Monday, November 3, 2008

Volume 2, Issue #40

Published weekly, the TopStockAnalysts Digest is loaded with stock picks, trading ideas, market commentary, and educational guidance designed to help you become a better investor. To ensure uninterrupted delivery of this newsletter, please follow these simple instructions.

Table of Contents

1.  Market Update
2.  Dividend Payers
3.  PowerShares EM Infrastructure (PXR)
4.  Additional Investing Ideas
5.  Investor Trivia -- A Dividend Grower Bucks the Trend
6.  Featured Topic --The Income Secret That Lets You Use the Bear Market to Your Advantage
7.  Free Investing Resources

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Today's Top Stock Picks

Stocks 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 bunch.
Read More. . .

An ETF that Captures Trillions of Dollars in Infrastructure Spending
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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Stocks have been hammered for the past 5 years -- down 10% according to the S&P 500 Index.

Gold, meanwhile, is up about 100% during that time.

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Last time conditions were this good, it went up 665%... and it's beginning to soar again right now.

Click here for full details...


Market Update


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 double-digit gains.
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.

Good Investing!

-- Nathan Slaughter
TopStockAnalysts Digest


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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 your portfolio.

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 dividends.

The beauty of dividend-yielding stocks is that they work well in both rising and falling markets. 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 Dividend-Yielders

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 dividends.

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 Drawbacks

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 company's growth.

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 markets.

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 Topic" 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 spurt.

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 an 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 years.

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 Indonesia.

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 backlogs.

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 times 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.

Visit this link to read additional articles from today's leading market experts!

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?

AK Steel (AKS)
Bank of America (BAC)
CenturyTel (CTL)
Caraustar Industries (CSAR)
Norfolk Southern (NSC)

(Please 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 Advantage


As stock prices have fallen dramatically this year, one critical barometer of the market has been rising. Dividend yields are at historic highs -- only two stocks in the S&P 500 showed yields above 6% near the height of last year's rally; that number now stands at 48. And individual stocks and funds have seen dramatic gains in their yields -- one year ago the Alpine Total Dynamic Dividend Fund (NYSE: AOD) yielded 10.8%; today it sits at 27.2%.
There aren't many truly ironclad rules on Wall Street, but the relationship between yield and price is unbreakable. They always move in opposite directions. When price falls, yield rises -- always, period, amen.

For instance, if a $100 stock pays a $5 dividend, then its owner receives a nice 5% yield. But if that same stock drops to $50, its dividend yield rises to 10%. And right now, there are literally hundreds of stocks in this exact situation. The Dow and S&P are each off about -35% on the year, and dozens of dividend-paying companies have seen panicky traders push their shares to fire-sale prices -- lifting yields to historic marks. Smart investors are locking in those high yields right now.

How to Calculate Your Dividend Yield
Let's review what it means to lock in a yield, because most investors assume that yields change. And, indeed, they do. They rise every time a firm's share price falls, and vice versa. But the price you paid for a stock doesn't move -- it's locked in. Because of this, you can use depressed share prices to lock in some mouth-watering yields.

Take our previous example -- a $50 stock that is yielding 10% based on a $5 dividend. Even though shareholders all receive the same payments each year, the investor who bought their shares at $100 is earning only 5% on what they invested -- and the investor who bought at $75 is seeing a 6.7% return on their money. But those who bought at $50 can continue enjoying 10% yields on their original investment -- even as the share price rises, decreasing the yield.

While this concept is simple to follow, what most often gets overlooked is how large an impact it can have on your portfolio. Let's examine the performance of a company with a long history of rewarding shareholders with a rich dividend stream: Altria (NYSE: MO), the company many investors knew for years as Philip Morris.

Important Note:  Because this article is fairly extensive, we could not include it in its entirety in today's newsletter. You can find the remainder of this article on our website. Please visit this link to continue reading this article.

Free Investing Resources


Enjoy a free weekly newsletter -- Dr. Leeb's Market Forecast -- I want to give you a free ongoing, PhD-level Wall Street education in how the markets work so that you can see into the future and position yourself accordingly.
Sign up here.

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Good investing in the coming weeks!

Nathan Slaughter
TopStockAnalysts Digest

Paul Tracy
TopStockAnalysts Digest

839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

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