The list of opponents to the Federal Reserve’s “easy money forever” policy is growing longer.
In the U.K. … we learned that the Bank of England is tilting more to the hawkish side. Policymaker Spencer Dale joined colleague Martin Weale in actually voting for a 25 basis point hike in the BOE’s main policy rate, currently 0.5 percent. The more aggressive Andrew Sentance went even further, pushing for a 50 basis point hike.
While five members of the bank’s policy-setting committee voted for no change … carrying the day … the future direction of U.K. rates looks all but certain. And no wonder! U.K. consumer prices are rising at a 4 percent year-over-year rate.
In continental Europe … the European Central Bank is positioning for a change in policy too! ECB member Yves Mersch warned that his colleagues will “have to rebalance our monetary policy stance” soon with the economy picking up and inflation topping the bank’s target.
The list of opponents to the Federal Reserve’s “easy money forever” policy is growing longer.
In the U.K. … we learned that the Bank of England is tilting more to the hawkish side. Policymaker Spencer Dale joined colleague Martin Weale in actually voting for a 25 basis point hike in the BOE’s main policy rate, currently 0.5 percent. The more aggressive Andrew Sentance went even further, pushing for a 50 basis point hike.
While five members of the bank’s policy-setting committee voted for no change … carrying the day … the future direction of U.K. rates looks all but certain. And no wonder! U.K. consumer prices are rising at a 4 percent year-over-year rate.
Trichet's comments raised speculation that the ECB may be eyeing a move on interest rates.
Trichet’s comments raised speculation that the ECB may be eyeing a move on interest rates.
In continental Europe … the European Central Bank is positioning for a change in policy too! ECB member Yves Mersch warned that his colleagues will “have to rebalance our monetary policy stance” soon with the economy picking up and inflation topping the bank’s target.
President Jean-Claude Trichet also reiterated his resolve to combat inflation. And again, I’ll say “no wonder!” Inflation in the euro zone climbed to 2.4 percent in January, above the bank’s 2 percent target.
In other emerging and developed markets worldwide, the rate-hiking trend I first discussed months ago is accelerating. In just the past several days, Sweden raised its benchmark rate for the fifth time in seven months to 1.5 percent … Chile hiked rates again to 3.5 percent … Israel boosted up by 25 basis points to 2.5 percent … while Vietnam jacked rates up for the second time in a week to 12 percent.
Yet here in the U.S., it seems like nothing much has changed. The “doves” still have the upper hand, with Chicago Fed president Charles Evans signaling this week in an interview with the Financial Times that he’s in the Ben Bernanke camp. Specifically, he said “policy ought to remain accommodative for really quite a while, even a while after conditions start to improve.”
There’s a reason I keep harping on these interest rate trends. They have serious consequences for all kinds of investments, from commodities to currencies to bonds …
First, the shift toward tighter monetary policy that’s already underway in emerging markets — and about to get underway in the U.K. and Europe — will likely flatten the yield curve. Or in plain English, shorter-term rates should climb more quickly than long-term rates as investors price in the likelihood of central bank rate hikes. That’s why the iPath U.S. Treasury Flattener Exchange Traded Note (FLAT) I highlighted a while ago is perking up.
Second, the increasing divergence between the views of U.S. policymakers and foreign ones should hurt the value of the dollar. That makes foreign currencies and debt securities more attractive. So do the relatively more attractive interest rates available overseas. That’s why I prefer emerging market bonds and funds that own short-term overseas debt securities, like the Federated Prudent DollarBear Fund (FPGCX), over U.S. Treasuries.
Third, monetary metals such as gold and silver should continue to perform well. I say that because even with rates rising overseas, they’re well below published rates of inflation. That means “real” rates, or those adjusted for inflation are negative — historically a bullish signal for commodities. Consider the U.K. example, where you have a real rate of MINUS 3.5 percent (the 0.5 percent policy rate minus the 4 percent YOY increase in consumer prices)!
Fourth, if you’re looking for more specific investment ideas and recommendations, consider subscribing to my Safe Money Report. What I’ve outlined here is just a few pages from my playbook … and I think 26 cents per day is a small price to pay for the rest!
This Small-Cap Retail Stock Could Jump 30%-Plus
I love turnaround plays. Great comebacks usually start with stocks that are in the depths of depression, so unloved that the share price reflects only bad news. If you are among the early buyers at the first signs of a turning tide, your portfolio can be richly rewarded.
I told you about a possible turnaround at Office Depot (NYSE: ODP) back in September. Shares are up more than 50% since then -- even though the company's actual turnaround efforts are only beginning. Today, I see a similar scenario for RadioShack (NYSE: RSH), which could start to rally for multiple reasons.
Stumbling, but not broken
RadioShack is simply a good business model in need of the right strategy and a bit of good timing. The electronics retailer brought in retail veteran Julian Day (an investment banker who helped bring Kmart out of bankruptcy) back in 2006 to help boost results. He recently announced plans to leave this May, with little to show for his five-year tenure as CEO. Sales remain stuck in the $4.0-$4.5 billion range, and earnings per share (EPS) are slightly below the peak levels seen in 2004 and 2005.
What he inherited still remains: RadioShack is a free cash flow (FCF) machine. Cash has risen from about $200 million at the end of 2005 to a likely $1 billion at the end of 2010. (Some of that growth in cash is the result of a decision to take on debt, which is currently around $600 million.) That robust cash-flow generation has enabled RadioShack to reduce its share count from 184 million in 2001 to less than 120 million now. RadioShack recently boosted its buyback plans (the current authorization stands at $500 million), and the share count could move to about 110 million by the end of this year.
Yet the strong cash flow and impressive buyback also underscore a flaw in Day's turnaround strategy. In a bid to boost EPS, he took a conservative approach to advertising and merchandising, which explains why same-store sales numbers have been stuck in neutral for quite some time. The question for investors is how this retailer, with more than 4,000 company-owned stores, can unlock shareholder value. I think several paths exist to push shares higher.
Fix or sell
Back in the spring, RadioShack's shares approached $24 as rumors of a sale of the company spread. No such sale took place and shares now sit near $16. Julian Day's planned departure has renewed the buyout speculation (though without the attendant share price rise this time).
A buyout may or may not happen, but I like the stock as standalone entity. All that's really missing is a hot new item to drive traffic to stores. And when customers come to RadioShack in search of a key item, they often leave with a range of other small electronic doodads -- from batteries to Bluetooth audio sets to iPhone docking stations. So a magnet to attract traffic is essential. Could that be the coming explosion of Android-related products?
