The Asian markets closed mostly lower and Europe is trading modestly lower, signaling a likely down day for the S&P 500. Today starts with the Atlanta Fed business inflation expectations number and a boatload of Fed speak (Esther George, Daniel Tarullo, James Bullard and Narayana Kocherlakota). Today is the September quadruple witching. Prior to electronic trading, this day used to be one of the most volatile days of the year. It was filled with expiring options that generally had to be hedged with the S&P futures or rolled. For us, the day was also known for its high level of fighting between our desk and the pit. The roar of the S&P pit has been replaced by the hum of computers and electronic trading. Short-Term Overextended: Expect a big NYSE volume print on the ope, some small buying and selling in the S&P pit and then a long wait till the close. As expected, the S&P futures went into rest mode yesterday. After such a large rally and the big push up after the Fed meeting the futures acted exhausted yesterday, but after they sold off they bounced back up to unchanged on the close. While the ESZ did sell off, the overall tone was not all that bad. Our View: A one day selloff is not going to cure the S&P from being overbought. That said, there is a lot of Fed speak scheduled today, so be prepared for the headlines. The S&P should be busy in the first and last hour. Our view is to sell the early rally. The S&P may continue to rally, but it is a Friday, the quad witch, and the weekend, so we think there will be more lightening up than buying. As always, use stops and keep an eye on the 10-handle rule. Don't forget to catch MrTopStep on The Closing Print video. We report directly from the SPX pits, wrapping up the day and positioning for trade tomorrow. OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits MrTopStep can be followed on Twitter at twitter.com/MrTopStep For LIVE futures chat, more information on the 10-handle rule and futures educational content CLICK HERE FOR A SEVEN-DAY FREE TRIAL.
Monday, September 30, 2013
The Credit Card Is Born and the Long Depression Begins
On this day in economic and business history...
Jay Cooke & Company failed on Sept. 18, 1873, triggering a financial panic that soon plunged the United States into a "Great Depression." This depression remained the national benchmark for economic woe for decades before the 1930s took over that term.
The basic backstory of this failure should be familiar: A major financier invests heavily into a speculative bubble -- in this case, railroads -- and uses excessive leverage to maximize returns while everything moves in the right direction. Then the bubble pops, and the financier is left without the means to pay back creditors. A sudden lack of liquidity cascades through the financial system as everyone rushes to withdraw money, only to find that in many cases their profits or their savings exist only as notations in their bank's records. Everybody panic!
The particulars of 1873, however, make it worth a closer investigation.
The boom leading up to the 1873 panic was the first true "tech" bubble, driven entirely by the excitement surrounding a promising new industry, rather than by real-estate speculation, trade imbalances, or financial shenanigans. (A boom preceding the Panic of 1857 also involved railroads, but this earlier bubble was driven in large part by Midwestern land speculation.)
The railroad boom kicked into high gear following the completion of the Transcontinental Railroad in 1869. This continent-crossing line finally provided a number of locales west of the Mississippi with a primary connection back to the industrializing coastal cities. Between the Transcontinental Railroad project's approval in 1862 and its completion in 1869, nearly 15,000 new miles of track were built in the United States -- a 45% growth in total mileage. In the four years that followed, more than 23,000 new miles of track were built, averaging roughly 5,900 new miles per year. Despite the emergence of a strong domestic iron industry, this intense pace of construction was too much for American foundries to supply, so the price of rail shot higher, and imports wound up outweighing domestic production by 1872.
Many of these railroad projects took years to complete in the best of circumstances, which made some investors wary of the long-term risk of corporate failure. Jay Cooke, which was the exclusive bond agent for the Northern Pacific Railroad, experienced much of this investor nervousness firsthand. Despite the firm's high prestige -- it had sold more than $500 million in government bonds to help finance the Civil War -- Jay Cooke wound up stuck with most of Northern Pacific's bonds and owned 75% of the company on the eve of the panic. This proved disastrous when the railroad's ambitions exceeded the capability of its construction crews.
Northern Pacific crews had set out from an outpost near Duluth, Minn., in 1870, with the intention of building America's Transcontinental Railroad through the northern states. However, by 1872 it had only reached Fargo, N.D. -- roughly 240 miles by car nowadays. Its terminus, in Tacoma, Wash., lay another 1,400 miles to the west. Jay Cooke, as reluctant majority-owner and holder of millions of dollars in unsalable Northern Pacific bonds, took on debts wherever it could to sustain financing for the railroad's construction. Costs eventually mounted beyond Jay Cooke's ability to maintain funding. With its obligations far exceeding its assets and a huge government loan offer rescinded, the firm had no choice but to declare bankruptcy.
Jay Cooke's insolvency was not entirely unexpected, and yet its impact was entirely underestimated. The Chicago Daily Tribune, writing on the day of the Cooke bankruptcy, remarked:
Prudent business men have predicted for years that Jay Cooke & Co. would fail. Their enterprises were so daring, their scrupulousness so doubtful, their liabilities so large, their exterior so glittering, that among the really heavy men of the country there has long been a belief that sooner or later the firm would go to everlasting smash. Nevertheless, their total suspension when announced today was a surprise. They had stood so long under the Northern Pacific load that even those who predicted their failure fancied that they would somehow pull through. When their collapse was announced, there were probably thousands of business men in all parts of the United States and Canada who exclaimed simultaneously, "I told you so." ...
We do not apprehend that this failure will lead to anything like a financial crisis, or cause any serious disturbance in the business of the country. There will be a clatter of small failures caused immediately by this one, and a smashing of crockery in Wall Street produced by the decline in stocks. But the volume of private indebtedness throughout the country at the present time is not large. The stringency of last autumn and winter led to a vast curtailment of liabilities. People have since then set their affairs in order. There is nothing to make a general panic out of.
This blase optimism is, as always, stunning in its wrong-headedness. The very next day, this same newspaper reported on the failure of 19 financial firms as a result of a railroad-stock bloodbath on Wall Street. On Sept. 20, two hours of catastrophic panic-selling at the New York Stock Exchange forced exchange operators to shut down trading indefinitely. The exchange would not open for another 10 days. Those two hours produced $100 million in losses on railroad stocks alone, which at that time was equivalent to roughly 1.2% of the entire national GDP. The Tribune crowed that "the results of the day are disastrous only to a class of stock-gamblers whom everybody wishes to see overwhelmed," mocking the dozen or so banks that failed that day as inconsequential: "Not a single house of stability, character, or importance has suspended."
The results of the Cooke failure and its resultant panic eventually proved disastrous to the entire country. In the two years that followed, a quarter of the nation's 364 railroads went bankrupt, 18,000 other businesses failed, and unemployment spiked to 14%. Business activity declined to just two-thirds of pre-crash levels. The Long Depression, as it's now called, persisted until 1879, and at 65 months in length (as measured by the National Bureau of Economic Research) it outlasts the Great Depression's initial collapse by nearly two full years.
A new kind of credit
Bank of America (NYSE: BAC ) launched the world's first modern credit card, the BankAmericard, on Sept. 18, 1958 .
Bank of America's card was at first a paper card that had a $300 limit. It launched in an environment already well-seeded with credit; many American families were accustomed to installment-plan purchases and early charge cards like the Diners Club card, which required that balances be paid in full every month. Executives at Bank of America, which was then the largest bank in California, had set out to create a unified credit mechanism that might allow consumers to buy all manner of products and services and then make a single monthly payment. This is, of course, the basic credit card model still in use today.
Thousands of BankAmericards were distributed to the residents of Fresno, Calif., in what was intended to be a small, controlled trial. However, competing banks showed an early interest in the credit card model, and Bank of America abandoned its limited trial in a mad dash to gain statewide market share. Within a year, more than 2 million BankAmericards had been distributed across California, and the bank's lack of credit checks caused major headaches for the bank when nearly a quarter of all its credit card accounts turned up delinquent. By the end of the 1950s it was evident that Bank of America had badly botched the launch of the world's first credit card, and estimates later pegged its losses at about $20 million, or about $160 million in present terms.
Despite these early struggles, Bank of America refused to give up its efforts, and a ferocious image-rehabilitation program eventually brought the BankAmericard to profitability. Banking regulations prevented Bank of America from expanding beyond California's borders, but by 1965 its credit card program began to expand nationwide as other banks licensed the BankAmericard system. During these early years, banks would "drop" credit cards to households directly, bypassing the now-standard card application in favor of simply mailing viable consumers a ready-to-use card. As you might expect, this led to a number of problems; credit card fraud and delinquencies ran high until unsolicited "drops" were outlawed by the federal government in 1970.
It was from these humble beginnings that Visa (NYSE: V ) was born. BankAmericard became an independent corporation in 1970 and later changed its name to Visa in 1976 as a way to broaden its appeal internationally. By this point the Master Charge had been established as a competing credit card network, and it had actually grown larger than the former BankAmericard: In the first quarter of 1976, BankAmericard/Visa claimed 31.8 million cardholders and $2.3 billion in sales volume, while the Master Charge had 37.4 million cardholders and processed $2.9 billion in sales. Master Charge, of course, is the forerunner to MasterCard (NYSE: MA ) , but it hasn't maintained its early lead over Visa. In 2012, Visa's total U.S. purchase volume clocked in at $981 billion compared to $534 billion for MasterCard, and Visa's 278 million American cardholders far outweigh MasterCard's 180 million American cardholders.
