- How To Invest Like Eddie Lampert
- How A Group Of 13-Year-Olds Beat The Brightest Minds On Wall Street
- How To Profit From Oil And Silver ETFs In This Stock Market Downturn
- These 3 ‘Boring’ Energy Stocks Deliver A Yield Of Up To 6.7%
- Why The Shrinking US Deficit Matters To Your Portfolio More Than You Think
- Forget Coca-Cola: Buy This Stock Instead
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Having a successful mentor is the fast track to your own success in the financial business. Following in the footsteps and learning from the mistakes of your mentor can shave years and countless dollars off your learning curve.
Fortunately, some successful investors have provided a clear and easy-to-follow outline on how they found success — and how you might follow along.
Many call Eddie Lampert the next Warren Buffett for his aggressive yet conservative approach to investing. Lampert has built a personal net worth of over $3 billion with an investment style known as concentrated value with a specialization in the retail sector. Lampert’s fund, ESL Investments, launched with $28 million of seed money in 1988, has returned an astounding average annual return of 29%.
Eddie Lampert’s Biography
Eddie Lampert’s drive toward greatness was triggered at age 14, when his father died of a heart attack. His father, a lawyer in New York, was a hands-on father who coached Little League baseball and taught Eddie and his sister the game of bridge. After his father’s death, Eddie’s mother worked as a clerk at Saks Fifth Avenue to help the family survive. This difficult situation made him keenly aware of the importance of finance in everyone’s life at an early age. Eddie also learned about the stock market from his grandmother who would watch Louis Rukeyser’s “Wall Street Week” with him and talk about her investments.
Lampert attended Yale University and majored in economics. He was Phi Betta Kappa, president of his class, and a member of the infamous Skull & Bones Society. He was also gifted and fortunate enough to work as a research assistant to Nobel Prize-winning economist James Tobin. His financial experiences while at Yale included being a member of the school’s student investment club and summers at Goldman Sachs.
After Yale, Eddie took a job in Goldman Sachs’ arbitrage department. In 1988, Lampert moved to Fort Worth, Texas, to work with Richard Rainwater, the money manager for the wealthy Bass family and other members of the super-rich. Rainwater gave Eddie a large portion of the $28 million he used to start his fund, ESL Investments.
Eddie Lampert’s Investing Philosophy
Lampert is a big fan of Warren Buffett. While at Yale, Lampert studied and tried to reverse-engineer Buffett’s famed shareholder letters. He believes in forgoing short-term results in favor of long-term performance. Eddie’s concentrated value philosophy teaches to commit to a few large holdings rather than to diversify across multiple assets. In other words, invest in a few companies that you know inside and out, rather than spreading your capital into sectors in which you are not an expert.
|Eddie’s concentrated value philosophy teaches to commit to a few large holdings rather than to diversify across multiple assets.|
ESL Investments generally holds at least 5% of the issued shares of the companies it invests in. This going all-in on a few companies generally restricts ESL to holding between three and 15 securities at any given time. The fund’s stock-picking strategy is event-driven, meaning the fund looks for companies that are distressed and are trading for less than fair or intrinsic value.
Like many great investors, Eddie is a firm believer in Ayn Rand’s objectivist philosophy, which teaches that capitalism, self-interest and reason are the driving forces behind all upward movement of mankind. In addition, he cites “The Essays of Warren Buffett: Lessons for Corporate America” as an inspiration and guidebook.
Eddie may be best known for his aggressive purchase of the once-iconic American retail brand Kmart’s debt while the company was in Chapter 11 bankruptcy proceedings. As the price of Kmart’s stock dropped, Lampert purchased more until he eventually gained control of the company. In 2003, he merged the bankrupt Kmart with Sears Holdings (Nasdaq: SHLD), creating America’s third-largest retail chain. Under Lampert’s management, Kmart’s shares exploded from $15 in March 2002 to $150 by the summer of 2005. Other Lampert success stories include Big Lots (NYSE: BIG), which added 44% to its shares after he invested, and Seagate Technology (Nasdaq: STX), which rose 35%.
Eddie Lampert’s Portfolio: What’s He Holding Now?
Lampert’s portfolio has recently experienced some strong winners and a nasty losing stock.
Lampert’s Top Holdings
His 8.4 million-share position in Genworth Financial (NYSE: GNW) was up over 30% in this year’s first quarter. In addition, his Capital One (NYSE: COF) holdings were up over 29% during the same time. However, his 1 million shares of Orchard Supply Hardware Stores (OTC: OSHWQ) were slammed, losing nearly 90%. As you can see, ESL Investments has been lagging behind the S&P 500 index over the past three months.
