November 3, 2008
2, Issue #40
weekly, the TopStockAnalysts Digest is
loaded with stock picks, trading ideas, market commentary, and
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2. Dividend Payers
3. PowerShares EM
5. Investor Trivia -- A Dividend
Grower Bucks the Trend
6. Featured Topic --The
Income Secret That Lets You Use the Bear Market to Your
7. Free Investing
reading this email? View
Top Stock Picks
that Keep on Giving... Even as the Market Keeps Falling
Dividends can provide a safety net in this challenging
market, along with some very hefty income. Guest editor
Martin Denholm shares his tips for finding the best in the
Read More. . .
ETF that Captures Trillions of Dollars in Infrastructure
As emerging countries commit literally trillions of dollars
to build out their infrastructure, this newly launched ETF
is well positioned to build your gains.
Read More. . .
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It may have been
one of the worst months ever recorded in the annals of stock market
history, but at least October ended on a high note.
Early last week, major benchmarks like the Dow and the S&P 500 were
on track for their steepest monthly loss since 1931, and Japan's
Nikkei had sunk into uncharted territory. But the days leading up to
Halloween proved to be a nice treat for investors, starting with
Tuesday's sweet 900-point advance in the Dow.
That stunning rally -- second only to a 935-point surge two weeks
ago as the best one-day point gain ever -- seemed to breathe new
life into the market. And this time, it appears to be sticking
around for at least a few days.
With interbank lending rates coming down and money floating around
again, the frozen credit markets are starting to show signs of
thawing. And for the first time in weeks, the headlines aren't
dominated by the financial crisis or talk of government
intervention, but have returned to mundane topics like oil prices
and other economic data.
Not that the news on that front is all good. In fact, the
Commerce Department just announced that GDP didn't just stall during
the third quarter, it actually shrank -0.3%, providing the firmest
evidence yet that we are likely in a recession. Businesses have
scaled back their investments in software and equipment, and
consumer spending has declined at the sharpest pace since 1980.
Fortunately, recessions are something the market understands and can
come to grips with; investors have seen economic downturns before
and are prepared to deal with them. It's the collapse of giant banks
and the threat of financial Armageddon that really unnerves traders
and induces panic selling.
In other words, the renewed interest in third-quarter earnings (as
opposed to the London Interbank Offered Rate) means investors have
turned their attention back on the fundamentals and are once again
looking for value in the market -- a good indication
things are slowly returning to normal.
And with a growing sense that the worst may be over, the major
averages all ended the week in the green and posted sizeable
Whether or not this latest upturn proves to be a countertrend rally
or the start of something bigger remains to be seen. But in any
case, it's still a good idea to remain on guard. After all, when it
comes to growing your portfolio in a difficult market, the best
offense is often a good defense. And below, Martin Denholm, Managing
Editor of the
Smart Profits Report, reminds us why dividends can help keep
you out of trouble.
Of course, if you are in the mood to throw deep towards the end zone
for a big score, we have some ideas there as well. As you'll see,
the PowerShares Emerging Markets Infrastructure Portfolio (NYSE:
PXR, $20.28) is positioned to cash in on a $2 trillion wave of
infrastructure spending in the coming years as growing metropolitan
areas like Beijing continue to modernize.
-- Nathan Slaughter
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Stocks that Keep on
Giving... Even as the Market Keeps Falling
by Martin Denholm, Managing Editor --
Smart Profits Report
There are several interesting
correlations between sports and investing.
One of the truest is also one of the most fundamental rules: If
you want to be successful, it starts with playing solid defense.
When it comes to investing, the ability to play solid defense
can ease you through turbulent times much better than most
ordinary investors. And the concept here is simple: Defensive
investing means having some strong, dividend-paying companies in
A 72-Year History Of Top Performance
The two main concepts that dominate the stock market climate are
fear and greed. While they're always prevalent, smarter
investors know better than to base their decisions on
fluctuating sentiments like these.
Instead, it's better to look for long-term drivers -- like
earnings growth, cash, and the ability of companies to pay
dividends to their shareholders. History shows that the latter
is a particularly smart way to go. From 1935 to 2007, more than
40% of the S&P 500's total return came from reinvested
The beauty of dividend-yielding stocks is that they work well in
both rising and falling markets. SensibleStocks.com reports that
during the bull market of 1982 to 2000, dividend stocks actually
outperformed non-dividend payers by a considerable margin,
despite the underlying share price appreciation.
