Monday, March 24, 2008

Volume 2, Issue #8

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 Outlook
2.  Singapore
3.  PIMCO Real Return D (PRRDX)
4.  Additional Investing Ideas
5.  Investor Trivia -- Currency Booster
6.  Featured Topic --
Small-Cap Value Stocks  
7.  Free Investing Resources

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Today's Top Stock Picks

Forget China! Investors Look to Singapore for Double-Digit Yields
China and India aren't the best places to search for high yields. However, income investors can benefit by investing in other Asian countries that are directly profiting from their growth. Read More. . .

An Ultra-Safe Treasury Fund with a Yield of 7.8%
Managed by the world's biggest bond manager, this fund has an ultra-safe "AAA"-rated portfolio of U.S. Treasuries and a solid yield. Read More. . .

 

Have you Heard of "801ks"?

You might be interested in one of our favorite ideas right now. As you'll see, it's a lot like 401k investing, only better. In fact, you could realistically make two... three... even four times what a typical 401k plan generates - and in just a fraction of the time. But what's most surprising is that the government actually restricts the advertising of this opportunity (which is why you may have never heard of it), even though it's perfectly legal and supported by America's biggest corporations. MarketWatch calls this opportunity "The best-kept secret on Wall Street."

If you're interested in learning more, click here.

 
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Market Outlook

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Although there were only four trading days in the past holiday-shortened week, there were enough market gyrations to last a month.

On March 11th, the Dow Jones Industrials shot up 416 points on reassuring news that the Fed was pumping $200 billion in loans to liquidity-stricken financial institutions. Unfortunately, those gains unraveled within a few short days after worries intensified that Bear Stearns (NYSE: BSC) was in dire need of a bailout.

And those fears came to surface this past Monday when word got out that JP Morgan Chase (NYSE: JPM) had engineered a deal to acquire the beleaguered company (which has borne the brunt of the mortgage-backed security meltdown) for the fire-sale price of $2 per share -- a remarkable collapse for a stock trading above $150 at this point last year.

However, Bear Stearns' troubles were brushed aside on Tuesday, thanks in part to better-than-expected news on the earnings front -- from Lehman Brothers (NYSE: LEH) and Goldman Sachs (NYSE: GS) no less. But a sharp interest rate cut of 3/4 of a percentage point was what really jump-started the market.

The Fed has now slashed rates six times in the past six months, aggressively lowering the benchmark fed funds rate to just 2.25%, less than half of where it stood last summer. And traders showed their appreciation, sending the Dow up 420 points (+3.5%), while the S&P 500 and Nasdaq both shot up more than +4% -- the biggest one-day surge in more than five years for all three of the major averages.

Unfortunately, in action very reminiscent of the prior week, the Dow surrendered nearly 300 points of that gain the very next day, before bargain hunters came rushing back in on Thursday. For the week, all the averages finished sharply higher.

As the age-old battle between fear and greed wages on, there is a growing sense that the Fed's intervention, along with the economic stimulus checks set to arrive at the doorsteps of 130 million households over the next few months, might be just enough to give the economy a soft landing.

But while the American economy might be in limbo, China and India still have decades of strong growth ahead of them. But for investors looking for income, these growth stories might not be the best place to put your money. However, thanks to their boom times, neighboring markets are offering juicy double-digit yields. And below, High-Yield International editor Nick Lanyi profiles one Asian country that is profiting hand over fist and rewarding income investors at the same time.

After that, High-Yield Investing editor Carla Pasternak takes us on a tour of PIMCO Real Return D (PRRDX). With a portfolio chock full of secure "AAA"-rated Treasuries and inflation-protected securities, this fund will keep you calm in even the roughest of markets.

Good Investing!


-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

 

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Forget China! Investors Look to Singapore for Double-Digit Yields
by Nick Lanyi, Editor -- High-Yield International

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If you've picked up a newspaper or followed the business headlines over the past few years, then you're no doubt familiar with the biggest theme in global economics these days: the tremendous boom in China and India.

