Search results matching tag 'Ian Wyatt'

Reader Response: Gold or Silver with a Weakened Dollar?

IanWyatt — Mon, 16 Nov 2009 18:10:00 GMT

Your Daily Profit

November 16, 2009

*****A Good Christmas

*****Obama in China

*****Gold vs Silver

Fellow Investor,

The headline retail sales number for October came in better than expected, up 1.4%. Of course, sales were down more than expected in September, so a bounce isn’t a complete surprise.

Interestingly, it was mostly auto sales that drove the decline in September and the increase in October. Remove auto sales from the numbers and retail sales were up 0.4% in September and 0.2% in October.

Those aren’t big numbers and it’s easy to imagine that they could reverse if there are any new shocks to the U.S. economy. But retail sales numbers are a better measure of consumer confidence than polls like the Michigan Sentiment Survey, especially when people are making long-term commitments like car purchases.

I suspect we can attribute much of the bullish bias in the stock market to rising expectations for holiday spending.

*****President Obama is in China this week. I’m sure you’ll read plenty in the media about how Obama is there simply to reassure the Chinese about the U.S. dollar and our deficit. But it’s critical to remember just how inter-dependent the U.S. and China are.

China is an export economy. Without the U.S. consumer, their economy collapses. China will continue to buy U.S. Treasuries because it’s in their interest to do so.

Also remember that China has been pegging its currency to the U.S. dollar since last year. China knows full well that the U.S. dollar is weak against the euro and the yen. China is deliberately piggy-backing on the U.S. dollar to keep their exports competitive.

So why all the lip service about the relative strength of the U.S. dollar? It seems to me it’s just good old fashioned politickin’. We complain about their human rights and slap tariffs on Chinese tires and steel, they gripe about our currency and deficits. It’s pretty standard stuff…

*****I received an excellent question on Friday from a Daily Profit reader. Lee M. asked “Ian, would you purchase Silver and/or Gold now with the Dollar tanking or wait?”

The first thing to understand here is that gold and silver are up because the dollar is tanking, not in spite of it. On the most basic level, when the dollar falls in value, it takes more of them to buy something. And that’s especially true for commodities.

Demand has an impact on commodity prices, of course. If nobody wants copper, for instance, its price will fall regardless of the dollar. There can be no doubt that the weak dollar is part of the reason that oil prices have been steady in the $70’s.

Silver and gold are a special situation because these metals are perceived as having implicit value that will exist no matter the dollar’s value. Plus, in gold’s case, there is also an economic aspect – gold is considered to be a store of value in hard economic times. In other words, investors believe gold will hold its value when all other asset classes decline.

It’s no coincidence that gold started moving higher in the Fall of 2007 – right about the time that Meredith Whitney was articulating the growing fear that banks were in danger. It’s also no coincidence that, with the exception of the brief spike lower when Lehman Bros. went bankrupt, gold prices have held firm above $800 an ounce. (And as I write this, it’s around $1,130.)

An important thing to notice is that gold has made a new high this year. Silver has not. To me, that says gold is trading higher because of ongoing economic fears as well as the weak U.S. dollar.

Silver, on the other hand, is the pure play on the U.S. dollar. Now, let’s have a look at that US Dollar Index chart again…

I selected a 2-year chart because it shows the dollar index’s 2008 lows around 72. If the dollar returns to those levels we will see a new high for silver and gold. Gold, however, can continue to move higher so long as the dollar stays where it is, because investors remain concerned about the U.S. economic recovery.

The bottom line is that gold may be the more reliable trade right now, but silver has more upside if the dollar continues lower.

Now, this gets to the heart of the matter as to why I’ve been recommending gold miners. Gold doesn’t have to move significantly higher from current prices for gold miners to post huge gains in profitability because their costs are essentially fixed, meaning that profit margins expand as the price of gold moves up. So long as gold remains fairly stable, miners will be locking in gold sales at attractive prices.

A dollar rally might knock silver miners much lower, but that’s not necessarily true for gold miners. For investment purposes, the risk/reward scenario is better for gold miners. For trading purposes, there is more upside for silver if the U.S. dollar heads lower.