And in volatile, sinking markets like we're experiencing now,
it's comforting to know that you've still got a source of income
throughout the madness. You're essentially being paid for your
patience, rather than selling off like everyone else.
Let's look at some more benefits.
Dish Me Some Dividends... Three Reasons To Invest In
Lowers Cost: When you're picking up a regular dividend
payment per share every quarter, it's essentially like buying
a house, then renting it out to offset the payment and pick up
income, while the underlying asset appreciates at the same time.
And of course, since the Jobs Growth and Tax Relief
Reconciliation Act of 2003, investors have paid lower taxes on
Provides Stability During Downturns: When the broader
stock market is under pressure and share prices are falling,
stocks that pay dividends are often considered one of the "safer
haven" investments, since investors are still receiving income.
In turn, it's good PR for a company, with the stock attracting
more investors and the share price potentially rising as a
result. Pay attention to the level of insider ownership of a
stock here. This is not a hard and fast rule, but if insiders
hold a big chunk of the company themselves, they're less likely
to be reckless with its money through overly ambitious projects
or ill-advised buyouts, and may well pay greater attention to
shareholder interests and dividends.
Keeps Management In Line: When an executive team is
dishing money back to its shareholders, not only does it show
sound business acumen to be able to do that in the first place,
it also keeps them honest. Knowing that dividend payments must
be met reduces the chances that they'll fritter your money away
on wasteful projects.
Of course, there are pitfalls too. So before I get to a couple
of investment options for you, let's look at those.
Dividend Reduction Or Suspension: At a time when
obtaining credit is tighter than ever before, it's much more
likely that companies will reduce or suspend their dividend
payments. This is usually a last resort, as it signals to the
world that the company is having trouble raising cash and can severely impact its share price.
Twice The Tax... And Higher In 2010? Naturally, the IRS
needs to grab its piece of the pie -- and when it comes to
dividends, it's a double-whammy. First, it claims the regular
corporation taxes from the company. Then, when the company
passes what's left down to its shareholders, those investors are
then taxed on what they receive. In addition, the Jobs Growth
and Tax Relief Reconciliation Act that I mentioned a moment ago
expires in 2010, so we may see dividend taxes rise.
Lack Of Investment Options: Some argue that while
companies should be praised for rewarding shareholder loyalty
through dividends, it may also mean that it can't find other
investment options, or projects that would accelerate the
And beware companies that offer sky-high dividend yields. It
could merely be a crafty way to mask bigger problems.
And as share prices drop, dividend yields rise, which can be a
false dawn. Bottom line: If a company isn't growing its earnings
or its cash flow has shrunk, it may well be a bad sign. Make
sure you do your regular due diligence.
Where To Look For The Best Dividends
Right now, two of the best dividend-yielding sectors are
consumer staples and telecoms.
In the November Xcelerated Profits Report issue, my
colleague Jim Stanton recommended one of the best companies
within the consumer staples sector, which pays a dividend. One
of the advantages that this sector has during a downturn or
recession is that it continues to generate revenue through
essential repeat business. After all, consumers always need
everyday household items.
(As an aside, you can get your hands on Jim's specific consumer
staples recommendation by signing up for the Xcelerated
Profits Report. Just
click this link
for more details.)
In the telecom sector, firms like Verizon (NYSE: VZ, $29.67) and
AT&T (NYSE: T, $26.77) boast some rock-solid financials,
allowing them to pay a 6.2% dividend ($1.84 per share annually)
and 6.0% ($1.60 per share annually), respectively.
In the current climate, though, if you don't want to take the
chance on individual stocks, you can always diversify and lower
your risk by buying ETFs that hold dividend-yielding companies.
Take a look at...
SPDR S&P Dividend ETF (AMEX: SDY, $44.23):
Holding stocks like Pfizer, Fifth Third Bancorp and Consolidated Edison
Inc., this fund tracks the price and yield performance
of stocks in the S&P High Dividend Aristocrats Index.
PowerShares High Yield Dividend Achievers (AMEX: PEY, $9.28):
This fund's results try to correspond to the Dividend
Achievers 50 Index. Around 80% of its holdings are in companies
that have consistently raised their dividends. Its holdings
include Keycorp, American Capital
Strategies, BB&T Corp and Comerica.
