As expected, the economy shrank in the first quarter, a recent U.S. Commerce Department report confirmed. However, the shrinkage is proving worse than originally thought, with revised GPD data showing a 2.9% annualized rate of contraction versus the 1.7% rate economists predicted. #-ad_banner-#But this could actually be really good news for investors. Indeed, the dismal first quarter has created a prime chance to get deals on high-quality stocks that are most vulnerable to economic downturns. And since unusually cold weather, not poor fundamentals, are widely considered mainly to blame for the bad first quarter, it may not be long until… Read More

As expected, the economy shrank in the first quarter, a recent U.S. Commerce Department report confirmed. However, the shrinkage is proving worse than originally thought, with revised GPD data showing a 2.9% annualized rate of contraction versus the 1.7% rate economists predicted. #-ad_banner-#But this could actually be really good news for investors. Indeed, the dismal first quarter has created a prime chance to get deals on high-quality stocks that are most vulnerable to economic downturns. And since unusually cold weather, not poor fundamentals, are widely considered mainly to blame for the bad first quarter, it may not be long until these beaten-down stocks rebound — especially since there are already signs the economy has been gaining steam in the second quarter. One beaten-down stock I like a lot is off more than 30% this year and much of the carnage occurred after this national retailer reported a 14% decline in first-quarter profits.  Like the overall economy, the firm did poorly mainly because of the severe winter, which clearly hurt business at 135 of its 331 locations. At these stores, first-quarter net sales dropped an average of 3.8%. But at the other 196 outlets where winter weather wasn’t an issue, first-quarter… Read More

If you’re like most investors, then you probably repeatedly made the same mistake as you learned the rules of the game.  #-ad_banner-#You likely spotted a great bargain stock, bought shares and waited for something to happen. Shares likely stayed stuck at bargain levels, testing your patience. And you finally gave up waiting and sold shares, only to discover a year or two later that the stock did eventually rebound in a big way. What’s the lesson learned from that experience? That you should simply wait an indefinite period and stick around long enough for the eventual rebound? No. Such a strategy… Read More

If you’re like most investors, then you probably repeatedly made the same mistake as you learned the rules of the game.  #-ad_banner-#You likely spotted a great bargain stock, bought shares and waited for something to happen. Shares likely stayed stuck at bargain levels, testing your patience. And you finally gave up waiting and sold shares, only to discover a year or two later that the stock did eventually rebound in a big way. What’s the lesson learned from that experience? That you should simply wait an indefinite period and stick around long enough for the eventual rebound? No. Such a strategy will lead you to tie up all of your investor dollars in a bunch of dud stocks, leaving you with no funds to pursue new ideas. The better strategy: Create watch lists and track these stocks. Checking in on them frequently (I prefer daily) allows you to finally hop on board when these stocks start to become timely. Let me cite a few examples. Shares of Maxwell Technologies (Nasdaq: MXWL), a maker of ultra-capacitors, slumped sharply in the spring of 2012 as the company noted a slowdown in sales and a set of potentially fraudulent actions by some key… Read More

I have always enjoyed unearthing and profiting from unusual investments. From unique niche stocks to rare antiques, locating under-the-radar investments is part of my DNA. #-ad_banner-#Recently, I was reminded of one such unusual investment — Fifth Street Finance (Nasdaq: FSC) — by my colleague, Joseph Hogue, who covered it for our sister site, StreetAuthority.com. The stock appears to be setting up for a profitable trade and has a double-digit dividend yield to boot. This business development company (BDC) specializes in financing small and mid-sized companies. BDCs typically pays out most of their income in the form of dividends, and FSC… Read More