To get my top gold mining recommendations, Click HERE.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

Underestimating the American Consumer

IanWyatt — Fri, 13 Nov 2009 17:39:00 GMT

Your Daily Profit

November 13, 2009

*****P/E Ratios

*****Underestimating the American Consumer

*****TradeMaster’s Jason Cimpl

Fellow Investor,

As we came into earnings season, it seemed clear that analysts were far too pessimistic with their estimates for earnings.

Yesterday, Bloomberg reported that 81% of corporations have beaten earnings estimates. That’s the highest percentage since 1993. Bloomberg also reported that the S&P 500 is now trading at 22 times reported earnings. That’s the highest P/E for the S&P 500 since 2002. We might assume from this P/E that stocks are overvalued and due for a correction. But that might be a mistake.

In 2002, stocks made their final bottom following the Internet bubble and 9/11. The S&P broke below 800 twice in 2002 (July and October) and traded down to 806 on February 13, 2003. By the end of 2003, the S&P 500 had rallied to 1,112, a 37.9% gain.

*****Price to earnings ratios are often inflated when stocks are bottoming. In 2002, according to the very nifty P/E indicator at BigCharts.com, the P/E for the S&P 500 ranged between 27 and 42. And even in 2003, the P/E ranged between 26 and 35. It wasn’t until the end of 2004 that we started to see the P/E for the S&P 500 drop below 20.

What does this mean?

It means we shouldn’t read too much into P/E ratios. P/E ratios are lagging indicators. They tell is what earnings were, not necessarily what earnings will be. Right now, investors are saying they see more improvement in earnings ahead.

*****It’s happened to all of us. We accidentally overdraw our checking account while using our bank card, and then we get nailed with a series of overdraft fees. Well, no more.

Bernanke says that banks can no longer allow their customers to overdraw their accounts with debit cards -- and be charged overdraft fees – unless customers opt-in to the program. It may not sound like a big deal, but banks took in nearly $37 billion in overdraft fees in 2008. And even this year, when unemployment has devastated some family budgets, banks may take in $38.5 billion in overdraft fees.

In light of the fact that the Fed and the Treasury have done as much as they can to make it as easy as possible for banks to earn money, this is a surprising move. But it’s a good move. At $35 a pop, overdraft policies look almost predatory.

*****J.C. Penney (NYSE: JCP) reported earnings this morning. Revenues and earnings were lower than last year’s third quarter, but then we expected that. The surprise was that Penney’s raised full year revenue and earnings expectations. An even better earnings report came out at Abercrombie & Fitch (NYSE: ANF). Abercrombie beat estimates by a wide margin, even though same-store sales dropped by what must be one of the biggest margins in retail – 22%.

Again, we must remember that earnings estimates were very low for the third quarter. Companies should beat. And if they don’t, it’s a very bad sign. Still it’s good to see improvement in retail. I still think there could be upside surprises for holiday spending.

*****Now, here’s TradeMaster’s Jason Cimpl with our weekly video analysis of the markets. It’s free. Click here to view it.

Until Monday,

Ian Wyatt Editor
Daily Profit

Continuing to Find Opportunity in China

IanWyatt — Thu, 29 Oct 2009 15:33:00 GMT

Your Daily Profit

October, 29 2009

*****In Xi’an

*****Local Color

*****China Natural Gas

Fellow Investor,

We’ve landed in Xi’an, one of China’s biggest cities. Not long after touching down, we connected with my brother who flew in from Chengdu. He’s been living there for over a year now.

Xi'an appears to be undergoing continuous growth. No matter where you look, you see cranes in almost constant operation. Old buildings are being taken down and replaced with new ones. Much of the new construction is designed to look like the old, both inside the walled city center and outside of "downtown" near our hotel. Even the strip malls are built to look as though they are 1,000 years old.

View of Xi'an, China. These are "clear" skies.

The Xi’an area is best known for the Terracotta Army which guards the tomb of the first emperor of China. These life-sized clay warriors were buried in underground vaults over 2,000 years ago. Discovered in 1974, the vaults are still being excavated, and the warriors reassembled. It's estimated that there are over 8,000 hand made clay soldiers in three separate vaults.

*****Xi’an is a bustling city. Like Beijing, the weather has been warm in the 60s and cloudy most days. Both Xi’an and Beijing are located in valleys, surrounded by hills and mountains. While the locations provided protection from invaders centuries ago, the locations today helps contain the pollution and contribute to smog and cloud filled skies on most days. Since our arrival, we've seen blue sky only once. Whether this is due to pollution or weather is hard to say.