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An ETF that Captures
Trillions of Dollars in Infrastructure Spending
by Nathan Slaughter, Editor --
The ETF Authority
Fast-growing cities throughout Asia, Africa and Latin America
are experiencing tremendous demographic shifts as rural farmers
migrate to major urban population centers. In fact, the United
Nations estimates that by 2015, 18 of the world's 22 largest
cities and three-fourths of its population will be in emerging
PowerShares Emerging Markets Infrastructure Portfolio (NYSE:
PXR, $20.28) was launched just last month, allowing
investors to tap into the trillions of dollars being spent to
modernize the infrastructure needs of the world's emerging
markets. And when I say trillions, I mean that quite literally.
Needless to say, the growth in emerging countries will require
heavy investment to keep cities like Beijing and Mumbai from
collapsing under the weight of their own people. In last week's TSA
Digest issue, the "Featured
discussed the pressing need for many developing nations to build
or upgrade their water treatment and distribution facilities --
but this is only the beginning.
As these regions swell, they will most assuredly consume plenty
of water. But they will also need better sanitation, newer
highways, efficient mass transit systems, reliable power grids,
and additional capacity to move freight through ports and
railways. And we're already seeing the beginning of this growth
China, for example, is in the middle of middle of a five-year,
$200 billion spending spree on railways, including a high-speed
bullet train that will zip riders from Beijing to Shanghai
(about 800 miles) in just five hours. And with air traffic
exploding from eight million travelers a year in the 1980s to
185 million today, the country has also announced ambitious
plans to build almost 100 new airports.
It is believed that China will be spending $725 million on such
things over the next few years. Meanwhile, Saudi Arabia is
funneling its petrodollars into more than 500 new projects,
pushing spending in the Middle East to $400 billion. Elsewhere,
we could be seeing $325 billion worth of expenditures in Russia,
$240 billion in India, $225 billion in Brazil... the list goes on
Not long ago, Merrill Lynch forecasted total infrastructure
spending in emerging markets would total $1.25 trillion. Now, it
has upped that projection to $2.25 trillion. And that's not by
2030 or some other distant date, but within the next three
Clearly, there will be many companies feeding at this trough:
global engineering and construction firms, steelmakers, heavy
equipment suppliers, and many others. And PXR offers a stake in
about 60 of the world's most dominant leaders in these fields.
Familiar domestic names like Caterpillar (NYSE: CAT) are
represented, but the vast majority (90%) of the portfolio is
invested in foreign markets -- primarily China, South Africa and
With any fund, it's always a good idea to examine its largest
holdings. And in this case, the largest stake is in ABB, a
company I am quite familiar with and bullish on.
ABB is one of the world's top suppliers of transformers, circuit
breakers, capacitors, substations and other devices to support
the generation, transmission and distribution of power. Over the
past three months, orders from emerging markets in Africa and
the Middle East surged +98%, pushing the firm's backlog for
future orders to more than $30 billion.
And this is hardly an isolated example; other major holdings
like Flour (NYSE: FLR) are reporting similar success and growing
The infrastructure sector could well be the sweet spot of the
next emerging markets boom. Over the past three years through
the end of last quarter, the fund's index has already put up
impressive annualized gains of +20%. But ABB and others are now priced
for triple-digit upside potential.
In fact, the entire portfolio is currently trading at just about 6.5
earnings, on average.
As you know, emerging countries like China appear to have caught
the same contagious economic sniffles that developed markets
have been suffering from.
But I think they will recuperate in time and continue spending
heavily on highways, wastewater systems, hydroelectric dams and
other projects that will bring them into the 21st century.
Additional Investing Ideas
Power Through the Slowdown with this Foreign Utility Company
Based in Chile, Endesa generates and sells electric power in
five South American countries. With demand jumping +10% in
some spots, the stock looks like a long-term winner.
Insiders Are Buying This Steady Income Producer
Energy companies can't wait for Energy Transfer Equity's
new pipeline to come online. And investors can't wait to
tap into its hefty 9.8% yield -- even the company's insiders
are getting in on the action.
Invest Like Warren Buffett
Recently, Warren Buffett put billions into General Electric. But you don't have to be a billionaire to get a solid
yield and steady income from this bellwether.
Investor Trivia -- A Dividend
Grower Bucks the Trend
Cash may be hard
to come by for nearly everyone these days, but there are still
companies producing loads of cash -- and giving it to shareholders.
Which of these companies recently announced a nearly +1,000% dividend
increase even as the economy is slowing?
of America (BAC)
click on one the links above. After you make your choice, we'll show
you the correct answer on our web site.)
Featured Topic --
The Income Secret That Lets You Use the Bear Market to Your
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