Visa's long wait to go public -- its IPO took place in 2008 -- meant that it would not be the first credit card issuer added to the Dow Jones Industrial Average (DJINDICES: ^DJI ) . That honor went to American Express (NYSE: AXP ) , which earned its spot in 1982 by owning the "premium" credit card market -- its 52.5 million card members spent far more in 2012 per card ($8,100 on average!) than either Visa's ($3,500) or MasterCard's ($3,000) card members. However, there was a certain irony in the fact that Visa, on its induction to the Dow in 2013, became one of the few companies ever added to directly replace the company that first spun it off.
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Home Prices Rising — in China
Since August 2012, house prices in 69 of 70 Chinese cities have risen an average of 7.5%, leading to fears of a housing bubble in the Middle Kingdom. Higher prices are encouraging more development, and prime property in Beijing and Shanghai is selling for record prices.
At the same time that prices are jumping in some cities, the country is plagued with "ghost cities" like Jing Jin City, just an hour east of Beijing, where 3,000 villas and other high-end amenities go begging for residents. And there are more ghost cities spread all over the country.
Earlier this year, Shanghai's local government ordered banks to stop making loans for purchases of third homes. In Beijing, the government limited single residents to a single home. Both cities said that a 20% capital gains tax on profits from property sales would be strictly enforced.
The deputy director of the country's Ministry of Housing and Urban-Rural Development has said that 80% of home purchasers are first-time buyers who want to improve their living conditions, not investors looking to flip homes for a profit. The central government denies that a bubble is developing, despite some regional issues.
A real estate researcher estimates that, based on the record sales prices for land in Beijing and Shanghai, housing prices will rise 50% in a year. Another researcher recently told China Daily, "It is the combination of local governments, companies and banks taking advantage of the higher prices that contributes to skyrocketing prices."
Sunday, September 29, 2013
ADM Offsetting Weak Volume With Strong Ethanol
Good Performance In A Challenging Environment
Probably the best news for ADM going into this quarter was that expectations really weren't that demanding. Even so, the company delivered a small (two-cent) beat versus the average EPS estimate due to better execution within its operations.
Revenue declined 1% this quarter (about 2% below expectations), with ag services down 6% and oilseed processing down 3%. With oilseed processing volume down 10% (in line with an overall 10% or so decline in U.S. crush volumes), that's not such a bad outcome. Corn processing revenue jumped 29%, helped in large part by the ethanol business.
While the gross margin was flat with the year-ago level, ADM's segment profits rose 19% from the year-ago level. While oilseed profits were down 3% (as better crushing margins were offset by weaker cocoa) and ag services profits were down about one-third on weaker volumes, corn profits more than tripled. Within corn, better results in starches and sweeteners were almost completely offset by hedges, with radically improved ethanol margins providing all of the upside.
SEE: A Look At Corporate Profit Margins
Not Much To Do In Oilseeds Or Ag Services But Wait
There is a pretty simple explanation as to why ADM's crush volumes and ag services revenues were down this quarter – last year's lousy crop just hasn't left much to process. To that end, this is also where ADM's geographical exposure becomes an issue – ADM has a modest presence in Latin America compared to Bunge (NYSE:BG) and can't take as much advantage of Argentine and Brazilian oilseed crops produced by companies like Cresud (Nasdaq: CRESY) and Adecoagro (Nasdaq:AGRO).
Although the 2013 U.S. crop is looking strong in terms of yield, it's hardly a done deal yet. In any case, investors are already transitioning to the next year's outlook where a surge of crop inventory should boost the crush and ag services operations.
Ethanol Boosting Corn, But Don't Count On It
While ADM and Ingredion (Nasdaq:INGR) are seeing pressures in the sweeteners and starches business from last year's crop (ADM's corn processing volume declined 1% this quarter), the bigger issue for ADM is the never-ending volatility in the ethanol industry.
SEE: The Buzz Around Ethanol
ADM is the largest ethanol producer in the U.S. at about 1.75 billion gallons or roughly 12% of U.S. production. All told, the top five producers (which includes Valero (NYSE:VLO)) account for about 40% of capacity, but it's not as though this scale offers much assurance of stability. Inventories are low, but Brazilian imports are cost-effective and the blend wall could start pressuring prices. Not unlike what happens in the conventional gasoline refining business, ethanol prices generally follow corn prices, but not in lockstep and there's really no way to know where margins are going more than a quarter or two from here.
The Bottom Line
The GrainCorp acquisition will improve ADM's position in Asia, but there's still room for the company to increase its global presence (in Asia, Latin America, and Africa). These opportunities have to be set against the cost of capital and so on, but the point stands that ADM still has room to grow its business. Still, this is a volatile business with razor-thin margins and cash flow generation, and that is unlikely to change.
With that in mind, I'm not in any hurry to chase ADM shares today. I like ADM just fine, but I think the stock is fairly-priced with respect to discounted cash flow and ROE/PBV. I'm happy to own ADM when Wall Street doesn't like it, but with the sentiment (and stock performance) having turned around, I think there are better opportunities elsewhere.
Disclosure: At the time of writing, the author did not own shares of any company mentioned in this article.
Saturday, September 28, 2013
When Headline Numbers Mask Underlying Weakness
After Canada’s dismal employment report in July, the country’s job growth came roaring back in August, with 59,200 jobs created last month, according to Statistics Canada. That trounced the consensus forecast, which according to Bloomberg had projected just 20,000 new jobs.
Of course, month-to-month data are notoriously volatile. Nevertheless, August’s headline number was also well ahead of the pace of monthly job creation over the past year, which has averaged 20,500 jobs. On a nearer-term basis, however, job growth has been decelerating, with an average of just 12,000 new jobs per month over the past six months.
Still, the August number more than offsets the declines of the prior two months, though one area that somewhat undermines this report is the fact that new part-time jobs dwarfed full-time jobs at 41,800 and 17,400, respectively.
That might sound similar to what’s happening with job creation in the US so far this year. When examining these figures over the trailing year, however, the dynamic appears somewhat healthier: On average, the Canadian economy has created 14,600 new full-time jobs each month versus 5,900 part-time jobs.
Another area of concern is also reminiscent of US employment data: a decidedly lackluster labor force participation rate. Although the labor force rose by one-tenth of a percentage point to 66.6 percent of the total population, that’s coming off a five-year low of 66.5 percent, which this rate has hit three times over the past year and a half, first in February 2012, then in April and July of this year.
One of the paradoxes in employment statistics is that a declining labor force participation rate can actually help lower the unemployment rate by shrinking the size of the labor market. For example, the potential size of the labor force can fall when the unemployed become so discouraged by the job market, or other factors, that they stop actively seeking employment.
This means that the headline numbers in media reports about the latest unemployment data often mask underlying weakness in the job market. That’s certainly been the case in the US, where the unemployment rate has been ticking lower in tandem with the labor force participation rate.
And this dynamic appears to be in play in Canada as well, where the unemployment rate has been falling along with the labor force participation rate. Canada’s unemployment rate fell one-tenth of a percentage point in August, to 7.1 percent, beating the consensus forecast of 7.2 percent. The unemployment rate is now near its lowest level since the beginning of 2009, with the two-month stretch of January and February earlier this year coming in at the absolute low for this period, at 7 percent.
At the same time, the average hours worked rose 0.4 percent in August, following July’s gain of 0.3 percent, which suggests that demand for additional labor is present, even if it doesn’t always translate into job growth. Beyond that, economists at CIBC World Markets believe that this augurs well for third-quarter economic growth.
To help support hiring, Finance Minister Jim Flaherty announced a three-year freeze on planned increases to employment insurance premiums. This policy will take effect at the beginning of 2014, and will help reduce employers’ overall payments by CAD660 million next year.
Flaherty expects job creation will continue at a modest pace this year. That comports with workforce consultancy Manpower Canada’s recent fourth-quarter employment outlook survey. The results showed that of the 1,900 firms that were polled, 74 percent plan to keep staffing at current levels, 8 percent plan reductions, 16 percent intend to hire, while 2 percent remain undecided.
The Bank of Canada’s (BoC) hopes for the country’s economic resurgence hinge upon a rise in exports and a corresponding increase in business investment. But until the nascent US recovery becomes more fully evident, the economy up north will likely continue to muddle along.
Friday, September 27, 2013
Top 5 Small Cap Stocks To Invest In Right Now
Small cap stocks Metrospaces Inc (OTCMKTS: MSPC), LEEP INC (OTCMKTS: LPPI) and Pioneer Exploration Inc (OTCMKTS: PIEX) have been getting some attention lately due to either promotions or share trading activity. Unfortunately, there are still unanswered questions about these three ��ark horse��stocks which make it more difficult for investors and traders alike to evaluate. With that in mind, let�� try to shine the light on what we know about all three small caps:
Metrospaces Inc (OTCMKTS: MSPC) Just Recently Became a Fully Reporting CompanySmall cap Metrospaces is a publicly traded real estate investment and development company which acquires land, designs, builds and develops then resells condominiums and luxury high-end hotels, principally in urban areas of Latin America as the company�� current projects are located in Buenos Aires, Argentina, and Caracas, Venezuela. On Friday, Metrospaces fell 10% to $0.0045 for a market cap of $10.51 million plus MSPC is down 95.5% over the past year and up 50% over the past five years in intermittent trading according to Google Finance.