RadioShack has largely missed out on the frenzy for Apple (Nasdaq: AAPL) products, but with each passing month, more and more Android-based smartphones and tablet computers should be hitting the company's shelves. This trend will really kick in starting in April, so expect to see tepid results from RadioShack in both the December and March quarters. (2010 Fourth-quarter results are to be released next Tuesday, Feb. 22; a recent pre-release implies that EPS will be about $0.50, below the recent $0.66 consensus.) But also look for the earnings conference calls to sharpen the focus on the company's Android-directed merchandising strategy. Also listen for early discussions of Web-connected TVs and devices that can help older TVs easily connect to the Web.
Bad news priced in
For stock prices -- as with politics -- it's all about the pattern of news flow. And recently, it's been pretty bad for RadioShack. The company will miss out on the iPhone revolution, and a the decision to start selling the phones through Verizon (NYSE: VZ) likely means diminished sales for RadioShack partner AT&T (NYSE: T).
In addition, it was announced on Jan. 4 that a lucrative contract to operate kiosks at various Sam's Club stores will not be renewed. Instead, RadioShack plans to have about 1,450 kiosks in Target (NYSE: TGT) stores by June 30, but the roll-out will take some time, which explains why profit forecasts for 2011 and 2012 were recently lowered by about $0.25 a share
Looking ahead, the news flow is likely begin to take on a more positive tone. For starters, most analysts have yet to factor in the massive share buyback into their forecasts, so look for EPS projections to rise as the share count drops. Second, the retailer is likely to ride the coattails of the coming wave of tablet computers with a steady stream of new product announcements.
This is a business model where a little growth goes a long way. Sales were stuck in the $4.2 billion area for three straight years and were likely be just below $4.5 billion in 2010. Yet with high fixed costs, any incremental sales gains will flow to the bottom line. Right now, analysts think sales will grow less than 2% in 2011, which is less than the rate of price increases, so unit sales growth is actually forecasted to be negative. Yet RadioShack's product lineup will arguably be more compelling in 2011 after an admittedly lackluster 2010. Moreover, if employment trends start to improve in coming quarters, as many suspect, then this in one of many retailers that will benefit from a rebound in consumer spending.
I told you about a possible turnaround at Office Depot (NYSE: ODP) back in September. Shares are up more than 50% since then -- even though the company's actual turnaround efforts are only beginning. Today, I see a similar scenario for RadioShack (NYSE: RSH), which could start to rally for multiple reasons.
Stumbling, but not broken
RadioShack is simply a good business model in need of the right strategy and a bit of good timing. The electronics retailer brought in retail veteran Julian Day (an investment banker who helped bring Kmart out of bankruptcy) back in 2006 to help boost results. He recently announced plans to leave this May, with little to show for his five-year tenure as CEO. Sales remain stuck in the $4.0-$4.5 billion range, and earnings per share (EPS) are slightly below the peak levels seen in 2004 and 2005.
What he inherited still remains: RadioShack is a free cash flow (FCF) machine. Cash has risen from about $200 million at the end of 2005 to a likely $1 billion at the end of 2010. (Some of that growth in cash is the result of a decision to take on debt, which is currently around $600 million.) That robust cash-flow generation has enabled RadioShack to reduce its share count from 184 million in 2001 to less than 120 million now. RadioShack recently boosted its buyback plans (the current authorization stands at $500 million), and the share count could move to about 110 million by the end of this year.
Yet the strong cash flow and impressive buyback also underscore a flaw in Day's turnaround strategy. In a bid to boost EPS, he took a conservative approach to advertising and merchandising, which explains why same-store sales numbers have been stuck in neutral for quite some time. The question for investors is how this retailer, with more than 4,000 company-owned stores, can unlock shareholder value. I think several paths exist to push shares higher.
Fix or sell
Back in the spring, RadioShack's shares approached $24 as rumors of a sale of the company spread. No such sale took place and shares now sit near $16. Julian Day's planned departure has renewed the buyout speculation (though without the attendant share price rise this time).
A buyout may or may not happen, but I like the stock as standalone entity. All that's really missing is a hot new item to drive traffic to stores. And when customers come to RadioShack in search of a key item, they often leave with a range of other small electronic doodads -- from batteries to Bluetooth audio sets to iPhone docking stations. So a magnet to attract traffic is essential. Could that be the coming explosion of Android-related products?
RadioShack has largely missed out on the frenzy for Apple (Nasdaq: AAPL) products, but with each passing month, more and more Android-based smartphones and tablet computers should be hitting the company's shelves. This trend will really kick in starting in April, so expect to see tepid results from RadioShack in both the December and March quarters. (2010 Fourth-quarter results are to be released next Tuesday, Feb. 22; a recent pre-release implies that EPS will be about $0.50, below the recent $0.66 consensus.) But also look for the earnings conference calls to sharpen the focus on the company's Android-directed merchandising strategy. Also listen for early discussions of Web-connected TVs and devices that can help older TVs easily connect to the Web.
Bad news priced in
For stock prices -- as with politics -- it's all about the pattern of news flow. And recently, it's been pretty bad for RadioShack. The company will miss out on the iPhone revolution, and a the decision to start selling the phones through Verizon (NYSE: VZ) likely means diminished sales for RadioShack partner AT&T (NYSE: T).
In addition, it was announced on Jan. 4 that a lucrative contract to operate kiosks at various Sam's Club stores will not be renewed. Instead, RadioShack plans to have about 1,450 kiosks in Target (NYSE: TGT) stores by June 30, but the roll-out will take some time, which explains why profit forecasts for 2011 and 2012 were recently lowered by about $0.25 a share
Looking ahead, the news flow is likely begin to take on a more positive tone. For starters, most analysts have yet to factor in the massive share buyback into their forecasts, so look for EPS projections to rise as the share count drops. Second, the retailer is likely to ride the coattails of the coming wave of tablet computers with a steady stream of new product announcements.
This is a business model where a little growth goes a long way. Sales were stuck in the $4.2 billion area for three straight years and were likely be just below $4.5 billion in 2010. Yet with high fixed costs, any incremental sales gains will flow to the bottom line. Right now, analysts think sales will grow less than 2% in 2011, which is less than the rate of price increases, so unit sales growth is actually forecasted to be negative. Yet RadioShack's product lineup will arguably be more compelling in 2011 after an admittedly lackluster 2010. Moreover, if employment trends start to improve in coming quarters, as many suspect, then this in one of many retailers that will benefit from a rebound in consumer spending.
Why $100 Oil Is No Big Deal
Forget the doomsday prophesies: triple-digit crude won’t slow us down much, writes Elliott Gue, editor of The Energy Strategist.
Every time crude oil nears $100 per barrel, you can count on the media to focus on how rising prices at the pump are pinching consumers. These days, pundits describe $100 oil as a major “tax” on the consumer that endangers the nascent economic recovery.
Although higher energy prices will weigh on consumer spending, $100 oil isn’t some wild card that will suddenly wreck household budgets. US consumer spending hasn’t returned to the robust levels witnessed during the credit boom, but American shoppers have exhibited few signs of concern about energy prices.
