Contrarian Stock Market Investing News - Featuring Bargain Stocks » Wayne Mulligan

Cal-Maine Foods (CALM): The Perfect Downturn Stock

Wayne Mulligan — Thu, 24 Jul 2008 14:51:22 +0000

People still have to eat in a downturn, says Wayne Mulligan in Penny Sleuth. And as household budgets get tighter, shoppers are least likely to get rid of staple foods.

This makes an investment in eggs a great way to play the downturn. That’s because the humble egg is one of the great American food staples.

One of the best ways to invest in Americans’ reliance on eggs is through Cal-Maine Foods, Inc. (CALM). The company produces almost 15% of the eggs eaten in the US. Its market share is growing. And it has a rock-solid set of financials…

Operating Margins are north of 30%, Net Profit Margins are at roughly 20% and the company’s Return on Equity (a metric I love to use) is over 25%!

To put that in perspective, the average company in the S&P 500 has profit margins of 11% and Returns on Equity of 15%, so Cal-Maine is definitely running a tight ship.

But things haven’t always been this great for Cal-Maine and the other egg producers in the U.S. They’ve had a little help from the corn market…

Due to the rising cost of corn, Cal-Maine and other egg companies have seen their feeding costs rise by 30% this year. That may sound like bad news but since eggs are such a customary item on American breakfast tables, Cal-Maine has been able to raise its prices right along with its costs. In fact, the company was able to increase its prices above costs and expand its margins and profits as well.

That’s why this company’s stock has practically doubled over the last 12 months — and many folks, including Barron’s, think it could double again.

I’m not sure about a double, but with a stock that’s trading at a $900 million market cap and paying an 8%-plus yield, I’d still feel comfortable socking Cal-Maine away in my portfolio for a while.

But I’m also going to keep an eye on the corn market. If the price of corn begins to come down in a significant way, you can bet that Cal-Maine’s profits and stock price will drop right along with it.

PS: As well as writing for PennySleuth.com, Wayne Mulligan is the founder of Tickerhoud.com. The site is an open platform for investors to answer other investors’ questions on a wide range of subjects. It’s well worth checking out.

Source: Turning Eggs into Dollars

Slack Spending Means Bear Market Will Roar Some More

Wayne Mulligan — Fri, 18 Jul 2008 19:02:09 +0000

Are we seeing a bottom to the bear market?

US stocks are heading for weekly gains. This despite big quarterly losses results from financials Citigroup (C) and Merrill Lynch (MER) and missed estimates from tech giants Google (GOOG) and Microsoft (MSFT).

Think of it this way, says Penny Sleuth editor Wayne Mulligan: “If you want to know whether or not we’ve reached a bottom, then all you need to do is think about the consumer.”

Consumer spending is 70% of US GDP. And consumer spending is slack right now. So calling a bottom to the bear market would definitely be immature.

It’s pretty clear times are tough right now. With three quarters of the population thinking we’re already in a recession and the market sinking by the day, I don’t think there’s any more debating as to whether or not we’re in bear market territory.

So the question for many folks has become: Are we at the bottom of the market yet?

In fact, that’s what inspired this question on TickerHound (and in turn, inspired today’s article):

“In my humble opinion, if you want to know whether or not we’ve reached a bottom, then all you need to do is think about the consumer. In other words, think about yourself and the millions of other Americans out there who are:

Watching the values of their homes drop

Spending twice as much at the pump than they did a year ago

Watching their net worth shrink by the day

“And then ask yourself, has anything changed over the last couple of months? Have things gotten any better or have they gotten worse?”

Unless you don’t own a home, drive a car or do your own grocery shopping, then you might be tempted to say, “Things ain’t so bad.” But if you can relate to what I’m talking about, then you already know the answer this question.

Calling a bottom right now would definitely be premature. Consumer spending drives 70% of our GDP. You cut the consumers’ ability or desire to spend and you’ll watch this economy slow down pretty darn quick.

For more on this TickerHound question, click here…

Source: Is Calling a Bottom Premature?