Top 5 Small Cap Stocks To Invest In Right Now: bebe stores inc.(BEBE)
bebe stores, inc. engages in the design, development, and production of women?s apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21 to 34-year-old woman. As of July 2, 2011, it operated 252 retail stores, and an online store at bebe.com in the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in south east Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey. The company was founded in 1976 and is headquartered in Brisbane, California.
Advisors' Opinion:- [By CRWE]
bebe stores, inc. (Nasdaq:BEBE) reported that its Board of Directors declared bebe�� quarterly cash dividend of $0.025 per share. The dividend is payable on December 4, 2012 to shareholders of record at the close of business on November 20, 2012
- [By Ben Levisohn]
Bebe Stores (BEBE) reported a loss of 14 cents a share, more than the 13 cent loss forecast by analysts, and said it would experience a loss in the low- to mid-teens during the current quarter.
Top 5 Small Cap Stocks To Invest In Right Now: Hot Topic Inc.(HOTT)
Hot Topic, Inc., together with its subsidiaries, operates as a mall- and Web-based specialty retailer in the United States. The company operates Hot Topic and Torrid store concepts, as well as an e-space music discovery concept, ShockHound. Its Hot Topic stores sell music/pop culture-licensed merchandise, including tee shirts, hats, posters, stickers, patches, postcards, books, novelty accessories, CDs, and DVDs; and music/pop culture-influenced merchandise comprising women?s and men?s apparel and accessories, such as woven and knit tops, skirts, pants, shorts, jackets, shoes, costume jewelry, body jewelry, sunglasses, cosmetics, leather accessories, and gift items for young men and women primarily between the ages of 12 and 22. The company?s Torrid stores sells casual and dressy jeans and pants, fashion and novelty tops, sweaters, skirts, jackets, dresses, hosiery, shoes, intimate apparel, and fashion accessories for various lifestyles for plus-size females primarily betw een the ages of 15 and 29. As of July 30, 2011, it operated 636 Hot Topic stores in 50 states, Puerto Rico, and Canada; 145 Torrid stores; and Internet stores, hottopic.com and torrid.com. The company was founded in 1988 and is headquartered in City of Industry, California.
Advisors' Opinion:- [By Marshall Hargrave]
In May True Religion (TRGL) announced a buyout offer from TowerBrook Capital for $826 million. Also in May, Rue21 decided to sell itself to Apax Partners for $2.2 billion. Before that, in March, Hot Topic (HOTT) announced that Sycamore Partners was buying out it out for $600 million.
Hot Small Cap Companies To Buy For 2014: Texas Instruments Incorporated(TXN)
Texas Instruments Incorporated engages in the design and sale of semiconductors to electronics designers and manufacturers worldwide. The company?s Analog segment offers high-performance analog products comprising standard analog semiconductors, such as amplifiers, data converters, and interface semiconductors; high-volume analog and logic products; and power management semiconductors and line-powered systems. Its Embedded Processing segment includes DSPs that perform mathematical computations to process and enhance digital data; and microcontrollers, which are designed to control a set of specific tasks for electronic equipment. The company?s Wireless segment designs, manufactures, and sells application processors and connectivity products. Its Other segment offers smaller semiconductor products, which include DLP products that are primarily used in projectors to create high-definition images; and application-specific integrated circuits. This segment also provides handhe ld graphing and scientific calculators, as well as licenses technologies to other electronic companies. The company serves the communications, computing, industrial, consumer electronics, automotive, and education sectors. Texas Instruments Incorporated sells its products through a direct sales force, distributors, and third-party sales representatives. It has collaboration agreements with PLX Technology Inc.; Neonode, Inc.; and Ubiquisys Ltd. The company was founded in 1938 and is headquartered in Dallas, Texas.
Advisors' Opinion:- [By Dividends4Life]
Texas Instruments Inc. (TXN) engages in the design, manufacture, sale of semiconductors to electronics designers and manufacturers worldwide. September 19th the company increased its quarterly dividend 7% to $0.30 per share. The dividend is payable November 18, 2013, to stockholders of record on October 31, 2013. The yield based on the new payout is 3.9%.
- [By Beth Piskora]
They are listed below:
Altera (ALTR)��ielding 1.7%
Apple (AAPL)��ielding 2.5%
Applied Materials (AMAT)��ielding 2.6%
Cisco (CSCO)��ielding 2.9%
EMC Corp. (EMC)��ielding 1.5%
International Business Machines (IBM)��ielding 2.0%
KLA-Tencor (KLAC)��ielding 3.2%
Microchip Technology (MCHP)��ielding 3.6%
Oracle (ORCL)��ielding 1.5%
Qualcomm (QCOM)��ielding 2.1%
Texas Instruments (TXN)��ielding 2.9%
Xilinx (XLNX)��ielding 2.3%
Subscribe to S&P's The Outlook here��/P>
Top 5 Small Cap Stocks To Invest In Right Now: InterDigital Inc.(IDCC)
Interdigital, Inc. engages in the design and development of digital wireless technology solutions. The company offers technology solutions for use in digital cellular and wireless products and networks, including 2G, 3G, 4G, and IEEE 802-related products and networks. It holds patents related to the fundamental technologies that enable wireless communications. The company licenses its patents to equipment producers that manufacture, use, and sell digital cellular and IEEE 802-related products; and licenses or sells mobile broadband modem solutions, including modem IP, know-how, and reference platforms to mobile device manufacturers, semiconductor companies, and other equipment producers that manufacture, use, and sell digital cellular products. InterDigital?s solutions are incorporated in various products comprising mobile devices, such as cellular phones, tablets, notebook computers, and wireless personal digital assistants; wireless infrastructure equipment, such as base stations; and components, dongles, and modules for wireless devices. The company was founded in 1972 and is headquartered in King of Prussia, Pennsylvania.
Advisors' Opinion:- [By CRWE]
InterDigital, Inc. (NASDAQ:IDCC) reported that certain of its subsidiaries have completed the previously announced sale of roughly 1,700 patents and patent applications to Intel Corporation for $375 million in cash.
Top 5 Small Cap Stocks To Invest In Right Now: OCZ Technology Group Inc(OCZ)
OCZ Technology Group, Inc. designs, develops, manufactures, and distributes computer components for computing devices and systems worldwide. It primarily offers solid state drives, flash memory storage, memory modules, thermal management solutions, AC/DC switching power supply units, and computer gaming solutions. The company?s products are used in industrial equipment and computer systems; computer and computer gaming solutions; mission critical servers and high end workstations; personal computer (PC) upgrades to extend the useable life of existing PCs; high performance computing and scientific computing; video and music editing; home theatre PCs and digital home convergence products; and digital photography and digital image manipulation computers. OCZ Technology Group, Inc. offers its products to retailers, on-line retailers, original equipment manufacturers, systems integrators, and distributors. The company was founded in 2002 and is headquartered in San Jose, Califo rnia.
Feds execute warrant at Lumber Liquidators
Immigration and Customs Enforcement's Homeland Security Investigations spokesman Brandon Montgomery said the warrant was executed at the company's Toano, Va., headquarters and a Lumber Liquidators business location in suburban Richmond in coordination with U.S. Fish and Wildlife Service and the Department of Justice.
No other information about the details of the search was provided and Montgomery said the warrant is sealed. He could not say whether the warrant was related to a particular person or for the company as a whole.
A spokesman for the U.S. Attorney's Office for the Eastern District of Virginia did not immediately return a phone message seeking comment.
In a statement, the company said it is cooperating to provide information and documentation to "answer questions relating to the importation of certain products."
Lumber Liquidators Holdings has more than 305 stores in North America.
According to the agency's website, Homeland Security Investigations probes a wide range of domestic and international activities arising from the illegal movement of people and goods into, within and out of the U.S. It investigates immigration crime, human rights violations and human smuggling, smuggling of narcotics, weapons and other types of contraband, financial crimes, cybercrime and export enforcement issues.
In July, Lumber Liquidators said its second-quarter net income jumped nearly 68% to $20.4 million year over year as its revenue rose to $257.1 million and lower costs increased its profit margins. It also announced plans to construct a new East Coast distribution center outside Richmond and lease another facility in California to help make its supply chain more efficient.
Shares of Lumber Liquidators Holdings added $2.16, or 2%, to close Thursday at $112.96. In after-hours trading, the stock fell 2.6% ! to $110.05. The stock has traded between $47.31 and $115.59 the past 52 weeks, and has more than doubled since the start of the year.
Top 10 Undervalued Stocks For 2014
NEW YORK (TheStreet) -- CHANGE IN RATINGS
First Majestic Silver (AG) was upgraded to hold at TheStreet Ratings.
Bank of America (BAC) was initiated with a buy rating at Societe Generale. $17 price target. Company is cutting costs and has a positive outlook for revenue growth, Societe Generale said.
