Individual investors and private equity firms often target companies with great yields. But they are talking about two different numbers.  While the first crowd focuses on divided yields, the big-game hunters focus on free cash flow yield. In fact, if you draw a connection between the two, you can find the path to stocks that are capable of robust dividend growth — and just may get acquired at a nice premium.#-ad_banner-# To understand why free cash flow yields are so important, you just need to look at the frenzied pursuit of Dell Inc. (Nasdaq: DELL) by Southeastern Asset… Read More

Individual investors and private equity firms often target companies with great yields. But they are talking about two different numbers.  While the first crowd focuses on divided yields, the big-game hunters focus on free cash flow yield. In fact, if you draw a connection between the two, you can find the path to stocks that are capable of robust dividend growth — and just may get acquired at a nice premium.#-ad_banner-# To understand why free cash flow yields are so important, you just need to look at the frenzied pursuit of Dell Inc. (Nasdaq: DELL) by Southeastern Asset Management, Silver Lake Partners, Carl Icahn and Michael Dell. All of these big-money players knew that Dell Inc. was quite undervalued in the context of its prodigious free cash flow. Over the past four fiscal years, Dell has generated a cumulative $14.5 billion in free cash flow. That’s just $2 billion less than all of Dell’s enterprise value. Assuming that Dell is able to maintain that level of free cash flow, then the current proposed buyout will pay for itself in less than five years. After that, it’s pure profit. Many private equity firms can do even better by using their… Read More

Don’t get me wrong, I closely follow what Warren Buffett says and does with his money. And yes, he’s one of the most successful investors in history — his returns over more than 60 years have made him the fourth-wealthiest person on the planet. He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect. Let me explain… The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, “In terms of simple profitability, an average… Read More

Don’t get me wrong, I closely follow what Warren Buffett says and does with his money. And yes, he’s one of the most successful investors in history — his returns over more than 60 years have made him the fourth-wealthiest person on the planet. He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect. Let me explain… The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, “In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period.” Actually, an individual investor could have done significantly better than Buffett. To earn $10 billion, Buffett invested $26 billion. His return on investment was about 38%, or 6.7% a year over the past five years. The Journal article says Buffett made his first crisis investment in April 2008 and added to his investments throughout the crisis. He made a number of deals late in 2008 and one as late as April 2009, after the stock market had bottomed. Assuming an individual… Read More

Eugene Fama was a name many investors never heard before the University of Chicago professor won this year’s Nobel Prize in economics. Yet Fama has had a tremendous impact on the investment community over the past 50 years.#-ad_banner-#​ Fama’s research has shown that value stocks outperform growth stocks in the long run. He has demonstrated that small-cap stocks offer greater returns than large-cap stocks over time, and that the market leaders of the recent past are likely to continue leading the market in the future. Articles explaining these concepts are found in academic journals and include math that could challenge… Read More

Eugene Fama was a name many investors never heard before the University of Chicago professor won this year’s Nobel Prize in economics. Yet Fama has had a tremendous impact on the investment community over the past 50 years.#-ad_banner-#​ Fama’s research has shown that value stocks outperform growth stocks in the long run. He has demonstrated that small-cap stocks offer greater returns than large-cap stocks over time, and that the market leaders of the recent past are likely to continue leading the market in the future. Articles explaining these concepts are found in academic journals and include math that could challenge the understanding of many college graduates. Yet, these ideas are easily applied by individual investors. Like many great thinkers, Fama has made difficult ideas simple to understand. Value investing can be applied with a number of tools. Price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S) ratios are popular, and all work well if applied with discipline. Small-cap stocks can be rewarding in the long run. While there are a number of opportunities among small caps, most traders will find there are just as many opportunities among large-cap stocks. Market leaders are defined with relative strength (RS), a… Read More

I couldn’t believe my good fortune. It was my first day investing with real money at a proprietary trading firm. I had just completed an intensive training course and spent weeks on a stock market simulator with pretend money.#-ad_banner-# A quick primer: Proprietary trading companies hire traders to trade the firm’s money for a split of the profits. Some require traders to post a risk deposit to cover any potential losses. Others don’t require a deposit, but traders take less of the profit because the firm assumes more risk. My first trade was on a small $7 stock that showed… Read More

I couldn’t believe my good fortune. It was my first day investing with real money at a proprietary trading firm. I had just completed an intensive training course and spent weeks on a stock market simulator with pretend money.#-ad_banner-# A quick primer: Proprietary trading companies hire traders to trade the firm’s money for a split of the profits. Some require traders to post a risk deposit to cover any potential losses. Others don’t require a deposit, but traders take less of the profit because the firm assumes more risk. My first trade was on a small $7 stock that showed all the signs of one about to explode on the upside. I purchased the maximum number of shares that the firm permitted and set my stop loss — and to my amazement, the price took off to the upside. By the end of the trading day, I had banked a $2,500 profit after splitting with the firm. Not bad for the first day on the job, I thought. My phone rang — it was the managing director of the firm requesting my immediate presence in his office. I hadn’t met him, but I thought that surely he wanted to congratulate… Read More

Intel (Nasdaq: INTC) beat the Street’s estimates when it announced its third-quarter results last week. The company reported earnings of $0.58 a share, beating the consensus estimate of $0.53. Revenue for the quarter was $13.5 billion, in line with analysts’ expectations.#-ad_banner-#​ Intel also said it expects fourth-quarter revenue of about $13.7 billion, compared with analysts’ expectations of $14 billion.  Intel CEO Brian Krzanich was upbeat about the company’s third-quarter performance and strategy execution: “We’re executing on our strategy to offer an increasingly broad and diverse product portfolio that spans key growth segments, operating systems and form factors. Since August we… Read More

Intel (Nasdaq: INTC) beat the Street’s estimates when it announced its third-quarter results last week. The company reported earnings of $0.58 a share, beating the consensus estimate of $0.53. Revenue for the quarter was $13.5 billion, in line with analysts’ expectations.#-ad_banner-#​ Intel also said it expects fourth-quarter revenue of about $13.7 billion, compared with analysts’ expectations of $14 billion.  Intel CEO Brian Krzanich was upbeat about the company’s third-quarter performance and strategy execution: “We’re executing on our strategy to offer an increasingly broad and diverse product portfolio that spans key growth segments, operating systems and form factors. Since August we have introduced more than 40 new products for market segments from the Internet of Things to data centers, with an increasing focus on ultra-mobile devices and two-in-one systems.”  Intel is ramping up investments in its TV service project, hiring talent from the likes of Google (Nasdaq: GOOG), Apple (Nasdaq: AAPL) and Netflix (Nasdaq: NFLX) earlier this year. Whether all of this will play out as planned remains to be seen, but from a technical perspective, the stock’s chart looks enticing. The day after the company reported its earnings, the stock rallied 1.3% as investors and traders alike seemed to take… Read More

Biotechnology is a notorious minefield for investors. For every successful drug that survives the approval process, dozens more simply flame out. Millions of dollars of capital evaporate every time a clinical trial fails to produce positive results. #-ad_banner-# Yet a select group of biotech visionaries manage to strike it big — time and again. They have a knack for spotting biotechnologies that ultimately prove their mettle through the Food and Drug Administration’s rigorous process. And few have shown the gift of biotech insights like Randal J. Kirk. Kirk has built his fortune by focusing on drugs that have blockbuster potential. Read More

Biotechnology is a notorious minefield for investors. For every successful drug that survives the approval process, dozens more simply flame out. Millions of dollars of capital evaporate every time a clinical trial fails to produce positive results. #-ad_banner-# Yet a select group of biotech visionaries manage to strike it big — time and again. They have a knack for spotting biotechnologies that ultimately prove their mettle through the Food and Drug Administration’s rigorous process. And few have shown the gift of biotech insights like Randal J. Kirk. Kirk has built his fortune by focusing on drugs that have blockbuster potential. And he’s shown the patience to stick with them — for years, if needed — until his vision is realized. The payoff: He netted a $1.2 billion profit in 2007 when Shire (Nasdaq: SHPG) acquired New River Pharmaceuticals for $2.6 billion. New River had developed Vyvanse, a key drug in the treatment of attention deficit hyperactivity disorder (ADHD). Four years later, Kirk struck gold again as Forest Labs (NYSE: FRX) paid him $600 million for his majority stake in Clinical Data, which had developed Viibryd, an anti-depressant drug that hit the market in 2011. Since then, Kirk has remained off… Read More

Polyester-draped family photos aside, being a child of the 1970s was pretty cool in some ways. There were many things to dislike — bad hair, bad clothes and a lot of terrible music — but the TV shows weren’t too bad. For several years in the mid-’70s, my family used to sit down faithfully on Tuesday nights in front of our ridiculous console TV set to watch “Happy Days.” The series ran well into the ’80s, but most viewers gave up on it after the famous episode in which the Fonz jumped a shark while waterskiing. The series… Read More

Polyester-draped family photos aside, being a child of the 1970s was pretty cool in some ways. There were many things to dislike — bad hair, bad clothes and a lot of terrible music — but the TV shows weren’t too bad. For several years in the mid-’70s, my family used to sit down faithfully on Tuesday nights in front of our ridiculous console TV set to watch “Happy Days.” The series ran well into the ’80s, but most viewers gave up on it after the famous episode in which the Fonz jumped a shark while waterskiing. The series went downhill fast after that, giving rise to the awesome phrase “jumped the shark,” which is used to describe when something has peaked and rolled over.  Stocks, of course, are highly capable of jumping the shark. Let me be upfront. I’ve never been to a Chipotle Mexican Grill (NYSE: CMG) — but being in the investing biz, I’m familiar with the brand, thanks to the financial media’s nonstop gushing about the company and its stock. Clearly, Chipotle is a bona fide rock star. A double in two years is impressive, but these numbers are unsustainable. I don’t care… Read More

I love finding little stocks that have a strong possibility of doubling or even tripling in a short period of time.#-ad_banner-# I uncover them by running technical screens on stocks trading under $10. My screens search for companies that have been knocked off their highs then built technical support and rebounded above their 50-day simple moving averages.  Once the screen has found suitable candidates, I drill down into fundamentals, economic conditions and potential catalysts that could power the little stock higher. Many beaten-down stocks experience a rebound from their lows, only to drop back down to those lows or even… Read More

I love finding little stocks that have a strong possibility of doubling or even tripling in a short period of time.#-ad_banner-# I uncover them by running technical screens on stocks trading under $10. My screens search for companies that have been knocked off their highs then built technical support and rebounded above their 50-day simple moving averages.  Once the screen has found suitable candidates, I drill down into fundamentals, economic conditions and potential catalysts that could power the little stock higher. Many beaten-down stocks experience a rebound from their lows, only to drop back down to those lows or even further — the so-called dead cat bounce. My fundamental, economic and catalyst screen, which I call Price Drivers, adds support to the technical picture.  I firmly believe that technical analysis plays a powerful role in stock analysis, but it cannot stand on its own as a decision-making tool. Traders need to understand what’s behind the price moves to make profitable decisions. Price alone isn’t adequate for the vast majority of situations.  The latest stock to pass my technical and fundamental Price Drivers screens is Brazilian telecommunications company Oi (NYSE: OIBR), which trades on the New York Stock Exchange as an… Read More

There is little doubt that Hollywood loves 3-D. According to the website BoxOfficeQuant, 3-D movies make an average of $3.69 at the box office for every dollar of production costs. That is almost 50% more than the $2.51 in box office sales for 2-D films.#-ad_banner-#​ But lately it seems that some of 3-D’s luster has worn off. “Pacific Rim” was a flop, and would-be blockbuster “The Lone Ranger” attracted possibly one lone moviegoer. Growth in worldwide 3-D screens slowed to just 27% last year — respectable, but well off 2009’s growth of 255%.  With few real… Read More

There is little doubt that Hollywood loves 3-D. According to the website BoxOfficeQuant, 3-D movies make an average of $3.69 at the box office for every dollar of production costs. That is almost 50% more than the $2.51 in box office sales for 2-D films.#-ad_banner-#​ But lately it seems that some of 3-D’s luster has worn off. “Pacific Rim” was a flop, and would-be blockbuster “The Lone Ranger” attracted possibly one lone moviegoer. Growth in worldwide 3-D screens slowed to just 27% last year — respectable, but well off 2009’s growth of 255%.  With few real blockbusters this year, 3-D or otherwise, cinema operators are looking like a bust. But that is exactly when you should start looking at the sector for the best of breed.  Like Warren Buffett, I like to be greedy when others are fearful. In fact, the best company in the industry is down more than 8% from its 52-week high and almost a quarter off its 2011 peak. After looking through Hollywood stocks like Lions Gate Entertainment (NYSE: LGF) and Cinemark Holdings (NYSE: CNK), I found a company that doesn’t have to stake its future on a blockbuster movie. Nor does… Read More

I have a “love-hate” relationship with LeBron James. I was turned off by “The Decision” — a crass July 2010 show in which he announced that he would be “taking his talents to South Beach” to play for the Miami Heat after years of playing for the Cleveland Cavaliers. And then came the 2013 NBA Finals. I’ve been a San Antonio Spurs fan for nearly 30 years, and LeBron and the Miami Heat ripped my heart out in winning one of the most compelling NBA Finals of all time.#-ad_banner-# Still, there’s a lot to like… Read More

I have a “love-hate” relationship with LeBron James. I was turned off by “The Decision” — a crass July 2010 show in which he announced that he would be “taking his talents to South Beach” to play for the Miami Heat after years of playing for the Cleveland Cavaliers. And then came the 2013 NBA Finals. I’ve been a San Antonio Spurs fan for nearly 30 years, and LeBron and the Miami Heat ripped my heart out in winning one of the most compelling NBA Finals of all time.#-ad_banner-# Still, there’s a lot to like about the guy. Over the years, I’ve admired the maturity LeBron has shown, “The Decision” notwithstanding. He has gone from impoverished kid and high-school phenom to NBA megastar and savvy businessman. That savvy has drawn the admiration of many outside the sports world — including one man who is as iconic in the business world as LeBron is when it comes to basketball. Who am I talking about? Warren Buffett. The Oracle of Omaha is a fan of King James? Yeah. “He’s savvy, Buffett told the Miami Herald in November 2012. He’s smart about financial matters. It’s amazing… Read More