Not surprising, the roads are crowded all the time (I've seen worse though, in Nairobi, Kenya). Traffic lights and signs appear to be interpreted more as suggestions, rather than being considered law. Despite the chaotic roads, there are few accidents. And when there is a fender bender, the two individuals try to determine among themselves who is at fault. They bargain to come to an agreed upon settlement, paid in cash on the spot.

China certainly appears to be developing, but not developed. At popular tourist sites, we Westerners are outnumbered 50-to-1 by Chinese natives who are on vacation visiting the same sites. Our guide tells us that for most of these Chinese, this is their first visit to these places.

Travel has become increasingly popular among Chinese in the ten or twenty years as income has risen and the middle class has grown. Certainly domestic travel can be viewed as one measure of the local economy and for consumer sentiment. By my eyes, both appear strong.

*****As I mentioned on Monday, Xi’an is also home to one of my favorite Chinese companies, China Natural Gas (Nasdaq:CHNG). The recent sell-off in this stock has left the trailing P/E below 10. We picked up CHNG in my SmallCapInvestor PRO service back in May when it was trading at just $6.14. We knew natural gas plays in China presented great opportunities, but what really got us excited was a very brief mention that the company was looking to move from being a bulletin board stock to the Nasdaq. Based on our review of the company’s numbers we knew it was pretty much a sure thing and once it moved onto a major exchange the share price would take off. And it did. If you’ve been looking for a good entry point for China Natural Gas, the current price around $11 is attractive. (And if you’re looking for more stocks with potential like CHNG I invite you to check out my SmallCapInvestor PRO service. Click HERE for more.)

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

High Savings Rate in China Actually Hurts the Chinese

IanWyatt — Tue, 27 Oct 2009 15:19:00 GMT

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Your Daily Profit

October 27, 2009

*****Numbers vs. People

*****What China Needs

*****U.S. Dollar Rally

Fellow Investor,

I hope you’ve enjoyed my running commentary on China over the past few issues. These "travel pieces" provide the opportunity to step back from the daily action in the market. It is always important to take a moment to consider the macro-trends that are playing out around the globe.

I find the cultural differences between the U.S. and China fascinating. And I also believe that by gaining an understanding of the Chinese culture, and the perspective of its people, we will become better investors in Chinese companies.

After all, economies are made of people, not numbers. It’s how we interact, it’s how our fears and expectations of the future affect our behavior that drives growth (or lack thereof).

In the U.S., when we are optimistic, we spend money because we feel confident that our future will be better. We will make more money, and we will retire in comfort. American companies produce more to meet rising consumer demand. They hire new workers – and the numbers move higher.

The low savings rate in the U.S. is a cultural thing. In the wake of the financial crisis, the savings rate has risen from a negative number to something like 5%. And that 5% is considered a sea-change for America, a cultural shift.

But it’s not. 5% is still an alarmingly low level. 5% is not much of a safety net when things go bad. But at least, that 5% savings rate shows that Americans believe things can actually go wrong. That’s a far cry from where we were a couple years ago.

Still, Americans remain confident, even over-confident, that our system will take care of us, that Social Security will be there supplement our retirement savings.

*****Clearly, China’s culture is in transition. And this is a slow process. The aftermath of Tiananmen Square, when neighbors were reporting participants to the authorities, was the result of deep-seeded suspicion of youth movements left over from the Cultural Revolution.

China’s savings rate is reported to be 39%. And this number is very telling about the psyche of the Chinese citizen. Among other things, it says the Chinese are not convinced their economic system will afford them a better life in the future.

And this has profound implications for what China’s next moves must be…

*****For starters, China has no security net like Social Security. And that means the average Chinese must prepare for his or her retirement through personal savings accumulating from years of thrift and diligent saving. A major catalyst for increasing consumer spending, establishing domestic demand and moving China away from its export oriented economy will be the establishment of some form of social security. Watch for it – this will be a big investment event.

China must instill a sense of confidence in its economic system so Chinese will spend more. So don’t look for stimulus actions cease anytime soon. And don’t expect China to start dumping T-bills and U.S. dollars, either.

I know this flies in the face of much of what we hear from the financial media. But in my opinion, China is every bit as dependent on the U.S. as we are on it.

