As a business strategy, selling to your softball teammates really isn’t the best way to optimize profits.  But that’s exactly how things got done in the prairie climes of Alberta, Canada, where I grew up.  #-ad_banner-#In fact, a lot of start-up companies get launched around my hometown. They’re mostly from the oil patch, which is a multi-billion dollar business in that part of the world.  Of course, many of these are big-scale ventures — drilling companies with large fleets of rigs or oil exploration companies that control thousands of acres. Then there’s the law firms, accountancies and human resources conglomerates… Read More

As a business strategy, selling to your softball teammates really isn’t the best way to optimize profits.  But that’s exactly how things got done in the prairie climes of Alberta, Canada, where I grew up.  #-ad_banner-#In fact, a lot of start-up companies get launched around my hometown. They’re mostly from the oil patch, which is a multi-billion dollar business in that part of the world.  Of course, many of these are big-scale ventures — drilling companies with large fleets of rigs or oil exploration companies that control thousands of acres. Then there’s the law firms, accountancies and human resources conglomerates that support them. But, surprisingly, there’s also room in this landscape for a totally different type of firm. Amid the giant corporations that move to town to pump every drop they can from the wells they pay dearly for, mom-and-pop businesses often begin popping up. They sell special sand to drilling companies for use in “fracking” procedures. They sell specialty chemicals to exploration firms to aid in the development of effective drilling fluids.  There’s even an entire sector of oil field services known as “hot shots” — which consists of drivers who are ready, at a moment’s notice night or… Read More

As the old Wall Street saw goes, “There’s always a bull market somewhere.”  These days, with the stock market faltering, you might think that can only mean inverse ETFs. But even in bearish times, there are still stocks that can and do move higher. After all, even during the Crash of 1987, several dozen stocks on the New York Stock Exchange gained ground. #-ad_banner-# That’s why it always pays to keep an eye out for stocks with healthy charts, even in a sick market. One that I like right now is for-profit hospital operator HCA Holdings (NYSE: HCA). Read More

As the old Wall Street saw goes, “There’s always a bull market somewhere.”  These days, with the stock market faltering, you might think that can only mean inverse ETFs. But even in bearish times, there are still stocks that can and do move higher. After all, even during the Crash of 1987, several dozen stocks on the New York Stock Exchange gained ground. #-ad_banner-# That’s why it always pays to keep an eye out for stocks with healthy charts, even in a sick market. One that I like right now is for-profit hospital operator HCA Holdings (NYSE: HCA).    It was a rough first few weeks of the year for the broader market until, on Jan. 20, it suddenly reversed to the upside. The Dow Jones Industrial Average was down as much as 565 points intraday, but closed just 249 points lower. The media reported the net loss but the charts told a different story — one of an oversold market with extreme fear staging an intraday comeback. HCA’s price action that day was not quite as dramatic, but it still ended with a nice intraday turnaround. It also formed a weekly reversal pattern right at a nice… Read More

Last week, blue-chip Caterpillar (NYSE: CAT) reported dismal fourth-quarter and full-year results. 2015 was a tough year for the construction and industrial equipment giant, and the stock reflected this, falling 25%.  Following the earnings announcement, the company’s CEO warned that 2016 would be another “rough” year. #-ad_banner-#But the Q4 results were not as bad as many feared, and shares shot up nearly 5% after their release. Short covering was likely a factor, though, and the rally creates an excellent entry point for new short positions.  We think CAT is vulnerable to more selling. Here are four big reasons… Read More