I have always enjoyed unearthing and profiting from unusual investments. From unique niche stocks to rare antiques, locating under-the-radar investments is part of my DNA. #-ad_banner-#Recently, I was reminded of one such unusual investment — Fifth Street Finance (Nasdaq: FSC) — by my colleague, Joseph Hogue, who covered it for our sister site, StreetAuthority.com. The stock appears to be setting up for a profitable trade and has a double-digit dividend yield to boot. This business development company (BDC) specializes in financing small and mid-sized companies. BDCs typically pays out most of their income in the form of dividends, and FSC currently pay $0.083 monthly for a 10.4% annual yield. The current environment makes commercial financing difficult for many businesses. A recent survey by the Federal Reserve showed that while demand for business loans was increasing, just 10% of banks were willing to decrease their lending criteria for small businesses, and 3% of banks increased their standards.  The stringent criteria of traditional banks and lending institutions open the door for alternative financing provided by business development companies like Fifth Street Finance.   FSC and other BDCs have struggled this year, in part because investors are worried about the effect of rising… Read More

One of the richest men in the world is finding value in one of the dirtiest industries in the world.  #-ad_banner-#With a net worth of over $75 billion, Bill Gates loves the railroad industry — but he’s also heavily invested in another “must-have” business.  The railroad industry is instrumental in moving products from one region to another, but there are substitutes available, such as planes and ships.  However, there are virtually no alternatives for garbage disposal.  This is truly a must-have industry. It’s a business that performs well regardless of the broader economy. Gates has recognized this long-term… Read More

One of the richest men in the world is finding value in one of the dirtiest industries in the world.  #-ad_banner-#With a net worth of over $75 billion, Bill Gates loves the railroad industry — but he’s also heavily invested in another “must-have” business.  The railroad industry is instrumental in moving products from one region to another, but there are substitutes available, such as planes and ships.  However, there are virtually no alternatives for garbage disposal.  This is truly a must-have industry. It’s a business that performs well regardless of the broader economy. Gates has recognized this long-term trend and owns two of the industry’s largest players.  Waste Management (NYSE: WM) is the leader in the industry, with Republic Services (NYSE: RSG) coming in second. The low-yield environment, coupled with a market that’s trading at lofty valuations, makes high-yield defensive stocks attractive. Waste Management and Republic Services pay solid dividend yields and are quite defensive.  The Bill & Melinda Gates Foundation owns 18.6 million shares of Waste Management, equal to 4% of the company. The private investment fund that manages Gates’ personal wealth, Cascade Investments, owns 90.9 million shares of Republic Services, a staggering 25% of the company. … Read More

Dollar stores have been on a tear since the financial crisis. Consumers flocked to the low-price stores in an effort to pinch pennies. #-ad_banner-#But even as the economy has rebounded, many of these companies have continued to perform fairly well. It appears they have integrated themselves into the lives of shoppers to the point that dollar stores are becoming one-stop shops.  This comes as they have expanded into tobacco and consumer staples. Dollar stores are also typically much smaller and easier to navigate than the likes of big-box merchants like Wal-Mart (NYSE: WMT) or Target (NYSE: TGT), which… Read More

Dollar stores have been on a tear since the financial crisis. Consumers flocked to the low-price stores in an effort to pinch pennies. #-ad_banner-#But even as the economy has rebounded, many of these companies have continued to perform fairly well. It appears they have integrated themselves into the lives of shoppers to the point that dollar stores are becoming one-stop shops.  This comes as they have expanded into tobacco and consumer staples. Dollar stores are also typically much smaller and easier to navigate than the likes of big-box merchants like Wal-Mart (NYSE: WMT) or Target (NYSE: TGT), which makes them ideal for consumers who are short on both time and money.  But not all dollar stores have continued to perform well throughout the strengthening economy. One of the biggest players in the market, Family Dollar (NYSE: FDO), has come under fire from billionaire activist Carl Icahn.  Family Dollar’s net income has grown at an annualized 7.4% over the past three years, which is impressive on a stand-alone basis. But when stacked up against industry leader Dollar General (NYSE: DG), which has seen annualized growth of 17.7% over the same period, it appears Family Dollar is in need of… Read More

