In the corner offices of the nation’s major airlines, industry executives are still beaming about the “great re-rating of 2013.” #-ad_banner-#That was when deeply cyclical airline stocks, which were once tagged with extremely low price-to-earnings (P/E) ratios and EBITDA (earnings before interest, taxes, depreciation and amortization) multiples, started to earn much firmer ratios that were much more in line with the broader market. It’s a move I suspected might happen back in 2011, while Delta Airlines (NYSE: DAL) was trading for less than five times trailing earnings. At the time, I thought investors would eventually award a higher multiple as business… Read More

In the corner offices of the nation’s major airlines, industry executives are still beaming about the “great re-rating of 2013.” #-ad_banner-#That was when deeply cyclical airline stocks, which were once tagged with extremely low price-to-earnings (P/E) ratios and EBITDA (earnings before interest, taxes, depreciation and amortization) multiples, started to earn much firmer ratios that were much more in line with the broader market. It’s a move I suspected might happen back in 2011, while Delta Airlines (NYSE: DAL) was trading for less than five times trailing earnings. At the time, I thought investors would eventually award a higher multiple as business grew more predictable. If shares simply traded up to eight times projected 2012 profits, then DAL would double in value to $16, I figured. Shares now trade for around $30, or around 11.5 times forward earnings and around seven times projected 2014 EBITDA. In effect, the whole airline group has benefited from a trend toward higher P/E multiples — to a much greater extent than I had anticipated. Investors no longer fear a deep downturn for airline industry profits. In a similar vein, investors can stop worrying about the nation’s top automakers. Like the airlines, automakers now sport… Read More

Some stocks just never allow you to gain an edge through fundamental research — even by the most rigorous analytical minds. #-ad_banner-#These stocks become so popular that they become disconnected from any sort of fundamental valuation, and you can simply hold your nose and buy along with the crowd. Or you can be gutsy and look to sell shares short. Score one for the fundamental analysts. Heading into quarterly results, Twitter (NYSE: TWTR) was a major focus for short sellers, as I noted three weeks ago. The short interest has risen further since that article was published, to 32.7 million shares… Read More

Some stocks just never allow you to gain an edge through fundamental research — even by the most rigorous analytical minds. #-ad_banner-#These stocks become so popular that they become disconnected from any sort of fundamental valuation, and you can simply hold your nose and buy along with the crowd. Or you can be gutsy and look to sell shares short. Score one for the fundamental analysts. Heading into quarterly results, Twitter (NYSE: TWTR) was a major focus for short sellers, as I noted three weeks ago. The short interest has risen further since that article was published, to 32.7 million shares by mid-January. And these short sellers may be tempted to lock in gains after shares plunged more than 20% this week.  But they shouldn’t close out those short positions just yet — Twitter has an additional 20% to 25% downside from here. Twitter faces two challenges: It needs to sharply boost its audience, and it needs to figure out how to make much more money off of that audience. These are concerns I spelled out late last month on our sister site ProfitableTrading.com. Among the reasons why this stock may be headed to just $40 (or… Read More

The past few years have been a great time to be an investor. Federal Reserve Chairman Ben Bernanke’s zero interest rate policy has fueled large gains in just about every market sector since 2009. There’s little question that his policies are bullish in the short term, but what happens when the Fed’s easy money stops? #-ad_banner-#For an answer to this, we can take a page out of baseball history.  In 1998, Mark McGwire set a record by hitting 70 home runs during the season, while Sammy Sosa hit 66. The previous record of 61 home runs had been set in… Read More

The past few years have been a great time to be an investor. Federal Reserve Chairman Ben Bernanke’s zero interest rate policy has fueled large gains in just about every market sector since 2009. There’s little question that his policies are bullish in the short term, but what happens when the Fed’s easy money stops? #-ad_banner-#For an answer to this, we can take a page out of baseball history.  In 1998, Mark McGwire set a record by hitting 70 home runs during the season, while Sammy Sosa hit 66. The previous record of 61 home runs had been set in 1961 by Roger Maris. In 2001, Barry Bonds broke McGwire’s record by hitting 73 home runs.  At the time, baseball was an exciting sport to watch as home run records captured headlines. Later, fans learned that the hitters were abusing steroids. Home run outputs returned to normal after league-wide steroid testing became the norm in 2003.  Fed policy is acting like a performance-enhancing drug for the market. When it stops easing, I believe the markets will be unable to continue climbing at the frantic pace seen during the past year. Returns will be below average for some time, and stock… Read More

I love stories about regular people who have excelled in their chosen profession. The hedge fund and financial world is rife with tales of individuals who have built vast fortunes despite starting from modest beginnings. #-ad_banner-#To me, the most inspiring stories are about people who have fought their way to top, been knocked down, and then regained their top-dog status. These people are generally mavericks who go against the grain –and, in the financial realm, can find value in overlooked stocks that most of the investment world can’t readily see.  One of my favorite consistently successful money managers… Read More

