There are only two ways to score huge gains. Find a stock that is relatively unknown, and build a position before the crowd arrives. Or find a stock that is widely known, but widely loathed. In the case of Melco Crown Entertainment Ltd. (Nasdaq: MPEL), the first scenario has already played out, and the second scenario is just coming into play. When I first looked at this Macau-focused casino operator, shares were trading under $5. I looked at this stock a few years later when shares traded at $18 and noted considerable remaining upside. Shares eventually moved above $35. This… Read More

There are only two ways to score huge gains. Find a stock that is relatively unknown, and build a position before the crowd arrives. Or find a stock that is widely known, but widely loathed. In the case of Melco Crown Entertainment Ltd. (Nasdaq: MPEL), the first scenario has already played out, and the second scenario is just coming into play. When I first looked at this Macau-focused casino operator, shares were trading under $5. I looked at this stock a few years later when shares traded at $18 and noted considerable remaining upside. Shares eventually moved above $35. This stock’s meteoric rise was due to the fact that few investors knew about the company in 2010. Even as it gained adherents in subsequent years, many investors underestimated the powerful cash flow potential on Melco’s business model. Back in 2010, Melco Crown generated around $90 million in operating profits. By 2014, that figure had grown to $685 million. Yet Melco Crown, along with other Macau-focused casino operators, is now making headlines for different reasons. A sharp crackdown on corruption in China has led many Chinese high rollers to stay close to home, avoiding any appearance of conspicuous consumption. And as… Read More

I recently learned that hot water can freeze faster than cold water. Perhaps you already knew this but it was news to me. It’s a phenomenon known as the Mpemba Effect. This Mpemba Effect seems counterintuitive. Water freezes at 32 degrees. Since cold water is closer to 32 degrees than hot water, most would assume that cold water freezes first. Yet it has been studied extensively by scientists and experiments have shown hot water can freeze first. This isn’t true 100% of the time, but it does happen when the conditions are right. There are a number of theories about… Read More

I recently learned that hot water can freeze faster than cold water. Perhaps you already knew this but it was news to me. It’s a phenomenon known as the Mpemba Effect. This Mpemba Effect seems counterintuitive. Water freezes at 32 degrees. Since cold water is closer to 32 degrees than hot water, most would assume that cold water freezes first. Yet it has been studied extensively by scientists and experiments have shown hot water can freeze first. This isn’t true 100% of the time, but it does happen when the conditions are right. There are a number of theories about why this occurs. The leading explanation is that hot water evaporates more than cold water, leaving less water to freeze. It could also be due to convection currents, which are stronger in warmer water, allowing for ice crystals to spread faster. Others believe it may be related to the chemical structure of water. In all likelihood, it is the interplay of various factors. #-ad_banner-# You might be asking what this has to do with investing. To me, the Mpemba Effect illustrates that logic alone may not be enough to find the right answer. You have to dig… Read More

Although the housing market activity has shown periodic signs of life, we’re still awaiting a more vigorous and sustained rebound. Yet a glimpse of recent trends brings fresh hope. Real estate information firm RealtyTrac reported the resurgence of a once-popular trend: house flipping. Buyers that seek to purchase a home, fix it and sell it for a quick profit, are once again making money. Last year, the average gross profit from flipping a property was $72,400, the highest figure since 2011. The news has largely escaped media attention, but it is an important vital sign for the industry. You see,… Read More

Although the housing market activity has shown periodic signs of life, we’re still awaiting a more vigorous and sustained rebound. Yet a glimpse of recent trends brings fresh hope. Real estate information firm RealtyTrac reported the resurgence of a once-popular trend: house flipping. Buyers that seek to purchase a home, fix it and sell it for a quick profit, are once again making money. Last year, the average gross profit from flipping a property was $72,400, the highest figure since 2011. The news has largely escaped media attention, but it is an important vital sign for the industry. You see, flipping helps boost the supply of available homes, which in turn draws more buyers. In 2015, the average gross margin on house flipping has increased above 40%, with many major cities posting gross profitability on flips of 50% and higher. Pending home sales in April were up an impressive 14% from a year ago, which bodes well for the rest of the year. Pending sales are a leading indicator and the return of flipping can mean multiple sales in a year for the same property. While the recovery will help boost players in the sector, one company is set to… Read More

As I highlighted in a previous article, bad management teams can destroy shareholder wealth. Yet exemplary management teams can compound wealth for decades and make shareholders rich along the way. The 2008-2009 crisis showed us that in no other industry does management skill and discipline matter more than the financial sector. When financial companies make the news, it’s usually for the wrong reasons. I’ve found a pair of great companies that have stayed under the radar and are great stocks to own for decades.  The Travelers Companies, Inc. (NYSE: TRV) is a property and casualty insurer primarily focused on a… Read More

