Alan's Finance Blog

The Worst Stock Pickers in the World

Looking for some simple guidance on what stocks to buy or sell?

Well, Wall Street is more than happy to help.

In fact, big banks in Wall Street employ hundreds of equity analysts who spend countless hours analyzing stocks. These highly educated analysts then issue very clear “buy” and “sell” recommendations.

So when a bunch of Wall Street Analysts have a “buy” rating on a particular stock, obviously you should be buying, right?

Wrong!

The reality is the weatherman is better at predicting the future than most Wall Street analysts. These highly paid experts are horrible at picking stocks.

Take now, for example. At the moment, Wall Street analysts all hate one emerging market in particular. Personally, I can’t wait to grab some shares in it…

When Analysts Say “Sell”, it’s Time to Buy

Recent data from Bloomberg proves you could have outperformed the stock market just by buying stocks the mainstream analysts hated the most.

Since the market bottomed in March of 2009, stocks with the best ratings rose 73% on average. That may sound great, but considering the market has risen 100% since then, that’s a pretty lame performance.

On the other hand, stocks that had the worst ratings rallied by 165%.

Analysts’ favorite sectors for 2010, healthcare and technology, were among the worst performers across 10 industries in the S&P 500. These losers gained less than 10%. Meanwhile, out-of-favor sectors, like banks and real estate firms, gained at least twice as much.

This is just one more reason to disregard all those so-called “great stock tips” coming from Wall Street.

Don’t get me wrong. These Wall Street types are pretty smart people. But when all analysts give a specific stock a “buy” rating, it means everyone is already in love with it. When that happens, there aren’t a lot of investors left to buy and push the stock up higher.

The other side of the coin is that when all analysts hate a particular stock, there’s a great potential for outperformance.

Right now analysts hate one of my favorite emerging markets: Brazil.

Why Everyone Hates
One of My All-Time Favorite Markets

Wall Street analysts are now giving Brazilian stocks the fewest “buy” ratings in history. In other words, Latin America’s biggest equity market is out-of-favor.

That’s interesting considering everyone was in love with Brazil up until recently. It was one of the best performing markets in 2009. But it has been moving sideways for the past year or so, while stocks rallied here in the U.S.

Why did these Wall Street guys change their minds?

Like many other emerging markets, Brazil is struggling with rising inflation. Its Central Bank has started a series of rate hikes to cool down the booming economy. So analysts are concerned higher interest rates will slow consumer demand.

The fact that analysts don’t like Brazil now is telling me it’s time to buy. But I see two other reasons to buy now, especially if you’re a long-term investor.

The Perfect Time to Buy

Analysts are right about higher interest rates pushing stocks lower. But that’s already priced into the market. In fact, that explains the underperformance of Brazilian stocks.

But these rate hikes will soon come to an end.

The Brazilian Central Bank has increased the benchmark lending rate by 1% to 11.75% this year. Local economists expect rates to finish 2011 at 12.5%, bringing this cycle of rate hikes to an end.

So interest rates will peak soon. History has shown that it’s always a good time to start accumulating a country’s stocks once rate increases come to an end. The chart below shows that whenever rates peak, stocks rally.

End of Interest Rates Hikes is Good News for Stocks

It’s also hard to not like the Brazilian market when it’s this cheap.

Brazilian stocks are trading at a price to earnings (P/E) ratio of only 10.6. Compared to the U.S. market, sitting at 13.4, that’s incredibly cheap. In fact, Brazilian stocks generally trade at a ratio 22% higher.

Anyway you look at it, the Brazilian market is trading at a discount. Usually, you only see these types of discounts when there’s something fundamentally wrong with Brazil.

On the contrary, Brazil now has a growing middle class, thriving commodity exports, and exposure to rising oil prices with their booming oil reserves. Not to mention it’s also hosting the next football World Cup and Olympics.

These are all reasons why Brazilian stocks are on my buy list this year. For Americans, there are easy ways to buy Brazilian stocks through both ADRs and ETFs.

So it’s really a no-brainer to buy – even if the financial geniuses on Wall Street haven’t caught on yet.