China pegs its currency, the yuan, to the U.S. dollar. So a weak dollar gives the China’s exports a competitive advantage. China needs to move away from being just an export economy. But that transition will take years. And we can expect China to continue to lend to the U.S. to support our deficits. They basically have to, as the alternative (a bankrupt U.S. consumer) would cripple its economy and cause massive social and political upheaval.

*****For this same reason, China will not reel in its stimulus policies any time soon. For one, it has the cash reserves to support its economy. It doesn’t have to go into debt to spend. And second, China must continue to create jobs and raise its standard of living if it wants to its people happy (and not fomenting revolutionary or democratic ideas).

*****Why are we seeing stocks reverse lately? Here’s the U.S. Dollar Index chart we’ve looked at a few times…

The dollar has bounced strongly in recent days. That’s bad for commodities, bad for oil prices and bad for stock prices. If we understand that China is not dumping dollars, then we see the potential for actual dollar strength. And as Jason Cimpl pointed out to his TradeMaster Daily Stock Alerts subscribers this morning, “A rising dollar will have consequences for U.S. stocks. Mainly, they will resolve lower. Commodity prices will be crushed, and this sector is a big part of the U.S. stock market. Risk aversion will also increase which means tech stocks and small caps will suffer.”

*****I’m not recommending that we sell everything and run for cover. I’m just pointing out how inter-related the fates of the U.S. and China remain, and give some more insight as to why I remain bullish on Chinese stocks.

*****I continue to believe that buying dips in Chinese stocks will produce gains. And we may be approaching a great buying opportunity. For instance, one of my favorites that we’ve discussed, China Natural Gas (Nasdaq:CHNG) has dropped from $15 to $12. A run to my price target of $18 will produce a 50% gain (you may recall that we started with this stock back in May when it was trading at $6.14, so we’re already well up on this stock). And that’s just one of Chinese stocks I have in the SmallCapInvestor PRO portfolio. I’ve got 4 more that could do even better than China Natural Gas. Click HERE for details.

Zai-jen,

Ian Wyatt

Editor

Daily Profit

Another Day in the Life of China

IanWyatt — Mon, 26 Oct 2009 17:46:00 GMT

Your Daily Profit

October, 26 2009

*****Greetings from Beijing

*****Local Color

*****Off to Xi’an

Fellow Investor,

The food in China is on average, better than expected. Chicken, pork and beef are sauteed, fried, or steamed and cooked in a sauce that often is brown or includes garlic and chili. It's not advisable to eat raw fruit or vegetables, which has eliminated salad from my diet. Contrary to warnings I received, they do have sweet and sour sauce, although the preparation is a little different.

Our meal at Courtyard did not disappoint. The highly rated restaurant is beautiful, with coi ponds and beautiful decorations. The food was the best Chinese I've ever had. We avoided the more unusual items such as the shark fin. Dinner included conch with asparagus in garlic and spicy chili sauce, a crispy half chicken, premium beef with spice rub and noodles, and sautéed spinach.

Including local beer and imported wine, the meal came to 1,030 RMB, or $140. For China, this is very expensive; when you consider that a very nice meal for two typically runs 350 to 450 RMB. However, a similar meal in Washington, D.C. or New York City would have cost double, and we walked away full and happy.

My wife Carrie and I enjoy eating Asian food as much as the next non-Asian. We typically have sushi a couple times a month and cook in the wok at home occasionally. But Chinese food twice a day? Not for me. Unlike Italian, which I am happy eating at every meal, I need an occasional break.

*****Last night we headed to the Ritz Carlton Cepe Italian restaurant, where we shared linguini with "Boston lobster." The lobster was displayed live at our table, which is a testament to the forces of globalization. I indulged in the arugula as well, thinking that at the Ritz, they've probably mastered cleaning vegetables for their western guests. The meal provided a much needed break. Apparently the Ritz prices are inflated around the world - $200 to $300 is the going rate for dinner for two with drinks, whether in Boston or Beijing.

*****There are over 100 dialects in China, and only 50 percent of the population can speak Mandarin, although they can all understand the language. Our guide Andy is from Beijing and speaks Mandarin, but says that even some people from Shanghai have a different dialect that he can't understand. Typically it's the older people who speak the local dialects, with younger people speaking Mandarin.