A favorite strategy among investors is to look and see what Warren Buffett and Berkshire Hathaway (NYSE: BRK-B) are buying. After all, if the Oracle of Omaha is buying a company’s stock, chances are it’s a great value. #-ad_banner-#Well, one of the most underrated stocks is “baby Berkshire” Leucadia National Corp. (NYSE: LUK), which, like Berkshire, is a diversified holding company that’s run by a great stock picker — in Leucadia’s case, CEO Richard Handler. Handler is a great stock picker. He has built a company with interests in investment banking, meat processing, real estate lending,… Read More

A favorite strategy among investors is to look and see what Warren Buffett and Berkshire Hathaway (NYSE: BRK-B) are buying. After all, if the Oracle of Omaha is buying a company’s stock, chances are it’s a great value. #-ad_banner-#Well, one of the most underrated stocks is “baby Berkshire” Leucadia National Corp. (NYSE: LUK), which, like Berkshire, is a diversified holding company that’s run by a great stock picker — in Leucadia’s case, CEO Richard Handler. Handler is a great stock picker. He has built a company with interests in investment banking, meat processing, real estate lending, auto dealerships, liquefied natural gas and other publicly traded companies. Thanks to the fact that Leucadia must disclose its investments, we get to peek at what Handler and Leucadia are buying.  One company that Leucadia is buying is Harbinger Group (NYSE: HRG), another diversified conglomerate. It has been growing its business by acquiring and growing businesses that generate substantial free cash flow. Leucadia is one of Harbinger Group’s largest shareholders with a 12% stake.  Besides Leucadia, billionaires Michael Dell and Leon Cooperman have stakes in Harbinger Group, owning 4.5% and 8.3%, respectively.  Looking Past Harbinger’s CEO Debacle… Read More

I’m a huge fan of science fiction novels and films. Having grown up on Star Wars movies and books by authors like Alastair Reynolds and Philip K. Dick, I marveled at the possibilities and envisioned living in a similar world.  #-ad_banner-#Fast-forward to 2014, and the very things I thought were the stuff of fiction have become modern-day technologies. Any proper fan of sci-fi will note certain similarities in near-future stories — hand-held computers, holograms and self-driving cars.  Many of these things have already come to pass or are on the verge of doing so. Smartphones… Read More

I’m a huge fan of science fiction novels and films. Having grown up on Star Wars movies and books by authors like Alastair Reynolds and Philip K. Dick, I marveled at the possibilities and envisioned living in a similar world.  #-ad_banner-#Fast-forward to 2014, and the very things I thought were the stuff of fiction have become modern-day technologies. Any proper fan of sci-fi will note certain similarities in near-future stories — hand-held computers, holograms and self-driving cars.  Many of these things have already come to pass or are on the verge of doing so. Smartphones have many times the computing power of those used by the Apollo astronauts, a holographic keyboard is available for some hand-held devices, and Google’s (Nasdaq: GOOG) campus is known to house a self-driving car. Looking to the future, technologies across many industries will undoubtedly surprise us all with inventions that will amaze us — and that our children and grandchildren will take for granted.  However, investors are more interested in futuristic developments with real-world applications.  Telecommunications has received the most attention from futurist investors, which shows in the sector’s average price-to-earnings (P/E) ratio of 37. Value-minded shoppers look to other sectors… Read More

One of the secrets to getting rich in the stock market is to look where no one else is looking.  While Apple (Nasdaq: AAPL) gets an inordinate amount of attention from investors, three billionaire gurus have been focused on buying shares of a small-cap company that makes products for Apple’s popular iPhone.  It’s much easier for a company with $1 billion in revenue to grow than it is for a company with $176 billion in revenue (as Apple had last year). While the iPhone 6 will likely boost Apple’s revenues, the increase won’t be nearly as great in percentage terms… Read More