Action to Take –> Eddie Lampert has made a fortune by emphasizing the importance of specialization and having a complete understanding of the sector that he wants to invest in. By following his example, you may be able to find stocks trading for less than their intrinsic value to add to your portfolio. Investors can also learn that losses come with the territory of the market. Even an investor as sophisticated as Eddie Lampert sustains losses from time to time.
– David Goodboy
David Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
In 1990, in a suburb outside of Boston, something unusual happened…
As part of their schoolwork, seventh graders at the St. Agnes School in Arlington, Mass. were asked to pick stocks for a model portfolio.
In the following two years, the students’ stock picks produced a 70% gain while the S&P 500 gained 26% during the same time period.
What was even more impressive, however, was that during the same time period, the students’ stock picks outperformed 99% of all equity mutual funds.
The story came to the attention of legendary investor Peter Lynch. At the time, Lynch was in charge of investing more than $14 billion through the Magellan Fund. After receiving a scrapbook from the students’ teacher, Joan Morrissey, he made an appointment to meet with the class to learn the secrets behind their success.
As Ms. Morrissey explained, here was the first lesson:
|1. Know What The Company Does|
|“Before my students can put any stock in the portfolio, they have to explain exactly what the company does. If they can’t tell the class the service it provides or the products it makes, then they aren’t allowed to buy.”|
What if every investor had to follow this rule?
My guess is a lot fewer people would have lost their shirts buying shares of companies that specialize in “collateralized mortgage obligations” or “reverse index amortizing swaps.”
Companies that create products (and brands) that even 13-year-olds can understand will, in the long run, outperform companies that depend on a lot of financial hocus-pocus.
The savings and loan crisis of the 1980s and 1990s, and more recently, the collapse of Lehman Brothers, demonstrate what happens when investors forget lesson No. 1.
Which leads us to lesson No. 2…
|2. Invest In Brands You Know And Love|
|The kids loved to shop at the Gap. They reasoned their selection saying that other kids around the country probably felt the same way.|
They must have been right…The Gap posted a 320% gain for the model portfolio.
Another clear winner was Pentech International (acquired by Semcon Ab in 2005), a maker of pens and markers. One of the kids’ favorite products was a pen with a marker on one end and a highlighter on the other. Along with the model portfolio, the students sent Lynch a Pentech pen and recommended that he look into the company.
He didn’t, and later regretted it when the stock nearly doubled to $9.50 a share.
Not all the picks were winners. Savannah Foods (taken private in 2004) fell 38%. But in making this pick, the students broke rule No. 2. They hadn’t picked the stock because they knew the company; they selected it because they had read Investor’s Daily.
Now, critics and naysayers might point out that it wasn’t real money being invested.
But as Lynch said, “So what? The pros ought to be relieved that St. Agnes wasn’t working with real money– otherwise, based on St. Agnes’s performance, billions of dollars might be pulled from the regular mutual funds and turned over to the kids.”
Other critics might say, “Anybody could have picked those stocks.”
And to quote Lynch again: “If so, why didn’t anybody?”
After visiting the classroom and inviting the kids to his office for pizza, Lynch was happy to receive in the mail one day, a cassette on which the students had recorded some of their investing mantras.
Here are three of my favorites:
- You can lose money in a very short time, but it takes a long time to make money.
- You shouldn’t just pick a stock — you should do your homework.
- You should not buy a stock because it’s cheap, but because you know a lot about it.
The last two mantras simply reinforce lesson No. 3. Kids hear this lesson every day, and the irony is many experienced investors often overlook it.
|3. Do Your Homework|
|In the following years, Ms. Morrissey continued to teach her students how to pick stocks, but she was also inspired to start an investing group made up of other teachers, with Peter Lynch serving as an honorary member. The group called themselves the “Wall Street Wonders.”|
One day, after going over the numbers with Lynch, she realized that while the group’s returns were good, they were still not as good as the students’ results.
“Wait until I tell the other teachers that the kids’ stocks have done better than ours,” she said.
Action to Take –> Making money in the stock market isn’t hard. But making significant and consistent returns over the years is a different story. When it comes to successful investing, you don’t need complex formulas and solutions. These three simple investing rules are so effective, even Wall Street’s brightest minds want to learn them.
