Monday, December 1, 2008

Volume 2, Issue #44

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.  First Trust Dividend Income (FAV)
3.  Market Vectors Gold Miners (GDX)
4.  Additional Investing Ideas
5.  Investor Trivia -- Digging Deep for Gains
6.  Featured Topic -- High Yields from the World's Soundest Banks
7.  Free Investing Resources

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Today's Top Stock Picks

Capture a Good Old Fashioned Yield of 22.9%
Many income funds use risky strategies to maximize distributions, but not this fund. First Trust Dividend Income (FAV) does it the old fashioned way, by holding  some of the most stable and respected dividend-paying equities in the world.  Read More. . .

In an Uncertain Market, this ETF is as Good as Gold
Investors can get double-barrel protection for the tough economic times ahead with this gold ETF. Gold prices rise with market uncertainty and inflation -- and both are likely in the foreseeable future.
Read More. . .

 

A great way to get extra cash right now

I want to pass along something my good friend, and S&A's top income guy -- Tom Dyson -- told me about recently. It's a technique he's taken advantage of personally, when things get bad.

In short, it's a secret way to get more money on shares you already own. The great thing about this strategy is that there's nothing new you have to invest in or buy. In fact, using this technique is like finding cash you didn't know you had.

Click here to learn more

 
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Market Update

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Last Thanksgiving week, the market gave investors a little something extra to be thankful for. The Dow posted five straight days of gains and the S&P 500 closed the week up +12%.

The week-long rally was triggered by the government's pledge to assume any losses beyond $29 billion associated with Citigroup's (NYSE: C) $306 billion of troubled assets. As part of the plan, the government will also invest another $20 billion in warrants for Citigroup stock.

The market continued its rise on news that the government would pump an additional $800 billion into the economy. This latest bailout plan calls for the Federal Reserve Bank of New York to make $200 billion available for consumer credit, including student loans, credit card debt and auto loans. According to the plan, the government will also buy $600 billion worth of mortgaged-backed securities and debt from mortgage agencies Freddie Mac (NYSE: FRE), Fannie Mae (NYSE: FNM) and Ginnie Mae.

Wall Street also seemed generally pleased with President-elect Barack Obama's choices for his economic team. The market hates uncertainty and is inherently suspicious of the unknown. So the fact that Obama's new team will be made up of familiar and experienced names allowed the market to continue its rise, unfettered.

President of the Federal Reserve Bank of New York Timothy Geithner will be put up for the post of Secretary of the Treasury. Geithner was also former Under Secretary of the Treasury for International Affairs under both Treasury Secretaries Robert Rubin and Lawrence Summers. Summers has been tapped as the next Director of the National Economic Council. And former Federal Reserve Chairman Paul Volcker has been named to chair a new panel, the President's Economic Recovery Advisory Board, which will advise the president on how to best stabilize financial markets and mitigate the length and depth of the pending recession.

The market rally was predictably led by the financial sector, but was mostly broad based -- with one exception. Retail stocks stalled as investors nervously awaited the results of  "Black Friday." As one of the busiest holiday shopping days of the year, the day after Thanksgiving has always been a litmus test for the health of the retail sector. With the country's current economic woes, retail investors were taking a "wait and see" attitude.

But even as the markets rose, we were reminded that we still live in challenging times. On Tuesday the Commerce Department announced a downward revision of GDP, showing that the U.S. economy shrunk by -0.5% in the third quarter versus the -0.3% it reported a month earlier. And although the government's new economic plans were heartening, investors are still understandably cautious.

With our near-term economic realities in mind, Nathan Slaughter, Editor of The ETF Authority, profiles an income fund representing some of the most trusted and stable dividend-paying equities in the world. Without using risky techniques like leverage and fancy option plays, First Trust Dividend Income Fund (NYSE: FAV, $8.03) offers an enormous yield of 22.9%, boosted by the fact it now trades at a historic discount of -24% to its NAV.

With all the money being pumped into the economy here and abroad, Market Advisor newsletter Editor. Paul Tracy, correctly warns of the long-term inflationary pressures it represents. Gold is not only a safe haven during economic uncertainty, but offers one of the best protections an investor can find during inflationary periods. For these reasons, Paul thinks Market Vectors Gold Miners ETF (NYSE: GDX, $26.57) is a compelling and timely investment idea.           

Good Investing!