Bruker (BRKR) was downgraded at Wells Fargo to market perform. Valuation call, as the company lacks near-term catalysts, Wells Fargo said. CF Industries (CF) was upgraded at Citigroup to buy from neutral and given a $240 price target. Less downside in nitrogen market is expected, Citi said. Clorox (CLX) was downgraded at Credit Suisse to underperform from neutral. $78 price target. Company will struggle to meet 2014 targets, Credit Suisse said. JP Morgan Chase (JPM) was initiated with a hold rating at Societe Generale. $56 price target. Rising litigation and regulatory scrutiny could keep a lid on the stock, Societe Generale said. [Read: 4 Tech Stocks Under $10 Triggering Breakout Trades] National Penn (NPBC) was upgraded at Sterne Agee to neutral from underperform. Company has excess capital and can grow through deals, Sterne Agee said. Nokia (NOK) was upgraded to hold at TheStreet Ratings. Pacwest Bancorp (PACW) was upgraded at Keefe, Bruyette & Woods to outperform. $40 price target. CSE deal should add to earnings, KBW said. Pier 1 (PIR) was upgraded at Credit Suisse to outperform from neutral. $25 price target. Company can correct its marketing errors and continue a successful business turnaround, Credit Suisse said. Solarwinds (SWI) was downgraded at Goldman Sachs to sell from neutral. $35 price target. Stock is not pricing in a slower macro environment and potential secular challenges, Goldman said. [Read: Pep Boys Still Needs a Tune-Up] Synaptics (SYNA) was upgraded at Oppenheimer to outperform from perform. $55 price target. Company is expanding presence in China and gaining market share, Oppenheimer said. Urban Outfitters (URBN) was upgraded to buy at Canaccord Genuity. $48 price target. Company's growth prospects appear undervalued, Canaccord Genuity said. STOCK COMMENTS / EPS CHANGES Ares Capital (ARCC) estimates were reduced at UBS. Earnings estimates were reduced to reflect earnings and the recent capital raise, said UBS. Price target is $19. Bed Bath & Beyond (BBBY) numbers were raised at UBS. Earnings estimates were raised given tailwinds from the housing market, said UBS. Price target goes to $80.
Top 10 Undervalued Stocks For 2014: Schlumberger N.V.(SLB)
Schlumberger Limited, together with its subsidiaries, supplies technology, integrated project management, and information solutions to the oil and gas exploration and production industries worldwide. The company?s Oilfield Services segment provides exploration and production services; wireline technology that offers open-hole and cased-hole services; supplies engineering support, directional-drilling, measurement-while-drilling, and logging-while-drilling services; and testing services. This segment also offers well services; supplies well completion services and equipment; artificial lift; data and consulting services; geo services; and information solutions, such as consulting, software, information management system, and IT infrastructure services that support oil and gas industry. Its WesternGeco segment provides reservoir imaging, monitoring, and development services; and operates data processing centers and multiclient seismic library. This segment also offers variou s services include 3D and time-lapse (4D) seismic surveys to multi-component surveys for delineating prospects and reservoir management. The company?s M-I SWACO segment supplies drilling fluid systems to improve drilling performance; fluid systems and specialty tools to optimize wellbore productivity; production technology solutions to maximize production rates; and environmental solutions that manages waste volumes generated in drilling and production operations. Its Smith Oilfield segment designs, manufactures, and markets drill bits and borehole enlargement tools; and supplies drilling tools and services, tubular, completion services, and other related downhole solutions. The company?s Distribution segment markets pipes, valves, and fittings, as well as mill, safety, and other maintenance products. This segment also provides warehouse management, vendor integration, and inventory management services. Schlumberger Limited was founded in 1927 and is based in Houston, Texas.
Advisors' Opinion:- [By Tony Daltorio]
The biggest oilfield service companies should get a big lift from the boom, Moors said. That includes Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), Weatherford International Ltd. (NYSE: WFT), and Baker Hughes Inc. (NYSE: BHI).
- [By Richard Moroney, Editor, Dow Theory Forecasts]
Founded in 1926, Schlumberger (SLB), operates in all major facets of oilfield services, essentially covering the lifespan of reservoirs that house natural gas and oil.
- [By Lee Jackson]
Schlumberger Ltd. (NYSE: SLB) revenue grew 8% year-over-year to $11.18 billion in the second quarter of 2013, fueled by high growth in its international segment. While the company does generate 11% of revenue in the Middle East and Asia, only a prolonged Syrian conflict is expected to dent their strong results. UBS has a $98 price target and the consensus figure is at $96. Stockholders are paid a 1.5% dividend.
- [By Lee Jackson]
Energy: Schlumberger Ltd. (NYSE: SLB)�crushed earnings by an astonishing 50.9% last quarter. With Mexico changing its policy on oil exploration, the oil field services leader may see continued strong earnings growth in the years ahead. The consensus price target for the stock is posted at $96. Investors are paid a 1.5% dividend.
Top 10 Undervalued Stocks For 2014: Tupperware Corporation(TUP)
Tupperware Brands Corporation operates as a direct seller of various products across a range of brands and categories through an independent sales force. The company engages in the manufacture and sale of kitchen and home products, and beauty and personal care products. It offers preparation, storage, and serving solutions for the kitchen and home, as well as kitchen cookware and tools, children?s educational toys, microwave products, and gifts under the Tupperware brand name primarily in Europe, Africa, the Middle East, the Asia Pacific, and North America. The company provides beauty and personal care products, which include skin care products, cosmetics, bath and body care, toiletries, fragrances, nutritional products, apparel, and related products principally in Mexico, South Africa, the Philippines, Australia, and Uruguay. It offers beauty and personal care products under the Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, Nuvo, and Swissgar de brand names. The company sells its Tupperware products directly to distributors, directors, managers, and dealers; and beauty products primarily through consultants and directors. As of December 26, 2009, the Tupperware distribution system had approximately 1,800 distributors, 61,300 managers, and 1.3 million dealers; and the sales force representing the Beauty businesses approximately 1.1 million. The company was formerly known as Tupperware Corporation and changed its name to Tupperware Brands Corporation in December 2005. The company was founded in 1996 and is headquartered in Orlando, Florida.
Advisors' Opinion:- [By John Udovich]
Everyone is familiar with�the Tupperware brand from�consumer products stock Tupperware Brands Corporation (NYSE: TUP) and you are probably familiar with the brands�of mid cap stock Jarden Corp (NYSE: JAH) along with small cap stocks Libbey Inc (NYSEMKT: LBY) and Lifetime Brands Inc (NASDAQ: LCUT); but what about the stocks themselves? Chances are, their brands or products are right under your nose at home and you probably don�� know anything about the mid cap or small cap stock behind them.
- [By Oliver Pursche]
European large-cap pharmaceuticals like Novartis (NVS) �and Bristol Meyers Squibb (BMY) �count amongst some of our favorite stocks right now, as do U.S. multinationals that are growing revenue and margins in Asia ��Tupperware (TUP) �is a shining example. Stay away from utilities and energy stocks, as they are likely to be the laggards over the next year.
Top Value Companies To Buy Right Now: Dollar Tree Inc.(DLTR)
Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise primarily at the fixed price of $1.00. The company operates its stores under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant, and Dollar Bills. Its stores offer consumable merchandise, including candy and food, and health and beauty care, as well as household consumables, such as paper, plastics, household chemicals, in select stores, and frozen and refrigerated food; variety merchandise, which includes toys, durable housewares, gifts, party goods, greeting cards, softlines, and other items; and seasonal goods, such as Easter, Halloween, and Christmas merchandise. As of April 30, 2011, it operated 4,089 stores in 48 states and the District of Columbia, as well as 88 stores in Canada. The company was founded in 1986 and is based in Chesapeake, Virginia.
Advisors' Opinion:- [By ANUP SINGH]
Dollar Tree (NASDAQ: DLTR ) is among the most successful single-price-point retailers in the U.S. It operates more than 4,842 stores across 48 states in the U.S. and five Provinces in Canada. The chart below shows that the company has been performing consistently well over the past five years.
- [By Lawrence Meyers]
As a convenience store, it doesn’t have direct competition from�Dollar Tree (DLTR) or Family Dollar (FDO) because these dollar stores aren�� exclusively focused on food (and they have no gasoline or cigarette sales), and they��e targeted at the folks who are trying to save money over convenience, not vice versa. The convenience angle is another reason why�Walmart (WMT) and Costco (COST)�aren’t competitors, since those behemoths are about a total shopping experience.
- [By Jon C. Ogg]
Dollar Tree Inc. (NASDAQ: DLTR) was maintained as a Buy but was removed from the prized Conviction Buy list at Goldman Sachs.
Duke Energy Corp. (NYSE: DUK) was raised to Buy from Hold with a $79 price target at Argus.
Top 10 Undervalued Stocks For 2014: Caterpillar Inc.(CAT)
Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It operates through three lines of businesses: Machinery, Engines, and Financial Products. The Machinery business offers construction, mining, and forestry machinery, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. It also manufactures diesel-electric locomotives; and manufactures and services rail-related products and logistics services for other companies. The Engines business provides diesel, heavy fuel, and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, marine, petrol eum, construction, industrial, agricultural, and other applications. It offers industrial turbines and turbine-related services for oil and gas, and power generation applications. This business also remanufactures Caterpillar engines, machines, and engine components; and offers remanufacturing services for other companies. The Financial Products business provides retail and wholesale financing alternatives for Caterpillar machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans and various forms of insurance to customers and dealers. It also offers financing for vehicles, power generation facilities, and marine vessels. The company markets its products directly, as well as through its distribution centers, dealers, and distributors. It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois.
