Although dividend-paying stocks aren’t in vogue with the fast-money crowd, they’ve always had a strong following among institutional investors and funds looking to lock in gains on less risky, dividend-generating issues In his Stockpikr.com piece “5 Dividend Stocks Ready to Give You a Raise,” Jonas Elmerraji talks about the current value of owning dividend-paying stocks, and lists five that may be raising their dividend payments in the months ahead.
“You may have heard it before: Quality is leading in this market,” Elmerraji begins. “What it means is that big, blue-chip dividend payers are outperforming other stocks in this environment. In a sense, that’s providing a performance double whammy for investors with exposure to quality stocks in their portfolios: They’re collecting (relatively) hefty dividend yields, and they’re laying claim to outsized capital gains as well.”
The reasons for this trend are linked to our declining, historically low interest rates. “With interest rates scraping historic lows, the yields being paid out by dividend stocks in this environment provide a major incentive to pile into income stocks,” said Elmerraji. “Couple that with a rally in 2013 that most investors still haven’t bought into, and the result is an emphasis on quality in the middle of the second quarter.”
In arriving at the five picks he calls readers’ attention to, Elmerraji looks at a combination of factors: a solid balance sheet, a low payout ratio, and a history of dividend hikes. “While those items don’t guarantee dividend announcements in the next month or three, they do dramatically increase the odds that management will hike their cash payouts, especially as investors start to get antsy about whether or not 2013′s rally will be able to hang on,” he stated.
His gang of five, by those criteria,are Intel (INTC), Lowe’s (LOW), Kellogg (K), Coach (COH) and J.M. Smucker (SJM).
In today’s Trading Tip, author Jason Napodano takes a close look at the potential of an interesting up-and-coming pharmaceutical concern Zalicus (ZLCS), in his piece for SeekingAlpha, “Watching Zalicus Like a Hawk.” The company is currently in advanced Phase II trials for its anti-cancer compound called Z160.
“Zalicus is starting to look very interesting at this level,” Napodano writes. “Traders are no doubt waiting for the big Phase II data on potential blockbuster drug Z160 coming in the fourth quarter 2013. But now might be the time value biotech investors take a look at the stock.”
According to Napodano, the company already has a decent revenue stream from a drug called Exalgo, which it receives royalties from through its partner Mallinckrodt. “The current market capitalization is only $75 million,”for Zalicus, Napodano stated. “That’s less than five times our projected 2013 revenues of $16.3 million, and 33% of the market capitalization is supported by the cash balance. With Z160 a potential blockbuster and the top-line supporting the stock at today’s price, Zalicus could be poised for a big second half of the year.”
In great detail, Napodano recounts the development history of Z160, which has had a series of high-profile pharma companies trying to team with Zalicus to bring it to market. Currently, the latest Phase II data on the drug is expected to be released in December 2013. In addition, in May 2009, Zalicus entered into a strategic alliance and research collaboration with Novartis for the discovery of novel anti-cancer combinations. Under the agreement, each party will contribute compounds and evaluate the anti-cancer effects by utilizing Zalicus’ proprietary combination.
“Zalicus received an upfront payment of $4 million plus $3 million per year for two years in research support funding. The company is also eligible to receive up to $58 million in clinical, regulatory and commercial milestones for each combination that is commercialized under the collaboration. In April 2012, Zalicus announced that Novartis has exercised its second option to extend its oncology discovery research collaboration with Zalicus for an additional contract year, through April 2013.”
A specialty of Investors Business Daily (IBD) is alerting readers how to read the tea leaves when trading stocks. Not only do they highlight plays that appear to be technically primed to move higher; they also provide insight about when and why it might be a good time to sell a stock. That’s precisely what Paul Whitfield focuses on in his IBD article “Sell Sign Can Be Urgent Or Not: How Do You Tell?”
“When a stock hits a new high in low volume,” Whitfield begins, “readers often see one of two descriptions in IBD. A new high in low volume is a sell sign,” readers are told. Other times, it’s noted that you can’t expect a new high in strong volume every day….In most cases, the difference between the first description and the second description is context.”
