market by buying the index on the first trading day of September and selling at the end of the year. In the post tech bubble/recovery era, this strategy would result in the individual outperforming the market by 15.1%.

Since I wrote about technology stocks coming under pressure from the appreciating dollar, in my last column on August 26 the Nasdaq Composite has dropped 5.7%. This has taken down the stocks to own, as well as those vulnerable to earnings revisions.

Considering the relative stability of technology companies that are independently diversified by not being levered to a single-end market, plus the historical seasonal support, we’re looking for an opportunity to begin to put money to work – and I intend to do just that with my next pick in the October issue of the Xcelerated Profits Report, out next week. For more information, click here.

Source: The Best Sector To Invest Your Money In Until The End Of The Year

Immersion develops haptic technologies that allow people to use touch to operate digital devices. Think the type of fancy touch-screen technology used by the much-hyped iPhone.

Paul says Immersion remains loaded with potential but remains still somewhat on the launchpad. But with three major set to toss the firm new business, Paul is bullish…

While Immersion has met its financial expectations, the mass adoption curve for its technology has been pushed out and has overlapped a point in time where high beta stocks have been stripped of premium valuations.

That said, we believe the underlying fundamentals remain intact and the stock is attractive here.

In case you don’t know about Immersion’s industry, the company is a market leader in the field of haptics – a technology that simplifies and enhances human interaction with everyday technology. The company holds hundreds of patents and provides products and patent licensing to some of the world’s biggest firms.

We’ve already seen the first wave of enthusiasm, as Immersion’s technology is incorporated in cutting-edge consumer electronics products like cellphones (Immersion’s patented VibTonz software is already in Nokia (NYSE: NOK), Samsung, and Motorola (NYSE: MOT) handsets) and Sony (NYSE:SNE) PlayStation video games.

However, the company’s smaller segments (mobility, gaming, and automotive) are enjoying faster growth at the moment and offer the most opportunity. And as this technology matures, it will filter into products with lower price points that have mass appeal. At that point, IMMR’s top line will have the potential to grow exponentially in line with unit shipments.

Medical Division Set To Spring Back To Life, While Other Segments Rise Rapidly

While the consumer products receive most of the attention, the bulk of Immersion’s revenue actually comes from medical training devices that help surgeons learn their craft.

That core business has slowed in the US recently, but a push to expand in Europe and Asia is likely to reaccelerate revenues from this segment later this year. And even as its Medical division has slowed, Immersion has managed to offset that through rapid growth in newer areas.

For example, strength in the Mobility (NADAQ:USMO) division saw sales shoot up by ten times during the most recent quarter and now accounts for 13% of revenues. And looking ahead to the remainder of 2008, there is plenty to be excited about…

The Buyer’s Favorite Word

Right off the bat, three major industries are set to toss more business Immersion’s way:

1. Auto: BMW (FRA:BMW) is expanding the use of iDrive into its 3-series models.
2. Telecom: Samsung and LG are shipping handsets that leverage haptics and Nokia is expected to follow later this year.
3. Gaming: 3M (NYSE:MMM) is producing casino gaming screens, which could offer upside over the second half of 2008.

That’s the business end. But what about the stock’s valuation?

In a word: Cheap.

While the concept of buying low and selling high is a mainstay of investing, every now and again, this simple concept temporarily eludes investors.

That explains why Immersion trades for less than two times its net cash. In the software industry, buying a profitable company at that price is relatively unheard of. But at a time when fear is rampant, you occasionally get the opportunity to snag a bargain.

In Immersion’s case, it boasts $4.52 in net cash per share. This is in cash equivalents that could be quickly liquidated if a majority holder were to buy the company.

This basically means that if a third party such as Sony or Apple (NASDAQ:AAPL) or Oracle (NASDAQ:ORCL) were to buy the company, it would be getting the operating business and patent portfolio for $2.30 per share (assuming a $6.82 share price). When stocks get to these levels, it becomes cheaper for a partner to acquire the firm than pay royalties for the licenses.

The Big Boys Bailed Out… But Are Now Getting Back In

Unless you took a vacation from the planet over the first three months of the year, you’ll probably know that it represented the worst start to the year for the stock market, as gridlock in the credit markets plunged financial institutions into dire straits.

That goes some way to explaining the unusual selling pressure that Immersion endured during the first quarter.

For example, Immersion’s largest holder, Goldman Sachs (NYSE: GS), all but liquidated its position over that period. Goldman sold 78% of its 3.1 million share position and if you assume that the firm sold those evenly throughout the quarter (a measured program of selling, rather than panic), it accounted for 5% of the daily volume each day. This represents a significant hurdle for a stock to overcome in a stable market, let alone a panic situation.

Since then, however, big institutions have ramped up their buying of Immersion shares. Two large shareholders have stepped up big-time, with Balyasny beefing up the size of its position by 131%, while Immersion’s largest current shareholder, Mazama, has bought 23% more stock.

This represents a strong vote of confidence from institutions that are intimate with Immersion’s story and have combined to own 15% of the shares outstanding.

Here’s The Skinny On Immersion’s Plan To Fatten Up

To sum up, Immersion has its finger on several different developing markets that have the ability to dramatically increase its growth. If one of them catches fire, investors will benefit from accelerating profit growth and multiple expansion. Additionally, Immersion remains a buyout candidate for the likes of Sony or Samsung and a precedent was set earlier this year when Nokia acquired Navteq (NYSE:NVT).

The downside scenario would be if Immersion’s share price stagnates at current levels. That could happen if increasing pressure on consumer spending delays the adoption of devices using haptics. However, the low valuation would likely still provide support for the stock and you’d merely sacrifice opportunity, which is much better than sacrificing investment capital.

Source: Immersion Is ‘Force-Feeding’ Its Way Towards Solid Growth

When you’ve got a market hurricane wreaking havoc with investors’ portfolios, cash is the air in the life raft that keeps stock prices afloat.

As a technology sector specialist, I can tell you that this is a particularly good sector to focus on when you’re looking for profitable ideas in a volatile market. This is simply because the group contains companies that offer better than average free cash-flow growth.

And in a bear market, cash truly is king. Even if the market is flagging, a company that boasts a strong cash position has a number of options available that can support its share price. This includes:

• Tactical acquisitions that sustain earnings growth. A good example here is Oracle (Nasdaq: ORCL).
• Share buyback plans that squeeze out short-selling interest – like we’ve seen with eBay (Nasdaq: EBAY).
• Cash distributions, as in the case of Microsoft (Nasdaq: MSFT).

The common denominator that these three companies share is that they all provide infrastructure that supports their customers’ businesses.

And in a bearish environment, this is crucial, as it gives them the option to raise prices in order to offset the impact from tougher selling conditions where fewer units are sold.

This kind of flexibility is evident in the performance of the Powershares QQQ (Nasdaq: QQQQ) – the ETF that tracks the Nasdaq 100 index. It’s outperformed the S&P 500 by 26% so far in 2008.

Source: How To Invest In Technology During A Down Market