Advisors' Opinion:- [By Chris Hill]
Molex (NASDAQ: MOLX ) is up big after Koch Industries agreed to buy the company for $7.2 billion in cash. Yum! Brands' (NYSE: YUM ) same-store sales in China fall 10% in August. Caterpillar (NYSE: CAT ) shares are up on news that China's exports grew more than 7% in August. And Middleby (NASDAQ: MIDD ) closes in on a new all-time high. In this segment, the guys discuss four stocks making big moves.
Thursday, September 26, 2013
Tortoises Win The Retirement Race
Most older baby boomers like myself had children in their 20s and empty nests by age 50. They used that time to accumulate enough money to retire. When my children were in high school, their friends' parents were in their late 30s or early 40s. It was unusual to run across 50-somethings at a PTA meeting or high school basketball game.
I don't need a bunch of expensive research to confirm what I see with my own eyes: Couples are marrying later in life, having children later, and even spacing them out more. My own unscientific survey confirmed this. My oldest son just turned 50, and his two children are 14 and 12. My stepdaughter is 36, and she has a nine-year-old and four-year-old. They're right in line with their peer group.
So, assuming our grandchildren go to college, my children could easily be in their early 60s before their kids are off their payroll. Even if they push retirement back to 68, the time allotted for their race to the finish line has been cut by about 50%. If they had followed in their parents' footsteps and waited until the nest was empty to get serious about retirement, they'd damn sure have to be world-class sprinters.
On top of that, two-income households have become a virtual necessity just to make ends meet. Among folks my age, many mothers reentered the work force as their children went off to high school. The second income was a luxury, and the extra money could be used to jump-start capital accumulation for retirement. Today, a second income seems to be necessary just to meet current expenses.
Then there's that pesky issue of debt. For many of us, there's some lag time between both spouses committing to a debt-free life and wealth accumulation. It can easily take 3-5 years to pay off debt, and only then can one actually start socking away money. I remember wishing I had money to invest when I was younger. However, while I could have had $10,000 in my brokerage account, I would have also had a $10,000 credit-card balance with 18% annual interest. Simple math told me I was better off getting out of debt and staying that way.
So, let's imagine a couple whose nest is finally empty at age 62. At that point, they get serious about paying off debt and accumulating wealth. If it takes three years to become debt-free, that leaves just three years to stockpile money for retirement, if they retire at 68. This couple could save 100% of their salary for those three years, and they still would not have nearly enough to retire.
The Long Jog to the Finish Line You might be thinking something like, "Well, Dennis, I'm 50. There's not much I can do about marrying and having had kids at 35 now." And you'd be right. Frankly, there are many advantages to marrying and having children at a later age, and I certainly don't want to harp on folks who made that decision. It does, however, mean you have to plan differently than the generation immediately before you.
So what can younger baby boomers do?
Get on with the job. I know I've said it before, and I'll say it again: the time to start planning for retirement is today. Younger boomers have to run a different race than I did, but they still need to start, regardless of other drains on their resources.
Reprioritize wealth accumulation. It's easy to give yourself a nice reward every time you get a raise, but it's much tougher to save a portion of that raise or use it to pay off debt. For me, that meant acknowledging that I had survived before I got a raise, so I didn't really need the extra money. I don't recommend being a scrooge; go ahead and reward yourself with a small portion of any raise, but you know where the rest goes: your 401(k), IRA, or other retirement savings account. If you're not contributing the maximum amount to tax-deferred retirement accounts, start now.
Don't buy the biggest house on the block. I have noticed that younger boomers are becoming more attuned to needs versus wants. Up until 2008, folks were buying the biggest house they could afford because real estate was an "investment." Houses weren't just homes, they were moneymakers—or so we thought. If you've opened a newspaper in the last five years, you know that's no longer true.
My son and his wife just bought a new house—a nice home that meets their needs well. They really liked another model that cost $25,000 more because it had one more bedroom. A spare bedroom would have been convenient when grandparents visited, but then again the house would have been too big in ten years or so.
They made the right decision. They saved the $25,000 as well as the interest on a higher mortgage, as they had already made the maximum down payment they could afford. They'll be just fine without the spare bedroom; that's what air mattresses and hotels are for.
Use some common sense. I've made this same mistake more than once: I'd decide to get serious about diet and exercise and go way overboard. On day one, I'd exercise to the point of exhaustion and cut my caloric intake in half. By the second day, I could hardly move, and I was starving to death (at least it felt that way). By the third day, my commitment would vanish. Had I paced myself, I would have been a lot more successful.
The same principle holds true for paying off debt and saving. For most folks, the best way to start is by withholding incremental amounts from their paychecks. Many employers will do this automatically and put the money in your 401(k) or IRA. Tackle debt the same way: cut up your credit cards and start paying a little extra on your regular payments. It is amazing how quickly you can make progress.
Become an educated investor now. It is easy to think, "Why do I need to learn about investing when I don't have any money to invest?" There are two responses to that question. First, you don't want to wait, because from day one you want to take what little capital you can start with and invest it wisely. And second, I found that the more I read about investing, the more motivated I became to have money to invest. The thought of my money working for me instead of the other way around sounded quite appealing. After all, isn't the goal to accumulate enough money and invest it wisely so we don't need to work at all?
One of the fun parts about being a grandparent is reading bedtime stories to the little ones. It is wonderful one-on-one time, and the little guy always gets to pick the book from the stack. Darned if one of my grandkids didn't pick The Tortoise and the Hare for me to read during a recent visit. As I read him the book, I realized how much the fable applies to us. Both the Tortoise and Hare want to get to their goal, but their approaches are quite different. It looks like a lot of baby boomers who became parents later in life will have to start slowly and steadily plod along. We all know who wins the race in the end.
Some of my regular readers are already retired, and some are a few years out. The retirees look to us to help them make their money outlast their lives. One of the quickest ways to learn how is by watching our timely video event—America's Broken Promise: Strategies for a Retirement Worth Living.
Some of today's top minds discuss how to make sense of the challenges facing savers and seniors alike. They also give you actionable recommendations on how to make your retirement about thriving, and not just surviving… no matter how old you—or your kids—are.
The presentation is hosted by my colleague, David Galland of Casey Research, and features John Stossel, formerly on ABC's 20/20 and now with Fox Business Network, David Walker, former Comptroller General of the United States, Jeff White, President of American Financial Group, and me of course.
This is the one event you must see to ensure you retire on your own terms. Use this link to find out more and to sign-up.
Wednesday, September 25, 2013
Profit from "The Lost Generation" with Staffing Industry Stocks (LTNC, PAYX, RHI, TBI)
For those looking to invest in real estate stocks, highly recommended is the Dr. Housing Bubble blog. In a recent posting, the "Dr." pointed out that there was a "Lost Generation" when it came to household income. That has not happened for those investing in staffing industry stocks such as Paychex (NASDAQ: PAYX), Robert Half International (NYSE: RHI), TrueBlue, Inc. (NYSE: TBI), and Labor SMART (OTCBB: LTNC).
The staffing industry is a $100 billion sector in the United States.
Of that, the demand labor segment is $29 billion and growing. As but just one recent example, Labor SMART, a demand labor firm based in Georgia, just posted record revenues in August. Another demand labor firm, TrueBlue, Inc. is up more than 57% this year.
Investors should expect similarly bullish results, no matter what happens with the American economy.
Due to The Great Recession, businesses did not want to commit to full-time staff. The economy in the United States is still weak, has shown by Federal Reserve Chairman Ben Bernanke continuing Quantitative Easing III. As a result, demand rose and should continue for the products and services of Paychex, TrueBlue, Robert Half International, and Labor SMART. Each of those firms has a firmly set niche in the $100 billion staffing industry. For Robert Half, it is in the legal and accounting groups. So established is Labor SMART in the demand labor segment that it added over 100 clients in August.
The client roster of Labor SMART runs from small businesses to Fortune 100 blue chip corporations.
While some may contend that the run-up in the stock prices for Robert Half, Paychex and TrueBlue is over,that is certainly not the case with Labor SMART. As a small cap, it is enjoying robust growth in revenue and presence. But that surge in operations has not caught up with the stock price: yearly revenue is much higher than the market capitalization for Labor SMART. That results in an appealingly undervalued stock in an industry with a highly attractive future.
Monday, September 23, 2013
Hot Oil Stocks To Buy Right Now
US Silica Holdings (SLCA) is a silica sand supplier company. It produces industrial minerals, including whole grain silica, ground silica, calcined kaolin and aplite clay and finally proppant sand for hydraulic rock fracturing. The Company operates in two segments: oil and gas, and industrial and specialty products. US Silica is a 100+ year old company with a renewed vigor. Up until just a few years ago this was a much sleepier business, providing only minerals for industrial purposes. But sand has found a new use in proppant, a necessary ingredient for hydraulic fracturing in oil and gas drilling. This has put a new wind beneath this company's wings.
Hot Oil Stocks To Buy Right Now: Abraxas Petroleum Corp (AXAS)
Abraxas Petroleum Corporation is an independent energy company primarily engaged in the acquisition, exploitation, development and production of oil and gas in the United States and Canada. As of December 31, 2011, the Company�� estimated net proved reserves were 29.0 million barrels of oil equivalent (MMBoe), (including reserves attributable to its 34.7% equity interest in the proved reserves of Blue Eagle), of which 53% were classified as proved developed, 54% were oil and natural gas liquids (NGL��) and 94% by PV-10 were operated. Its daily net production during the year ended December 31, 2011, was 3,484 barrels of oil equivalent per day, of which 45% was oil or liquids. Its oil and gas assets are located in four operating regions in the United States, the Rocky Mountain, Mid-Continent, Permian Basin and onshore Gulf Coast, and in the province of Alberta, Canada.