Whitfield goes on to try to help discern between what constitutes a significant sell sign, and what doesn’t. “A true sell sign is sort of like a raccoon in the attic. If you have a raccoon in the attic, that means you probably have baby raccoons in the attic. Ignore the problems, and the racket and the damage will grow,” Whitfield said.
First and foremost, if there is more than one indicator pointing to the downside, it may be a signal to sell. “One way to determine the nature of a sell sign is to look closely at the stock for other problems. A troubled stock seldom has just one problem. In most cases, a thorough examination of a troubled stock will find other problems that may have slipped your attention until now.”
Specifically, according to Whitfield, this means that if you spot a new high in low volume, you should study the chart for earlier signs of trouble. As an example, he looks at the trading action in shares of Precision Castparts (PCP) from several years ago.
Fracking, the process by which oil and gas are extracted from shale, requires large amounts of water to execute. One company that is already reaping the benefits, according to Leslie Norton, in her Barron’s piece “Cleaning Up on Fracking’s Dirty Water,” is Ecolab (ECL). And despite the fact that the issue is trading near its all-time high, she feels ECL’s stock price could rise further still.
“It’s often said that 100 years ago, it took about a barrel of water to get 10 barrels of oil out of the ground,” Norton begins. “Today, generating the equivalent amount of shale-gas energy requires five times as much water…That has enhanced the long-term prospects of water-related stocks, including Ecolab.”
According to Norton, as much as 140 billion gallons of water are used in the 35,000 wells fracked annually in the U.S. “Most of it simply disappears underground; the rest is rendered so toxic by the process that communities are wary of fracking. Plenty of companies will treat the water, but two specialists are Nalco and Champion, both owned by Ecolab,” she stated.
According to Norton, Ecolab was founded in 1923 as a hotel-carpet cleaning concern. Today the company offers products and services that provide clean water and dozens of other treatments–ranging from pest elimination to laundry to kitchen repairs—for food processors, beverage makers, hospitals, power generators, and other industries. Many of these offerings came in with the company’s late-2011 acquisition of Nalco, which then generated about $11 billion in annual revenue.
The bottom line for Ecolab is that the water requirements from fracking command substantially more revenue than conventional oil-extraction. “Ecolab’s additives brought the company about a nickel per barrel of oil that a customer produced. The new wells mean that amount now ranges between 30 cents and $3 a barrel, depending on how difficult the energy is to extract. “The stuff in the ground is more corrosive and needs more treatment,” said Doug Baker, Ecolab’s CEO. That has also made Ecolab more profitable.
In the stock market, especially for small caps, momentum can carry issue prices higher with great speed. In his regular column for Stockpikr.com, Robert Pedone brings readers attention to “3 Under-$10 Stocks Making Big Moves.”
“Stocks that are making large moves like these are favorites among short-term traders,” Pedone writes, “because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst.”
Far from missing out, traders can use these kind of moves as signals for potential runs higher. “Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend –a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success.”
With that in mind, Pedone names three issues that have been sprinting north, with more potential gains to come. They are the news and information provider The McClatchy Company (MNI), construction concern Goldfield (GV), and drug-maker Curis (CRIS).
Pedone hones in on these stocks not only because they’ve shown recent upward price momentum. He looks for both specific business developments, and technical indicators that have the potential to support the upward trajectory of a company’s share price.
When you hear the expression “disruptive business model” in the context of a publically-traded company, it always gets your attention. If a company truly has a paradigm-shifting gameplan that’s working, it can lead to healthy and relatively quick returns for shareholders. In his lengthy SeekingAlpha piece, “Investing in Disruptive Business Models: SolarCity and Better Energ,” Mike Arnold makes the case that SolarCity (SCTY) may be one of those companies.
“Investing is a difficult business,” Arnold begins. “It’s even more difficult when certain industries are undergoing massive, moat-busting operating model disruption; meanwhile, new moats materialize to defend newly acquired competitive advantages…One such company that recently caught my attention is SolarCity (SCTY).”