Chad Tracy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: Chad Tracy
How A Group Of 13-Year-Olds Beat The Brightest Minds On Wall Street
One of the main reasons we trade both individual stocks and ETFs in this swing trading newsletter is that trading the right combination of the two equity types increases our odds of being able to outperform the stock market at any given time, regardless of the dominant market trend.
In strongly uptrending markets, we primarily focus on buying leading individual stocks (mostly small to mid-cap) because they have the greatest chance of outperforming the gains of the main stock market indexes. However, when the overall broad market begins to weaken, or enters into an extended period of range-bound trading, we reduce our exposure in leading stocks when they begin failing their breakouts and running out of momentum.
Thereafter, we have several choices: 1.) Sit primarily in cash 2.) Begin initiating short positions in the weakest stocks 3.) Seek to trade ETFs with a low correlation to the direction of the overall stock market.
Most the time, we do a combination of these three things in weak or weakening markets, the proportion of which is dependent on overall market conditions. Since our rule-based market timing model shifted from “buy” to “neutral” mode last week, we have immediately begun easing up on long exposure of individual stocks.
With the NASDAQ Composite just below near-term support of its 20-day exponential moving average, and the S&P 500 right at key, intermediate-term support of its 50-day moving average, it is fair to say the broad market has NOT yet entered into a new downtrend. As such, we are not yet aggressively looking to enter new short positions at this time.
However, when our timing model is in “neutral” mode, one thing we find works very well is trading ETFs with a low correlation to the direction of the overall stock market (commodity, currency, fixed-income, and possibly international ETFs).
One such example of profiting from an ETF with low correlation to the stock market has been the recent performance of the US Oil Fund ($USO). Even though both the S&P 500 and Dow Jones Industrial Average fell more than 2% last week, $USO actually gained more than 2% during the same period.
Because $USO is a commodity ETF that tracks the price of crude oil, the ETF has a very low correlation to the direction of the overall stock market. As banks, hedge funds, mutual funds, and other institutions were rotating funds out of equities last week, it is quite apparent these funds were rotating into select commodity ETFs such as $USO:
As you can see on the weekly chart of $USO above, the ETF is now poised to breakout to a fresh 52-week high (from a five-week base of consolidation). If it does, bullish momentum should carry the price substantially higher in the near to intermediate-term.
We are already long $USO from our buy entry last month, and the ETF is presently showing an unrealized share price gain of 6.5% since our original entry. However, if you missed our initial buy entry because you are not yet a Wagner Daily newsletter subscriber, you may still consider starting a new position in $USO if it breaks out above the range (existing subscribers should note our exact buy trigger, stop, and target prices for adding shares of $USO in the “watchlist” section of today’s report).
Two other commodity ETFs that definitely saw the inflow of institutional funds last week were SPDR Gold Trust ($GLD) and iShares Silver Trust ($SLV), which track the prices of spot gold and silver respectively.
Of these two precious metals, silver is showing the greater relative strength. Check out the weekly chart of $SLV below:
Notice that $SLV has convincingly broken out above resistance of a downtrend line (dotted black line) that had been in place throughout all of 2013. That breakout above the downtrend line also coincided with a sharp move back above its 10-week moving average (roughly equivalent to the 50-day moving average on the daily chart). Furthermore, last week’s rally in $SLV was confirmed by a sharp increase in volume. This, of course, indicates institutional money flow into the ETF.
Like $SLV, $GLD has also moved back above its 10-week moving average (and 50-day moving average), but $SLV showed substantially more momentum and relative strength than $GLD last week. Moreover, last week’s volume in $GLD was only on par with its 50-week average level ($SLV traded nearly double its average weekly volume).
Between $GLD and $SLV, the latter is definitely more appealing to us on a technical level. Now that $SLV has confirmed its trend reversal on the weekly chart, and has also formed two “higher highs,” we will be stalking $SLV for a low-risk buy entry in the coming days.
Ideally, we would like to see $SLV retrace back down to near the prior downtrend line (which has now become the new support level). However, even if $SLV does not pull back that much, we will be looking for either the formation of a bull flag type pattern on its daily chart, OR a pullback that forms a bullish reversal candle (at which time we would look to buy above that day’s high in the following session).
To reiterate, $SLV is NOT actionable at the moment because we do not chase stocks and ETFs that have already broken out too much above resistance. Nevertheless, most breakouts are followed by a pullback shortly thereafter, or at the very least, a short-term period of consolidation (such as a bull flag).
