Table of Contents

1.  Market Outlook
2.  Real Estate
3.  U.S. Bancorp (USB)
4.  Additional Investing Ideas
5.  Investor Trivia -- Short Squeezes
6.  Featured Topic -- Use a Market Sell-off to Lock in Higher Yields
7.  Free Investing Resources

Today's Top Stock Picks

How You Should Play this Battered Market... And When You Should Play it
1.4 million homes will go into foreclosure in 2008, helping to sink residential real estate values by $1.2 trillion -- how are you going make money from this situation?
Read More. . .

A Solid Bank with a 5.4% Yield and Limited Subprime Exposure
Unlike most of the industry, this bank managed to report increased revenues and flat adjusted earnings for the fourth quarter -- thanks to limited subprime exposure. Read More. . .

Market Outlook

After a seemingly endless stream of disappointing news, investors finally had a few reasons to cheer this past week.

The Fed, in conjunction with its counterparts in Europe, unveiled bold plans on Tuesday to help rescue troubled lenders. Beginning later this month, banks, investment houses and other financial institutions will be able to put up mortgage-backed debt (for which there is little demand) as collateral for $200 billion in Treasury loans.

By pumping this money into the system, the Fed is hoping to ease the cash crunch, mend the fragile credit markets and encourage banks to extend loans to businesses and individuals. Stocks rocketed higher on the news, with the Dow Jones Industrials soaring 416 points, or +3.6% -- its sharpest one-day percentage gain since March 2003.

In other news, Standard & Poor's also helped inject some optimism into the markets by forecasting that subprime mortgage-related write downs will reach $285 billion, but thankfully could begin winding down in the near future.

Nevertheless, it appears that the U.S. economy is still spiraling downward. In fact, nearly 80% of the 1,073 CFO's surveyed in a recent poll indicated that the economy is either in a recession or headed for one in the near future. And nearly all of them believe that it will be 2009 at the earliest before a full-fledged recovery is underway.

In the meantime, the Commerce Department reported that retail sales slipped -0.6% in February, suggesting that record energy prices and the persistent housing slump continue to pressure consumer spending. By some estimates, nearly 60 cents of every dollar is currently being spent on bare-bones essentials like gas and groceries -- the highest percentage in over four decades.

By the end of the week, worries about investment bank Bear Stearns' (NYSE: BSC) dire need of a bailout all but overshadowed any positive news and helped erase a large part of Tuesday's gains. However, the major averages still managed to finish near the break-even mark.

In markets like this, I'm always reminded of Warren Buffett's succinct advice to "be greedy when others are fearful." But while fear is rampant, there isn't any "blood in the streets" -- at least not yet. Below, Marc Lichtenfeld, a senior analyst at the Smart Profits Report, shares some sobering data suggesting things could get even worse in the housing market, meaning the time is almost right for forward-thinking investors to begin bottom-fishing.

Also in today's TopStockAnalysts Digest, those looking to take advantage of the historically cheap valuations in the beaten-up financial sector might want to check out U.S. Bancorp (NYSE: USB, $31.57). As I explain below, the company is far ahead of the competition in terms of credit quality and profitability, is enjoying solid loan volume growth, and hasn't missed a dividend payment in 145 years.

Good Investing!


-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

It's one of the biggest investment topics being discussed at the moment...

The news coming from this sector has become so bad, and sentiment has become so negative, that I mentioned to my wife the other evening that perhaps we should look to capitalize on it.

The Mrs. is very bright (that must be where the kids get it from), but one thing she is not is a risk taker. And certainly not when all hell is breaking loose in the markets.

Like many other folks, she'd rather hunker down and wait for things to calm down. I can't blame her. It's tough to have the courage to buy any kind of investment when prices are plummeting almost across the board.

But I theorized that this particular situation was the proverbial "blood in the streets" opportunity. I have a hard time picturing things getting much worse.

And recently, I ran into an acquaintance of mine, who's a lifelong expert in this field (he's in his sixties now) and has made a multimillion-dollar fortune from it. He confirmed my theory, but also provided some valuable other insights that I'm going to share with you today.

Read on to find out what you should do with your money when it comes to the real estate market...

There's Blood, But Is It In The Streets Yet?

While discussing the current housing environment, my contact (let's call him "Mr. Big") said to me: "Marc, I've seen every kind of market, including 17% interest rates. It always bounces back." He then gave me the exact same words that I'd said to my wife the previous evening: "The time to buy is when there's blood in the streets."

Okay. "But is there blood in the streets now?" I asked.

He quickly responded, "No. I think it's going to get worse."

But here's the interesting thing. Without knowing that I write for a newsletter myself, this guy stated: "You know, I see all these newsletter writers saying we're headed into a nasty recession or depression. They're all so negative, so I have to think we're near the bottom now. But we just have a little way to go yet."