Last week, blue-chip Caterpillar (NYSE: CAT) reported dismal fourth-quarter and full-year results. 2015 was a tough year for the construction and industrial equipment giant, and the stock reflected this, falling 25%.  Following the earnings announcement, the company’s CEO warned that 2016 would be another “rough” year. #-ad_banner-#But the Q4 results were not as bad as many feared, and shares shot up nearly 5% after their release. Short covering was likely a factor, though, and the rally creates an excellent entry point for new short positions.  We think CAT is vulnerable to more selling. Here are four big reasons why: 1. Falling Revenues  The company’s sales have been declining since 2012, when they peaked at $65.9 billion. For 2015, Caterpillar reported revenue of $47 billion, which was down 14.8% from 2015. The severe slump in oil and gas prices, plus lower prices of mined commodities such as iron ore and copper for which the company makes equipment, have taken a big toll.  For example, in the most recent quarter, revenue from the machinery, equipment and transportation segment fell 24%, and a $921 million operating profit in the comparable quarter of 2014 turned into a $227 million loss. The resource… Read More

A sharp market correction affords keen-eyed investors buying opportunities for suddenly undervalued stocks, as we found throughout January. But what to do when the market starts to rebound? Shares of high-quality companies often bounce back beyond bargain levels before the rest of the pack. Is it truly too late to find short-term winners? After all, the market remains way below its recent highs. What’s the best way to identify those stocks likely to lead the averages in the coming weeks and months? #-ad_banner-#One answer: relative strength. Relative strength is an indicator of a stock’s performance relative to a benchmark, normally… Read More

A sharp market correction affords keen-eyed investors buying opportunities for suddenly undervalued stocks, as we found throughout January. But what to do when the market starts to rebound? Shares of high-quality companies often bounce back beyond bargain levels before the rest of the pack. Is it truly too late to find short-term winners? After all, the market remains way below its recent highs. What’s the best way to identify those stocks likely to lead the averages in the coming weeks and months? #-ad_banner-#One answer: relative strength. Relative strength is an indicator of a stock’s performance relative to a benchmark, normally a broad stock index such as the S&P 500. If, say, Microsoft shares are up 10% over a two-week period and the S&P 500 is up 5% during that period, Microsoft’s Beta (a measure of relative strength) is 2.0 during that time. It’s a strong indication that — at least in the short run — investors are more enthusiastic about Microsoft than they are about the market as a whole. Why? For our purposes, that doesn’t matter. All we need to know is that Microsoft is exhibiting relative strength vs. the market. What’s key here is that history shows that… Read More

Many investors think in binary terms. Often times, that means when looking at a particular stock, they tend to distinguish between whether it is a “value” or “growth” stock.  Value investors like to focus on companies with low valuations — whether based on the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio or something similar. Growth investors, on the other hand, focus on things like earnings growth, expecting share price to follow profits higher. #-ad_banner-#There are many studies showing specific valuation tools can work — if we define “working” as delivering market-beating results over a long-enough time horizon. In other words, value… Read More

Many investors think in binary terms. Often times, that means when looking at a particular stock, they tend to distinguish between whether it is a “value” or “growth” stock.  Value investors like to focus on companies with low valuations — whether based on the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio or something similar. Growth investors, on the other hand, focus on things like earnings growth, expecting share price to follow profits higher. #-ad_banner-#There are many studies showing specific valuation tools can work — if we define “working” as delivering market-beating results over a long-enough time horizon. In other words, value investing often means you have to be patient through years of underperformance — a time horizon many growth investors don’t share.  But growth investing has its own caveats. For instance, a stock’s price can fall as quickly as it rose if a company’s growth slows or if a competitor bursts onto the scene.  Despite the seemingly stark contrast between value and growth investing, I tend to blur the lines between the two disciplines.  For instance, I often use the PEG ratio, which combines a company’s P/E ratio and its earnings per share (EPS) growth rate. The PEG ratio recognizes that… Read More

Most sectors of the S&P 500 have been caught in the market sell-off lately, with all except utilities in the red for the year. #-ad_banner-#The market rout has left one staple of American progress down 12% year to date. But it has been battered, along with its entire sector, for nearly a year. Shares now trade for a 30% discount to their long-term P/E ratio, while numerous catalysts are lining up for a rebound.  Relief On The Horizon For Rail Stocks Weak commodity prices (especially for coal), falling industrial output and strength in the U.S. dollar have taken… Read More