As always, will be sure to give subscribing members of our swing trading service a heads up if/when we add $SLV to our watchlist as an “official” swing trade setup. In the meantime, don’t forget we are looking to add to $USO if it breaks out above the high of its recent consolidation. We are definitely seeing the rotation of institutional funds back into the commodities markets, which we plan to take advantage of and profit from.
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The post How To Profit From Oil And Silver ETFs In This Stock Market Downturn appeared first on the blog of Morpheus Trading Group.
Four years ago, if an individual investor even entertained the idea of buying a stock, chances are it was in the utility sector. They were boring. Our grandparents would collect them like tourists collect sippy cups from amusement parks.
While some people feared the world was ending, they still figured out how to pay the light bill, which has helped fuel ironclad dividend utility stocks. Investors were so partial to utility stocks that the Dow Jones Utility Index returned nearly 25% from the market low in February and March 2009 to the same period the next year. Not bad for boring, old power companies.
But the strong, three-year utility rally looks a little tired.
Why? I don’t know about you, but my electric bill sure hasn’t gone down noticeably. We’ve made it into the second Barack Obama administration and the country is still without a concrete energy policy. So if regulatory risk isn’t the issue, then what gives?
Simple: interest rates and sector rotation. Currently, the fearful rise in interest rates ahead of rumors that the Federal Reserve will dial down its bond-buying program is the main influence on utility stock prices. This chart of the 10-year Treasury tell most of the story.
While a 10-year Treasury note‘s 2.7% yield is nothing to get excited about, the market moving the interest rate needle 110 basis points should raise a few eyebrows, especially among utility investors. Everyone seems to have forgotten how sensitive utility stocks are to interest rates’ fluctuations, as they have been historically. While utility companies are cash-flow titans, they traditionally rely heavily on debt to finance their operations and expansion.
For example, utility aristocrat Southern Company (NYSE: SO) carries a debt-to-capital ratio of about 47%. While that’s not bad for a large, regulated utility provider, it’s pretty close to half. Again, keep in mind that the constant cash flow allows a company like Southern to comfortably service debt and reward shareholders with fat dividends.
But whenever the market gets a whiff of rising interest rates, pressure is almost instantly applied to utility stocks. The fear is that the companies’ financing costs will rise, thus hurting margins and cash flow, which will eventually jeopardize the dividend. This is a genuine concern. But the actual escalation in real rates is almost negligible in the bigger picture. They’re still historically low and will probably remain so for longer than we think.
With that in mind, some of the punishment in utility stocks is probably a little overdone. There are some real bargains to be had that offer above-average income and upside. Here are three I recommend:
|TECO Energy (NYSE: TE)
|From its humble beginnings as the Tampa Electric Company, TECO’s reach stretches far beyond the Sunshine State. The company is in the process of acquiring New Mexico Gas Co. for $950 million. This will increase TECO’s regulated gas customer base by 147% around 855,000.|
The company’s aggressive interest in natural gas shows that management is focused on growth as it becomes a more viable energy source. The risk of Florida’s soft, post-crash real estate market is offset by its dense population.
|National Grid PLC (NYSE: NGG)
|Headquartered in the United Kingdom, National Grid is a $43 billion international gas and electrical transmission company with a stake in the U.K. and United States.|
The British electrical division handles the high-voltage system for England and Wales, which serves 21 million customers and owns four of the country’s eight regional gas distribution networks. The U.S. transmission division covers 3.5 million electric customers and 3.4 million gas customers primarily in the Northeast.
Here’s National Grid’s strength: Some 95% of its revenue comes from highly regulated utility rates. The company’s income stream is extremely predictable, which makes this stock a relatively low-risk holding.
|Entergy Corp. (NYSE: ETR)
|Lighting up the bayou for 2.6 million customers in Louisiana, Arkansas, Texas and Mississippi, Entergy is considered a “clean” power producer.|
Nearly one-third of its energy comes from nuclear power, which remains arguably the best and cheapest source of electricity.
The company stands to benefit from increased business activity in the region thanks to the country’s growing oil production and refining boom. Entergy has also initiated a comprehensive cost-cutting program to reduce internal expenses and headcount.
Risks to consider: Investors and markets tend to punish all members of a sector when it’s time to sell. While investors of these three stocks can expect to get bounced around, the high-quality of these companies’ business models, strategy and dividend yields should compensate for the risk. Interest rates could also continue to creep higher, especially if the Fed does indeed stem its open-market bond purchases. Expect utility stock prices to remain under continued pressure.