Children are now learning English early in school, but most Chinese that I've run into don't speak our language. Andy speaks very good English, although some words like Volvo sound like Wowo when he pronounces them - but by and large, our communication has been great. Meanwhile, our driver Mr. Chan speaks very little English, and I'm not sure he understands much of what we say.

Mr. Chan was shocked when I told him that our small province of Vermont (province is what they call states over here) had only 500k people. When Andy translated this for him, he laughed and told Andy that he is bad with numbers and I must have said 5 million. I told him our state was roughly 200 miles by 100 miles, which I was told is the same size as Beijing, which has nearly 20 million people. Andy and Mr. Chan thought it was funny that two well off Americans would live in a small town with only a couple thousand people.

When I told him our town has no police, he asked if we didn't need them because we all had guns. I responded by telling him I wasn't an NRA member, yet. Both of them found it to be hilarious when I told them that our town has a volunteer fire department. And when there is a fire, someone calls the volunteers, who go to the station to get the fire engine, and then go to put out the fire. In China, things just don't work this way, even in the rural areas.

Our guide has been excellent, and the driver talented at avoiding a couple close calls on the one and a half hour drive to the Great Wall.

The Great Wall was the most impressive of the sites we saw during our stay in Beijing. We visited an area further out from the city to avoid the crowds, although there were still a handful of tour buses.

Other sites during our Beijing visit have included the Temple of Heaven, the Summer Palace, the Forbidden City, and the Olympic stadium.

Now we're off to Xi'an (where China Natural Gas (Nasdaq:CHNG) is located) to meet up with my brother and see the Terracotta Army, which guards the first emperor's tomb.

More from Xi'an later, and I’ll pick up on what’s going in the U.S. stock market, too...

Until tomorrow,

Ian Wyatt

Editor
Daily Profit

China Update: Still Communist and Still Growing Like Gangbusters

IanWyatt — Fri, 23 Oct 2009 15:43:00 GMT

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Your Daily Profit

October 23, 2009

*****Still Communist

*****China’s Growth

*****123% and 71%

*****Using the TLT as an Indicator for Market Direction

Fellow investor,

I’ve helped investors make a lot of money buying and selling Chinese stocks. And yet I often forget that China is still a Communist country, at least on paper.

I know - the Red Flag of the People’s Republic should constantly remind me otherwise. But with so many privately owned Chinese companies going public on the Shanghai stock exchange, as well as on U.S. exchanges, it is easy to forget.

That’s because China’s growth rate is not what you expect from a communist country. In the latest quarter, China has posted 8.9% growth, even as the rest of the world grapples with recession.

China has created a unique system that appears to function well for this huge country, at least for now. China is somehow able to maintain a state-controlled economy that allows for private development and entrepreneurship.

It seems that the government has agreed to allow the people to take more control of their financial future, but in exchange, they agree to go along with Communism. Or perhaps, one might describe it as capitalist authoritarianism.

*****For example, the government owns 100% of the land in this huge country, and grants 70 year leases on property. The idea of private land ownership is somewhat foreign to the Chinese, and they seem content buying property that could be repossessed by the government down the road. Can you imagine a United States without the concept of private ownership of property?

As you know, the talking heads on CNBC have been warning investors away from the “China Recovery Bubble” for a couple of months now. The roughly trillion dollars of state-sponsored loans handed out in the first half of the year are seen as a de-stabilizing force.

While this may be a concern, I have only sold one Chinese stock from the SmallCapInvestor PRO portfolio. And I’ve even added a few in recent weeks. That’s because there’s a big difference between China’s stimulus efforts, and those put in action by the U.S. government. China has the cash on hand to back every penny of loans the country’s banks have made this year.

Not only that, but China’s consumer lending standards are actually far more stringent than what we have in the States. In Beijing, home buyers now need to put down 30% of the value of the home to qualify for a loan. During Beijing’s housing bubble days, it was 10%-20%, still well above the 0% that many Americans took on during the housing bubble. While prices fell last year, the government has been working with developers to keep prices stable, since higher prices also benefit the government (as well as sellers).

*****SmallCapInvestor PRO members have 123% and 71% on two of our Chinese stocks. And the most recent addition is up 24% in just 3 weeks. With a forward P/E of 13, a PEG ratio below 1, and 82% year-over-year growth, this one’s got a lot of room to run. Find out more HERE.