Globalization, increasing free trade and a hunger for low-cost labor have led to rapid economic growth in China and India throughout the past decade.  Both countries have grown at double-digit rates -- China's gross domestic product (GDP) rose +11.4% in 2007 and is expected to jump another +10.0% in 2008.  Meanwhile, India's economy expanded +8.9% last year and should continue to churn ahead at an +8.4% pace this year.

It's easy for investors to get excited about these countries because the potential is real, and their phenomenal growth should continue for years, if not decades.

But there's a problem.

If you're an income investor, then China and India aren't the best places to search for high yields.  For the most part, companies in these two emerging markets pay little or no dividends; they're too busy reinvesting cash into their businesses or acquiring competitors as they strive to keep up with the surging economy.

So, how can income investors take advantage of economic growth in these markets, yet still lock in solid dividend yields?  The answer is simple -- invest in other Asian countries that are directly benefiting from the economic boom in China and India.

Asian Countries Deliver Big Gains

Not surprisingly, stocks in surrounding nations like South Korea, Japan and Singapore have delivered strong returns in recent years.  The table below tells the tale, and the same phenomenal growth story applies throughout the rest of Asia.

Country/Exchange 5-Yr. Annualized Return
Shanghai +31.7%
Hong Kong +27.3%
Singapore +24.6%
South Korea +23.9%
Japan +13.6%
U.S. (S&P 500) +11.9%

*All data as of December 2007

As you can see, by and large, all of Asia is enjoying an economic boom -- thanks in no small part to what's happening in China and India.  As these two economies have grown, trade with their neighbors has picked up, leading to increased demand for natural resources and other important exports from surrounding countries like Singapore and South Korea.  This has fueled strong economic growth throughout the entire region.

And while the pickings are slim when it comes to high-yield stocks in China and India, many surrounding countries are loaded with high-quality dividend payers.  Best of all, thanks to solid economic growth in the region, these dividend-rich firms are generating strong cash flows -- cash they're returning to shareholders in the form of steadily growing dividend payments.

Enter:  Singapore

Although a number of Asian nations look promising in today's environment, Singapore remains one of my absolute favorite high-yield hunting grounds.

A tiny city-state made up of 63 islands but with a geographic size of just 272 square miles, Singapore masquerades as a geographic midget, but in reality it's an economic giant.  The country has a population of less than 5 million and is less than half the size of Los Angeles -- Singapore is really a city-state.  But the country is one of the most business-friendly and efficiently run nations in the world.  It's also a developed market with a high standard of living.  On a per capita gross domestic product (GDP) basis, Singapore ranks above such countries as Spain, Portugal, and Greece and just behind Italy, Australia, and Canada. 

The government recognized early on that it can't compete with China on labor costs for manufacturing.  Nor can the country compete with India on price when it comes to certain services.  Singapore instead re-focused its economy on high value-added industries such as financial services and technology.  As a result, the country has become a key banking and financial services center within Asia, and it remains one of the highest volume currency-trading centers in the world.

And the nation is taking steps to make sure it maintains its competitive edge. Singapore has eased labor laws, making it easier for needed workers to emigrate there. Singapore has also enacted legislation to reduce its corporate tax rate to 18% starting with the 2008 tax year; soon its taxes will be among the lowest in the world.

Meanwhile, Singapore's enviable position at the intersection of various shipping routes has made its port one of the world's busiest for 300 years.  As a result, Singapore's so-called "entrepot" industry -- duty-free importing and exporting out of the same port facilities -- provides the nation with a significant source of income.  And thanks to Singapore's proximity to fast-growing Asian markets like China, the nation is one of the biggest beneficiaries of booming Asian trade.

Singapore's real estate industry is also in the midst of an incredible expansion. With limited space, developers have constructed thousands of new homes, but values have still shot through the roof, as demand has outstripped supply.  The same scenario has also unfolded in the market for office and industrial space.

Looking at the overall picture, Singapore's economy is soaring.  The nation's gross domestic product has increased +6-8% annually over the past four years, with +6.5% growth expected in 2008 -- faster than almost every other developed economy in the world.  If it manages that rate, then the country's stock market should continue to deliver robust returns.