Action to take –> As a basket, these three stocks trade with an average forward price-to-earnings (P/E) ratio of 13.8 and a blended dividend yield of 5.53%. The Dow Jones Utility Index currently has a forward P/E of 16 and a dividend yield of just 3.8%. Owning these three stocks gives the investor a slight discount to the multiple of the index with 36% more income. If “tapering” anxiety subsides, the relief could lift these stocks 30% or more based on their higher quality. This is a great opportunity, considering the dividend would bring a potential total return north of 35%. Not bad for your grandmother’s utility stock.
– Adam Fischbaum
Adam Fischbaum does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of SO in one or more of its “real money” portfolios.
This article originally appeared on StreetAuthority
Author: Adam Fischbaum
These 3 ‘Boring’ Energy Stocks Deliver A Yield Of Up To 6.7%
It’s the feel-good story of 2013 that nobody is talking about.
The nation’s budget deficit, which had been spiraling out of control, is finally returning to manageable levels. Thanks to higher government revenues and lower government spending, this year‘s shortfall (for the fiscal year ended Sept. 30) will likely be around 40% lower than a year ago.
In fact, the Congressional Budget Office (CBO) predicts the budget deficit will fall below $400 billion by fiscal 2015. Good news, indeed.
Or is it?
Should we be pleased the budget deficit will still be larger than the entire economy of many mid-sized countries? And for investors, does that falling budget portend good news for stocks and bonds? Before we answer those questions, let’s take a closer look at the road ahead for the U.S. government’s finances.
A Fast-Shrinking Deficit ($billions)
Source: Congressional Budget Office
Despite the current good news, demographic forces threaten to push the deficit higher later this decade. Until policy makers adopt additional measures to raise revenues (likely through tax increases) and cut government spending, the CBO forecasts a $650 billion deficit by fiscal 2019 and an $800 billion deficit by 2022, as a growing pool of retirees absorb a higher amount of retirement and health care benefits.
How much higher? The CBO notes that Congress is currently spending around $2 trillion every year on mandatory spending such as Social Security and Medicare, though that figure is expected to swell 75% to $3.5 trillion by 2022.
No matter how large or small, the deficit is still troublesome to the rising $16.7 trillion national debt. And all that debt means the government doles out more than $300 billion a year in interest payments on that debt, which plays a role in keeping the budget from coming into balance.
To be sure, the current interest payments actually benefit from the current era of low interest rates. When interest rates start to rise, the government will likely pay much higher sums. Erskine Bowles, who has been leading a government council that seeks to tackle the persistent deficits, paints matters in starker terms:
“We’ll be spending over $1 trillion a year on interest by 2020. That’s $1 trillion we can’t spend to educate our kids or to replace our badly worn-out infrastructure,” said Bowles at a November 2012 forum hosted by IHS Global Insight.
“What makes it doubly bad is that trillion will be spent principally in Asia because that’s where our debt is,” he added.
No matter how you look at it, it remains hard to see how the national debt will stop growing and start shrinking. Even with current low interest rates, the annual interest payments consume more of the federal budget than the Department of Agriculture, Deptartment of Education and Department of State — combined. By next year, interest payments will exceed what the United States spends annually on Medicaid.
Bad For Bonds?
Thus far, the huge tide of deficits and debt has not had much of an impact on bond markets. The global economy has been so weak that investors have gladly bought relatively safe government bonds. But as the global economy strengthens, massive sums of money will pull out of bond funds in pursuit of higher returns, such as stocks.
The drop in demand for bonds means that bond issuers (such as the government, states, municipalities and corporations) will have to offer higher yields. And rising bond yields means falling bond prices, which will lead to a drop in value for that bond fund you may own. Net/net bonds are vulnerable to the ongoing budget deficit, regardless if it’s $1 trillion or $400 billion.
Good For Stocks?
So if investors can be expected to pull money out of bonds and into stocks as the global economy firms, should we read that to mean that budget deficits are good for stocks?
Not at all. In fact, we’re already seeing real headwinds in the economy as government spending shrinks. Uncle Sam provides a lot of juice to the U.S. economy with expenditures in defense, technology, infrastructure and the like. Economists suggest the smaller amount of government spending is already shaving a full percentage point of growth from the U.S. economy’s GDP.
And with the massive debt and deficit pressure still in place, government spending is bound to fall yet further, which means Uncle Sam will be providing an ever-smaller boost to the economy. Net/net stocks have rallied in recent years, despite still-large deficits, but the road ahead will become bumpier as the government shrinks in size.