One of the secrets to getting rich in the stock market is to look where no one else is looking.  While Apple (Nasdaq: AAPL) gets an inordinate amount of attention from investors, three billionaire gurus have been focused on buying shares of a small-cap company that makes products for Apple’s popular iPhone.  It’s much easier for a company with $1 billion in revenue to grow than it is for a company with $176 billion in revenue (as Apple had last year). While the iPhone 6 will likely boost Apple’s revenues, the increase won’t be nearly as great in percentage terms as it would be for a smaller company that’s supplying a key component. Billionaires George Soros, Ken Griffin and Seth Klarman all know this. That’s why they own a combined 12% stake in Apple supplier RF Micro Devices (Nasdaq: RFMD), which provides radio frequency (RF) chips to Apple, Samsung Electronics (OTC: SSNLF) and BlackBerry (Nasdaq: BBRY).  Earlier this year, RF Micro Devices agreed to merge with TriQuint Semiconductor (Nasdaq: TQNT). The merger combines the RF market’s third- and fourth-largest players, giving them a 35% share of the market.  Big Benefits The merger is one of equals. Each company’s shareholders will… Read More

Originally found in the ancient Greek play “The Birds” by Aristophanes, the phrase “cloud cuckoo land” refers to an unrealistically idealistic state where everything is perfect. The term was used to describe the state of stock market before the crash of 1929 by U.S. Agriculture Secretary Henry Wallace, who would later serve as vice president under Franklin D. Roosevelt. When I look at the current market conditions, I think we should be dusting off that term again. U.S. equity markets are making new highs. Yet many pundits don’t view the market as overvalued — but is it? #-ad_banner-#In… Read More

Originally found in the ancient Greek play “The Birds” by Aristophanes, the phrase “cloud cuckoo land” refers to an unrealistically idealistic state where everything is perfect. The term was used to describe the state of stock market before the crash of 1929 by U.S. Agriculture Secretary Henry Wallace, who would later serve as vice president under Franklin D. Roosevelt. When I look at the current market conditions, I think we should be dusting off that term again. U.S. equity markets are making new highs. Yet many pundits don’t view the market as overvalued — but is it? #-ad_banner-#In search of an answer, I looked at the market’s peak price-to-earnings (P/E) ratios since the early ’80s. What I found was that the average peak P/E prior to a significant market correction was 23.5. If you’ve read my work here at StreetAuthority, you’ll know I firmly believe that valuations always matter with stocks. Now is no different. This chart concerns me… but something else concerns me even more. Again, if you’re familiar with my work, you’ve found that I tend to rely on a stock’s forward P/E as an important valuation metric. The current forward P/E for the S&P 500… Read More

As Amazon.com (Nasdaq: AMZN) ventures into a few new categories every year, it foots the bill by redeploying cash flow from other, more mature divisions. #-ad_banner-#As a result, the company typically ekes out only $2 billion in annual free cash flow (defined as operating cash flow minus capital expenditures). For a company with nearly $75 billion in revenue last year, $2 billion isn’t much. Investors presume that Amazon’s free cash flow profile will be a lot more impressive — once it stops its breakneck pace of new product and service launches. At the other end of the spectrum, you have… Read More

As Amazon.com (Nasdaq: AMZN) ventures into a few new categories every year, it foots the bill by redeploying cash flow from other, more mature divisions. #-ad_banner-#As a result, the company typically ekes out only $2 billion in annual free cash flow (defined as operating cash flow minus capital expenditures). For a company with nearly $75 billion in revenue last year, $2 billion isn’t much. Investors presume that Amazon’s free cash flow profile will be a lot more impressive — once it stops its breakneck pace of new product and service launches. At the other end of the spectrum, you have companies that are already quite mature. They have few growth initiatives to pursue, and much of their operating cash flow is converted right into free cash flow. Such stocks tend to be shunned by growth investors, but for the value crowd, they hold great appeal. Their robust free cash flow can be used to pay down debt, boost the dividend or induce share buybacks — the three pillars of what we call Total Yield. I scanned all of the companies in the S&P 400 (mid-cap) and S&P 500, looking for companies that generate impressive levels of free cash flow. I… Read More