The Bureau of Labor Statistics (BLS) estimates that motor fuel accounts for just 4.5% of total US consumer expenditures. Household fuels—heating oil, natural gas, and electricity—account for another 5% or so of total consumer expenditures, but the number of consumers using oil for heat continues to decline. Meanwhile, natural gas prices are depressed, and December electricity prices were down from a year ago. Overall, household fuel costs rose just 0.8% year over year.
As much as Americans gripe about rising oil prices, the average urban consumer doesn’t spend much of his disposable income on gasoline. Individual circumstances vary from the averages used by BLS, but rising fuel prices aren’t the driving force of consumer spending that some assume them to be.
The average American consumes about 23 barrels of oil per year, including oil used for transportation and that used by industry in plastics and other products. If oil increases to $105 per barrel from $90 per barrel, that amounts to an additional $340 in annual spending per person—slightly less than 1% of the average American’s $37,000 in annual per capita disposable income. I’m not arguing that rising oil prices and imports are good for Americans or the country, but it’s hardly a death knell for spending.
The Real Tipping Point
Oil prices would need to jump to $120 per barrel—a distinct possibility later in 2011—to measurably affect US consumers’ spending habits. But oil would have to remain at this elevated level to have an adverse impact on the economic recovery.
Meanwhile, global oil demand is soaring. The graph below tracks it in millions of barrels per day from the mid-1990s to present.
Click to Enlarge
As you can see, the world consumed less than 70 million barrels of oil per day in 1995, a figure that has risen steadily to 87.7 million barrels per day in 2010. The International Energy Agency expects demand to reach 89.1 million barrels per day in 2011.
Within this 15-year period, 2009 marked the only occasion when global consumption shrank on a year-over-year basis. Oil demand growth was particularly strong between 2003 and 2007.
Global oil demand hit a new record in 2010, increasing by 2.7 million barrels per day. That’s the fastest pace of global oil demand growth since 2004, when oil demand rose by 2.75 million barrels per day.
And this year, consumption is expected to surge by a further 1.4 million barrels per day—if these expectations pan out, 2010-11 will mark the fastest two-year growth in global oil demand in at least three decades.
The Chinese Can Afford It
Higher oil prices are far more affordable to the average Chinese consumer than just a few years ago, thanks to rising incomes and currency appreciation. Disposable income has increased steadily in recent years in the developing world.
For example, since 2005 per-capita disposable incomes in China have increased at an annualized rate, in local currency terms, higher than 12%. In US-dollar terms, this pace jumps to almost 20%.
A rapid jump in disposable income always drives demand for energy. Because personal incomes are much higher than in 2008, Chinese consumers can better afford higher oil prices today than they could in 2008. A similar logic holds in most of the major emerging markets.
Every time crude oil nears $100 per barrel, you can count on the media to focus on how rising prices at the pump are pinching consumers. These days, pundits describe $100 oil as a major “tax” on the consumer that endangers the nascent economic recovery.
Although higher energy prices will weigh on consumer spending, $100 oil isn’t some wild card that will suddenly wreck household budgets. US consumer spending hasn’t returned to the robust levels witnessed during the credit boom, but American shoppers have exhibited few signs of concern about energy prices.
The Bureau of Labor Statistics (BLS) estimates that motor fuel accounts for just 4.5% of total US consumer expenditures. Household fuels—heating oil, natural gas, and electricity—account for another 5% or so of total consumer expenditures, but the number of consumers using oil for heat continues to decline. Meanwhile, natural gas prices are depressed, and December electricity prices were down from a year ago. Overall, household fuel costs rose just 0.8% year over year.
As much as Americans gripe about rising oil prices, the average urban consumer doesn’t spend much of his disposable income on gasoline. Individual circumstances vary from the averages used by BLS, but rising fuel prices aren’t the driving force of consumer spending that some assume them to be.
The average American consumes about 23 barrels of oil per year, including oil used for transportation and that used by industry in plastics and other products. If oil increases to $105 per barrel from $90 per barrel, that amounts to an additional $340 in annual spending per person—slightly less than 1% of the average American’s $37,000 in annual per capita disposable income. I’m not arguing that rising oil prices and imports are good for Americans or the country, but it’s hardly a death knell for spending.
The Real Tipping Point
Oil prices would need to jump to $120 per barrel—a distinct possibility later in 2011—to measurably affect US consumers’ spending habits. But oil would have to remain at this elevated level to have an adverse impact on the economic recovery.
Meanwhile, global oil demand is soaring. The graph below tracks it in millions of barrels per day from the mid-1990s to present.
Click to Enlarge
As you can see, the world consumed less than 70 million barrels of oil per day in 1995, a figure that has risen steadily to 87.7 million barrels per day in 2010. The International Energy Agency expects demand to reach 89.1 million barrels per day in 2011.
Within this 15-year period, 2009 marked the only occasion when global consumption shrank on a year-over-year basis. Oil demand growth was particularly strong between 2003 and 2007.
Global oil demand hit a new record in 2010, increasing by 2.7 million barrels per day. That’s the fastest pace of global oil demand growth since 2004, when oil demand rose by 2.75 million barrels per day.
And this year, consumption is expected to surge by a further 1.4 million barrels per day—if these expectations pan out, 2010-11 will mark the fastest two-year growth in global oil demand in at least three decades.
The Chinese Can Afford It
Higher oil prices are far more affordable to the average Chinese consumer than just a few years ago, thanks to rising incomes and currency appreciation. Disposable income has increased steadily in recent years in the developing world.
For example, since 2005 per-capita disposable incomes in China have increased at an annualized rate, in local currency terms, higher than 12%. In US-dollar terms, this pace jumps to almost 20%.
A rapid jump in disposable income always drives demand for energy. Because personal incomes are much higher than in 2008, Chinese consumers can better afford higher oil prices today than they could in 2008. A similar logic holds in most of the major emerging markets.
Safe Dividend Stocks for an Unsafe Market
A Better Investing Strategy
After practically ignoring geopolitical events an pushing higher despite the unrest in Egypt, U.S. markets finally succumbed to heavy selling this week as protests in Libya and the Middle East erupted, and oil surpassed $100 per barrel. But there’s a much better way to manage your investments than by reacting to the latest headlines. You need a strategy that works in fair weather and foul, 365 days a year. It’s a strategy that can be summed up in two simple words: safe and cheap.
Our high-income experts have put together a list of top dividend stocks to buy that offer investors just that. The yields these steady stocks are throwing off can help to cushion your portfolio if the market continues to react negatively to world events or if the economy continues to struggle. And the recent sell-off is providing you a stellar opportunity to pick up these already discounted dividend stocks at an even cheaper price.