Action to Take –> Can Congress ever eliminate the nation’s budget deficit? Where there’s a will, there’s a way, but Washington has lacked the will to do so. In 2012, I suggested ways the government could balance its books. But thus far, only defense spending has been tackled. The other five suggestions have gone unheeded.
Yet until you see Washington finally come to agreements that cut spending and raise revenue, you need to be concerned about bonds and stocks. The recent drop in the annual deficit is great news, but the fact that the national debt is fast-approaching $17 trillion means a debt-triggered crisis can’t be ruled out.
– David Sterman
David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: David Sterman
Why The Shrinking US Deficit Matters To Your Portfolio More Than You Think
My job as chief investment strategist for Game-Changing Stocks requires me to look for “the next big thing.”
Sometimes that means I’m looking through obscure government reports to learn about the latest technology the Pentagon is using that could soon make it to a retailer near you.
Other times, it means I might be on the phone with an executive of a small company with designs on changing the way we fuel our cars — or treat patients in hospitals.
But sometimes, I see a game-changing product right in front of me. And I just have to tell my readers about how they can profit from it.
You don’t have to own shares of Coca-Cola (NYSE: KO) to know that through its worldwide production and distribution network, the company owns some of the most valuable brands in the world. All told, Coca-Cola pours 3% of the beverages served to humanity each day.
And you don’t have to work on Wall Street to know that shareholders have done pretty well in the past decade…
Coke products aren’t the most-consumed liquid overall, of course. Good old H2O accounts for the most amount of servings, then tea. But as far as soft drinks are concerned, Coke and Diet Coke are the No. 1 and No. 2 brands in the world.
A game-changer right in the midst of this “stodgy” industry…
This planet consumes 55 billion beverage servings a day. Globally, the research consultancy Datamonitor pegs the soft-drink market at an eye-popping $216 billion annually. Beverage Digest, a trade publication, puts the value of the U.S. soft drink market at fully $77.1 billion a year.
The beverage industry is extremely large, highly fragmented and intricately complex. Some brands are doing well. Others are — forgive me — flat, and a few are on the express train to Donesville.
But the industry view from 30,000 feet isn’t so hot. Beverage Digest, in its 2011 rankings, noted that carbonated soft-drink sales fell 1.2% in 2012. Soft drinks haven’t seen an increase in U.S. sales since 2004, which seems to indicate people are cutting back for reasons other than the lackluster economy. Consumption, for now, is at 1996 levels.
So should investors steer clear of this industry? Not if you want to miss out on a game-changing company with virtually unlimited potential.
SodaStream (Nasdaq: SODA) is an Israeli company that makes a carbonation machine that makes custom-flavored sodas. The company has a razor/razor blade business model, given that it sells both the machines — which cost anywhere from $99 to $129 — as well as consumables like CO2 cartridges, flavoring and special carbonation bottles. The company’s worldwide retail footprint comprises 60,000 stores in more than 40 countries, including mass-market chains in the United States.
The appeal of the product is multi-faceted…
We live in a do-it-yourself (D-I-Y) society. Consumers are learning how to do their own home repairs, create their own fashions, and grow their own food. And they’re always on the lookout for more ways to stop buying someone else’s product or service, and do it on their own.
Of course even the most brilliant concept can languish if management doesn’t know how to crack a market. Sodastream’s executives courted the most popular retailers to give its products visibility. Mission accomplished. Prominent Sodastream displays can be found in major retailers across the country.
Tapping into Bed, Bath & Beyond (Nasdaq: BBBY) and other U.S. retailers helped this once obscure company boost its sales to more than $400 million by 2012 from around $145 million in 2009. Considering that less than 2% of all U.S. households have a Sodastream beverage maker, this company’s domestic growth prospects are open-ended. And management is now tapping into a range of promising international markets as well, setting the stage for more than $600 million in sales by 2014, and perhaps $1 billion a year later.
This isn’t just a play on sugar-laden soft drinks that you can make at home. Many people simply make carbonated fruit juice or make plain old seltzer. The days of lugging home a heavy case of water bottles may soon be gone.
Of course, whenever you are looking at a young and fast-growing company, you have to wonder if management is too focused on sales growth and ignoring the bottom line. After all, profit-less growth is a Pyrrhic victory: you may win the sales battle, but will lose the profit war.
Notably, Sodastream’s bottom-line performance may be even more impressive than its top-line gains. Per share profits rose an average 50% in 2011 and 2012, and should continue to grow at an average of 25% in 2013 and 2014 (to around $3.20) a share, according to consensus forecasts.