These 3 Sectors Should Be Part of Your Downturn Strategy

Wayne Mulligan — Thu, 10 Jul 2008 13:46:32 +0000

We’re standing on the tracks and the train is coming, says Wayne Mulligan. But that’s no reason for investors to not play the market. Wayne says going long on discount retailers is the best way to profit from low consumer confidence. And with fuel prices on an unsustainable uptrend, investors should look to the alternative energy market. Meanwhile, the auto industry is facing ruin. A clear opportunity for shorting, says Wayne.

According to a recent survey, three-quarters of the American public think that we’re currently in a recession. The Dow is trading around the same price it was seven years ago and only seems to be heading lower.

Fuel and food prices are at all time highs and the employment picture is gradually getting worse.

And all of this on top of a housing crisis that has yet to fully take hold.

Depressed enough yet?

Basically, we’re standing on the tracks and the train is coming — I don’t need a PhD in economics to figure that much out — the only question is, do we stand here and let it hit us or do we get out of the way?

I’m voting for getting out of the way, who’s with me!?

But it’s not enough to just “get out of the way.” We’re investors; we should do whatever we can to profit from the current economic and market climate too.

On TickerHound, we’ve been seeing questions on this exact topic for the last couple of months, you can check out what some of the other members have had to say here:

What are the Top Three Investments for a Down Market?

I decided not to weigh in at the time; it was too tough to tell where things were headed. But I think the picture has become much clearer now and today I wanted to share where my trades will be focused for the second half of this year.

***********************************

“How Will I Know What and When to Buy and Sell?”

Answer: This one is simple. I’ll tell you exactly what to buy, when to buy it and when to sell it.

I’ve recommended a total of 106 plays with specific buy-and-sell recommendations. Eighty-eight went up. And the average gain over all of those plays, including losers, was an amazing 64%.

Want to know what I’m talking about? Click here…

***********************************

Discount Retailers

Given the fact that the American consumer thinks we’re in a recession, it stands to reason that consumer spending will continue to slow this year. That means luxury goods or purchases that require large lump sum payments are going to get pushed to the back burner for the time being.

So what will consumers be buying?

The usual, of course: Groceries, medicine and maybe even some clothing.

Consumers will certainly continue to buy these items, but they’ll be very picky as to where they buy them. Meaning, I doubt you’ll see long lines at Gap Stores anytime soon, or baby boomers opting to buy brand name drugs as opposed to the generics. People will be extremely cost conscious as we head into the second half of the year.

That’s why it’s important we focus on retailers that cater to the cost conscious consumer.

For me, that means looking at stocks like Wal-Mart (WMT: NYSE) and Dollar Tree (DLTR: NASDAQ), both of which have done very well over the last six months.

So I’ll be looking to go long Discount Retailers.

Alternative Energy

Forget the green movement and all the damage we’re doing to our environment with current forms of energy production, let’s just look at what’s going on at the pumps every day. The price of fuel is rising and it doesn’t look like it’s coming down anytime soon.

What’s a gallon of gas going to cost by the end of the summer: $5.00? $5.50?

The bottom line is, our dependence on crude is killing our economy and many of our industries; everything from transportation to shipping.

It doesn’t take a rocket scientist to know that we’ll need to look for alternative sources of energy in the not-too-distant future.

But it would take a rocket scientist to know which companies will pan out in this emerging sector. So while I won’t be buying any individual companies just yet, I will, however, be looking to go long on some of the ETFs that cover the alternative energy market.

I’ve had my eye on several for a while now — PBW, QLCN and GEX, just to name a few.

***********************************

Make Over 600% Profits in One Month!

Find that hard to believe? Penny Stock Fortunes Editor Greg Guenthner has the “key” to wealth…

We’ve found a proven way for you to make a fortune by risking very little by tracking Wall Street’s “Black Market.” We’ve researched, we’ve analyzed, we’ve tracked, and we want you to know the which stocks will be the winners…

To find out how to multiply your fortunes… Click here for more info…

***********************************

Automakers

This one is a no-brainer for me for the following reasons:

Decreasing consumer spending

Increasing cost of fuel

Increasing cost of steel

A new car will certainly be out of the question for many American consumers for quite some time. I think food, water and medicine will be higher up on the priority list for most folks in this country.

So as this market continues to head south, so too will the Auto stocks.

Luckily for us it won’t be too hard to pick which automakers to short; they’re all performing equally poorly these days. So I’ll probably go ahead and short the Big Three for the near term. I can’t see any of them turning the corner anytime soon.