First, Arnold wants readers to disassociate SolarCity from the slew of other struggling companies in the solar energy sector. “SolarCity…does not sell or manufacture solar equipment, it sells energy…SolarCity is basically a mobile utility company, like a cell phone of sorts, while the traditional utility is more like a fixed wire line telephone service.”
Here’s the company’s model, according to Arnold. “With little to no upfront cost to consumers, SolarCity installs a solar panel system, the mobile power plant on its customer’s rooftop. SolarCity and its investors front the installation cost (with the help of certain tax incentives) in return for owning the solar system and selling the energy generated to its customers at the same or lower prices than consumers could get from the traditional utility for the life of the agreement (usually 20 years). Any additional energy generated is sold back to traditional utilities through a practice known as net metering.”
Despite the company’s meteoric share price rise in recent months, Arnold still likes what he see: “In my mind, the SolarCity model has the potential to disrupt the traditional, centralized power plant utility model once consumers are educated with respect to the value proposition.”
There’s nothing better than a simple list of solid and promising stocks to watch, especially when it comes from someone as well-versed in the markets as Motley Fool’s Sean Williams. In his most recent article for the Fool, Williams writes about “3 Stocks to Get on Your Watchlist.” And it’s not just the stocks Williams wants to interest you in: it’s also the whole notion of keeping a watchlist.
“I follow quite a lot of companies,” Williams begins, “so the usefulness of a watchlist to me cannot be overstated. Without my watchlist, I’d be unable to keep up on my favorite sectors and see what’s really moving the market. Even worse, I’d be lost when the time came to choose which stock I’m buying or shorting next.”
The three companies Williams hones in on are familiar names: Apple (AAPL), Chipotle Mexican Grill (CMG) and Canadian National Railway (CNI). The first issue he discusses is tech bellwether Apple, which just reported earnings, has been a nightmare for shareholders this year, and has raised as many questions as answers with its most recent quarterly earnings report.
“ You can go ahead and give yourself all the reasons in the world why Apple should sell off after announcing its Street-topping second-quarter results, but I can give you 145 billion reasons why it remains an intriguing buy,” Williams said. “For the quarter, Apple reported an 11% increase in revenue to $43.6 billion as it upped sales of the iPhone to 37.4 million from 35.1 million in the year-ago period, and iPad sales launched to 19.5 million from 11.8 million. Yes, PC sales remain a weak point with Mac sales dipping again, but overall this was another strong quarter of cash flow generation and consistent execution.”
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Record low interest rates coupled with stable inflationary conditions have become the order of the day, as the U.S. continues to fight back from the brink of disaster triggered by 2007’s economic meltdown. But experts don’t think a jump in inflation isn’t a matter of “if.” Instead, they believe it’s a matter of “when.” In his piece Barron’s piece “TIPS Are Cheaper Than You Think,” Jack Hough discusses playing Treasury Inflation-Protected Securities,” or TIPS, which offer a hedge against both inflation and deflation.
First, Hough notes that TIPS have not been performing well under current economic conditions. “Yields on 10-year TIPS and shorter have been negative for more than a year,” he stated. “Those who hold to maturity are assured that the buying power of their investment will fall short of the inflation rate by the amount of this yield, recently minus-0.6% per year on 10-year TIPS and minus-1.3% on five-year ones.”
That hasn’t stopped one of the world’s most expert bond investors, Bill Gross, from snapping up TIPS for his giant Total Return Bond at Pacific Investment Management. “Other investors should consider doing likewise as TIPS provide cheap insurance against two dangerous possibilities,” Hough writes.
“The first possibility is that the Federal Reserve’s unprecedented effort to stoke the economy results in a flaring up of the inflation rate. That looks unlikely at the moment, but much can change over the life of 10-year TIPS.”
The other possibility, according to Hough, is that “the inflation-fighting ability of TIPS is widely cited among investors, but less-cited is their ability to protect against a second danger: deflation, or a prolonged fall in consumer prices. Falling prices may sound good, but the result is that money sitting under a mattress becomes more valuable. Consumers, anticipating as much, reduce their spending to a minimum.”