-- Amy Calistri
Assistant Editor
TopStockAnalysts Digest

 

How Paulson and the Treasury Can Hand You 87%

Hank Paulson and the U.S. Treasury just gave Wells Fargo a secret $5 billion "gift." While this overnight ruling is helping Wells, it's about to destroy a whole crop of weak companies... and make a few others cash cows. There's a small window to pocket 87% on this play right now. Other gainers to follow.

Go here for all the details...

 
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Capture a Good Old Fashioned Yield of 22.9%

by Nathan Slaughter, Editor -- The ETF Authority

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Take a quick glance at First Trust Active Dividend Income Fund's (NYSE: FAV, $8.03) portfolio, and you get a pretty good idea of what management is after: fat dividend payments. Top holdings like Altria (NYSE: MO), AT&T (NYSE: T) and Merck (NYSE: MRK) offer some of the market's richest yields.

Overall, the portfolio contains about 75 stocks ranging in size from up-and-coming firms like Trinity Industries (NYSE: TRN) to mega-caps like Microsoft (Nasdaq: MSFT). Shareholders will own a balanced mix of domestic and foreign names representing a wide variety of industries -- most notably financials, energy, healthcare and consumer staples.

The fund's managers take a rather straightforward approach and avoid leverage or covered call writing. Instead, they stick to the shares of established companies offering an attractive combination of current income and capital appreciation potential. But to make the $80 million asset base work just a bit harder, they will also rotate in and out of different holdings to collect more frequent distributions using a "dividend capture" strategy.

And over the past twelve months, shareholders have raked in four quarterly payouts of $0.46 per share for a total annual payment of $1.84 -- not counting another $0.375 per share in capital gains distributions. Excluding the capital gains (which may be tougher to come by this year), the regular distributions alone equate to a hefty yield of 22.9%.

In the latest semi-annual report, the fund's managers reiterated a preference for financially sound companies with robust balance sheets -- those able to comfortably meet current dividend obligations with room for possible increases in the future. This should minimize the threat of dividend reductions among portfolio holdings.

Furthermore, an impressive net investment income/net asset ratio of 10.4% as of last quarter also bodes well and should continue supporting sizeable distributions. In other words, for every dollar in assets, the portfolio is generating about a dime of dividend income after expenses. That rate should be substantially higher after this severe market downturn.

Through the first half of the year, the portfolio generated $6.5 million in net dividend income, or about $0.90 for every one of the fund's 7.2 million shares outstanding. And the two quarterly distributions of $0.46 also totaled $0.92 -- meaning dividend income alone has been enough to cover the generous payouts without management having to dip into returns of capital.

Yet, FAV has been hit along with everyone else lately, and the shares have slid from $20 to around $8. But this income stream remains just as deep -- and now you can drink from it for half the price.

Don't be fooled. There are many funds that claim to have monster yields, but FAV is one of the few to have the actual investment income to back it up. Along with those steady paychecks, I believe the portfolio has the potential to deliver considerable appreciation as well.

Better still, after commanding a premium price earlier this year, the shares are now trading at an attractive discount to NAV of -24%.

 

These Stocks Should Rebound First as the Market Recovers

In this brutal market, most stocks are dead money. But when the huge snapback rally happens -- and it might have already started -- a handful of stocks are going to jump twice as fast as the rest.

Are you going to miss the boat? Get the names of these stocks before the market really takes off.

Go Here to Get the Names of These Stocks

 
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In an Uncertain Market, this ETF is as Good as Gold

by Paul Tracy, Editor -- Market Advisor

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There are many compelling reasons why gold should rise in value over the next few years. But instead of mining for just the right gold stock, why not let Market Vectors Gold Miners ETF (NYSE: GDX, $26.57) do the heavy lifting for you.

Gold is one of the rarest metals on Earth -- scientists believe that all of the gold ever mined could fit underneath Paris' Eiffel tower, forming a cube of just 60 yards on each side.

As a result of its rarity and traditional role as a store of wealth, gold tends to perform well during periods of financial turmoil and when there's risk of acceleration in inflation. And since gold is priced in U.S. dollars, it also acts as a hedge against a falling U.S. dollar.

With these points in mind, the current environment is conducive to higher gold prices. Turmoil in global financial markets has investors worried about the stability of the global financial system; many are reaching for gold as a hedge against instability. In fact, gold one of the only commodities that's trading higher than it was before Lehman Brothers filed for bankruptcy in September.

U.S. inflation appears to be receding for now, thanks in large part to falling food and energy prices. However, the Federal Reserve is adding more than a trillion dollars to the global money supply to attempt to stem the pain of the recent financial crisis. The Fed has also cut interest rates aggressively and hinted at more rate cuts to come. And governments the world over are spending hundreds of billions purchasing preferred shares in banks in an attempt to recapitalize the financial system.