Here are your top dividend stocks for March:
In the past 12 months, low-risk Hormel Foods (NYSE: HRL), with a beta of 0.547, has outperformed the S&P 500 by 5.4 percentage points. When personal incomes drop, people strip out the luxuries — eating out less and trading down from ham to SPAM.
Personal income growth has slowed from a peak of 14% in July of 1981, to a sluggish 3.8% in December 2010. With continued 9% unemployment and millions of Americans out of work, don’t expect them to show up at Whole Foods looking for organics; expect them to be hitting classic American favorites like Dinty Moore, Saag’s, Hormel and SPAM.
My long-term trend chart shows Hormel reverting to trend. Buy before it does. Current yield: 3.8%.
Dividend Stock #2 – Nestle (NSRGY)
The envy of every other processed-food maker in the world, Swiss-based Nestle (OTC: NSRGY) boasts top-of-class manufacturing and marketing, as well as a widely diversified product line — from chocolates and cocoa to milk products (including ice cream), juices, coffees and teas, pasta, seasonings and frozen entrees.
The stock, a true long-distance thoroughbred, has more than doubled in the past 10 years, compared with a miserly 12% increase in the Dow. Yet NSRGY finds itself today about 8% below its December peak. You’re getting a rare discount on a premium franchise.
Buy NSRGY at $55 or less. Current yield: 3.5%.
Dividend Stock #3 – Pepsico (PEP)
More than just an all-American soft-drink company, Pepsico (NYSE: PEP) also produces snacks (Lays, Doritos) and breakfast cereal (Quaker Oats). Like most food makers, Pepsico has faced a margin squeeze lately, thanks to the steep run-up in commodity prices. Eventually, however, I’m confident PEP will manage to do what it has done ever since 1898 — raise prices enough on its finished products to recoup input costs.
Meanwhile, at 14 times estimated 2011 earnings, the shares are trading 35% below the valuation the fetched at the October 2007 market top. PEP also has a record of 38 annual dividend increases in a row. A stock this cheap should easily outpace the broad market indexes over the next 10 years — just as it has done over the past 10.
Buy PEP at $66 or less. Current yield: 3%.
Dividend Stock #4 – Cheniere Energy (CQP)
Cheniere Energy Partners LP (AMEX: CQP) is the operator of the largest liquefied natural gas (LNG) terminal in the United States. The company is striking more deals with new energy customers, setting up the eventual export of natural gas overseas.
The chart of CQP is very constructive, setting up for a big move higher on the next set of headlines.
Buy CQP up to $23. Current yield: 7.44%.
Dividend Stock #5 – Alexander & Baldwin (ALEX)
Alexander & Baldwin (NYSE: ALEX) operates in transportation, real estate and agribusiness industries in the United States. In the fourth quarter, container trade at the port of Long Beach, Calif., rebounded, and increased 24% compared to the year before. ALEX has added a second leg to its China-Long Beach Express route, to expand its position in container-trade shipping business. During 2010, ALEX recorded an 81% increase in its volume of China container shipping business compared to 2009.
My price chart shows ALEX’s powerful breakout above $40. Buy on that bullish signal. Current yield: 3.06%.
Dividend Stock #6 – California Water Service (CWT)
Water utility stock California Water Service (NYSE: CWT), which supplies water and related services in California, Washington, New Mexico and Hawaii, has increased its dividend for 44 consecutive years — even during the Great Recession of 2008, which hurt the Golden State more than most.
At 16 time estimated 2011 earnings, CWT is noticeably cheaper than competitor Aqua America (NYSE: WTR), which commands 24 times. The valuation gap could prompt WTR — or some other acquisitive party — to make a bid for CWT.
Buy CWT at $36.50 or less. Current yield: 3.4%.
Dividend Stock #7 – NuStar Energy (NS)
The fourth quarter was a breakout for NuStar Energy (NYSE: NS), with record-setting earnings and cash flows distributable to limited partners. NuStar’s storage facilities segment led the way, selling storage in 275 tanks across the United States and Mexico, with a combined capacity of 18.7 million barrels of petroleum and refined petroleum products. For comparison, that’s equal to a full day’s worth of U.S. consumption. After falling flat on its back in relative-strength terms, my chart shows NuStar picking up strength.
Buy NS at market. Current yield: 6.26%.
Dividend Stock #8 – Ship Finance (SFL)
Ship Finance International Limited (NYSE: SFL) recently reported fourth-quarter numbers that came in 5 cents short of estimates, but raised the quarterly dividend and provided a rosier outlook for 2011, sending its shares higher following earnings.
Global trade is rebounding, which, in turn, should provide stronger profits ahead for cargo operators. When a stock shrugs off short-term disappointment at the expense of a better-looking future, it pays to buy the shares.
Buy SFL up to $23. Current yield 6.95%.
After practically ignoring geopolitical events an pushing higher despite the unrest in Egypt, U.S. markets finally succumbed to heavy selling this week as protests in Libya and the Middle East erupted, and oil surpassed $100 per barrel. But there’s a much better way to manage your investments than by reacting to the latest headlines. You need a strategy that works in fair weather and foul, 365 days a year. It’s a strategy that can be summed up in two simple words: safe and cheap.
Our high-income experts have put together a list of top dividend stocks to buy that offer investors just that. The yields these steady stocks are throwing off can help to cushion your portfolio if the market continues to react negatively to world events or if the economy continues to struggle. And the recent sell-off is providing you a stellar opportunity to pick up these already discounted dividend stocks at an even cheaper price.
Here are your top dividend stocks for March:
In the past 12 months, low-risk Hormel Foods (NYSE: HRL), with a beta of 0.547, has outperformed the S&P 500 by 5.4 percentage points. When personal incomes drop, people strip out the luxuries — eating out less and trading down from ham to SPAM.
Personal income growth has slowed from a peak of 14% in July of 1981, to a sluggish 3.8% in December 2010. With continued 9% unemployment and millions of Americans out of work, don’t expect them to show up at Whole Foods looking for organics; expect them to be hitting classic American favorites like Dinty Moore, Saag’s, Hormel and SPAM.
My long-term trend chart shows Hormel reverting to trend. Buy before it does. Current yield: 3.8%.
Dividend Stock #2 – Nestle (NSRGY)
The envy of every other processed-food maker in the world, Swiss-based Nestle (OTC: NSRGY) boasts top-of-class manufacturing and marketing, as well as a widely diversified product line — from chocolates and cocoa to milk products (including ice cream), juices, coffees and teas, pasta, seasonings and frozen entrees.
The stock, a true long-distance thoroughbred, has more than doubled in the past 10 years, compared with a miserly 12% increase in the Dow. Yet NSRGY finds itself today about 8% below its December peak. You’re getting a rare discount on a premium franchise.
Buy NSRGY at $55 or less. Current yield: 3.5%.