Mark my words: It won’t take too long for investors to fall in love with Brazil again. But in the meantime, this is the perfect opportunity to buy this scorned market.

Remember: once all analysts have “buy” ratings on Brazil, it will be too late.

Best Regards,

Evaldo Albuquerque,
Editor, Exotic FX Alert

Earnings Drive Stock Prices? See This Chart Before You Answer

By Elliott Wave International

Since the time of buttonwood trees, Wall Street has had its own version of the Ten Commandments — the cornerstone principles of conventional economic wisdom. The first of these writ-in-stone notions is the widespread belief that earnings drive the stock market.

By this line of reasoning, knowing where a market’s prices will trend next is simply a matter of knowing how the companies that comprise said market are expected to perform. On this, the recent news items below capture the public’s devoted following of earnings data:

• “Stocks Rebound As Investors Await Earnings.” (Associated Press)
• “US Stocks Drop As Earnings Data Fall Short” (MarketWatch)
• “Sideways Market Looks For Direction: Earnings Could Point The Way” (MarketWatch)

In reality, though, much of this belief is based on faith, not facts. While earnings may play a role in the price of an individual stock, the stock market as a whole marches to a different drummer.

You get this ground-breaking revelation in the FREE report from Club Elliott Wave International (Club EWI, for short) titled “Market Myths Exposed.” In Chapter One, our editors shatter the smoke-screen surrounding the widespread notion that “Earnings Drive Stock Prices” with these enlightening insights:

• “Quarterly earnings reports announce a company’s achievements from the previous quarter. Trying to predict futures prices movements based on what happened three months ago is akin to driving down the highway looking only in the rearview mirror. It leaves investors eating the markets dust when the trend changes.”
• And — There is no consistent correlation between upbeat earnings and an uptrend in stock prices; or vice a versa, downbeat earnings and a decline in stocks. Case in point: During the 1973-4 bear market, the S&P 500 plummeted 50% while S&P earnings rose every quarter over that period. Here, “Market Myths Exposed” provides the following, visual reinforcement: A chart of the S&P 500 versus S&P 500 Quarterly Earnings since 1998.

As you can see, the market enjoyed record quarterly earnings right alongside the historic, bear market turn in stocks in 2000. Then again, the first negative quarter ever in 2009 preceded the March 2009 bottom in stocks.

“Market Myths Exposed” dispels the top TEN fallacies of mainstream economic thought. The misconception that “Earnings Drive the Stock Market” is number one. The remaining nine are equally capable of knocking your socks off and most importantly, helping you protect your financial future.

Get the 33-page Market Myths Exposed eBook for FREE
Learn why you should think independently rather than relying on misleading investment commentary and advice that passes as common wisdom. Just like the myth that government intervention can stop a stock market crash, Market Myths Exposed uncovers other important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, inflation and deflation, and more! Protect your financial future and change the way you view your investments forever! Learn more, and get your free eBook here.

Complimentary ‘stock mastery training’

If you missed the deadline for Bill Poulos’s Market Mastery
Protege Program last night, I’m sorry, but you’re too late,
because enrollment is currently closed.

However, I have a bit of good news for you.

Bill just gave me a fantastic 62 page trading report he calls:

“Market Mastery Profit Plans”
How Stock Market Insiders Profit in Today’s Economy

He’s giving this away to thank you for participating in his
Market Mastery Protege Program release.

In this report, Bill teaches you the 5 ‘recession proof’ trading
‘attack plans’ that you can use TODAY to enhance ANY trading
method at ANY time in ANY market…

You’ll also learn:

** The 4 “cornerstone components” Wall Street insiders have used
for decades to dramatically put the odds of success in their
favor, and how you can do it, too (page 25)…

** The 4 “emotion stabilizers”, inspired by Einstein, that
finally help keep “fear & greed” out of the picture once & for
all (page 55)…

** How to drastically reduce your “time in the trenches” trading
stocks by spending only 20 minutes a day. This discovery makes
it all possible (page 56)…

** …and a whole lot more, as he reveals the critical & crucial
strategies you need to maximize your profit potential in these
volatile markets…

It’s entirely complimentary & “on the house”. No name or email
required to get it.