*****This will TradeMaster’s Jason Cimpl returns with a great charting video analysis on how he uses the TLT to help guide him to profit trades. It’s only arrow in his quiver, but it packs a wallop. Click HERE to watch the video now (it’s free).

*****Busy day of tourism here today, with a visit to the Great Wall. Now off to Courtyard Restaurant for dinner. This restaurant was named one of the 50 best restaurants in the world by Conde Naste Traveler. I’m looking forward to their menu.

Zai-jen,

Ian Wyatt

Editor

Daily Profit

Why $80 May Be the New Support Level for Oil

IanWyatt — Thu, 22 Oct 2009 20:30:00 GMT

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October 22, 2009

· $80 oil

· Herman E. Daly on the economics of limited resources

· Profiting from oil and gas small-caps

Fellow Investor,

Yesterday, oil rallied to close above $81 a barrel, the first time the precious commodity has hit that level in 2009. Oil prices gained momentum after the U.S. government released a report showing that crude inventories rose by half a million barrels fewer than expected.

The rise in oil prices, and many other commodities prices for that matter, has many wondering if the market is too bullish given that economic growth is uncertain. Plus, much of the rise in oil has come on the back of a falling dollar.

You’ve probably heard that renewably energy sources like wind and solar will reduce the demand for oil. Government programs that incentivize their use have worked in places like Brazil. But overall, they haven’t slowed the relentless rise of oil prices.

While these factors might make the rise in oil prices seem unsustainable, it’s more likely that normal supply and demand relationships will resume when the economy gets back on track. In other words, higher prices are coming. Peak oil (the point when the world reaches a maximum rate of petroleum extraction, after which production will always be declining) adds an interesting dimension as well. Some experts think we’re past this point, some think it won’t arrive until 2020.

The bottom line is this: Oil is going higher. It might not be tomorrow, it might not be next week, but its upward trend is unmistakable.

One of my favorite authors on the economics of limited resources is Herman Daly.

Herman E. Daly was a Senior Economist in the Environment Department of the World Bank before he became a professor at the Maryland School of Public Affairs. You may be familiar with him from the journal, Ecological Economics. He is co-founder and associate editor.

Daly eloquently lays out a bullish case for scarce resources, such as oil, that is difficult to deny. He points out that there’s absolutely no way we can generate more fossil fuels. We’d have to be immortal and extremely patient, because it takes several million years for geological forces to “make” new oil supplies.

One of the beautiful things about properly functioning markets is that they efficiently allocate resources. However, markets don’t determine sustainable scale. In the U.S., for example, individuals use more oil than we need to. In China, on the other hand, smaller vehicles and less driving time mean each individual is essentially rationing his or her use. Oil use in the U.S. is practically a cultural truth. And it would take government action to change it. Governments the world over are not rationing use of fossil fuels.

Daly notes that we can’t control the supply of oil, but we could control our rate of use. Unfortunately, the government isn’t taking the lead in either case.

Whether you think we are near, at, or past peak oil is irrelevant. Oil is becoming increasingly scarce and the rate of adoption of alternatives is nowhere near strong enough to replace the increasing oil demand. The discrepancy is more exaggerated in emerging markets then it is here in the U.S. Investors will continue to put a premium on oil.

I’m bullish on oil. And small-cap oil stocks can be expected to outperform the big integrated oil companies. As the price of oil goes higher, oil that’s not economical at lower prices suddenly becomes attractive. Valuations for small companies can change quickly.

Today, there are a number of oil and gas companies that we’ve discussed in recent issues of SmallCapInvestor Daily that are trading lower. I’m talking about stocks like American Oil and Gas (AMEX:AEZ), Pioneer Drilling (AMEX:PDC), Abraxas Petroleum Corp (Nasdaq: AXAS), RAM Energy (Nasdaq:RAME), Rex Energy (Nasdaq:REXX) and Tri-Valley (AMEX:TIV). They’ve had a nice run in the last 3 months. And they will likely move higher in the future.

We’ve discussed the oil and gas sector regularly, and I will continue to watch it in the future.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

PS: Subscribers to SmallCapInvestor PRO have access to all of my Special Reports, the top picks from the universe of small-cap stocks that are in my portfolio, and weekly updates keeping subscribers in touch with what I’m buying and selling. You can start a trial subscription to the service and have immediate access to all this information by clicking HERE.