Dividend Stock #3 – Pepsico (PEP)
More than just an all-American soft-drink company, Pepsico (NYSE: PEP) also produces snacks (Lays, Doritos) and breakfast cereal (Quaker Oats). Like most food makers, Pepsico has faced a margin squeeze lately, thanks to the steep run-up in commodity prices. Eventually, however, I’m confident PEP will manage to do what it has done ever since 1898 — raise prices enough on its finished products to recoup input costs.
Meanwhile, at 14 times estimated 2011 earnings, the shares are trading 35% below the valuation the fetched at the October 2007 market top. PEP also has a record of 38 annual dividend increases in a row. A stock this cheap should easily outpace the broad market indexes over the next 10 years — just as it has done over the past 10.
Buy PEP at $66 or less. Current yield: 3%.
Dividend Stock #4 – Cheniere Energy (CQP)
Cheniere Energy Partners LP (AMEX: CQP) is the operator of the largest liquefied natural gas (LNG) terminal in the United States. The company is striking more deals with new energy customers, setting up the eventual export of natural gas overseas.
The chart of CQP is very constructive, setting up for a big move higher on the next set of headlines.
Buy CQP up to $23. Current yield: 7.44%.
Dividend Stock #5 – Alexander & Baldwin (ALEX)
Alexander & Baldwin (NYSE: ALEX) operates in transportation, real estate and agribusiness industries in the United States. In the fourth quarter, container trade at the port of Long Beach, Calif., rebounded, and increased 24% compared to the year before. ALEX has added a second leg to its China-Long Beach Express route, to expand its position in container-trade shipping business. During 2010, ALEX recorded an 81% increase in its volume of China container shipping business compared to 2009.
My price chart shows ALEX’s powerful breakout above $40. Buy on that bullish signal. Current yield: 3.06%.
Dividend Stock #6 – California Water Service (CWT)
Water utility stock California Water Service (NYSE: CWT), which supplies water and related services in California, Washington, New Mexico and Hawaii, has increased its dividend for 44 consecutive years — even during the Great Recession of 2008, which hurt the Golden State more than most.
At 16 time estimated 2011 earnings, CWT is noticeably cheaper than competitor Aqua America (NYSE: WTR), which commands 24 times. The valuation gap could prompt WTR — or some other acquisitive party — to make a bid for CWT.
Buy CWT at $36.50 or less. Current yield: 3.4%.
Dividend Stock #7 – NuStar Energy (NS)
The fourth quarter was a breakout for NuStar Energy (NYSE: NS), with record-setting earnings and cash flows distributable to limited partners. NuStar’s storage facilities segment led the way, selling storage in 275 tanks across the United States and Mexico, with a combined capacity of 18.7 million barrels of petroleum and refined petroleum products. For comparison, that’s equal to a full day’s worth of U.S. consumption. After falling flat on its back in relative-strength terms, my chart shows NuStar picking up strength.
Buy NS at market. Current yield: 6.26%.
Dividend Stock #8 – Ship Finance (SFL)
Ship Finance International Limited (NYSE: SFL) recently reported fourth-quarter numbers that came in 5 cents short of estimates, but raised the quarterly dividend and provided a rosier outlook for 2011, sending its shares higher following earnings.
Global trade is rebounding, which, in turn, should provide stronger profits ahead for cargo operators. When a stock shrugs off short-term disappointment at the expense of a better-looking future, it pays to buy the shares.
Buy SFL up to $23. Current yield 6.95%.
Carbon Trading: The World's Next Biggest Market
If you haven't been following the debate surrounding capping and trading emissions, you're missing out. Not only does it have implications for how our nation, and the world, produces energy, it has the potential to offer a myriad of opportunities for well-informed investors.
You see, California has been asking for permission to regulate greenhouse gas emissions since 2004, but the philistines at the Environmental Protection Agency (EPA) have yet to grant it permission to do so.
For quite some time the EPA's excuse was that they didn't have the power to regulate emissions. That's funny--greenhouse gases harm the environment and the EPA is supposed to protect the environment. Maybe they should consider a name change.
Now, back in April the Supreme Court ruled that the EPA did in fact have the authority to regulate greenhouse gas emissions. Like we didn't see that one coming.
After that decision, you'd expect everything to be rosy. But this administration doesn't make anything easy, even obeying Supreme Court decisions. So here we are, a substantial time since that decision, and the EPA still hasn't given California--and the eleven other states that would do so--permission to regulate emissions.
And while it would be nice to have the federal government's support, it looks like the rest of America is ready to move on without it.
Already, corporate behemoths like General Electric, DuPont, Johnson & Johnson and others have come together to form the United States Climate Action Partnership.
Even oil juggernauts like Shell, BP and ConocoPhillips have joined this coalition, which calls itself "an expanding alliance of major businesses and leading climate and environmental groups that have come together to call on the federal government to enact legislation requiring significant reductions of greenhouse gas emissions."
Now you can be certain the environmental groups that are a part of this alliance are there with pure intentions, but I'm willing to bet some of those companies are looking for a way to make a buck from the capping of emissions.
According to a recent New York Times article, carbon trading is one of the "fastest-growing specialties in financial services." And companies are scrambling to get "a slice of a market now worth about $30 billion and that could grow to $1 trillion within a decade."
The article, entitled, "In London's Financial World, Carbon Trading Is the New Big Thing," continues: "Carbon will be the world's biggest commodity market, and it could become the world's biggest market over all."
If you doubt that assertion, consider this: Every year humans generate about 38 billion tons of carbon dioxide.
At its current price of about $3.50 per ton, the potential carbon market stands at roughly $133 billion (38 billion x $3.50). That's today.
As more and more governments start to regulate their country's emissions, and as more companies - just as we're seeing in the US--start to voluntarily limit their emissions, the demand for available carbon credits will skyrocket. And so will their price!
One need only revert to the simple law of supply and demand to see that this industry is going to be huge. If increased demand dictates an increase in price, getting in now could be one of the wisest best investment moves you make in the first half of this century.
Carbon Trading, an Introduction
Europe has had a carbon market--surprise, surprise--for quite some time now. Each member state of the EU gets an annual emission allocation which is then divvied up among its worst emissions-producing companies.
The companies are then legally obliged to produce no more emissions than they are allowed. If a company comes in under target, it can sell its excess allowance as "carbon credits" to other firms that have overshot their targets. But if it exceeds its target, it has to pay a penalty and then go to the market to buy credits to make up the difference.
Right now, with an abundance of carbon credits available, their price is relatively low. But with the second phase of the program, 2008-2012, just around the corner--bringing with it a reduced amount of credits and more stringent targets--the price of carbon credits is set to explode.
The US has a version of a carbon market as well.
Established in 2003, the Chicago Climate Exchange (CCX) is North America's only voluntary and legally binding greenhouse gas (GHG) reduction and trading system.