Of course, if you've been following Singaporean stocks, then outsized gains are certainly nothing new.  The tiny city-state has been one of the world's best-performing markets over the past five years . . .

The MSCI Singapore Index has skyrocketed over +200% since 2003, delivering annualized gains of +27.6% and trouncing the S&P 500 by a 3-to-1 margin.  I expect that outperformance to continue in the coming years thanks to the implementation of business-friendly reforms, as well as strong demand for exports to China.

Capturing Above-Average Yields in Singapore

There are many compelling reasons to invest in Singapore.  Aside from strong economic growth, the nation is also delivering abnormally high dividend yields.  The average Singaporean stock is now yielding about 3.5% -- nearly 2X the level seen in the U.S.  And remember, that's just the average -- many individual stocks in Singapore are now dishing out yields of 6%, 8% . . . even 10% or more.

In the most recent issue of my premium newsletter -- High-Yield International -- I went in search of high yields in Singapore, as well as several other attractive nations in Southeast Asia.  In the process, I profiled some of my favorite high-yield picks in the region, including a fast-growing company that is scooping up some of Singapore's most valuable real estate.  Thanks to strong economic growth, real estate prices and rental rates are booming, helping this firm deliver +49% revenue growth and an impressive 9.0% dividend yield

If you'd like to learn the name of this high-yielding Singaporean real estate play -- plus receive a steady stream of foreign stocks, funds and other investing ideas with abnormally high dividend yields each and every month -- then I'd like to extend you a personal invitation to try my premium international investing newsletter -- High-Yield International Visit this link to learn more.

 

This Fund Has Paid an Average Dividend of 24.5% Per Year

If you're looking for both high yields and enormous capital gains, then you need to learn more about our "Income Security of the Month" for March 2008.

This stable, diversified fund has a long track record of paying some of the biggest dividends in Wall Street history. In fact, the fund has paid an average dividend of 24.5% per year over the past five years -- nearly 12X greater than the yield delivered by the S&P!

Learn the name of this security!

 
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An Ultra-Safe Treasury Fund with a Yield of 7.8%

by Carla Pasternak, Editor -- High-Yield Investing

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Managed by PIMCO, the world's biggest bond manager, PIMCO Real Return D (PRRDX, $11.50) has an ultra-safe "AAA"-rated portfolio of U.S. Treasuries and government agency bonds. About a quarter of the $14 billion in assets is in Treasury Inflation-Protected Securities (TIPS). The balance of the portfolio is in U.S. Treasuries, government-sponsored mortgage-backed securities, corporate bonds, and international bonds.

With an intermediate-term average duration of about seven years, the portfolio carries moderate sensitivity to interest rates. To extract extra yield, the fund manager may buy TIPS derivatives, which cost considerably less than the bonds themselves. That leaves more cash to invest in safe, but higher-yielding, short-term corporate bonds.

Dividend:  The fund pays a varying dividend each month of about $0.04 per share. Over the past 12 months, regular dividends plus year-end capital gains of $0.375 have amounted to $0.90 per share. That gives the fund a generous yield of 7.8% as we go to press.

This fund is sold to retail investors in four ways -- "A" shares, "B" shares, "C" shares, or "D" shares. Each share class has a different price structure and charges. We've zeroed in on the "D" shares as providing the lowest cost and maximum return potential. A 0.9% management expense fee takes a small bite out of total returns.

The fund has a dividend reinvestment plan, and for more information, you can call investor relations at 1-888-877-4626. The fund requires a minimum initial investment of  $5,000.

Performance:  Established in April 1998, the fund has performed in the upper quartile of its category in 1-year and 5-year annual returns. Returns of +14.8% over the past year are more than double those of the benchmark Lehman Brothers Aggregate Bond Index and demonstrate the success of PRRDX's portfolio strategies.

Outlook:  This fund's returns are sensitive to interest rate changes. Falling interest rates could increase the value of the bond portfolio and its shares. An unexpected rise in interest rates could have the opposite effect. The heavy weighting on inflation-indexed bonds provides protection against inflation, but the value of these bonds is still affected by changes in rates.