It's likely some of this spending will ultimately be financed by creating new money. That means that attempts to stabilize the global economy and financial system are ultimately likely to be inflationary. This is another big positive for gold.

GDX is an exchange-traded fund (ETF) that invests in shares of firms involved in the gold mining industry. Clearly, gold mining companies benefit directly from rising gold prices via higher sales prices for the gold they mine and sell. The cost of mining gold is less than $300 per ounce for some gold mining firms; with current gold prices of close to $800 per ounce, these firms are highly profitable.

Individual firms in the gold mining industry can be highly volatile. Sometimes, planned new mines just don't pan out as expected or costs are higher than originally anticipated. And some mines are located in politically unstable regions of the word -- political strife can harm stocks of individual mining firms. By purchasing a broad, diversified portfolio GDX reduces these firm-specific risks.

GDX offers an outstanding hedge for investors against resurgent inflation risks and continued turmoil in the global financial system. The ETF looks like a solid "Buy" candidate under $28.

 
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Additional Investing Ideas

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Why Warren Buffett Loves This Stock... and I Think it Could Gain +86%
Warren Buffett picked up 66 million shares of ConocoPhillips over the last few months. And I share his optimistic view of the stock.

A Second Chance to Buy This +265% Gainer
I
nvestors often wish they could turn back time and buy Google (GOOG) at its IPO valuation. Well they just got their wish.

How You Can Profit From the Retail Sector Bloodbath this Holiday Season
Even Santa may be tightening his belt this year, but that doesn't mean all retailers will suffer. Here are three retail stocks you should be putting under your tree this year.
Visit this link to read additional articles from today's leading market experts!
 
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Investor Trivia -- Digging Deep For Gains

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Which of these companies is the world's largest supplier of equipment used in oil/gas drilling and production, expanding its earnings by more than 20-fold since 2003?

A.)  
National Oilwell Varco (NOV)
B.)  
GulfMark Offshore (GLF)
C.)  
Cal Dive International (DVR)
D.)  
Nabors Industries (NBR)
E.)  
Cameron International (CAM)

(Please click on one the links above. After you make your choice, we'll show you the correct answer on our web site.)

 
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Featured Topic -- High Yields from the World's Soundest Banks

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Famous hockey player Wayne Gretzky once described the key to his success: "I skate to where the puck is going to be, not to where it has been." This is great advice for investors in today's market -- especially when they're looking at Canadian banks. Canada's banks have taken a hit with the broader market, but it's where these stocks may be going next that makes them well worth considering.

Canada has six major domestic banks, which account for over 90% of the assets of the country's banking industry. All but one of them, the National Bank of Canada, trade on the New York Stock Exchange. Royal Bank of Canada (NYSE: RY) is the country's largest lender by assets, followed by Toronto-Dominion (NYSE: TD), Bank of Nova Scotia (NYSE: BNS), Bank of Montreal (NYSE: BMO), and Canadian Imperial Bank of Commerce (NYSE: CM).

Although these five banks are not exactly household names for U.S. income investors, they should be. They sport dividend yields of up to 8.4%, boast an average 3-year dividend growth record of +16.8%, and have upped their dividends over the past year an average of +18.8%, and thus far there hasn't been a single dividend cut among them.

Canadian Banks Are The Soundest In The World
It may surprise some readers that Canada's banks were rated the strongest in the world last month by the prestigious World Economic Forum. Canadian lenders score top marks as the most solvent among 134 countries. The banks are also rated fifth in the world for investor protection and sixth for financial market sophistication.

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.
  
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Free Investing Resources

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Get 10 Free Issues of Investor's Business Daily and 2 weeks of Investors.com -- During your trial, you'll get alerts to top-rated stocks near a buy point. And you can diagnose your stocks with unbiased ratings in IBD Stock Checkup.
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How You Can Capture Rare Double and Even Triple-Digit "Insight" Dividends -- Join Global Dividend Opportunities today and become part of a growing brotherhood of like-minded income lovers who share our love for reliable investments ideas that deliver above-average income and strong capital gains. Read this article now.


Good investing in the coming weeks!



Nathan Slaughter
Co-Editor
TopStockAnalysts Digest



Paul Tracy
Co-Editor
TopStockAnalysts Digest

TopStockAnalysts
http://www.TopStockAnalysts.com
839-K Quince Orchard Blvd. 
Gaithersburg, MD 20878-1614

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