The companies that join the exchange commit to reducing their aggregate emissions by 6% - from the same baseline used by the EU--by 2010. Currently, the exchange has more than 200 members ranging from corporations like Ford and Motorola, to municipalities such as Oakland and Chicago, to educational institutions such as Tufts University and the University of Minnesota, to farmers and their organizations such as the National Farmers Union and the Iowa Farm Bureau.
Emissions reductions are independently verified and count for about 4% of total US GHG emissions-leaving plenty of room for growth.
Investing in Carbon
The only pure play is to buy Certificates in Emission Reductions (CERs). However, the sole way to do this currently is through an established carbon fund set up by huge capital firms. The most well-known firm that does this, Climate Change Capital, requires a minimum investment for 2010 of $33.3 million--leaving little opportunity for small investors.
Or you could invest directly in the company that owns the carbon exchange, Climate Exchange Plc. (LSE: CLE). If you'd done so a year ago, you'd be up over 540%. Have a look:
Don't be overwhelmed by those prices, they're in Pence Sterling (GBX). 2,000 Pence Sterling is about $41.
These guys cornered the market early. They even own the Chicago Climate Exchange (CCX).
But if those shares are too pricey, there's still hope for getting into the carbon market.
More Than One Way to Profit
Carbon isn't just a one trick pony. There are a few ways to make sure you get your share of this opportunity.
You see, as this industry grows and matures, companies are going to be looking to make money from it in any way possible.
So if you don't have the $33 million and change needed to break into trading CERs, there's still hope.
For starters, you could invest in companies that reduce emissions simply by the nature of their business. Companies that produce clean energy will soon be profiting on two fronts--they'll be selling their power and the carbon credits they acquired while making it.
For example, a company that produces electricity via a clean renewable resource may not only sell the electricity, but also the carbon credits earned from not burning fossil fuels--so long as the emission reductions are certified by an independent third party.
Of course, this arrangement would be much easier to understand and keep track of if a cap and trade system were implemented by the federal government. In fact, just capping the amount of emissions would do wonders.
And we may not be too far off. Major energy legislation put before Congress yesterday would require that 15 percent of the nation's electricity be produced by wind, biomass and other renewable energy sources by 2020.
Today, only 3% of our electricity is renewably produced. A 12% increase in the next twelve years would not only send renewables through the roof, but would create a pretty sweet carbon market as well.
As the demand increases for carbon credits, many companies are coming on the scene that specialize in reducing emissions. These are companies that help reduce the overall emissions of a variety of businesses, like farms, factories and utilities.
These companies are not only getting premium consulting fees, but a portion of the carbon credit proceeds as well.
Take a look at Ecology & Environment Inc. (AMEX: EEI), which offers a range of environmental consulting services, including environmental planning, management, and regulatory compliance.
In one year, this company is up 34% - six percentage points higher than the record-breaking Dow - and has increased its annual net income by over 62%.
And there's yet another way to tap into this industry.
As more governments begin to cap carbon emissions and initiate trading schemes, there will need to be regulatory bodies that measure and confirm reduced emissions. And those agencies will need new instruments and technologies to measure and record.
The bottom line is, the savvy investors that stay on top of this nascent industry will witness the birth of an entire new generation of dominant companies - and the making of legendary profits.
Gold's Best Worst-Case Scenario
Even at $1,200 an ounce, gold is still one of the safest investments you can make.That's because, unlike 99.9% of other investment vehicles, gold has an intrinsic and universal value that has supported a strong market price throughout human history.
And now we have even more reason to remain confident in gold as a safe investment, thanks to a surge in mining production costs that may help buoy gold prices for decades to come. It all starts with the...
Rising Production Costs of Gold
Mining for gold is often romanticized as an adventurous, sometimes dangerous, way to get rich real quick. But as a business, it's very difficult to make a profit. And the real danger is financial.
Gold production is a very energy- and labor-intensive process, making it very expensive to operate a gold mine... especially now. Over the past few years, rising energy and labor prices have forced global gold production costs to increase quite dramatically.And now we have even more reason to remain confident in gold as a safe investment, thanks to a surge in mining production costs that may help buoy gold prices for decades to come. It all starts with the...
Rising Production Costs of Gold
Mining for gold is often romanticized as an adventurous, sometimes dangerous, way to get rich real quick. But as a business, it's very difficult to make a profit. And the real danger is financial.
In 2000, Barrick Gold (NYSE: ABX) was producing gold for $145 an ounce (inflation adjusted = $185/oz). During the first three quarters of 2009, the company's total cash cost were $463 an ounce — a 215% increase.
According to GFMS, a world authority on gold markets, Barrick's current production costs are about average. Data from GFMS shows world gold production costs for the first half of 2009 averaged $457/oz. This average cost is down from $623/ounce in the third quarter of 2008.
Gold production costs swelled over 150% in five years between 2003 and 2008. And due to recent increases in energy and labor prices in the second half of 2009, experts estimate global gold production costs may average up to $500 an ounce for the year. Take a look:
The most easily accessible and cheapest gold resources will always be developed and exploited first. As these resources are diminished, producers will be forced to develop the next cheapest gold resources in line.
The ever-increasing nature of the cost of production may help support a growing valuation floor above $500 for gold prices. And it's one of the reasons that I think...
Gold Has the Best Worst-Case Scenario
The price of gold should always find price support near the average global cost of mine production.
That's because if the cost of production significantly exceeds the value of the yield, operators will likely halt output until market conditions improve. It's simply a matter of economics.
This halt will decrease the total supply of new mine production. And this decrease may ultimately help buoy gold prices to varying degrees depending on demand.
So if the average global cost to produce gold is $500 an ounce, I think gold's ultimate valuation floor may be near that level.
Conclusion
Indeed, a near 60% decline to $500 could be considered the worst-case scenario for gold. However, the worst-case scenario for currency-denominated asset classes like 2010 top stocks and bonds is a 100% decline. So gold is still one of the safest assets to own.
Aside from being the safest investment, I also believe gold will be one of the easiest ways to profit over the next 12 to 24 months. The bottom line: I don't believe that we've seen the biggest moves this gold bull market has to offer. And the time for gold to build up a head of steam and tackle is inflation-adjusted high of $2,500 has never been better.
In order to leverage gold's huge investment upside potential for members of my Hard Money Millionaire advisory service, I am currently building a brand-new portfolio of junior mining stocks. So far, I've recommended three best stocks for 2010 in the portfolio (with a fourth to be added sometime next week), but have already done quite well. In fact, you can take a peek at my junior mining portfolio just by clicking here.
If you're also interested in gold stocks to buy, you might want to check out these...
Three Low-Cost Gold Producing Stocks
In doing research for this article, I learned gold production costs currently average about $450 an ounce for companies, including Agnico-Eagle (NYSE: AEM) and Newmont Mining (NYSE: NEM).