Here’s the direct access link:

http://www.marketmastery.com/z/?i=773362&l=f56

Enjoy!

Good Trading,
Alan

Stock “Market Mastery” training starts today at 4pm!

Just a quick reminder that your “Market Mastery” online training
session is TODAY, Tuesday, June 15th.

The room is filling up, so make sure you reserve your seat here:

http://www.marketmastery.com/z/?i=773362&l=f47

Remember, on this complimentary training session, you’ll
discover:

* How to “fast filter” stocks…

* How to automatically get “spoon fed” the highest-potential
tradeable stocks every night via a special “Profit Feeder”
report…

* How to trade the 4 “Market Mastery” methods against the “hard
right edge” (when you don’t know what the next day looks
like)…

* How to “add on” the “F_R_E_E Trade Strategy” to any trading
method you’re currently using – it’s an awesome way of taking
as much profit potential as possible…

* A time-tested risk management strategy inspired by Albert
Einstein, yet so simple to execute that an 8th grader could do
it…

* and a LOT MORE.

Get “in” here:

http://www.marketmastery.com/z/?i=773362&l=f47

Good Trading,

Alan

Brand new stock market MASTERY training (on Tuesday)

If you saw any of the stock trading “market mastery” training
videos last week, then you know 35+ year market veteran Bill
Poulos is going to be hosting a step-by-step online training
session this Tuesday, June 15th…

-where he reveals the actual daily trading plan he and his most
advanced students use to spot the 4 low-risk, high-potential
“profit pockets” that can occur on almost any stock chart.

This is the “next step” in your training, and you don’t want to
miss it:

http://www.marketmastery.com/z/?i=773362&l=f46

You’ll discover:

* How he “fast filters” stocks…

* How he automatically gets “spoon fed” the highest-potential
tradeable stocks every night via his special “Profit Feeder”
report…

* How to trade his 4 “Market Mastery” methods against the “hard
right edge” (when you don’t know what the next day looks
like)…

* How to “add on” his “F_R_E_E Trade Strategy” to any trading
method you’re currently using – it’s his favorite way of taking
as much profit potential as possible…

* His time-tested risk management strategy inspired by Albert
Einstein, yet so simple to execute that an 8th grader could do
it…

* and a LOT MORE.

If you’ve ever wondered how some people seem to always come out
ahead trading the markets, then you NEED to be on this online
training session.

Bill’s going to reveal trading concepts that took him DECADES
(and more than a few losing trades) to finally figure out…

-and this training session won’t cost you a dime.

It’s “on the house”.

But he only has room for a limited number of attendees, so to
make sure you can get in the room when the training begins, go
here to reserve your seat NOW:

http://www.marketmastery.com/z/?i=773362&l=f46

If you’re like me, your schedule is BUSY, and that’s why Bill is
going to be hosting this training 3 TIMES on Tuesday!

* At 12pm, 4pm, and 9pm Eastern (New York time).

You can “choose your slot” here:

http://www.marketmastery.com/z/?i=773362&l=f46

I hope to see you on the training session!

Good Trading!

p.s. As a bonus, after you register, there’s a special link
waiting for you that will show you how you can get a full
scholarship to Bill’s most advanced stock trading program he’s
ever taught – his Market Mastery Protege Program.

Reserve your seat here before it fills up:

http://www.marketmastery.com/z/?i=773362&l=f46

Add Energy Income with an MLP ETN

You’re probably having a tough time these days if you live off the interest from your investment portfolio. For example, according to Bankrate.com, money market accounts are now yielding a paltry 0.76 percent (nationally).

There is no big mystery why this is happening …

Ever since the banking system started blowing up back in 2008, Ben Bernanke and his Federal Reserve have kept short-term interest rates at historic lows. That’s great for bankers, terrible for savers.

Many investors are watching their income slide.

These low rates have income-investors looking for new sources of steady interest and dividends. The alternatives are few. And I’m concerned that some people are so desperate that they’re risking their principal in ways they don’t even realize!