(Quick aside: This "blood in the streets" investing theory is just one way that the real pros make money in the stock market. We've talked about it in the Smart Profits Report before because it's an important concept. Xcelerated Profits Report subscribers know exactly what I'm talking about because this is the approach taken with two recent recommendations -- both in a battered sector, but both super-solid, top-ranked firms in little danger of going under and which will likely lead the recovery. For more details on how to invest like a pro, check out this link.)

But back to my story... why should I listen to this guy about real estate, and how can we apply the "blood in the streets" theory to this market?

Mr. Big's One-Way Route To Real Estate Riches -- An Essential Skill In A Market Stuffed With Bad News

The reason I listen to Mr. Big is simple. While exuberant guys like Donald Trump like to brag about their real estate wealth, this guy didn't make and lose his money several times like him. He made his riches just once -- and then grew the money into a nine-figure fortune.

And that kind of track record is just what you need when an ugly market is trying to take wealth from you. Just recently, we've seen yet more awful real estate data...

Mortgage research firm RealtyTrac said January got off to a miserable start, with a +57% surge in foreclosures compared with January 2007. It was also an +8% rise over December's figures.

The percentage of mortgages that fell into foreclosure across America during the fourth quarter hit a record high of 0.83%, compared with 0.78% during the third quarter, according to the Mortgage Bankers Association.

The delinquency rate (homeowners more than 30 days behind with their monthly payments) is also rising -- up to 5.82% during the fourth quarter -- the highest since 1985.

The Pain Game

Global Insight estimates that 1.4 million homes will go into foreclosure in 2008, helping to sink residential real estate values by $1.2 trillion. Yep... that's trillion.

In addition, Kieran Quin, chairman and CEO of Column Financial, says there are three million subprime adjustable rate mortgages in the market. Two million of them will reset to higher rates this year.

Those figures indicate there is more pain ahead -- and Mr. Big's analysis seems right to me. The question is: What do we do about it?

Your Real Estate "Percocet"

I'm bottom-fishing in the real estate sector now, researching various markets, so I can determine where I'd like to pounce when the opportunity is right.

And how will I know when it's time to put some money to work? One area I'll be keeping a close eye on is homebuilder stocks. Many are very cheap right now, and with stocks being forward-looking mechanisms, if these shares continue to rebound, it could signal that a bottom in real estate is near.

However, if these stocks reverse course and head lower, we may have more time until the streets are crimson enough to look for the ultimate bargain.

U.S. Bancorp (NYSE: USB, $31.57) is the nation's sixth-largest bank in terms of assets -- with nearly $238 billion at last count. The Minneapolis-based firm operates over 2,500 branches in 24 states, mostly in the western and mid-western parts of the country, including an established presence in key markets such as St. Louis, Denver and Seattle.

As of last quarter, the bank had a growing portfolio of credit card, commercial, residential mortgage, automobile, construction, and other loans totaling $151 billion. To support those loan activities, the firm has attracted more than $125 billion in deposits, roughly one-fifth of which are non-interest-bearing -- essentially free money.

Over the past year, the company has seen solid increases in both loans and deposits. More importantly, it paid out just 3.8% on those interest-bearing liabilities, far below what it earned on loans and other investments -- with the net interest margin expanding to 3.91%. That rate could move even higher in the coming months thanks to a more favorable interest rate environment.

Unlike the disastrous fourth-quarter results that most in the industry suffered, U.S. Bank managed to report increased revenues and flat adjusted earnings for the period. Part of the credit goes to a healthy $8 billion increase in loans outstanding, which led to a respectable jump in interest income. At the same time, non-interest revenue sources such as debit card transactions, ATM processing charges, and trust/investment management fees also ticked higher and now represent 51% of the total -- up from just 44% a few years ago.

As for credit quality, U.S. Bank remains at the very top of its peer group. Non-performing assets and charge-offs for bad loans have dropped precipitously in recent years and now stand at around 0.60% and 0.45%, respectively. While the company is not immune to current conditions, it only reported a +7% increase in non-performing assets from the third quarter -- versus an average spike of +42% for the rest of the industry.

And if the firm can hold up this well under an extraordinarily challenging operating climate, it's easy to see why it has performed so well when times are good. With stellar returns on equity (ROE) north of +22% on average, U.S. Bank is easily the most profitable among its immediate peers. And its efficiency ratio (non-interest expenses/total revenues) of 49% is one of the best in the industry.

Due to this performance, shareholders have certainly reaped the rewards. U.S. Bank (and the company's predecessors) has dished out annual dividends for 145 consecutive years -- with payments increasing every year for almost the past four decades. Over the past few years, management has returned every penny of earnings plus some in the form of dividends and share repurchases, and the ongoing goal is to give back 80% of each year's profits.

Despite the company's diversified revenue sources, highly efficient network, strong credit quality and limited exposure to the troubled subprime sector, the shares have still lost ground -- although they have rebounded powerfully in recent weeks. Still, those who act now can lock in a robust yield of 5.4% and look forward to ample capital gains.

With all this in mind, now might be a good time to at least put this market leader on your radar screen. And you don't have to take my word for it. Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) has just scooped up another 2.2 million shares of the stock, raising its total stake in the company to nearly 70 million shares.