One of the most important lessons I ever learned in my years in the market is that as investors we can make money regardless of how the economy is doing. As long as we don’t get emotional, lose our cool or make decisions that go against the facts, we can come out of this downturn just fine.

So make sure you play this bear market, don’t let it play you. For more on this, read what my readers have written…

Source: Weighing in on Today’s Bear

Three Easy Steps for Picking Stocks

Wayne Mulligan — Wed, 02 Jul 2008 01:39:07 +0000

Someone just e-mailed me…How exactly do you go about finding stocks to buy? And after I read it, I really began to think about how my investing process works. How do I go about identifying, researching and ultimately buying a stock?

For many investors the process has evolved so much for them that it’s tough to tell what their exact methodology or framework is anymore. So after reading that question, I decided to pull out my yellow legal pad and literally write down my investing methodology…and here it is (the abridged version):

1. Stock Screen & Filter

This part of the process isn’t set in stone but it’s what I find myself doing when I’m searching for stocks that aren’t on my radar yet. But many times I’ll simply find companies due to overall macro trends that I’m following (e.g. wireless, China, etc.) and then I’ll just skip this first step.

But in the event that I am looking for new companies, what I’ll typically do is use one of the free stock screeners out there (Yahoo! Finance has a great Java app for screening stocks). Here are some of the criteria I’ll use:

Market Cap: Depending on which types of stocks I’m looking for (large-cap, small-cap, etc.) I’ll tweak this setting accordingly.

Return on Equity (ROE): This is an extremely important metric in determining the overall health of a business and how competent management is. Anything above 15% is a healthy ROE number.

Earnings Yield: This is a number many people don’t look at but it’s very helpful in quickly screening for potential investments. The Earnings Yield is basically the inverse of the P/E ratio, so it’s Earnings divided by Price.

Think about it this way, if you could get a 5% yield on a government bond (a risk free investment), then wouldn’t you want more out of a company you’re investing in?

I’ll typically look for companies with earnings yields north of 6%, but the higher the better.

Look Out For Debt: While I’d ideally like a company with zero long-term debt, some debt is ok as long as it’s not breaking the company’s back. So make sure the company is able to comfortably meet interest payments (interest coverage ratio) and that long-term debt doesn’t make up the majority of its capital structure.

*********************************

Turn $4,000 into 1,000,000 in Just Six Months

There’s an investing strategy that will have you addicted…

It consistently beat blue chips many times over. When the “secret” market whose top-performing stocks averaged gains of over 25,000% in 2007, we just had to write about it.

To read more on this lucrative market… Click here…

*********************************

2. It’s All Business

After you get your list of stocks, the next step is to filter it down further but this time you’ll need to look a bit deeper than the numbers.

For me, I’ll only invest in a stock if I really understand the business behind it. I’ll want to know exactly how the company makes money and what makes it a better company than its competitors, etc.

So you would never see me invest in a chemical company because I just don’t know enough about the industry to say which company has a real advantage over another.

So make sure the business you’re investing in is one you’re familiar with and understand.

3. What’s It Worth and Is the Price Right?

OK, so now we’re back to the numbers — and here’s where it gets tricky…

Let’s say we’re looking at a stock with a $500 million market cap.

How do we know it’s not really worth $100 million?

How do we know it’s not worth $5 billion?

The answer is tricky in that there is no single “correct” way to determine the value of a business. Everybody uses their own metrics and equations.

But what I can tell you is that nobody will ever come up with the exact value of a company. It’s impossible to be right about something as dynamic as a business. There’s just too many different variables and moving parts.

*********************************

Professional Investors’ Strategies Leaked!

The “pros” love ‘em…the gurus brag about ‘em…

What once seemed impossible and confusing to you while investing will now be simple.

We’ve got the secrets to making options pay…with much less risk and much less work. You’ll be kicking yourself that you didn’t read this years ago…

Click here to read the top financial analysts’ strategies…

*********************************

So what is an investor to do?

For this topic I’ll default to the kings of value investing: Benjamin Graham and Warren Buffett. To be clear, Graham was the one who came up with the concept I’m about to discuss, but Buffett’s success in applying it makes it worth including his name here as well.

And the concept I’m referring to is, “Margin of Safety.”