The Company�� properties in the Rocky Mountain region are located in the Williston Basin of North Dakota and Montana and in the Green River, Powder River and Unita Basins of Wyoming and Utah. In this region, its wells produce oil and gas from various reservoirs, including the Niobrara, Turner, Bakken and Three Forks formations. Well depths range from 7,000 feet down to 14,000 feet. The Company�� properties in the Mid-Continent region are primarily located in the Arkoma Basin and principally produce gas from the Hartshorne coals at 3,000 feet. Its properties in the Permian Basin region are primarily located in two sub-basins, the Delaware Basin and the Eastern Shelf. In the Delaware Basin, its wells are located in Pecos, Reeves, and Ward Counties, Texas and produce oil and gas from multiple stacked formations from the Bell Canyon at 5,000 feet down to the Ellenburger at 16,000 feet.
In the Eastern Shelf, its wells are principally located in Coke, Scurry, Midland, Mitchell and Nolan Counties, Texas and produce oil and gas from the Strawn Reef formation at 5,000 to 7,500 feet and oil from the shallower Clea! rfork formation at depths ranging from 2,300 to 3,300 feet. The Company�� properties in the onshore Gulf Coast region are located along the Edwards trend in DeWitt and Lavaca Counties, Texas and in the Portilla field in San Patricio County, Texas. In the Edwards trend, its wells produce gas from the Edwards formation at a depth of 14,000 feet and in the Portilla field, its wells produce oil and gas from the Frio sands and the deeper Vicksburg from depths of approximately 7,000 to 9,000 feet. In addition, the Company also owns a 34.7% equity interest in a joint venture targeting the Eagle Ford in South Texas. Its properties in the province of Alberta, Canada are located in the Pekisko fairway and the Nordegg/Tomahawk area of Central Alberta.
As of December 31, 2011, the Company leased approximately 20,835 net acres, primarily in counties located on the Nesson Anticline and in areas west, including Rough Rider and Lewis & Clark in North Dakota and in Sheridan County, Montana, which are prospective for the Bakken and Three Forks formations. During the year ended December 31, 2011, the Company drilled two operated wells and participated in an additional 19 gross (1.0 net) non-operated wells. In July 2011, Abraxas purchased a used Oilwell 2000 horsepower diesel electric drilling rig. In August 2010, the Company formed a joint venture, Blue Eagle, with Rock Oil to develop its acreage in the Eagle Ford Shale play. As of December 31, 2011, the Company owned a 34.7% interest in Blue Eagle. During 2011, Blue Eagle drilled, completed or participated in three gross (2.4 net) wells and added approximately 3,800 net acres to its holdings, principally in McMullen County, Texas.
As of December 31, 2011, the Company leased a total of approximately 20,720 gross (17,800 net) acres in the southern Powder River Basin, of which 17,800 gross (15,700 net) acres were located in the Brooks Draw field of Converse and Niobrara Counties, Wyoming. In addition, it owns approximately 2,100 net acres in sout! hern Camp! bell County, Wyoming which are held by production and are near the Crossbow field operated by EOG Resources, Inc. and other recent horizontal activity. As of December 31, 2011, the Company leased 6,880 net acres in western Alberta. In 2011, it drilled or completed six gross (6 net) wells in the Twining area. In the emerging southern Alberta Basin Bakken play of Toole and Glacier Counties, Montana, the Company leased approximately 10,000 gross/net acres under long-term leases or direct mineral ownership. As of December 31, 2011, it leased approximately 5,600 gross/net acres in Nolan County, Texas. In 2011, the Company drilled three wells in the Spires Ranch offsetting the prolific Nena Lucia field.
Hot Oil Stocks To Buy Right Now: MGM Resorts International(MGM)
MGM Resorts International, through its subsidiaries, primarily owns and operates casino resorts in the United States. The company?s resorts offer gaming, hotel, dining, entertainment, retail, and other resort amenities. It also owns and operates golf courses and a golf club. As of December 31, 2010, the company owned and operated 15 properties located in Nevada, Mississippi, and Michigan; and has 50% investments in 4 other casino resorts in Nevada, Illinois, and Macau. In addition, MGM Resorts International has an agreement with the Mashantucket Pequot Tribal Nation, which owns and operates a casino resort in Connecticut, to carry the ?MGM Grand? brand name. The company was formerly known as MGM MIRAGE and changed its name to MGM Resorts International in June 2010. MGM Resorts International was founded in 1986 and is based in Las Vegas, Nevada.
Advisors' Opinion:- [By Monica Wolfe]
MGM Resorts International (MGM)
Paulson�� fifth largest position is in MGM Resorts International. The guru holds on to 34 million shares of the company�� stock, representing 3.5% of his total portfolio and 6.94% of the company�� shares outstanding.
- [By Lisa Abramowicz]
��t�� allowed companies such as ourselves to continue to access the capital markets,��Dan D��rrigo, the executive vice president and chief financial officer of Las Vegas-based casino company MGM Resorts International (MGM), said in a Sept. 17 telephone interview. During the crisis, ��e still had access but at much more costly rates to our company,��he said.
Top 10 Companies To Own For 2014: National-Oilwell Inc.(NOV)
National Oilwell Varco, Inc. designs, constructs, manufactures, and sells systems, components, and products used in oil and gas drilling and production; provides oilfield services and supplies; and distributes products, and provides supply chain integration services to the upstream oil and gas industry worldwide. Its Rig Technology segment offers offshore and onshore drilling rigs; derricks; pipe lifting, racking, rotating, and assembly systems; rig instrumentation systems; coiled tubing equipment and pressure pumping units; well workover rigs; wireline winches; wireline trucks; cranes; and turret mooring systems and other products for floating production, storage and offloading vessels, and other offshore vessels and terminals. The company?s Petroleum Services & Supplies segment provides various consumable goods and services to drill, complete, remediate, and workover oil and gas wells and service pipelines, flowlines, and other oilfield tubular goods. It also manufacture s, rents, and sells products and equipment for drilling operations, including drill pipe, wired drill pipe, transfer pumps, solids control systems, drilling motors, drilling fluids, drill bits, reamers and other downhole tools, and mud pump consumables. In addition, this segment provides oilfield tubular services comprising the provision of inspection and internal coating services; equipment for drill pipe, line pipe, tubing, casing, and pipelines; and coiled tubing pipes and composite pipes. Its Distribution Services segment sells maintenance, repair and operating supplies, and spare parts to drill site and production locations. The company primarily serves drilling contractors, shipyards and other rig fabricators, well servicing companies, pressure pumping companies, oil and gas companies, supply stores, and pipe-running service providers. National Oilwell Varco, Inc. was founded in 1862 and is based in Houston, Texas.
Advisors' Opinion:- [By Shauna O'Brien]
Jefferies reported on Monday that it has lifted its price target on National-Oilwell Varco, Inc. (NOV).
The firm has reaffirmed a “Buy” rating on NOV, and has raised the company’s price target from $84 to $91. This price target suggests a 14% increase from the stock’s current price of $78.24.
Analyst Brad Handler noted that NOV’s weak margin will likely rebound in 2014 and the chances of a dividend increase are high.
Looking forward, the firm has lifted its order estimates for FY2013 from $10.8 billion to $11.3 billion. FY2014 earnings estimates have been raised from $6.40 to $6.50 per share and FY2015 estimates have been increased from $7.65 to $7.95 per share.
National-Oilwell Varco shares were up 76 cents, or 0.97% during pre-market trading Monday. The stock is up 14% YTD.
Hot Oil Stocks To Buy Right Now: Weatherford International Ltd(WFT)
Weatherford International Ltd. provides equipment and services used in the drilling, evaluation, completion, production, and intervention of oil and natural gas wells worldwide. It offers artificial lift systems, which include reciprocating rod lift systems, progressing cavity pumps, gas lift systems, hydraulic lift systems, plunger lift systems, hybrid lift systems, wellhead systems, and multiphase metering systems. The company also provides drilling services, including directional drilling, ?Secure Drilling? services, well testing, drilling-with-casing and drilling-with-liner systems, and surface logging systems; and well construction services, such as tubular running services, cementing products, liner systems, swellable products, solid tubular expandable technologies, and inflatable products and accessories. In addition, it designs and manufactures drilling jars, underreamers, rotating control devices, and other pressure-control equipment used in drilling oil and nat ural gas wells; and offers a selection of in-house or third-party manufactured equipment for the drilling, completion, and work over of oil and natural gas wells for operators and drilling contractors, as well as a line of completion tools and sand screens. Further, the company provides wireline and evaluation services; and re-entry, fishing, and thru-tubing services, as well as well abandonment and wellbore cleaning services; stimulation and chemicals, including fracturing and coiled tubing technologies, cement services, chemical systems, and drilling fluids; integrated drilling services; and pipeline and specialty services. It serves independent oil and natural gas producing companies. The company was founded in 1972 and is headquartered in Geneva, Switzerland.