The strategy to grow is solid: Expand its retail footprint geographically across a variety of price points and functionally own the do-it-yourself soda market, then expand into office systems and food service.
That, to my mind’s eye, is the money shot.
I’ve tried SodaStream products, and they’re good, at least as good as the other stuff that is out there, but add booze into the mix and you might just have The Real Thing. Restaurants live and die on high-margin alcohol sales, and customized boozy sodas might be a nice way to augment the till behind the bar.
I like this product. I like that the company is profitable. I like its prospects for growth, and I like that it is riding a pair of trends — wellness and the environment — that I think have real legs as consumer movements. I also like that the company, valued at about $1.34 billion, has a lot of room to grow.
SodaStream is still growing, and it’s not inconceivable that it’ll experience some growing pains along the way. The stock can be a bit volatile sometimes, so it’s important that you be able to stomach the day-to-day swings, keeping in mind that this company is capable of big things.
You may want to wait to buy this stock on any pullbacks, but I think shares are a good “buy” at their current level for aggressive growth investors.
Andy Obermueller does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
Described as “a vulture, albeit a well-dressed one,” Wilbur Ross is also “one of the best bottom feeders in the business,” according to no less an authority than a fellow billionaire, real estate magnate Leonard Stern.
These comparisons may seem unflattering, but they’re actually high praise. Ross, 75, is chairman of WL Ross & Co., among the largest and most active firms specializing in restructuring financially distressed companies. He has built his career on investing in companies that are trading below book value, something any investor can look for.
“You get paid for taking risk that people think is risky,” Ross has said. “You don’t particularly get paid for taking actual risks.”
Wilbur Ross’ Biography
The son of a judge, Ross grew up in New Jersey and attended a Jesuit military academy in Manhattan. While there, he was captain of the rifle squad, which permanently damaged his hearing. Colleagues say he speaks very little and in a near whisper when he does.
He attended Yale University with the intention of becoming a writer but found his true passion during a summer job at a money management firm in New York. Describing himself as “a bit of a bookworm,” Ross said enjoyed spending hours at the library researching companies. After earning an MBA from Harvard Business School in 1961, Ross got a job at Wall Street money manager Wood Struthers & Winthrop.
He spent the next 15 years working on the company’s troubled venture capital investments. Although some failed, he got a thorough lesson in dealing with banks, creditors and courts. By 1976 he had parlayed this expertise to a spot leading the worldwide bankruptcy advisory practice at Rothschild, where his team assisted in the restructuring of more than $200 billion in liabilities around the world.
By 2000, Ross had established his own company with $440 million. Now owned by Invesco, WL Ross & Co. has more than $7 billion in assets.
|Ross built his career on investing in companies that are trading below book value, something any investor can look for.
Wilbur Ross’ Investing Strategy And Big Wins
After forming his own company, Ross picked up numerous steel and mining ventures that had gone bankrupt. He sold his steel holdings for $4.5 billion in 2005 to ArcelorMittal, making $2.5 billion for WL Ross and $300 million for himself.
Ross began investing in the banking sector after the financial crisis, and his firm was part of a group that bought BankUnited (NYSE: BKU) from the Federal Deposit Insurance Corp. He also spent money on troubled banks that needed cash but weren’t bankrupt, such as New Jersey’s Sun Bancorp (Nasdaq: SNBC). At the time, he said he chose them because they were trading at big discounts to their book values. His firm still holds large positions in those companies.
Ross attributes his success to keeping things simple and doing them well. “I think good ideas really are simple ideas,” he has said. “I’d rather back a mediocre idea that was brilliantly executed than a brilliant idea that was poorly executed.” Ross has also said that one must manage not only risk, but one’s own emotions: “To be successful, you have to be able to keep your emotions separate from the decision-making process.”
Wilbur Ross’ Portfolio: What’s He Holding Now?
His current portfolio is still heavily weighted to financial services (73.7%), followed by energy (21.6%), technology (3.6%), exchange-traded funds (ETFs) (0.9%) and health care (0.2%). However, his recent moves seem to imply a shift away from finance and technology and into health care. He has reduced his holdings in Assured Guaranty (NYSE: AGO) and BankUnited and sold out of Facebook (Nasdaq: FB), Zynga (Nasdaq: ZNGA) and Groupon (Nasdaq: GRPN). His most recent buys include LipoScience (Nasdaq: LPDX) and Select Medical Holdings (NYSE: SEM).