As I highlighted in a previous article, bad management teams can destroy shareholder wealth. Yet exemplary management teams can compound wealth for decades and make shareholders rich along the way. The 2008-2009 crisis showed us that in no other industry does management skill and discipline matter more than the financial sector. When financial companies make the news, it’s usually for the wrong reasons. I’ve found a pair of great companies that have stayed under the radar and are great stocks to own for decades.  The Travelers Companies, Inc. (NYSE: TRV) is a property and casualty insurer primarily focused on a commercial client base. Nonetheless, a third of its business is home and auto insurance for individuals. What makes Travelers special is its tremendous performance in the most important metric for evaluating insurance companies, the combined ratio. The combined ratio answers whether the company is adequately compensated for the risk it is taking and whether the company is operating efficiently. The ratio measures how much income generated from insurance premiums goes to pay operating expenses and customer claims. A combined ratio under 100% indicates an underwriting profit, and a ratio over 100% indicates an underwriting loss. Insurance companies can still earn… Read More

These seven stocks have done the impossible. Each one of them has paid a dividend like clockwork for over a century. In fact, the longest-standing dividend payer on the list hasn’t missed a payment since 1877 — when Rutherford B. Hayes was president. #-ad_banner-#Think of everything that has happened to our financial system since that time: World War I and II, The Great Depression, the dot-com bubble, government shutdowns, the list goes on. For the seven stocks I’m about to show you, none of this seemed to matter. These companies breezed through every economic downturn America has ever faced without… Read More

These seven stocks have done the impossible. Each one of them has paid a dividend like clockwork for over a century. In fact, the longest-standing dividend payer on the list hasn’t missed a payment since 1877 — when Rutherford B. Hayes was president. #-ad_banner-#Think of everything that has happened to our financial system since that time: World War I and II, The Great Depression, the dot-com bubble, government shutdowns, the list goes on. For the seven stocks I’m about to show you, none of this seemed to matter. These companies breezed through every economic downturn America has ever faced without so much as a hiccup in their dividend payments. In fact, most of them were able to increase their payouts during those periods. That’s a pretty remarkable feat. In 2009 alone, more than 800 American companies had to cut their dividends because of the fallout from the subprime crisis. Now, to be fair, there is nothing secret about these stocks. You’ve probably heard of all these companies before. But to me, that’s not a deterrent. In fact, it’s part of what makes these seven stocks so attractive. That’s because in all my years of investing, I’ve found that it’s not… Read More

There isn’t a lot of mystery around what Carl Icahn looks for in an investment opportunity. He wants to own good companies with underperforming management teams. Typically, he can build a large enough position to have a major influence. Then he pushes for share buybacks, board representation, or simply a change in the corner office. Curiously, a major target for Icahn has none of those options at hand. Cash-strapped Chesapeake Energy Corp. (NYSE: CHK) was once known for a controversial CEO, as I noted in 2010. Yet fresh management has been in place for more than two years, and by… Read More

There isn’t a lot of mystery around what Carl Icahn looks for in an investment opportunity. He wants to own good companies with underperforming management teams. Typically, he can build a large enough position to have a major influence. Then he pushes for share buybacks, board representation, or simply a change in the corner office. Curiously, a major target for Icahn has none of those options at hand. Cash-strapped Chesapeake Energy Corp. (NYSE: CHK) was once known for a controversial CEO, as I noted in 2010. Yet fresh management has been in place for more than two years, and by all indications, Icahn is a fan of the company’s new leaders. In the second quarter of 2013, Icahn’s investment firm acquired 60 million shares (at an average price of $19). He bought another 6.7 million shares in the next quarter (at an average price of $23 a share). Of course oil prices subsequently collapsed, making such a large investment in an oil and gas producer seem foolhardy in hindsight. You would think that Icahn would decide that he’d made a big mistake and cash out his large stake in Chesapeake. Instead, he bought another 6.6 million shares (at $17.65 a… Read More

Whether it’s possible to beat the market has been the subject of much research and debate by academics and practitioners. Perhaps you’ve heard of the Efficient Market Hypothesis (EMH), which was developed around the 1960s. This academic theory states that a stock’s current price reflects all known information about that stock. This means stocks are always perfectly priced, and price changes occur efficiently as new information becomes available. Academics will tell you that, based on this theory, it’s impossible to beat the market by picking stocks. #-ad_banner-# Yet, people do. We know… Read More

Whether it’s possible to beat the market has been the subject of much research and debate by academics and practitioners. Perhaps you’ve heard of the Efficient Market Hypothesis (EMH), which was developed around the 1960s. This academic theory states that a stock’s current price reflects all known information about that stock. This means stocks are always perfectly priced, and price changes occur efficiently as new information becomes available. Academics will tell you that, based on this theory, it’s impossible to beat the market by picking stocks. #-ad_banner-# Yet, people do. We know Warren Buffett has beaten the market for more than 50 years, as just one example. In response to the EMH, Buffett argues that there are “wide discrepancies between price and value in the marketplace.” But EMH proponents argue that Buffett is an anomaly. It turns out researchers have uncovered a number of anomalies to the EMH. They have found that stocks with low price-to-earnings (P/E) ratios or PEG ratios outperform the market over the long run, and they named this the “value anomaly.” Small caps generally outperform large caps, which results in the “size anomaly.” Stocks that have beaten… Read More