Most sectors of the S&P 500 have been caught in the market sell-off lately, with all except utilities in the red for the year. #-ad_banner-#The market rout has left one staple of American progress down 12% year to date. But it has been battered, along with its entire sector, for nearly a year. Shares now trade for a 30% discount to their long-term P/E ratio, while numerous catalysts are lining up for a rebound.  Relief On The Horizon For Rail Stocks Weak commodity prices (especially for coal), falling industrial output and strength in the U.S. dollar have taken a major toll on railroad stocks. The Dow Jones U.S. Railroads Index has fallen roughly 40% in the past 12 months. Union Pacific (NYSE: UNP) — the No. 1 railroad company in the United States with 32,000 route miles running across 23 states in the western two-thirds of the country — is no exception. Earlier this month, UNP slid 3.5% in one day after it reported dismal fourth-quarter results. While pricing was 3.5% higher year over year, volume sank 9% and earnings per share fell 19%. Shares are now 45% off their 52-week high, set in February, and… Read More

The major U.S. indices closed higher last week, adding to the previous week’s gains. The rebound was led by the blue-chip Dow Jones Industrial Average, which climbed 2.3%. The tech-heavy Nasdaq 100 — which typically leads the market both higher and lower — brought up the rear with gains of just 0.5%. #-ad_banner-# From a sector standpoint, last week’s advance was led by downtrodden energy. The sector is closely tied to crude oil prices and gained 4.4% on the hopes that oil supply is set to decrease. The next strongest sectors were both defensive, though, with utilities and… Read More

The major U.S. indices closed higher last week, adding to the previous week’s gains. The rebound was led by the blue-chip Dow Jones Industrial Average, which climbed 2.3%. The tech-heavy Nasdaq 100 — which typically leads the market both higher and lower — brought up the rear with gains of just 0.5%. #-ad_banner-# From a sector standpoint, last week’s advance was led by downtrodden energy. The sector is closely tied to crude oil prices and gained 4.4% on the hopes that oil supply is set to decrease. The next strongest sectors were both defensive, though, with utilities and consumer staples gaining 3.7% and 3% respectively. It’s too early to fully assess the sustainability of this rally, but this lack of leadership doesn’t instill much confidence that it’s more than a mere correction in an uncompleted market decline. More clues to the sustainability of the current rebound can be found by watching which areas of the market lead and lag in weeks ahead. Important Resistance Is On The Horizon  The bellwether S&P 500 has aggressively rebounded from its test of underlying support at 1,821 — a level I first discussed in the Jan. 19 Market Outlook. The chart below… Read More

These days it seems as if the market doesn’t know whether it wants to break through fears of higher rates and a slowing China or crash lower into a new bear market. The VIX volatility index has jumped to an average 24.1 in the first month of 2016 against an average of just 16.7 in 2015. The S&P 500 tumbled 9% in the first three weeks and triple-digit moves in the Dow are a daily occurrence.  In the frenzy of daily trading, it’s easy to lose sight of the long-term potential to make money. When asset prices plunge, it’s easy… Read More

These days it seems as if the market doesn’t know whether it wants to break through fears of higher rates and a slowing China or crash lower into a new bear market. The VIX volatility index has jumped to an average 24.1 in the first month of 2016 against an average of just 16.7 in 2015. The S&P 500 tumbled 9% in the first three weeks and triple-digit moves in the Dow are a daily occurrence.  In the frenzy of daily trading, it’s easy to lose sight of the long-term potential to make money. When asset prices plunge, it’s easy to forget about the 221% total return on the S&P 500 since the bottom of the financial crisis in March 2009 or the 375% cumulative return over the last two decades. #-ad_banner-#In fact, the recent market selloff may be your opportunity to pick up some of the best performers of the last 20 years at a discount. A lot of these bellwether names saw their stock prices surge over the last few years but have come down to more reasonable values in the last month.  They’ve made millionaires of investors over the last two decades and may be ready to… Read More