For example, if you think a stock is worth $1 billion, then you should only buy it when it’s trading for $500 million. Meaning, you should require a Margin of Safety of 50% or more on every investment you make.

This way you eliminate a lot of the uncertainty and the risk involved in trying to accurately value a company. If you get nothing else out of this article, then I hope that the concept of Margin of Safety really sticks and you use it in all of your investing operations.

Investing in Chinese Real Estate

Wayne Mulligan — Wed, 25 Jun 2008 16:15:27 +0000

Editor’s Note: Wayne Mulligan, founder and CEO of TickerHound.com is traveling in China. Writing for Penny Sleuth, he says that the housing market boom has reached its limits for now. More losses are likely in the near future, making shorting a good option for investors…

China’s housing market has shown signs of cooling this year, as tighter credit conditions limit financing options. Sameer Nayar, head of real estate finance at Credit Suisse Group, told Bloomberg that financing costs have soared 500-700 basis points (5-7%) in China.

Meanwhile, Thomson Reuters reports that residential transactions were down over 50% in April, according to China Index Academy.

Investing in Chinese Real Estate

By Wayne Mulligan

I landed in China about seven days ago and have been completely amazed by how much it’s changed in the last few years. I haven’t set foot in Beijing since late 2005 and the difference between then and now becomes evident as soon as you hit the airport.

But the biggest change I’ve seen is in a sector many thought was invulnerable: China’s real estate market.

So when I saw this question on TickerHound, I thought it was a PERFECT opportunity to share some firsthand experiences with you:

How can U.S. investors profit in the Chinese real estate market?

Now, just to be clear, my analysis isn’t complete yet but I think it’ll be helpful to share some of the observations I’ve made by speaking with local businessmen and homeowners.

***********************************

The Phone Call That Saved You $4,872

She was furious when she called Addison up on the phone.

“Addison, look, there’s a lot of people who want the ‘all access’ pass, they just need a lower price to give it a try… So let’s just give it to ‘em already. OK?!?”

Find out what she was talking about and what he said here…

***********************************

Is a Bubble Popping?

When I was last here people were falling all over themselves to buy a new home and hopefully sell it for a quick profit in a year or two. I saw this trend everywhere from Beijing, to Shanghai and all the way down south in Fujian.

Prices were rising every month and developers couldn’t put up new apartment complexes fast enough.

But things have certainly changed in a few short years.

Whenever I speak to homeowners or prospective homeowners this time around, I keep hearing the same thing: prices are too high.

Many people are content with holding out until the market pulls back a bit before investing in a new home, and the developers are starting to feel it as well.

Not only are they providing discounts and rebates if buyers put more money down (for example: if a buyer were to put up the entire cost of the home upfront, then he’d get a 10% discount on the entire home) but they’re also engaging in some creative marketing campaigns as well. The most interesting one I’ve seen so far is, “Buy a home and we’ll give you a car for free!”

To me, this is like walking into a retailer and seeing that they’re discounting their entire inventory. Meaning, people don’t like the merchandise enough to pay full price and it’ll inevitably be reflected in the company’s bottom line at the end of the year.

I think we’re seeing the same thing in China right now and the summer might mean a serious downturn in the once red-hot real estate market.

But Don’t Take My Word for It

Keep in mind that these are just my general observations after being here and speaking with dozens of people for the last week.

But I think there’s a more telling indicator that we can look at which not only confirms my suspicions, but could also help us profit from this coming downturn.

***********************************

The Possibility of Turning $200 Into $15,000-30,000 — or MUCH More with My CXS Money-Multiplier System

My scientifically selected penny stocks beat the pants off the Dow, the NASDAQ and the S&P 500. I do all the hard work, instructing you what to buy. Discover the easiest way to earn the most money in the market.

Here’s my incredible offer…

***********************************

In December 2007, Claymore launched a China Real Estate ETF (NYSE: TAO). The fund was setup to capture the upside in one of the world’s hottest real estate markets. And with prices rising by double-digit percentages every month it seemed like a good idea.

But if you take a look at the ETF’s chart since it launched then you’ll see that its performance has been less than stellar.

In fact, it’s down about 25% in the last six months:

My bet is that we’ll see some negative news from this sector over the next quarter and shorting this ETF might be a smart way profit from it.