As I looked through the financial statements of the individual companies, I noted those with the lowest gold production costs. Below I've list the three companies with low-cost gold production within the three major financial classes.
Goldcorp (NYSE: GG)
| Financial Class: | Senior Gold Producer |
| Share Price: | $44.50 |
| Market Cap: | $32.5 billion |
| 3Q Gold Production: | 620,000 ounces |
| 3Q Gold Production Costs: | $295/oz. |
| 2009 Gold Production Guidance: | 2.3 million ounces |
| 2009 Gold Production Costs Guidance: | $365/oz. |
Goldcorp is one of the largest gold mining companies in the world. With 14 operations and development projects, Goldcorp expects to produce 2.3 million ounces this year at a total cash cost of $365 an ounce. During the third quarter of 2009, the company produced over 620,000 ounces for total cash cost of $295 an ounce.
| Financial Class: | Mid-Tier Gold Producer |
| Share Price: | $13.75 |
| Market Cap: | $5.5 billion |
| 3Q Gold Production: | 89,000 |
| 3Q Gold Production Costs: | $297/oz. |
| 2009 Gold Production Guidance: | 550,000 |
| 2009 Gold Production Costs Guidance: | $340/oz. |
Eldorado Gold is a mid-tier gold producer active in exploration and development in Brazil, China, Greece, Turkey, and surrounding regions. The company plans to produce a total of about 550,000 ounces of gold this year at a total cash cost of $340 an ounce. During the third quarter, Eldorado produced 89,000 ounces at $297 an ounce.
| Financial Class: | Small-Cap Gold Producer |
| Share Price: | $0.75 |
| Market Cap: | $200 million |
| 3Q Gold Production: | 22,000 ounces |
| 3Q Gold Production Costs: | $313/oz. |
| 2009 Gold Production Guidance: | undisclosed |
| 2009 Gold Production Costs Guidance: | undisclosed |
Minera Andes is a small but successful gold and silver miner. The company producers almost an equal amount of gold and silver by value, but is worth mentioning here because it is currently one of the lowest-cost small-cap gold producers around.
Minera will produce over 75,000 ounces of gold this year at an estimated $330 an ounce, although there is no official guidance. During the third quarter, the company produced 22,000 ounces of gold at $313 an ounce.
Moody's Says Spanish Banks May Need $69 Billion
Spanish banks may need to raise as much as €50 billion ($68.77 billion) boost their solvency and regain market confidence, more than twice the amount the government has said would be needed, Moody's Investors Service said Monday.
The estimate is up from the €17 billion that Moody's had calculated in December, and would be mostly concentrated in the savings banks sector, senior analyst Alberto Postigo said in the rating agency's Weekly Credit Outlook publication.
Moody's warning came as Qatar said it plans to invest €300 million in Spain's savings banks, or "cajas." It would be the first injection of sovereign capital into the savings banks since the start of the 2007-2008 crisis.
Qatar's Prime Minister Hamad bin Jassim bin Jaber bin Muhammad al-Thani made the statement in Doha, Qatar, in a press conference held jointly with the visiting Spanish Prime Minister José Luis Rodriguez Zapatero, Spain's government said in a press release.
Moody's revised estimate assumes that the savings banks will need to reach a core capital ratio of 10% in coming months, in line with new banking rules approved earlier this month by the Spanish government.
The new rules impose minimum capital ratios of 8% on all the country's banks. They also set a higher minimum ratio of 10% for lenders that don't have a significant share of private investors among their shareholders, and depend on wholesale markets for their financing, which is the case for most of the savings banks.
To meet the higher requirements, Spain's savings banks are scrambling to find private investors willing to buy parts of their businesses. Four out of 17 entities have said they plan to sell shares in initial public offerings.
The Spanish government said banks will need to raise about €20 billion to satisfy the new rules and said it will take stakes in lenders that fail to do so by September, through its Fund for Orderly Bank Restructuring.
In the report Monday, Mr. Postigo said that Moody's remains cautious on whether the government's plan for recapitalization will allow Spanish financial institutions "to regain markets' confidence, as this would very likely require a full clean-up of losses embedded in banks' balance sheets."
Doubts about the health of the savings banks, known as cajas, had emerged in the wake of Ireland's banking crisis. Like Ireland, Spain is grappling with the collapse of a huge housing boom.
In an attempt to remove these doubts from investors' minds, the Bank of Spain obliged the country's banks to disclose the full extent of their exposure to the ailing Spanish real estate sector.
The central bank said last week that the cajas hold some €100 billion in "potentially problematic" real estate assets, out of a total exposure to the building sector of €217 billion.
Mr. Postigo said that these "potentially problematic" assets are "credit negative" for Spain. However, he added that making public the data is a "significant and positive step" toward restoring market confidence in the banks.
"Confidence in Spain's savings banks will only be completely restored once the problematic exposures are translated into losses and the adequacy of bank capital is robustly tested," Mr. Postigo said.
The estimate is up from the €17 billion that Moody's had calculated in December, and would be mostly concentrated in the savings banks sector, senior analyst Alberto Postigo said in the rating agency's Weekly Credit Outlook publication.
Moody's warning came as Qatar said it plans to invest €300 million in Spain's savings banks, or "cajas." It would be the first injection of sovereign capital into the savings banks since the start of the 2007-2008 crisis.
Qatar's Prime Minister Hamad bin Jassim bin Jaber bin Muhammad al-Thani made the statement in Doha, Qatar, in a press conference held jointly with the visiting Spanish Prime Minister José Luis Rodriguez Zapatero, Spain's government said in a press release.
Moody's revised estimate assumes that the savings banks will need to reach a core capital ratio of 10% in coming months, in line with new banking rules approved earlier this month by the Spanish government.
The new rules impose minimum capital ratios of 8% on all the country's banks. They also set a higher minimum ratio of 10% for lenders that don't have a significant share of private investors among their shareholders, and depend on wholesale markets for their financing, which is the case for most of the savings banks.
To meet the higher requirements, Spain's savings banks are scrambling to find private investors willing to buy parts of their businesses. Four out of 17 entities have said they plan to sell shares in initial public offerings.
The Spanish government said banks will need to raise about €20 billion to satisfy the new rules and said it will take stakes in lenders that fail to do so by September, through its Fund for Orderly Bank Restructuring.
In the report Monday, Mr. Postigo said that Moody's remains cautious on whether the government's plan for recapitalization will allow Spanish financial institutions "to regain markets' confidence, as this would very likely require a full clean-up of losses embedded in banks' balance sheets."
Doubts about the health of the savings banks, known as cajas, had emerged in the wake of Ireland's banking crisis. Like Ireland, Spain is grappling with the collapse of a huge housing boom.
In an attempt to remove these doubts from investors' minds, the Bank of Spain obliged the country's banks to disclose the full extent of their exposure to the ailing Spanish real estate sector.