Advisors' Opinion:- [By Tony Daltorio]
The biggest oilfield service companies should get a big lift from the boom, Moors said. That includes Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), Weatherford International Ltd. (NYSE: WFT), and Baker Hughes Inc. (NYSE: BHI).
Hot Oil Stocks To Buy Right Now: EXCO Resources NL(XCO)
EXCO Resources, Inc., an independent oil and natural gas company, engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays. The company holds interests in various projects located in East Texas, North Louisiana, Appalachia, and the Permian Basin in west Texas. As of December 31, 2010, it had proved reserves of approximately 1.5 trillion cubic feet equivalent; and operated 7,276 wells. The company was founded in 1955 and is based in Dallas, Texas.
Hot Oil Stocks To Buy Right Now: Exxon Mobil Corporation(XOM)
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products. The company manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and other specialty products. As of December 31, 2010, it operated 35,691 gross and 30,494 net operated wells. The company has operations in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. Exxon Mobil Corporation was founded in 1870 and is based in Irving, Texas.
Advisors' Opinion:- [By Paul Ausick]
Exxon Mobil Corp. (NYSE: XOM), the country�� largest producer of natural gas, is down about 0.5%, at $88.36 in a 52-week range of $84.70 to $95.49.
- [By Teresa Rivas]
Other oil majors like Exxon (XOM) and ConocoPhillips (COP) are also up today.
Update: Reuters is reporting that Chevron� is considering bid for stake in a Brazil offshore oil prospect (via Briefing.com).
- [By Philip Mause]
It is, of course, impossible to develop a universal corporate borrowing rate. I have conservatively used six per cent as a rate at which many of the large corporations can borrow money for 10 years. Readers should be aware that many, many large corporations can borrow at much, much lower rates. For example, Apple (AAPL) has 10 year bonds priced to yield 3.64%, Verizon (VZ) 3.55%, Bank of America (BAC) 4.06%, and AT&T (T) 4.15%. In this regard, the S&P 500 Index is weighted by market cap and so the impact of large companies with low borrowing costs - such as AAPL, Exxon (XOM), Microsoft (MSFT) and Verizon - is very large. Thus, the 6 per cent borrowing cost I am using for companies in the Index is very, very conservative. At any rate, I have assumed a 35% corporate tax rate and I have calculated the after tax borrowing cost, the PE, and the Index price which would correspond to various corporate interest rates using this Model.
Hot Oil Stocks To Buy Right Now: Chesapeake Energy Corporation(CHK)
Chesapeake Energy Corporation engages in the acquisition, development, exploration, and production of natural gas and oil properties in the United States. It also provides marketing and other midstream services. The company?s properties are located in Alabama, Arkansas, Colorado, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming. As of December 31, 2010, it had interests in approximately 45,800 gross productive wells. The company?s proved reserves include 17.096 trillion cubic feet of natural gas equivalent. Chesapeake Energy Corporation was founded in 1989 and is based in Oklahoma City, Oklahoma.
Advisors' Opinion:- [By Jim Jubak, Senior Markets Editor, MoneyShow.com]
On the news I'm moving my target price for Cheniere Energy to $38 from the current $34. (Cheniere is a member of my Jubak's Picks portfolio.) Other members of that portfolio that benefit from this news, and the acceleration of construction and potential liquefied natural gas exports, include Chicago Bridge & Iron (CBI) and Chesapeake Energy (CHK).
Hot Oil Stocks To Buy Right Now: Western Refining Inc.(WNR)
Western Refining, Inc. operates as an independent crude oil refiner and marketer of refined products. The company operates in three segments Refining Group, Wholesale Group, and Retail Group. The Refining Group segment operates two refineries in Texas and Mexico; two stand-alone refined product distribution terminals in New Mexico; and four asphalt terminals in Texas, as well as operates crude oil transportation and gathering pipeline system in New Mexico. It refines various grades of gasoline, diesel fuel, jet fuel, and other products from crude oil, other feedstocks, and blending components; and acquires refined products through exchange agreements and from various third-party suppliers. This segment sells its products through its wholesale group and service stations, independent wholesalers and retailers, commercial accounts, and sales and exchanges with oil companies. The Wholesale Group segment distributes commercial wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah for retail fuel distributors, as well as for the mining, construction, utility, manufacturing, transportation, aviation, and agricultural industries. The Retail Group segment operates service stations, which include convenience stores or kiosks that sell various grades of gasoline, diesel fuel, general merchandise, and beverage and food products to the general public. As of February 24, 2012, it operated 210 service stations with convenience stores or kiosks located in Arizona, New Mexico, Colorado, and Texas. The company was incorporated in 2005 and is headquartered in El Paso, Texas.
Sunday, September 22, 2013
The Deal: Auto Resurgence Running Out of Gas
NEW YORK (The Deal) -- The North American auto industry has engineered an impressive recovery since the dark days of the Great Recession. But its rally-fueled expansion -- the fastest since a post-World War II boom -- could cause issues for investors as automakers chase increased sales.
Auto sales are headed toward an annualized rate of 17 million units, a remarkable turnaround from 10.4 million units sold in 2009. Automakers who cut aggressively during the downturn have responded by adding shifts and expanding plants, spending billions in the process.
Investors have noticed. Shares of Wall Street darling Ford Motor (F), for example, have almost doubled since the beginning of 2010.
There's an adage in the highly cyclical auto business that when manufacturers start adding third shifts, it is time to sell. Though it can be argued that streamlined automakers are better-positioned to handle a speed bump now than they were in years past, increased capacity tends to put pressure on pricing. It might be time to adjust expectations accordingly. Morgan Stanley analyst Adam Jonas says that while there are a lot of good things happening in the U.S. industry, "there are just too many car companies chasing too few consumers." Jonas stresses he is not trying to call a top to the rally, but says it is time to reconsider "too-optimistic 2014 forecasts" to allow for expected competitive price pressure and other potential issues. A 1% cut in U.S. pricing translates to a 10% to 15% cut in North American profits, the analyst says. Industry bulls will counter that much of the growth this time around is smart growth, and can more easily be pulled back should sales slow or prices come under pressure. A significant portion of the additional capacity is in Mexico, where costs are lower and labor is more flexible, and even in the U.S. and Canada manufacturers are taking advantage of reworked labor deals that allow for more liberal use of so-called Tier 2 lower-cost employees. Bulls also note that automakers have been careful to limit infrastructure investment, instead increasing output at existing facilities, and point to Europe as a potential offset to any slowdown in the U.S.
But adding shifts is still expensive. Jonas says Ford spent about $9 billion from 2010 to May 2012 on retooling, revamping and adding capacity in the U.S. and Canada despite not breaking ground on a new facility. And skeptics say that even if automakers succeed in pushing billions in European losses into the rear view mirror, there are no guarantees buyers in the mass transit-friendly region will return to showrooms en masse.
The auto industry has come a long way in a short amount of time, and no one is expecting a repeat of the 2009 crash and subsequent bailouts. But at some point the growth will inevitably stall. That day could be right around the corner.
-- Written by Lou Whiteman in New York
Fact Check: Most Americans Still Have Free Checking Accounts
NEW YORK (LowCards.com) -- When the economic downturn hit five years ago, many analysts predicted free checking accounts would become a thing of the past. After all, regulations such as the CARD Act and Dodd-Frank bill cut some of the revenue streams of financial institutions, and many people thought banks would have to make up for this revenue with additional fees.
But the majority of Americans still enjoy a free checking account.
According to a survey conducted by the American Bankers Association, 55% of bank customers are not being charged a fee for their checking account.
The figures from the annual survey have hovered around that number for the past few years: 59% had a free checking account in 2011, and 53% in the 2010 survey. Also see: We're Getting More Confused by Credit Card Terms and Reward>> On the flip side, the findings show that almost half of Americans are now paying for a checking account. In fact, 14% pay $10 or more each month. Here are some tips to possibly avoid a fee on your checking account: Shop around for a different bank if your current bank continues to charge you a monthly fee on your account. Be aware of your minimum balance. Many banks offer free checking if you keep at least a certain balance in your account. Make sure you are above this threshold. Sign up for email and text alerts to update you when your balance dips below a certain level. Also see: What the CFPB Has Accomplished in its First 2 Years>> Check into making direct deposits. Some banks offer free checking if your paycheck is deposited automatically. Have multiple accounts at your bank. Your bank wants as much of your business as possible and may offer free services for multiple accounts. Use your bank's ATMs when making withdrawals. The survey of 1,000 adults was conducted in July for the ABA by Ipsos Public Affairs, an independent market research firm.
Saturday, September 21, 2013
Banks Climb as Data Quiet Talk of Fed Tapering: Financial Winners
NEW YORK (TheStreet) -- Stocks of large U.S. banks showed strength on Friday as disappointing economic reports shed light on the quandary facing the Federal Open Market Committee when it decides whether or not to curb the Federal Reserve's "QE3" bond purchases next week.
The KBW Bank Index (I:BKX) rose slightly to close at 63.68, with , with 15 out of 24 index components ending with gains.
Big banks seeing shares rise nearly 1% included JPMorgan Chase (JPM), with shares closing at $52.59, as investors shrugged off a Wall Street Journal report that the bank would add 5,000 employees to handle regulatory compliance and risk-management problems, and that related expenses and provisions for litigation reserves would total $4 billion during the second half of 2013.
