Many investors look to buy and sell stocks based solely on near-term business conditions. If management raises guidance for the next quarter, shares rally. And if management takes note of some near-term headwinds, investors flee. A great example: Shares of insurance giant American International Group (NYSE: AIG) fell 6.5% on the day of its earnings release in late October when CEO Robert Benmosche noted that the company’s property and casualty insurance businesses were far healthier than a few years ago but still not generating the returns that they should. Investors were also disappointed that a planned asset sale of its… Read More

Many investors look to buy and sell stocks based solely on near-term business conditions. If management raises guidance for the next quarter, shares rally. And if management takes note of some near-term headwinds, investors flee. A great example: Shares of insurance giant American International Group (NYSE: AIG) fell 6.5% on the day of its earnings release in late October when CEO Robert Benmosche noted that the company’s property and casualty insurance businesses were far healthier than a few years ago but still not generating the returns that they should. Investors were also disappointed that a planned asset sale of its aircraft lease finance business may not happen. AIG could instead sell part of that business in an IPO and retain a majority stake. As a result, shares have now fallen below their 100-day moving average for the first time this year. Yet there is a simple reason to expect AIG to resume its upward move. The upside from here: a 40% gain over the next 12 months, and a lot more than that down the road. That reason: Shares still trade at a sharp discount to tangible book value. Over the past few years, this stock has posted… Read More

There are two major concerns facing investors right now. First, the global economy is not yet showing signs of a long-awaited upturn. Indeed, the U.S. is shaping up to be on much more solid footing than its peers (at least as evidenced by U.S. corporate profit growth in the current earnings season). That argues for companies that more squarely focused on the U.S., which usually means small-cap stocks.#-ad_banner-# Second, the rising market tide has lifted many boats, and it’s getting harder to find true bargains. But they still exist. I went scanning for GARP (growth at a reasonable… Read More

There are two major concerns facing investors right now. First, the global economy is not yet showing signs of a long-awaited upturn. Indeed, the U.S. is shaping up to be on much more solid footing than its peers (at least as evidenced by U.S. corporate profit growth in the current earnings season). That argues for companies that more squarely focused on the U.S., which usually means small-cap stocks.#-ad_banner-# Second, the rising market tide has lifted many boats, and it’s getting harder to find true bargains. But they still exist. I went scanning for GARP (growth at a reasonable price) stocks among the S&P 600 (small-cap index) and found more than a dozen stocks that are poised for robust profit growth in 2014, while trading at reasonable earnings multiples. (I only included companies with a market value between $250 million and $1 billion to exclude micro-caps or mid-caps that may be hiding in this small-cap index). A quick review of the list reveals no clear themes. We don’t find a cluster of stocks in any given industry, and instead need to look at these companies on a case-by-case basis. Here’s the select group. GARP Small Caps… Read More

What do Campbell’s Soup, Johnson & Johnson and Deere & Co. all have in common? All three companies have survived and thrived through two world wars, the Great Depression, countless financial panics and periods of booms and busts… and for more than 100 years, they’ve continually generated wealth for their owners. These companies survived, while hundreds of other companies came and went along with hard times. All three of these names, alongside some others, owe their good fortune to what I call a “legacy asset investment,” which has allowed them to throw off huge dividends and return capital to shareholders… Read More

What do Campbell’s Soup, Johnson & Johnson and Deere & Co. all have in common? All three companies have survived and thrived through two world wars, the Great Depression, countless financial panics and periods of booms and busts… and for more than 100 years, they’ve continually generated wealth for their owners. These companies survived, while hundreds of other companies came and went along with hard times. All three of these names, alongside some others, owe their good fortune to what I call a “legacy asset investment,” which has allowed them to throw off huge dividends and return capital to shareholders for decades — regardless of interest rates, the economy or commodity prices. It’s also helped generate massive wealth for investors. Over the past 14 years, for every $1 the market gained, these stocks typically have gained $4 — that’s four times the growth and dividends — for their shareholders. #-ad_banner-#So what makes these companies special? First, I should explain what a “legacy asset” is. Legacy assets are companies or resources that have rewarded owners for generations, often thanks in part to a durable brand or service or infrastructure system that has stood the test of time. And as I mentioned… Read More

Don’t get me wrong, I closely follow what Warren Buffett says and does with his money. And yes, he’s one of the most successful investors in history — his returns over more than 60 years have made him the fourth-wealthiest person on the planet. He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect. Let me explain… The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, “In terms of simple profitability, an average… Read More

Don’t get me wrong, I closely follow what Warren Buffett says and does with his money. And yes, he’s one of the most successful investors in history — his returns over more than 60 years have made him the fourth-wealthiest person on the planet. He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect. Let me explain… The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, “In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period.” Actually, an individual investor could have done significantly better than Buffett. #-ad_banner-#To earn $10 billion, Buffett invested $26 billion. His return on investment was about 38%, or 6.7% a year over the past five years. The Journal article says Buffett made his first crisis investment in April 2008 and added to his investments throughout the crisis. He made a number of deals late in 2008 and one as late as April 2009, after the stock market had bottomed. Assuming an individual… Read More

Eugene Fama was a name many investors never heard before the University of Chicago professor won this year’s Nobel Prize in economics. Yet Fama has had a tremendous impact on the investment community over the past 50 years.#-ad_banner-#​ Fama’s research has shown that value stocks outperform growth stocks in the long run. He has demonstrated that small-cap stocks offer greater returns than large-cap stocks over time, and that the market leaders of the recent past are likely to continue leading the market in the future. Articles explaining these concepts are found in academic journals and include math that could challenge… Read More