Apple Crushes Earnings and Embarrasses the Pro Analysts

IanWyatt — Tue, 20 Oct 2009 19:04:00 GMT

***** Candy-coated Apple (AAPL)

***** Oil touches $80
***** Ocean Power Technologies (OTT) giving back 10%
***** Boarding-pass to China

Fellow Investor,

It should come as no surprise that Apple (Nasdaq:AAPL) hit it out of the park yesterday afternoon. The company crushed earnings estimates by a wide margin. Clearly there are some things that consumers will spend money on, like iPhones and iPhone apps.

It seems more than ironic that in today’s weekly newsletter to subscribers of my advisory service, SmallCapInvestorPRO, I wrote about a Chinese mobile phone company that just announced a new app for its device. That stock is up 30% since I bought shares on September 30^th. I wish I could just tell you the company’s, name but I’m afraid you’ll have to join to find out.

In that newsletter, I review a few of my recent recommendations and the results from my latest Special Report. Every stock from The 10 Most Profitable Small Caps for 2010 is showing a gain, as much as 20.99%. You can sign up for this newsletter and view the entire portfolio, along with video chart analysis, and all special reports by clicking HERE.

Ok, enough salesmanship for now…

Oil briefly touched $80 a barrel last night. It appears as though the black gold may be reaching for the bottom its next trading range. This may seem a bit counter-intuitive as recent data is showing that inventories continue to rise. But demand will also rise at some point and these reserves will be depleted.

Last week, I said I expected the Dow Industrials to hit 10,500 and the Russell 2000 to hit 665 this year. Of course, we need to get past the psychologically significant Dow 10,000 level first, even though there’s nothing really magical about it. And it looks as though investors realize this. The Dow barely blinked at 10K.

For its part, the Russell is dropping a bit today, down 1.5%. It’s giving back all of its gains from yesterday, and then some. This doesn’t concern me however. Nothing should go up in a straight line.

Rather than talk about top percentage gainers in the small-cap universe today, I’m going to highlight a few losers. And top on the list is Conn’s, Inc (Nasdaq:CONN), down 30%. The consumer electronics retailer said poor consumer spending and increasing delinquencies will likely mean a loss in Q3, and it is temporarily suspending earnings guidance. Come on guys.

I mentioned Ocean Power Technologies (Nasdaq:OPTT) a while back. The stock has rallied 60% in the last week and is now giving back 12%. I still think this company, which makes buoy’s that harness wave power and convert it into energy, has one of the neatest concepts for renewable energy yet. But neat doesn’t always translate into a viable commercial enterprise. We’ll see how this one pans out.

Until tomorrow,

Ian Wyatt

Editor

Tech Stocks Gain Ahead of Apple (AAPL) Earnings

IanWyatt — Mon, 19 Oct 2009 19:40:00 GMT

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***** Tech stocks gain ahead of Apple earnings

***** Autochina International and Brooks Automation still rising

***** Top Gainers on the Russell 2000

Dear Small Cap Investor,

All the major indicies are pushing 1% gains after the weekend break, despite mixed results in the early morning. As is usually the case, the Russell 2000 is leading the way up, adding 1.08% with 1285 stocks advancing and 645 declining.

Technology stocks rose Monday as the market prepares for more earnings reports. Apple (Nasdaq:AAPL) is expected to beat analyst EPS estimates of $1.42 when the company reports after the bell. Chip-maker Texas Instruments (Nasdaq:TXN) is also on deck. I’m looking to Texas Instruments for more signs that semiconductor demand is increasing for businesses and that this recovery has legs.

Last week I looked at two small-caps on the Top Daily Gainers list that are worth taking a second look at: Autochina International (Nasdaq:AUTC), and Brooks Automation (Nasdaq:BRKS). Autochina International is a recently listed stock that finances commercial vehicles and operates a network of after-sales service stations in China. The stock added another 10% today.

As you know, I’m bullish on Chinese stocks in general, because the Chinese government has the cash on hand to support its economy. And China has shown that it will put that money to work. I have several Chinese stocks in the SmallCapInvestor PRO portfolio that rae showing excellent returns.

Auto sales rose 78% to 1.33 million in September. That makes China the biggest auto market in the world. No doubt Autochina International is taking advantage of this trend.