I love stories about regular people who have excelled in their chosen profession. The hedge fund and financial world is rife with tales of individuals who have built vast fortunes despite starting from modest beginnings. #-ad_banner-#To me, the most inspiring stories are about people who have fought their way to top, been knocked down, and then regained their top-dog status. These people are generally mavericks who go against the grain –and, in the financial realm, can find value in overlooked stocks that most of the investment world can’t readily see.  One of my favorite consistently successful money managers is Ken Griffin of hedge fund Citadel LLC. Griffin started trading out of his college dorm room in 1986. He was so successful that he was quickly able to raise a million dollars from investors. By 1990, Griffin launched the Citadel Investment Group with a little over $4 million. This fund has grown to one of the largest hedge funds in the world with over $17 billion under management.  Griffin’s trip to the top has not been without its tribulations. One example is that during the financial crisis, Citadel sustained a drawdown of nearly 50%. During this time, many hedge… Read More

A key theme for the current five-year bull market: Bigger is not always better.#-ad_banner-# GE (NYSE: GE) is the nation’s largest industrial firm, yet its shares continue to lag behind the broader market by a wide margin. IBM (NYSE: IBM) has one of the largest revenue bases in the tech sector, but it’s trading at two-year lows. And in the agricultural sector, Archer Daniels Midland (NYSE: ADM), has underperformed the S&P 500 by nearly 60 percentage points over the past five years.  Yet it’s unwise to lump these three firms together. IBM and GE must make major changes to their… Read More

A key theme for the current five-year bull market: Bigger is not always better.#-ad_banner-# GE (NYSE: GE) is the nation’s largest industrial firm, yet its shares continue to lag behind the broader market by a wide margin. IBM (NYSE: IBM) has one of the largest revenue bases in the tech sector, but it’s trading at two-year lows. And in the agricultural sector, Archer Daniels Midland (NYSE: ADM), has underperformed the S&P 500 by nearly 60 percentage points over the past five years.  Yet it’s unwise to lump these three firms together. IBM and GE must make major changes to their business models to reinvigorate growth. ADM, in contrast, just needs to wait for industry dynamics to strengthen — and such a change may already be at hand.  Analysts at Citigroup expect “2014 will be a big recovery year in Archer’s major operations.” They recently upgraded shares to “buy” with a $45 price target.  The key factor driving ADM’s business is storage: The more crops that farmers grow, the more that ADM will prosper. A drought in the U.S. Midwest hampered business in the 2012-13 growing season, but according to the U.S. Department of Agriculture, the 2013-14 growing season has produced… Read More

Over the past few weeks, I’ve been chatting with my colleague and StreetAuthority’s Managing Editor, Bob Bogda, about the potential for home run stocks. These are the kinds that can deliver gains in one year that many other stocks take a decade to achieve. #-ad_banner-# No area is as ripe for such upside as micro-cap stocks, which typically have market caps between $50 million and $200 million. Micro-caps tend to toil in anonymity — right up until the time they deliver great news. Caught off guard, investors can push such stocks up by 50% or even 100%. Of course, with such… Read More

Over the past few weeks, I’ve been chatting with my colleague and StreetAuthority’s Managing Editor, Bob Bogda, about the potential for home run stocks. These are the kinds that can deliver gains in one year that many other stocks take a decade to achieve. #-ad_banner-# No area is as ripe for such upside as micro-cap stocks, which typically have market caps between $50 million and $200 million. Micro-caps tend to toil in anonymity — right up until the time they deliver great news. Caught off guard, investors can push such stocks up by 50% or even 100%. Of course, with such potential reward comes risk. Micro-caps can also shed value at a rapid pace, especially if the market loses steam. Case in point: I suggested back in September that Merge Healthcare (Nasdaq: MRGE) could double in value, but MRGE has fallen 27% since then. I still think Merge is an intriguing health care opportunity, but clearly my enthusiasm was premature. That’s why you need to take a basket approach to micro-caps. Placing too many funds in just one micro-cap stock is too risky. The other two stocks in that September article bear out that premise: Novavax (Nasdaq: NVAX) is up 77% since… Read More

Someone needs to take the microphone away from Google (Nasdaq: GOOG).#-ad_banner-# The company has been courting the press with its autonomous (aka driverless) car of the future, even though such a vehicle may never find mainstream demand from consumers. You would think that only Google has an eye on the road ahead. Yet behind the scenes, a handful of other companies are developing leading-edge technologies that surely will be in your car in the years to come. And far-sighted investors still have a chance to build positions in these firms before these technologies hit showrooms. From Outside To Inside… Read More