In April 2015, I recommended that my Top 10 Stocks readers buy Kraft Foods (Nasdaq: KRFT). Within 24 hours of my recommendation, the company received a takeover offer from The H. J. Heinz Company — backed by legendary investor Warren Buffett’s Berkshire Hathaway and Brazilian private equity giant 3G Capital. Powered by this top-tier endorsement as well as a considerable premium to market on the offer, Kraft soared 45% in two weeks following my recommendation. It was one of the most dramatic wins I’ve ever had the pleasure to be involved with. Read More

In April 2015, I recommended that my Top 10 Stocks readers buy Kraft Foods (Nasdaq: KRFT). Within 24 hours of my recommendation, the company received a takeover offer from The H. J. Heinz Company — backed by legendary investor Warren Buffett’s Berkshire Hathaway and Brazilian private equity giant 3G Capital. Powered by this top-tier endorsement as well as a considerable premium to market on the offer, Kraft soared 45% in two weeks following my recommendation. It was one of the most dramatic wins I’ve ever had the pleasure to be involved with. #-ad_banner-#But the truth is that my readers and I nearly missed out on the opportunity. Fortunately I paid attention to the right metrics. The fact is, the timing of my investment was complete serendipity. I had no inkling that a buyout was on tap for Kraft. Had I waited 24 hours to release my April issue, we would have missed the stock’s double-digit bounce entirely. But looking back, there were a number of indicators — some of which were downright glaring — that showed Kraft was ripe for this kind of lavish attention. Read More

As the S&P 500 delivered a 19.7% annualized gain over the past six years, talk of a market bubble has emerged. Concerns of a bubble in prices are not just being voiced by perma-bears like Nouriel Roubini and “Dr. Doom” Marc Faber. Nobel laureate Robert Shiller also recently questioned asset prices in the second edition of his book, “Irrational Exuberance.” For many investors, it’s tempting to think about locking in gains. While bull markets last an average 3.8 years, this one is already more than 50% longer. Selling stocks around their October 2007 highs would have protected a 119% gain… Read More

As the S&P 500 delivered a 19.7% annualized gain over the past six years, talk of a market bubble has emerged. Concerns of a bubble in prices are not just being voiced by perma-bears like Nouriel Roubini and “Dr. Doom” Marc Faber. Nobel laureate Robert Shiller also recently questioned asset prices in the second edition of his book, “Irrational Exuberance.” For many investors, it’s tempting to think about locking in gains. While bull markets last an average 3.8 years, this one is already more than 50% longer. Selling stocks around their October 2007 highs would have protected a 119% gain since the 2002 low and avoided a 55% plunge in prices to 2009. Where’s The Next Market Bubble? Trying to perfectly time the eventual correction would be a folly, but investors can start taking profits in bubbly assets while positioning in less expensive investments. Citigroup Research recently published a report, “It’s Bubble Time,” that measured valuations in the market and across sectors. The report found four themes that are driving bubbles in different assets and investments. #-ad_banner-#First, they note the story of a “new normal” where low economic growth, inflation and interest rates continue to drive bond prices higher even… Read More

As a resident of New York State’s Hudson Valley, I have met dozens of local citizens who worked for International Business Machines Corp. (NYSE: IBM) in its heyday. A massive set of layoffs in 1993 meant that Big Blue’s local presence is now almost gone, and the local economy has yet to recover. Two decades later, IBM is still backpedaling. A current initiative, known as Project Chrome, is culling another 100,000 employees from IBM’s global employment base. In some respects, CEO Ginni Rometty has no choice. IBM’s revenue base has already peaked and is expected to drop a precipitous 10%… Read More

As a resident of New York State’s Hudson Valley, I have met dozens of local citizens who worked for International Business Machines Corp. (NYSE: IBM) in its heyday. A massive set of layoffs in 1993 meant that Big Blue’s local presence is now almost gone, and the local economy has yet to recover. Two decades later, IBM is still backpedaling. A current initiative, known as Project Chrome, is culling another 100,000 employees from IBM’s global employment base. In some respects, CEO Ginni Rometty has no choice. IBM’s revenue base has already peaked and is expected to drop a precipitous 10% this year to around $83.5 billion. IBM has few fans among Wall Street analysts.  As Goldman Sachs’ Bill Shope wrote, “the company faces many secular pressures and transformation costs ahead. His $146 price target represents roughly 15% downside.” Why is IBM so unpopular with many tech analysts? The company’s focus on slashing expenses and buying back massive amounts of stock to maintain earnings per share is considered to be a last-ditch attempt to artificially maintain investor support. But it’s not working. Shares of IBM have lagged the Nasdaq Composite index by 91 percentage points over the past three years. Read More