The central bank said last week that the cajas hold some €100 billion in "potentially problematic" real estate assets, out of a total exposure to the building sector of €217 billion.
Mr. Postigo said that these "potentially problematic" assets are "credit negative" for Spain. However, he added that making public the data is a "significant and positive step" toward restoring market confidence in the banks.
"Confidence in Spain's savings banks will only be completely restored once the problematic exposures are translated into losses and the adequacy of bank capital is robustly tested," Mr. Postigo said.
Don't Bank on Big Banks:BAC,C
Banking giants Bank of America (BAC) and Citigroup (C) continue to lag, and with important technical levels nearby, current and prospective investors should use caution.
Since last fall, I have been concerned about the relatively poor performance of the financial sector, especially the big banks. Though many of the smaller, regional banks completed a significant bottom formation in early 2011, the recent actions of two widely held bank stocks suggest that shareholders should be monitoring their positions and definitely have protective stops in place.
Chart Analysis: Bank of America (BAC) formed a very nice short-term bottom the first week of December (point 1), dropping to a new correction low of $10.91 and then reversing to close the week higher. Positive volume action created an excellent buying opportunity the following week, but the rally now appears to be stalling.
* The 50% retracement resistance at $15.40 seems to have stopped the rally with the 61.8% resistance now at $16.42
* After the recent drop, there is now short-term resistance at $14.38-$14.67
* The sharp drop at the end of January took BAC back to $13.40, which is now important support
* Two weeks ago, BAC formed a strong candle chart reversal formation called a "doji" (point 2), which was a strong warning. The gap lower and the break of the weekly uptrend (line a) last week has further weakened the trend
* Key resistance is now at $14.95
* The weekly on-balance volume (OBV) is still above its weighted moving average (WMA) but has turned lower after testing its downtrend (line b). The daily OBV is negative
* One of the few positives from last week is that BAC was able to close well above the lows at $13.79
Citigroup Inc. (C) got the market's attention in the middle of December as it completed the weekly triangle formation, lines c and e. The triangle formation has upside targets at $6.30-$7.60, but was this a false breakout?
* The volume on the breakout was decent, but the setback after the breakout has lasted longer than I would normally expect
* A weekly close back above $5.00 would reassert the uptrend and project a move to the $5.50 area
* Last week's lows at $4.57 correspond to a retest of the breakout level (line c) as well as a test of the uptrend, line d, and the 38.2% support level
* The $4.57 level now becomes the first support with more important support at $4.40-$4.42 and the 50% support level. If these levels are broken, a decline to the weekly uptrend at $4.00-$4.10 (line e) is likely
* The weekly OBV is still positive as it is rising and above its weighted moving average, but it is not acting stronger than prices. A move of the OBV above resistance at line f would be positive
* The daily OBV is currently neutral, at best
What It Means: For a healthy stock market, the financial sector should be participating, and while some of the regional banks look good technically, these two big banks continue to lag the major averages. They appear to be reaching an important short-term juncture. For good portfolio performance, it is very important to avoid the big losers. I have looked at countless portfolios where the use of a well-chosen technical stop would have limited the losses on one or two stocks, and that would have significantly improved the overall performance.
How to Profit: There seems to be quite a bit of investor attraction to these two bank stocks, but the technical outlook suggests that both are vulnerable to further declines. This week's action should be important. If you are not long these two stocks, I would avoid new positions for the time being, and if you are already long, here are key levels to watch:
For BAC, the suggested stop depends on where your longs were established. If you have secured profits already, use a stop at $13.33, but if you bought BAC in 2011, I would suggest a stop at $13.61.
Citigroup does look better technically, but the $4.36 level should hold on further weakness. I would only consider buying C if it is able to prove itself on the upside and volume is heavy.
Since last fall, I have been concerned about the relatively poor performance of the financial sector, especially the big banks. Though many of the smaller, regional banks completed a significant bottom formation in early 2011, the recent actions of two widely held bank stocks suggest that shareholders should be monitoring their positions and definitely have protective stops in place.
Chart Analysis: Bank of America (BAC) formed a very nice short-term bottom the first week of December (point 1), dropping to a new correction low of $10.91 and then reversing to close the week higher. Positive volume action created an excellent buying opportunity the following week, but the rally now appears to be stalling.
* The 50% retracement resistance at $15.40 seems to have stopped the rally with the 61.8% resistance now at $16.42
* After the recent drop, there is now short-term resistance at $14.38-$14.67
* The sharp drop at the end of January took BAC back to $13.40, which is now important support
* Two weeks ago, BAC formed a strong candle chart reversal formation called a "doji" (point 2), which was a strong warning. The gap lower and the break of the weekly uptrend (line a) last week has further weakened the trend
* Key resistance is now at $14.95
* The weekly on-balance volume (OBV) is still above its weighted moving average (WMA) but has turned lower after testing its downtrend (line b). The daily OBV is negative
* One of the few positives from last week is that BAC was able to close well above the lows at $13.79
Citigroup Inc. (C) got the market's attention in the middle of December as it completed the weekly triangle formation, lines c and e. The triangle formation has upside targets at $6.30-$7.60, but was this a false breakout?
* The volume on the breakout was decent, but the setback after the breakout has lasted longer than I would normally expect
* A weekly close back above $5.00 would reassert the uptrend and project a move to the $5.50 area
* Last week's lows at $4.57 correspond to a retest of the breakout level (line c) as well as a test of the uptrend, line d, and the 38.2% support level
* The $4.57 level now becomes the first support with more important support at $4.40-$4.42 and the 50% support level. If these levels are broken, a decline to the weekly uptrend at $4.00-$4.10 (line e) is likely
* The weekly OBV is still positive as it is rising and above its weighted moving average, but it is not acting stronger than prices. A move of the OBV above resistance at line f would be positive
* The daily OBV is currently neutral, at best
What It Means: For a healthy stock market, the financial sector should be participating, and while some of the regional banks look good technically, these two big banks continue to lag the major averages. They appear to be reaching an important short-term juncture. For good portfolio performance, it is very important to avoid the big losers. I have looked at countless portfolios where the use of a well-chosen technical stop would have limited the losses on one or two stocks, and that would have significantly improved the overall performance.
How to Profit: There seems to be quite a bit of investor attraction to these two bank stocks, but the technical outlook suggests that both are vulnerable to further declines. This week's action should be important. If you are not long these two stocks, I would avoid new positions for the time being, and if you are already long, here are key levels to watch:
For BAC, the suggested stop depends on where your longs were established. If you have secured profits already, use a stop at $13.33, but if you bought BAC in 2011, I would suggest a stop at $13.61.
Citigroup does look better technically, but the $4.36 level should hold on further weakness. I would only consider buying C if it is able to prove itself on the upside and volume is heavy.
Subscribe to:
Posts (Atom)