The truth is that there is usually a direct relationship between risk and reward …

• If near-absolute safety is what you want, you can get it from Treasury bills and bank savings accounts, but the interest rate will be very low.

• If you must have more yield, it’s possible — as long as you’re willing to take on more risk.

In other words, there are no free lunches. The best you can do is find a happy medium somewhere on the risk-reward scale.

Today I’m going to tell you about an income investment that I think is a good balance — especially right now in this low-interest rate environment.

Master Limited Partnerships:
Energy Income

You might have heard about master limited partnerships (MLPs). They throw off nice income and have growth potential, too.

MLPs own energy pipelines and storage facilities.

MLPs do this by concentrating on the storage and transportation of energy products. After all, no matter how cheap or expensive oil may be, it still needs to get to you. And the tank farms and pipeline companies are paid well for their services.

My Money and Markets colleague, Nilus Mattive, wrote a terrific column back in 2008 about the MLP market. It’s a good introduction to the topic.

You can, as Nilus says, invest directly in individual MLP issues. I know many people do this very successfully. There are some drawbacks, though …

For one, the tax advantages of MLPs can create some paperwork headaches. You’ll receive “K-1″ forms from each partnership. Many people find the IRS requirements aggravating when it comes time to do their tax returns.

Owning MLPs can complicate your tax return.

You can also face potential tax problems if you hold these partnerships inside an IRA or other retirement accounts. So be sure to consult a tax advisor before you put a MLP in one of these accounts.

As with individual stocks, it’s often better to diversify by holding a broad portfolio of MLPs. Of course this also multiplies the paperwork problem. So wouldn’t it be nice if you could get a whole package of MLP issues in one convenient package?

Well, now you can!

MLP ETNs:
Good Things in Nice Packages

Several exchange-traded notes, or ETNs, now track major MLP sector indexes. They give you exposure to MLP investments in a convenient package with just one trade. They also greatly streamline the income tax reporting.

Sounds great but there are some drawbacks. As I’ve written before, the ETN structure is riskier than it looks. That’s because you don’t really own the MLPs that make up the index your ETN tries to follow. What you own is a bond, issued by a bank, whose return is tied to the index.

This is called “counterparty risk.”

If your ETN sponsor should go belly-up, you could lose part or even all of your investment. Is this a big danger? No, but the possibility is real. Think about Bear Stearns and Lehman Brothers.

Whether the risk is worth taking is a personal decision for you. If you are prudently diversified and pay attention to your investments, then the counterparty risk might be acceptable.

Currently there are three ETNs to choose from that specialize in the MLP sector. You may want to consider these for the income-generating part of your portfolio.

• JPMorgan Alerian MLP Index ETN (AMJ)

• UBS E-TRACS Alerian MLP Infrastructure Index ETN (MLPI)

• Credit Suisse Cushing 30 MLP Index ETN (MLPN)

All three of these ETNs have an attractive yield and good assortment of MLP issues. One big difference among them is that MLPN uses an equal-weighting methodology while the other two are weighted by market capitalization. This means MLPN is somewhat more diversified.

Best wishes,

Ron

Is it too late to buy stocks?

I love fielding intelligent questions on the markets and other financial topics, and lately you’ve been sending me plenty of them.

For example, a Dividend Superstars subscriber named Sharlene recently asked the following question on my blog …

“I am wondering if we should be buying stocks right now, even the stocks that are supposed to be bargains?”

Her concern was that a broad market decline could be imminent, and would impact even the best shares in the process.

My short answer is simple: There is never a bad time to buy a quality stock that is undervalued, as long as your time horizon is measured in years rather than days or months.

Of course, there’s a much longer answer, too …

As I told Sharlene, I absolutely recognize the possibility of a major correction in the stock market over the next year. The reasons are plentiful and include:

• A monster rally of 77% in the S&P 500 since the March 2009 low …

• The simmering sovereign debt crisis sweeping Europe and threatening to land on our own shores …

• And many other threats including a consumer retrenchment, persistently high unemployment, and new legislation that hinders our country’s ability to grow

But let’s also remember that it’s nearly impossible to predict when, or if, another drop will materialize. The recovery — led by an all-too-accommodative Fed — could just as well continue on, with the market returning to its previous all-time highs.