Wilbur Ross’ Top 10 Holdings
(Sources: GuruFocus, Google Finance)
Action to Take –> A lot of Ross’ fundamental strategies make for timeless investing advice: keeping things simple, risks in perspective and emotions in check. However, you can’t invest in distressed companies and not expect some stress along the way. While it doesn’t appear on the list of top public holdings, WL Ross has made large private equity commitments to the international shipping sector. He made a very persuasive argument that while the sector is temporarily distressed, it has long-term potential. An investor wanting to follow Ross’ lead in marine transport might consider the Guggenheim Shipping ETF (NYSE: SEA); a single-stock buy might include the highly rated Kirby Corp. (NYSE: KEX).
Bristol Voss does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
On July 11, we bought Workday, Inc. ($WDAY) at $66.16. Now, less than a month later, the stock is trading above the $74 level (an unrealized share price gain of approx. 12% as of August 9).
In this educational trading strategy video, we clearly show you how we used short-term trend lines to help us locate the most ideal, low-risk entry point for that actual momentum swing trade buy entry into $WDAY. Learn how you can apply the same techniques to your trading analysis as well.
Press the play button to view the video below. For best clarity, view in full-screen HD mode by clicking the icon on the bottom right of the video player window:
Although we used an actual swing trade in $WDAY as our example in the video, our simple technique for using short-term trend lines to identify low-risk buy points can be used for any stock or ETF in a valid uptrend (click here to learn how we identify the strength of a trend).
Try it and let us know how it goes for you. It’s definitely a winning strategy for us.
To profit from our next winning swing trade stock pick, sign up for your 30-day risk-free subscription to The Wagner Daily swing trading newsletter.
The post How To Use Short-Term Trendlines To Locate Low-Risk Buy Entry Points appeared first on the blog of Morpheus Trading Group.
After completing our weekend stock scanning research, Himax Technologies ($HIMX) has entered our radar screen as a potential swing trade buy entry in the coming days.
This small-cap tech company, which manufactures the liquid-crystal on silicon chips that power the displays of Google Glass, is presently forming the “handle” portion of a cup and handle chart pattern.
As explained in our recent blog post, How To Find Chart Patterns That Precede The Best Breakouts, one of the best and most reliable technical chart patterns that precede the strongest stock breakouts is the cup and handle.
Looking at the daily chart of $HIMX below, notice the depth from the high of the left side of the cup (mid-May), down to the low of the cup (late June), equates to a price retracement of over 40%.
Although this is a bit wider than we like to see, bear in mind that $HIMX is only a $7 stock that is forming a base of consolidation after a gain of more than 100%. As such, a little extra volatility is to be expected.
The same could be said for the handle, which should not retrace more than 15% from the highs in a normal cup and handle pattern. With $HIMX, the pullback was 19%.
Again, this is fine because it is a volatile small-cap stock. Conversely, if the handle dipped 20% in a stock like Google ($GOOG), it would be ugly.
On the annotated daily chart below, we have highlighted the cup and handle that has developed for this swing trade setup:
With this momentum trade setup, please be aware that $HIMX is scheduled to report its quarterly earnings results on August 15. Since that is only ten days away, our initial share size will be very small if the trade triggers for buy entry because we are only seeking a quick pop ahead of earnings. If, however, the stock blasts off in the coming days and we have a large enough profit buffer, we would hold the position through the earnings report.
Our exact entry, exit, and target prices for this trade setup are restricted to subscribing members of our popular stock picking newsletter. However, we will point out that our initial stop price on $HIMX is tight because this is a G.O.N.G (“go or no go”) trade setup. We want to be right or be right out, as we are not willing to hold this stock for long if it doesn’t quickly take off.
Finally, it is noteworthy to point out that $HIMX is not an “A-rated” stock for us. This means if your portfolio is full (buying power is maxed out), there is no reason to cut existing positions to move into this stock. Nevertheless, a stock is still quite capable of outperforming even if it is not “A-rated.”
For us, an “A-rated” stock is one with top earnings growth (usually small to mid-cap), solid volume, and overly positive price action. If a stock is slightly lacking in any of those areas, it is not “A-rated.” Two current examples of “A-rated” stocks are LinkedIn Corporation ($LNKD) and Michael Kors Holding Limited ($KORS).
Which stocks are currently on YOUR radar screen for swing trade buy entry and why? Share your thoughts in the comments section below.
The post Why Small-Cap Stock Himax Could Soon Blast Off Again ($HIMX) appeared first on the blog of Morpheus Trading Group.
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