Brooks Automation, the semiconductor automation equipment manufacturer, held it’s gains after gaaping up on Friday. That’s a good sign, and it’s up another 5% today. Brooks Automation is benefiting from improving sales, and bullish comments out of Intel. I’d expect more gains if Texas Instruments also signals good times ahead for chip-makers.

While we’re on the subject of chip-makers, a semiconductor stock from my special report, The 10 Most Profitable Small Cap Stocks for 2010 is up 58% in just 6 weeks.

The company makes specialized semiconductors and microprocessors. In their Q2 conference call, management cited increasing customer orders and inventory replenishment. Some of their customers include tech giants Texas Instruments, Fujitsu, and IBM. To find out more about this company and the other featured stocks, get your copy of The 10 Most Profitable Small Cap Stocks for 2010 by clicking here.

We’re seeing some nice gains in the Russell 2000 today. Sprint Nextel (NYSE:S) is buying small-cap affiliate iPCS (Nasdaq:IPCS) for $831 million. The deal should settle a number of long-standing legal issues between with iPCS, and shareholders of that company are enjoying a nice 30% pop.

Deidrich Coffee (Nasdaq:DDRX) is up 17% on essentially no news. The company has been on a tear this year after focusing in on expanding its K-Cup line. You know, these are the single-serve packs that fit with Green Mountain Coffee Roasters (Nasdaq:GMCR) Keurig brewer. Deidrich is up over 2,300% in the last year and investors on both the long and short side don’t know what to do. Can’t say I’d buy the stock now, but this is a great example fo the gains you can make with small cap stocks.

I outline many of the techniques I use to find the best small-cap stocks in my book, The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks. You can find out more about the book and how to get a copy HERE.

Until tomorrow,

Ian Wyatt

Editor

Collision Course With Dow 10,500 Won't Be a Straight Line

IanWyatt — Wed, 14 Oct 2009 16:47:00 GMT

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Your Daily Profit

October, 14 2009

*****Intel and JP Morgan

*****Dow 10,500

*****How to Make Triple the Gains on Gold

Fellow Investor,

Intel (Nasdaq:INTC) reported excellent earnings last night, as I expected. The chip-maker beat on revenues and earnings per share. The stock is up close to 3% in the early going. That’s because Intel’s results weren’t exactly a surprise. During its mid-quarter update, Intel said the quarter was looking good. And the stock ran from $19 to $20.50 over the last few days. And as of press time it’s at $21.00.

Intel’s earnings are especially important because the company beat revenue expectations. As we know, investors want to see revenue growth. Costs have been cut, and if the economy is truly turning around, sales should grow.

*****JP Morgan (NYSE:JPM) destroyed expectations, posting $0.82 in per share earnings when analysts were expecting $0.52. Investment banking was the biggest contributor to JP Morgan’s result. But I’m impressed by the gains the company made in bond trading. Revenues for fixed income went form $800 million last year to $5 billion this year.

Banks have to find new ways to make money, and JP Morgan is doing it.

Another part of JP Morgan’s quarter illustrates how the Cash for Clunker Stock Rally is working. Stock underwriting revenue for JP Morgan rose 31 percent to $681 million, and bond underwriting fees rose 19 percent to $593 million.

In other words, JP Morgan took in over a billion in revenue helping other companies raise cash by selling stock or bonds. When money is cheap, there’s more of it available.

*****The Dow Industrials is on a collision course with 10,000. And I think we will see 10,500 before the year is out. But there will be a dip to buy sometime soon. The Dow’s not simply going to run through 10,000 on its way higher.

Big round numbers tend to stand out as resistance points. And there aren’t any numbers more round than 10,000. Look for a move above 10,000 soon, and then a reversal.

*****The U.S. Dollar is hitting 14 month lows and gold is hitting record highs at $1,070. Gold prices finally broke through $1,000 an ounce on October 6. Gold is up 7% since. But the mining stocks in the Global Commodity Investing portfolio are up 13%, 19%, and 23%.

That’s because profits for gold mining companies rise exponentially compared to the price of gold. As you can see, in one case, we’re seeing a stock move 3X the price of gold. THAT’S how you make money when gold starts to run. And if gold continues on to $1,200 an ounce or higher (which is likely) Global Commodity Investing members will clean up. Find out how you can join us HERE.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit