August 4, 2008
2, Issue #27
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2. WisdomTree Middle East Div.
3. Citigroup ELKS 11% Celgene (EHC)
5. Investor Trivia -- Catching
the Big One
6. Featured Topic --
Olympic Host Could Bring Home the Income-Investing Gold
7. Free Investing
reading this email? View
Top Stock Picks
ELKS for 10%-Plus Yield
These ELKS give you a double-digit yield, trade like a stock,
and are protected by the share price of a high-flying
biotech company. Read More. . .
the Riches of the Middle East
WisdomTree's fund gives U.S. investors new access to the
rich dividends and rapidly rising markets of the Middle
Read More. . .
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Without enough ammunition to bolster the case for
either buying or selling, the market has gone into a holding
pattern -- with the S&P beginning the week at 1258 and ending at
Stocks were under pressure from the beginning, with the major
averages scurrying right back into official bear market
territory on Monday after having bounced cautiously higher in
prior weeks. Better-than-expected earnings and upbeat comments
out of companies like Kraft (NYSE: KFT) were nice, but easily
overshadowed by the sudden shuttering of two failed Nevada
Fortunately, those losses were recouped the very next thanks to
oil's continued retreat, with crude futures sinking as low as
$122 per barrel -- a stunning $25 decline in just two weeks.
Clearly, sagging energy prices are welcome news for tapped-out
consumers and have begun to ease some of the pain at the pump.
Nevertheless, the latest GDP report still shows an economy under
siege. Second quarter growth came in at a respectable +1.9%, but
that was well below expectations. Even with about $80 billion in
tax rebate checks working their way through the system, gross
domestic purchases were still negative and much of the overall
increase was attributable to soaring exports and a favorable
Adding to the pessimism, the Labor Department announced that
payrolls around the nation shrunk by about 50,000 jobs in July
-- the seventh straight month of losses, some half-million in
total. As a result, unemployment has now ticked up to a
worrisome four-year high of 5.7%.
With traders finding little to cheer about, the major averages
gave back their early gains and ended the week mixed.
Just as they have for over a year, credit and housing related woes
remain a major question mark. But on the bright side, with over 250
of the S&P 500 companies having checked in so far, fully two-thirds
outpaced their respective second-quarter earnings targets, dwarfing
the number that came up short.
Still, while domestic companies are struggling against a weakening
economy, those in the oil-soaked Middle East have the wind at their
back. But have you tried investing directly in Kuwait, Quatar or
Egypt? To say these least, these markets haven't always been the
most receptive to foreign investment. But that has begun to change,
and the new WisdomTree Middle East Dividend Fund (Nasdaq: GULF,
$24.74) provides instant exposure to dozens of the region's most
promising companies in one convenient place.
Also in today's digest,
High-Yield Investing editor Carla Pasternak discusses an
ELKS currently yielding more than 10%.
ELKS 11% Linked to Celgene; due 4/6/09 (AMEX: EHC, $10.60)
may sound exotic, but this structured stock/bond hybrid is actually
quite tame and definitely worth hearing about.
-- Nathan Slaughter
The Motley Fool's Top Stocks
David and Tom Gardner
launched Motley Fool Stock Advisor in April 2002 in
the grips of a bear market. Of the picks made during
that first year:
* 23 of 24 are in positive territory
* Nine have at least TRIPLED in value
* Two are up more than 800%, turning every $10k invested
into at least $90,000
To get David and Tom's 2 TOP Picks for new money now
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Hunting ELKS for a
by Carla Pasternak, Editor --
Citigroup (NYSE: C) is the big name behind
ELKS, an acronym for
"Equity-LinKed Securities." ELKS are structure product based
on an underlying common stock. They have a maturity date
(usually a year from the issue date) and offer either cash or
the underlying shares back at maturity. Typically, ELKS pay
quarterly or semi-annual dividends to investors. One of the ELKS
I particularly like is
Citigroup ELKS 11% Linked to Celgene (AMEX: EHC, $10.60).
Snapshot: These ELKS are based on the common stock
of biotech giant Celgene (Nasdaq: CELG). Citigroup issued 2.96
million shares of EHC in March 2008 at $10 a piece, raising
$29.6 million. The security matures in April 2009, at which
point you will either receive your principal back, or shares of
Dividend and principal payments are secured by Citigroup's
investment-grade rating of "A1" from Moody's and "A" from
Standard & Poor's. The ELKS rank as senior unsecured debt,
and debt holders have a claim on Citigroup's assets before
equity holders in case of insolvency. Although the bank has
been under pressure from bad mortgage loans, it has more
than $2 trillion in assets and is generally considered
pays a total dividend of $1.1275, divvied up into two payments
-- one on October 6, 2008 and the second on April 6, 2009. At
today's share price, that equates to a yield of 10.6%. To capture the payments, you'll need to own
the shares before they go ex-dividend, usually five business
days before the payment dates.
The payments consist of $0.8226 a share coming from option
premiums (fees from option sales), which are treated as
short-term capital gains and taxed as regular income. The
balance of $0.3049 is paid as interest, which is also taxable at
your ordinary income tax rate. Thus, the shares are suitable for
a tax-deferred account.
Outlook: The "downside threshold price" for shares
of Celgene is $36.17. That means so long as CELG shares stay
above that price during the next nine months, you'll get back
$10 in cash as principal repayment for every equity-linked
security you own. If you'd prefer to receive Celgene stock, you
can use these ELKS like warrants and opt to get the equivalent
value in shares instead.
In the unlikely event the shares fall to the threshold price or
below, you'll get 0.16589 shares of Celgene for each ELKS. If
Celgene's shares were to go down below the threshold price of
$36.17 and stay there, at maturity you would receive less than
your original principal in equivalent CELG shares. Say Celgene
declined to $36.17 a share. At the 0.16589 exchange rate, you
would receive just $6 worth of Celgene shares for each ELKS
The risk of that happening appears low at this time. Selling
today at $73.92, the shares have traded above $40 since early
2006. Over the past year they've defied gravity, gaining more
than +20% while the S&P 500 has lost close to -13%.
Looking ahead, Celgene's future appears bright. It has a
blockbuster blood cancer drug Revlimid and a dynamic pipeline
psoriasis and cancer drugs that should ensure future growth.
shares trading near their $10 par value, we see little downside
and good upside in EHC.
Since only 2,200 shares change hands daily, interested investors
may want to consider buying small lots over several days, so as
not to move the price.
Capture a 10.5% Yield and
Up to +339.18% Returns With This ETF
Our research team has
identified an exchange-traded fund (ETF) that gives U.S.
investors an easy way to capture the growth and
stability of one of the fastest-growing nations in South
This fund yields a hefty 10.5%, and its 5-year total
returns are +339.18% -- a record that's hard to match.
This ETF is a dynamite buy. The next 12 months could be
Get the Full Report Here
Unlock the Riches of
the Middle East
Nathan Slaughter, Editor --
The ETF Authority
WisdomTree has just launched a new fund targeting the
oil-soaked Middle East region. WisdomTree Middle East
Dividend (Nasdaq: GULF,
$24.74) is aptly named GULF and will join a
small, but growing, contingent of funds targeting stocks in
Egypt, Bahrain, Kuwait, Jordan and several other countries.
Though still tiny by Western standards, these markets are
growing rapidly and are already home to companies with a
combined market capitalization of $815 billion -- about 2% of
the world's total. That is a figure that will almost assuredly
be rising swiftly in the years ahead.
While the S&P 500 has been stuck in neutral over the past three
years, Middle East markets have flourished. According to
Bloomberg, over that time stocks have jumped +66% in Kuwait,
+97% in Egypt, and a stunning +153% in Morocco.
As you might expect, soaring crude prices have played a role.
Three of the fund's target markets (Kuwait, Qatar and the United
Arab Emirates) produce a combined 5.75 million barrels of oil
per day, almost one-fifth of OPEC's total production.
And with massive amounts of wealth being transferred from the
developed world into this oil-producing region, governments are
flush with trillions in petrodollars -- which are being heavily
spent on infrastructure and other projects to stimulate economic
growth. As a result, per-capita incomes are rising, foreign
capital is flowing in, and countries across the board are all
projected to enjoy racy GDP growth of around +5% or better over
the next five years.
Yet, investors unnerved at the prospect of being overly
dependent on commodity prices can relax. Most oil companies are
state-owned rather than publicly traded, so energy stocks only
account for a small portion of GULF's portfolio -- banks,
telecoms and materials all carry a much heavier weighting.
For an expense ratio of 0.88%, investors can track the
performance of dozens of the region's premier companies --
which, until recently, were essentially off-limits to outsiders.
The index itself is set up to ensure that components are liquid
(they must have a monthly trading volume of 250,000 shares or
more), well capitalized (market caps of $200 million or greater)
and pay solid dividends (minimum annual dividend payments of $5
The 100 largest companies that meet these requirements are
eligible to be included in the index, and members are weighted
according to dividend distributions. In other words, those with
heftier payouts have a larger weighting and greater impact on
returns. Backtested data suggests this approach is working
wonders -- the index is showing gains of +26.7% over the last
three years. The underlying index also sports a yield of 5.3%,
so shareholders can reasonably expect to see a payout in that
neighborhood before expenses.
All of the
evidence points to continued long-term success for Middle East
For now, GULF looks to be a worthy contender in this group.
Expenses are competitive for this particular asset class,
backtested returns are superior and the focus on dividends
should lead to both steady income and reduced volatility.
Additional Investing Ideas
Investor Trivia -- Catching the
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