However, I have to warn you that you need to be careful here. People have been predicting a downturn in China’s real estate market for years now and while there were certainly hiccups along the way, this market has continued to skyrocket.

I have a tremendous amount of faith that the overall real estate sector will continue to do well here over the long term, but for now I think it’s a buyers’ market and profits in the sector will suffer for the time being.

Source: Investing in Chinese Real Estate

A is for Apple, B is for Billions, C is for China

Wayne Mulligan — Tue, 17 Jun 2008 23:21:54 +0000

Apple Enters Chinese Markets. Wayne Mulligan is back to give us an overview of China’s exponential growing market and what that means for wireless investors.

The global wireless industry has been exploding — over 250 million subscribers in the U.S., over 500 million in China, there are more people on this planet that own a mobile phone than those that own a computer — bottom line, this is the place to be for the long haul.

But we can’t talk about wireless without addressing the hottest company in the sector right now: Apple (AAPL: NASDAQ) and its headline-making iPhone…and we can’t talk about the hottest company without discussing the hottest market: China!

So a TickerHound member asked:

Why isn’t the iPhone in China?

Good question! But I think the better question is, why isn’t the iPhone in China YET?

After months of failed negotiations between Apple and China Mobile (CHL: NYSE) — the largest mobile service provider in the world in terms of subscribers — the companies were unable to reach an agreement.

But after Apple’s announcement on Monday, I think it’s clear that while negotiations between the two companies may be at a standstill, they won’t stay that way for long…

The Chinese wireless market is by far, one of the most desired mobile markets on the planet. This is a country with roughly 1.4 billion citizens and not even half of them have a mobile phone…yet…

There’s a tremendous opportunity for growth in China and Apple knows it.

Although a deal hasn’t been reached to bring the (genuine) iPhone to China yet, Apple is definitely gearing up for it.

Apple just recently presented the world with the “iPhone 2.0”.

Aside from the widely covered feature additions like 3G wireless technology, GPS, reduced price point, etc., Apple unveiled a feature that I personally jumped out of my seat for…and it’s geared directly for the Chinese market.

Texting and E-mailing in China

Having lived in China for a period of time, I can attest to the difficulty in sending Chinese text messages and e-mails from a mobile phone. Typically you’ll have to type the message using a spelling system known as pin-yin.

Pin-yin is the transliteration of Chinese words into westernized spelling. So if I wanted to type “hello” in a text message, I’d have to type “ni hao” using a western keyboard and that would then be translated into the appropriate Chinese characters.

Obviously the use of a stylus would make things much easier. In fact, that’s exactly what Motorola (MOT: NYSE) had in mind when they launched the Motorola Ming in China two years ago.

That’s precisely what Apple had in mind when they launched their Chinese character recognition software on Monday.

With the latest version of the iPhone, you can use your finger to write out Chinese characters directly on the screen. This will make writing text messages and e-mails much faster and easier.

So the real question becomes, what would it mean for Apple’s business if it secured a significant share of the Chinese handset market?

Well, let’s look to the Motorola Ming for an indication of what may be in store for Apple…

The Ming and Market Share

Motorola Ming had roughly 1% of the entire Chinese handset market at the beginning of 2007. Given that China has a mobile subscriber base of 583.5 million people now, that would mean 5.8 million phones by today’s numbers.

It would be easy to make the argument that the iPhone has much more hype, demand, functionality, etc. built around it and therefore could reasonably capture more of the market than the Ming. But let’s be conservative here. Let’s assume Apple is able to sell 5.8 million iPhones in China…

If Apple sticks to their $200 price point for the 8 GB model — which is certainly realistic considering the Ming’s price point was in the upper $400’s — that would be roughly $1.16 billion in additional top-line revenue for Apple.

Also, if you consider the “halo” effect Apple’s products tend to have (sell one product, you sell more of the others), then it’s easy to see how substantial adoption of the iPhone could turn China into an increasingly important source of revenue for Apple overall.

Regards,
Wayne Mulligan

P.S.: As hot as China’s market is, there’s another market out there that’s a lot more profitable, a lot more secret, and a lot less risk. We’ll give you a sneak peak to find out how to make easy millions. To find out what his hot market it… Click here…

Source: A is for Apple, B is for Billions, C is for China