Eugene Fama was a name many investors never heard before the University of Chicago professor won this year’s Nobel Prize in economics. Yet Fama has had a tremendous impact on the investment community over the past 50 years.#-ad_banner-#​ Fama’s research has shown that value stocks outperform growth stocks in the long run. He has demonstrated that small-cap stocks offer greater returns than large-cap stocks over time, and that the market leaders of the recent past are likely to continue leading the market in the future. Articles explaining these concepts are found in academic journals and include math that could challenge the understanding of many college graduates. Yet, these ideas are easily applied by individual investors. Like many great thinkers, Fama has made difficult ideas simple to understand. Value investing can be applied with a number of tools. Price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S) ratios are popular, and all work well if applied with discipline. Small-cap stocks can be rewarding in the long run. While there are a number of opportunities among small caps, most traders will find there are just as many opportunities among large-cap stocks. Market leaders are defined with relative strength (RS), a… Read More

A rising tide lifts all boats.It’s one of the great sayings about the impact of a bull market. But what this pearl of wisdom fails to convey is how different groups of stocks respond to that movement in different ways.  #-ad_banner-#​ That has once again been on display in the strong market of 2013. The S&P 500 Index is up 19% on the year, but the iShares Core Small Cap ETF (NYSE: IJR) has gained an outsize 28%. With the market going “risk-on” this year, small-cap stocks and growth stocks have logged a strong performance. Those big gains… Read More

A rising tide lifts all boats.It’s one of the great sayings about the impact of a bull market. But what this pearl of wisdom fails to convey is how different groups of stocks respond to that movement in different ways.  #-ad_banner-#​ That has once again been on display in the strong market of 2013. The S&P 500 Index is up 19% on the year, but the iShares Core Small Cap ETF (NYSE: IJR) has gained an outsize 28%. With the market going “risk-on” this year, small-cap stocks and growth stocks have logged a strong performance. Those big gains shouldn’t come as a surprise to investors who have been following small caps for the past dozen years. While the S&P 500 is up just 23% since 2001, small caps have returned an eye-popping 235%. Take a look at the amazing divergence in the chart below. There’s no question that small caps are risky and can be very volatile. Inevitably, some will declare bankruptcy and go out of business. But in the long run, these smaller companies have tremendous upside that most blue-chip stocks have long outgrown. But just because small caps have been surging and offer the… Read More

It’s not just food scarcity causing riots.  Last week, thousands of protestors in over 50 countries and 47 U.S. states took to the streets to rally against Monsanto (NYS: MON), a global leader in genetically modified seeds and food products. That violent reaction and growing resistance to genetically modified food is one of the biggest drivers in the incredible growth of the organic food industry. While domestic food sales continue to grow at just 1% annually, organic food sales are on pace to reach $42 billion in 2014, a 31% increase from $29 billion in 2010. That same… Read More

It’s not just food scarcity causing riots.  Last week, thousands of protestors in over 50 countries and 47 U.S. states took to the streets to rally against Monsanto (NYS: MON), a global leader in genetically modified seeds and food products. That violent reaction and growing resistance to genetically modified food is one of the biggest drivers in the incredible growth of the organic food industry. While domestic food sales continue to grow at just 1% annually, organic food sales are on pace to reach $42 billion in 2014, a 31% increase from $29 billion in 2010. That same trend is unfolding across the world, with global organic food sales expected to top $100 billion by 2016. More than half of this demand is expected to come from the United States, with more than 40 million organic customers. And today I am going to share one of my favorite stocks to cash in on the bullish trend. With the organics industry growing by leaps and bounds, this is one of the few small caps left in the space. That has lifted shares to a market-crushing 62% return in 2013. Take a look below. SunOpta (Nasdaq: STKL) is… Read More

These days Wi-Fi has become a necessity, a part of our everyday lives that we just can’t live without. That demand is now being seen in the friendly skies, as fliers prefer a Wi-Fi connection to amenities such as more legroom or better food.  Carriers are taking note, and one company that stands to benefit from this trend is Global Eagle Entertainment (Nasdaq: ENT). Global Eagle provides airline passengers with Internet access, live television, video content, shopping and travel information. Its in-flight services have been installed on more than 500 aircraft, covering both land… Read More

These days Wi-Fi has become a necessity, a part of our everyday lives that we just can’t live without. That demand is now being seen in the friendly skies, as fliers prefer a Wi-Fi connection to amenities such as more legroom or better food.  Carriers are taking note, and one company that stands to benefit from this trend is Global Eagle Entertainment (Nasdaq: ENT). Global Eagle provides airline passengers with Internet access, live television, video content, shopping and travel information. Its in-flight services have been installed on more than 500 aircraft, covering both land and sea. Through its subsidiary Advanced Inflight Alliance (AIA), Global Eagle provides film and television content, games and applications to more than 130 airlines worldwide. Big Tailwinds One of the big tailwinds for Global Eagle is that a Federal Aviation Administration panel just endorsed Wi-Fi as safe for all portions of flights. The panel’s recommendations would lift the restrictions on the use of certain handheld devices below 10,000 feet. Only ground-based cellular connections for voice and data would be prohibited. Passengers would be allowed to access their email and the Internet during all phases of a flight, but only… Read More

“Sin stocks” are popular because they benefit from extremely loyal customers. But the problem for growth investors is that most of these companies are fairly mature and well past their years of producing big capital gains.#-ad_banner-# Phillip Morris (NYSE: PM) is a good example. Although PM pays… Read More

Remember the summer of 2011? Warren Buffett sure does. He continues to speak of the sharp market sell-off in late July and early August, and how he was a very active buyer on Aug. 8, 2011, when stocks were “capitulating.” Washington was a mess, which he saw as a time to… Read More