Someone needs to take the microphone away from Google (Nasdaq: GOOG).#-ad_banner-# The company has been courting the press with its autonomous (aka driverless) car of the future, even though such a vehicle may never find mainstream demand from consumers. You would think that only Google has an eye on the road ahead. Yet behind the scenes, a handful of other companies are developing leading-edge technologies that surely will be in your car in the years to come. And far-sighted investors still have a chance to build positions in these firms before these technologies hit showrooms. From Outside To Inside In recent years, consumers have seen a series of profound enhancements in terms of vehicle control. Sensors and cameras can help a car stay in its lane, signal when an adjacent car is in a blind spot, maintain a fixed distance from cars ahead through adaptive cruise control, and even place a car perfectly in a parking space. Look for the number of fatalities on U.S. roads to drop as more cars adopt these technologies. Yet it’s the car’s interior that represents the next frontier of technology. And it all comes from a niche known as telematics, which is the… Read More

Chipotle Mexican Grill (NYSE: CMG), the famed operator of quick-service Mexican restaurants, soared to a new high on Friday after reporting fourth-quarter results.  #-ad_banner-#Earnings of $2.53 a share were up 30% year over year, matching analysts’ estimates. And the company handsomely beat on the top line, reporting a 21% year-over-year revenue increase to $844.1 million. During the conference call that followed the earnings announcement, the company discussed that an increase in prices on its menu is likely later in 2014, a direct results of higher costs for crucial inputs like beef and… Read More

Chipotle Mexican Grill (NYSE: CMG), the famed operator of quick-service Mexican restaurants, soared to a new high on Friday after reporting fourth-quarter results.  #-ad_banner-#Earnings of $2.53 a share were up 30% year over year, matching analysts’ estimates. And the company handsomely beat on the top line, reporting a 21% year-over-year revenue increase to $844.1 million. During the conference call that followed the earnings announcement, the company discussed that an increase in prices on its menu is likely later in 2014, a direct results of higher costs for crucial inputs like beef and avocados. This is something that investors have also heard from other restaurant companies in recent weeks, and thus likely came as less of a surprise. On the back of better-than-expected sales guidance for 2014, analysts were quick to boost their sales targets. Morgan Stanley, for example, raised its full-year same-store sales growth forecast from 5.8% to 6.9%. Currently, Chipotle has more than 1,500 restaurants worldwide and is planning on opening up to 195 new restaurants this year. Like many companies, Chipotle also spoke favorably to the idea of increasing its stock buyback program, which speaks to the company’s confidence in… Read More

The stock markets of 2013 and 2014 now share one thing in common: They’ve each had a 5% pullback. #-ad_banner-#It happened just once last year (in late May and June after investors sensed that the Federal Reserve would start to taper) and already has happened in 2014, just 35 days into the trading year. How unusual was the market action last year? It was only the fifth year in the past 50 with one or fewer pullbacks of 5%, according to Bespoke Investment Research. In other words, such pullbacks should be expected several times a year. As I noted last… Read More

The stock markets of 2013 and 2014 now share one thing in common: They’ve each had a 5% pullback. #-ad_banner-#It happened just once last year (in late May and June after investors sensed that the Federal Reserve would start to taper) and already has happened in 2014, just 35 days into the trading year. How unusual was the market action last year? It was only the fifth year in the past 50 with one or fewer pullbacks of 5%, according to Bespoke Investment Research. In other words, such pullbacks should be expected several times a year. As I noted last week, there aren’t especially good reasons for the current round of market weakness, so the damage may stay contained at current levels. (Unless margin selling kicks in, which is my biggest worry right now, as it induces a vicious cycle of further selling.) Still, the market pullback has created a chance to scour for fresh openings. And one of my favorite research moves is to identify stocks with heavy insider buying that have now fallen below levels where insiders bought in. These stocks of course can fall further (given that insiders are notoriously bad market timers), but the recent insider… Read More

Even after a horrendous January and amid the bear market talk dominating the financial news, I remain bullish on the stock market. I will even so far as to say that one interest rate-sensitive sector that thrived in 2013 will continue its winning ways into next year.#-ad_banner-#​ There is no question that January was a difficult month for the stock market. A combination of the Federal Reserve starting to dial back on its massive bond-buying program, emerging-market fears and even the end of Ben Bernanke’s term as Fed chairman fueled investor anxiety. In addition, interest rates started a… Read More

Even after a horrendous January and amid the bear market talk dominating the financial news, I remain bullish on the stock market. I will even so far as to say that one interest rate-sensitive sector that thrived in 2013 will continue its winning ways into next year.#-ad_banner-#​ There is no question that January was a difficult month for the stock market. A combination of the Federal Reserve starting to dial back on its massive bond-buying program, emerging-market fears and even the end of Ben Bernanke’s term as Fed chairman fueled investor anxiety. In addition, interest rates started a slow climb higher, prompting an overreaction on the sell side.  Uncertainty is stocks’ #1 enemy. Seeing as some of the past month’s uncertainty has been realized, I think the overall downward price trend will soon stabilize, forcing stocks back into their long-term upward drift.  But rather than speculate about the future, let’s look at what actually occurred in the first month of 2014, with the Dow Jones Industrial Average as a guide.  After hitting an all-time high near 16,600 at the end of December, the Dow dropped to just under 15,700 by Jan. 31. Yet it’s crucial to remember the… Read More