This Is Why I Continue to Advocate
Investing Your Money in Stocks Over Time!

One way to do this is through simple dollar-cost averaging into index funds or individual stocks.

I’ve argued in favor of this approach many times before in this column, but let me just reiterate what it’s about — essentially, you consistently buy equal DOLLAR amounts of the same investment on a set schedule (weekly, monthly, quarterly, etc.). By doing this, you remove much of the risk with market timing and ensure that you are buying more of the investment when it’s trading at a lower price and less when it’s trading higher.

I last mentioned dollar-cost averaging in the fall of 2009, and you can read the full articles here and here.

At the time, I made the case that someone who had been dollar-cost averaging throughout the market decline was still doing quite well.

I used the example of an investor who began using a monthly dollar-cost averaging plan into the S&P 500 SPDR (SPY) in June 2008. And I demonstrated how that investor would have made more money than someone who had regularly put their funds into a money market account — even though the S&P 500 had declined 28%!

Based on the price at the time, 101.2, the total holdings were worth $15,971.94.

Obviously, a lot has happened since that column was written — the S&P 500 was near 1,000 back then and now it’s closer to 1,200. And the latest market action simply proves my point further — someone who continued to pursue the strategy is even farther ahead today than they were last year!

After all, the SPY ETF is now trading near 119. That means that without any additional share purchases, the same $15,000 stake would be worth $18,781.22 today … another gain of 17.5% from my last column!

The results would be even better with additional monthly purchases of $1,000 in the interim, too. All with far less timing risk than you’d have by just moving a giant lump sum in at one time.

Of Course, There’s Another Way to Do This With
Far More Control and, Thus, Even More Upside Potential …

Instead of simply buying fixed dollar amounts of an index fund or a handful of stocks at regular intervals, you could take another approach — buying relatively undervalued stocks one by one, when sectors or companies fall out of favor without reason … when attractive shares are lagging the overall market … or when solid income-producing stocks are being mispriced.

The end result follows the same type of “one toe at a time” logic of a basic dollar-cost averaging strategy but also gives you the chance to make more active decisions (and hopefully outperform the broad market in the process).

This latter strategy is precisely how I run the Dividend Superstars portfolio. I’ve continued to make individual stock recommendations throughout the market’s ups and downs, and it’s worked out quite well so far.

Does that mean I don’t worry about the broad stock market’s direction at all? Of course not!

In fact, I recommended using inverse ETFs to hedge long positions on more than one occasion when the major decline began in full force. And I’m waiting for a couple of stocks on my radar screen to pull back to more attractive levels before I recommend them to my subscribers.

However, my biggest point on whether “now” is the right time to buy stocks is this: We can’t allow the fear of what could happen in a broad way prevent us from taking advantage of individual bargains when they present themselves, nor can we let them derail us from our long-term asset allocation goals.

It just takes research, courage and patience.

And if we’re focusing on stocks that also pay out consistent dividends, we’re mitigating our risk in another important way at the same time!

Best wishes,

Nilus

1 “unusual” stock trading trick?

This may be the ugliest video about stock trading I’ve ever
seen…

-but the message in the story is worth it.

It’s about how a regular guy discovered 1 “unusual” trick in
trading the stock market…

…and how he was finally able to get an “edge” over
everybody else – other traders & even his own broker – after
years of trial & error.

Watch it through to the end here:

http://www.stockmasterymaterials.com/y/?u=2&i=773362&l=f1

(it’s worth it)

Good Trading,
Alan

Is the DOW getting ready to crater again?

The DOW has had a remarkable recovery from the lows that were seen in March of ’09. The question now is, are we headed higher, or is the move over for now?