Other large banks seeing shares rise nearly 1% included U.S. Bancorp (USB) of Minneapolis, with shares closing at $37.14 and Huntington Bancshares (HBAN) of Columbus, Ohio, at $8.52. The Commerce Department on Friday estimated that U.S. retail sales during August grew by 0.2% from July and 4.7% from August 2012. The month-over-month growth rate was down from an upwardly revised 0.4% in July. Economists polled by Thomson Reuters had estimated August sales would show a sequential increase of 0.4%. The Reuters/University of Michigan consumer sentiment reading for September was 76.8, which was the lowest level since April. Economists surveyed by Thomson Reuters were expecting a reading of 82. Pulling Back on QE3 As part of its third round of quantitative easing the Federal Reserve has been making monthly purchases of $40 billion in long-term mortgage-backed securities and $45 billion in long-term U.S. Treasury bonds since September of last year, in an attempt to hold long-term rates down. The FOMC at its next meeting September 17-18 is expected by many economists to begin a modest reduction of the central bank's monthly bond purchases, in light of comments by committee members over the past few months. The market has pushed the yield on 10-year U.S. Treasury bonds up to 2.89% from 1.70% at the end of April. The yield on the 10-year did decline by two basis points on Friday, mirroring the stock market's reaction to the disappointing economic reports.
Former Labor Secretary Robert Reich in an interview on TheStreet said the Fed should hold off on tapering bond purchases. "I would wait until the economy was pretty safe," Reich said, with "two quarters of economic growth over 3%, unemployment down, under 7% for at least two quarters, hopefully about 6.5% or 6.2%," followed by the publication of the Fed's plan for ending QE3.
Jim Cramer said in an interview on that the decline in mortgage loan application was "horrendous," and that "maybe tapering is off the table, or a small taper," since "people feel that rates have peaked," which may have "obviated the need for the Fed to do anything at all."
Former Wells Fargo Chairman and CEO Richard Kovacevich in an interview Friday on CNBC said that since the Fed has signaled a tapering of bond purchases "it would be shocking to the market if they do not taper." He added that the amount of tapering is "not relevant," and then said "I don't think QE3 is working, so I would definitely do [a] $20 billion [reduction in bond purchases], but if you don't like $20 billion do $10 [billion]." He also suggested that the Fed curb purchases of Treasury bonds and not mortgage-backed securities, because "that's the least valuable."
Adding fuel to the Federal Reserve fire, Japan's Nikkei newspaper on Friday said President Obama was close to nominating former Treasury secretary Lawrence Summers as the next Federal Reserve chairman, to succeed Ben Bernanke. There have been many reports suggesting the president would nominate Janet Yellen to be the next Fed chair, since she is already a member of the FOMC, is the Vice Chairwoman of the Board of Governors of the Federal Reserve System, is known to have similar views to Bernanke, and is considered a less controversial choice than Summers. But Newedge director of market strategy Robbert van Batenburg in a report on Monday wrote that "in the perverse logic that is so prevalent in DC these days, Summers might actually be easier to get through the Committee than Yellen." "While some Democrats have an aversion to Summers, their party allegiance would make it unlikely for any of them to deliberately block Obama's choice by putting a hold on the former Treasury Secretary," he wrote, adding "Republicans may actually prefer Summers over Yellen given their antipathy for the Fed's unrestrained Quantitative Easing, of which Yellen is a much bigger proponent than Summers." RELATED STORIES: JPMorgan to Suffer $4B Compliance Hit in 2013: Report Fannie and Freddie Common Getting Interesting Reich: Don't Taper Fed Stimulus The Financial Crisis in Paulson, Fuld, Geithner and Dimon's Own Words -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.Thursday, September 19, 2013
All You Need to Know About Personal Finance, on 1 Index Card
Alamy We could argue that the best advice generally comes in 10 words or less. After all, the classic cliches -- "Don't count your chickens before they hatch," "neither a borrower nor a lender be," "don't hit on a 16 in blackjack" -- manage to pack worlds of wisdom into just a few words. But when it comes to financial wisdom, you need a lot more words, right? Like thousands of them, preferably contained in one of those bright yellow "Dummies" books. You need words like "collateral," "yellow sheet" and "debenture." The kinds of words that would make a banker sit up and take notice. Maybe not. Earlier this week, The Washington Post's Wonkblog took a shot at the financial brevity game when it highlighted the efforts of Harold Pollack, a University of Chicago social scientist who had a long conversation with a personal finance expert, then distilled the wisdom of the ages into 11 sentences that fit on one side of a 4 x 6 index card. He claims that he could have fit everything on a 3 x 5 card, but didn't have one handy. As you might have expected, most of Pollack's advice was pretty simple: he focused on saving money, being careful about transactions where you have insufficient information, and avoiding fees. Then again, unless you want to spend all your time managing your investments, most of your money moves will focus on simplifying -- and clarifying -- where your money goes and what it does. If you want to look at Pollack's card (and, perhaps, print it out!), here's his website.
Tuesday, September 17, 2013
A Primer On The MACD
Background Knowledge
The popularity of the MACD is largely due to its ability to help quickly spot increasing short-term momentum. However, before we jump into the inner workings of the MACD, it is important to completely understand the relationship between a short-term and long-term moving average.
As you can see from the chart below, many traders will watch for a short-term moving average (blue line) to cross above a longer-term moving average (red line) and use this to signal increasing upward momentum. This bullish crossover suggests that the price has recently been rising at a faster rate than it has in the past, so it is a common technical buy sign. Conversely, a short-term moving average crossing below a longer-term average is used to illustrate that the asset's price has been moving downward at a faster rate, and that it may be a good time to sell.
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| Figure 1 |
The Indicator
Notice how the moving averages diverge away from each other in Figure 1 as the strength of the momentum increases. The MACD was designed to profit from this divergence by analyzing the difference between the two exponential moving averages. Specifically, the value for the long-term moving average is subtracted from the short-term average, and the result is plotted onto a chart. The periods used to calculate the MACD can be easily customized to fit any strategy, but traders will commonly rely on the default settings of 12- and 26-day periods.
A positive MACD value, created when the short-term average is above the longer-term average, is used to signal increasing upward momentum. This value can also be used to suggest that traders may want to refrain from taking short positions until a signal suggests it is appropriate. On the other hand, falling negative MACD values suggest that the downtrend is getting stronger, and that it may not be the best time to buy.
Transaction Signals
It has become standard to plot a separate moving average alongside the MACD, which is used to create a clear signal of shifting momentum. A signal line, also known as the trigger line, is created by taking a nine-period moving average of the MACD. This is found plotted alongside the indicator on the chart. As you can see in Figure 2, transaction signals are generated when the MACD line (the solid line) crosses through the signal line (nine-period exponential moving average (EMA) - dotted blue line).
The basic bullish signal (buy sign) occurs when the MACD line (the solid line) crosses above the signal line (the dotted line), and the basic bearish signal (sell sign) is generated when the MACD crosses below the signal line. Traders who attempt to profit from bullish MACD crosses that occur when the indicator is below zero should be aware that they are attempting to profit from a change in momentum direction, while the moving averages are still suggesting that the security could experience a short-term sell-off. This bullish crossover can often correctly predict the reversal in the trend as shown in Figure 2, but it is often considered riskier than if the MACD were above zero.
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| Figure 2 |
The Centerline
As mentioned earlier, the MACD indicator is calculated by taking the difference between a short-term moving average (12-day EMA) and a longer-term moving average (26-day EMA). Given this construction, the value of the MACD indicator must be equal to zero each time the two moving averages cross over each other. As you can see in Figure 3, a cross through the zero line is a very simple method that can be used to identify the direction of the trend and the key points when momentum is building.
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| Figure 3 |
Advantages
In the previous examples, the various signals generated by this indicator are easily interpreted and can be quickly incorporated into any short-term trading strategy. At the most basic level, the MACD indicator is a very useful tool that can help traders ensure that short-term direction is working in their favor.
Drawbacks
The biggest disadvantage of using this indicator to generate transaction signals is that a trader can get whipsawed in and out of a position several times before being able to capture a strong change in momentum. As you can see in the chart, the lagging aspect of this indicator can generate several transaction signals during a prolonged move, and this may cause the trader to realize several unimpressive gains or even small losses during the rally.
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| Figure 4 |
Traders should be aware that the whipsaw effect can be severe in both trending and range-bound markets, because relatively small movements can cause the indicator to change directions quickly. The large number of false signals can result in a trader taking many losses. When commissions are factored into the equation, this strategy can become very expensive.
Another MACD drawback is its inability to make comparisons between different securities. Because the MACD is the dollar value between the two moving averages, the reading for differently priced stocks provides little insight when comparing a number of assets to each other. In an attempt to fix this problem, many technical analysts will use the percentage price oscillator, which is calculated in a similar fashion as the MACD, but analyzes the percentage difference between the moving averages rather than the dollar amount.
Conclusion
The MACD indicator is the most popular tool in technical analysis, because it gives traders the ability to quickly and easily identify the short-term trend direction. The clear transaction signals help minimize the subjectivity involved in trading, and the crosses over the signal line make it easy for traders to ensure that they are trading in the direction of momentum. Very few indicators in technical analysis have proved to be more reliable than the MACD, and this relatively simple indicator can quickly be incorporated into any short-term trading strategy.