In this new short video, I will show you some important aspects that I think will warrant your attention. The video is three minutes long and was created on the last day of trading in April.

http://www.ino.com/info/550/CD3336/&dp=0&l=0&campaignid=3

While we are not saying that the market is going to crater, it’s in everyone’s best interest to be aware of this one key level that we point out in the video.

As always you can watch our videos without registration and there are no fees involved.

http://www.ino.com/info/550/CD3336/&dp=0&l=0&campaignid=3

All the best,

Adam Hewison
President, INO.com
Co-creator, MarketClub.com

The Dividends Are Flowing Again

Last year’s dividend numbers were the worst in more than half a century, as corporations large and small struggled with a lack of financing, weak economic conditions, and poor earnings. But now, things are finally looking up …

According to the latest data from Standard & Poor’s, February was a very solid month:

•45 S&P 500 constituents increased their dividends vs. 30 a year earlier

•Two companies initiated new payments (vs. none in the same month last year)

•And only one company decreased its payment vs. 18 cuts in February 2009 …

Plus, for the first two months of 2010, dividend-paying stocks also outperformed non-dividend-paying stocks in terms of capital appreciation — 1.57 percent vs. -0.24 percent!

Source: S & P Index Services

Does that mean everything is easy from here on out? Of course not.

Actual cash payments still fell on a year-over-year basis, and it will probably take a few more years before total dividend payments return to the highs previously reached in 2008.

So I still think you need to be selective in terms of the sectors and specific issues you choose.

Where Do I See Dividend Opportunities Right Now?

I try to diversify the Dividend Superstars portfolio in terms of sectors and industries. But I can think of at least four areas that I really like right now …

Dividend Hotspot #1: Big-brand consumer staples.

These are the firms that sell products that people won’t — or can’t — live without. Basic necessities like food, beverages, cigarettes and toothpaste.

As such, their businesses tend to be very stable. They often boast big brand names and long track records of success. And it would be very hard for an upstart to compete with them effectively.

In short, they thrive whether the economy plunges into recession or is growing like gangbusters.

Even better, my favorite consumer staples firms almost always boast big operations in foreign countries. That means they’re profiting substantially as fast-growing emerging markets adopt Western lifestyles and flock to American brands.

Most importantly — precisely because these companies are so darn stable and profitable — they typically reward their investors very handsomely by mailing out big, fat dividend checks like clockwork.

Dividend Hotspot #2: Utilities with strong dividend histories.

Wall Street brokers love to call these “widow and orphan” stocks because they’re supposedly so boring. And it’s true that these companies just chug along year in and year out, providing the basic services we need to live our daily lives. Water, electricity and gas are hardly exciting things to talk about.

At the same time, what’s not boring about utilities is that many have been paying dividends with amazing regularity and raising their payments every year for decades. And that means investors who buy these stocks get fatter and fatter checks every year.

Dividend Hotspot #3: Select master limited partnerships (MLPs).

While MLPs can operate all kinds of businesses, most are engaged in the transportation of oil, gas and other natural resources … typically through a vast network of pipelines that can span entire continents.

I think of these companies as “trolls at the oil bridge” because whenever oil or gas needs to get from a production field to an end destination, it generally has to go through an MLP’s pipeline. And when you own that pipeline, you get to collect a very nice toll in the process!

Plus, the fact that these companies generally engage in just the transportation of resources also limits the downside they experience when commodities prices take short-term dips.

Dividend Hotspot #4: Unfairly-punished Canadian royalty trusts (CANROYs).

As I mentioned three weeks ago, a lot of investors have written off these Canadian firms that buy the rights to royalties from the production and sale of natural resources. And for a while, I was one of them.

Reason: There has been massive uncertainty surrounding these companies. Namely, a law change that is going to affect them in a major way starting in 2010.

However, I recently did an in-depth analysis of individual CANROYs, including an examination of what would happen to them under a revised legal structure. And my conclusion was that a few of these former dividend darlings are worthy of new investment money right now.

Bottom line: Based on the latest dividend data, payments should only continue rising from here. And if you select the strongest stocks in the strongest sectors, you stand to not only collect fat income checks but also benefit from capital appreciation, too.

Best wishes,

Nilus

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com