For example, the fund put in its best year in 2002, when interest rates were falling, and its worst year in 2006, when rates were on the rise. Still, given the fund's diverse bond holdings, the range of trading strategies, and the wealth of management expertise at PIMCO, we would expect the fund to provide solid average returns of at least +7% a year over the long-term, in line with its 5-year average.

Action To Take ---> For investors with a moderate risk profile, PRRDX should benefit from today's low interest rate environment and provide a hedge against inflation risk -- as well as healthy long-term returns.

 
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Additional Investing Ideas

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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?

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.

Kinder Morgan (KMP): A Solid Play on Increasing U.S. Natural Gas Consumption
KMP operates natural gas pipelines around the nation. With expansion projects in the works, investors should be rewarded in the coming years.
Visit this link to read additional articles from today's leading market experts!
 
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Investor Trivia -- Currency Booster

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Many fear the falling dollar, but it can actually help to significantly boost your overseas returns. Which country has seen the value of its stocks soar +518% for local investors  since 2003 and an eye-popping +1,203% for U.S. investors -- thanks to the declining dollar?

A.) Australia
B.) France
C.) Columbia
D.) Japan
E.) Brazil

(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 -- Small-Cap Value Stocks Deliver 5-Year Annual Returns of Nearly +17%

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How many times have you heard someone say something along these lines: "I wish I had bought Wal-Mart 20 years ago," or "I'm looking for the next Microsoft."

It's easy to share that sentiment, as well as the frustration of not being able to spot future bellwethers when they are still in their early growth stages. 

Of course, some farsighted investors did see the potential of those two blue-chip companies and bought them long before they became household names.

In November 1980, Wal-Mart (NYSE: WMT) was trading at a split and dividend-adjusted price of $0.01 per share. With a recent price around $50, the stock has skyrocketed about 5,000 times in value since then, meaning someone who invested a modest $1,000 in the up-and-coming retailer back then would now be a millionaire several times over.

Meanwhile, an investor who had the foresight 20 years ago to see that Microsoft (Nasdaq: MSFT) was about to revolutionize the software industry could have picked up the stock at an adjusted price of $0.12 per share. We all know the rest of the story -- MSFT has since soared more than 200 times in value.

Hit the Restart Button
The vast majority of investors regret not having bought Wal-Mart or Microsoft 20 years ago, long before they became the behemoths they are today -- but the market seldom gives us a second chance. Or does it?

Consider this: many investors in 2028 will probably look back at the opportunities available in today's market with a similar sense of regret. Without a doubt, the giants of tomorrow are out there right now -- and there is still time to act.

Of course, finding future leaders is never easy. In all likelihood, though, the companies that will deliver the biggest gains over the next 20 years are probably quite small today.

That's because stock prices are a derivative of earnings growth. It stands to reason that a small company with $10 million in earnings can double or triple that figure far quicker and easier than a corporate giant with $10 billion in earnings -- richly rewarding its shareholders in the process.

Long-term performance numbers bear this out:

Over the past five years, small-cap companies have outpaced their large-cap counterparts. In fact, the Russell 2000 Index has delivered an impressive annualized return of about +14% over that period -- well ahead of the +11% average annual return posted by the S&P 500. Meanwhile, over the same time frame, value stocks have soundly outperformed growth stocks.

The small-cap value sector has been one of the single best-performing asset classes, delivering annual gains of nearly +17% over the past five years. 

Of course, the markets are cyclical, and anything can happen over short periods of time. Therefore, long-term performance figures tend to have far more predictive power.

On that front, small-cap value stocks still look superior . . .

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 web site. Please visit this link to continue reading this article.
  
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Free Investing Resources

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FREE 2008 Undervalued Stock Report -- Sign up for The Daily Reckoning today and receive your FREE, exclusive copy of 4 Undervalued Stocks Primed for Double-Digit Gains. In your free report, you'll have the names of FOUR lucrative stocks right at your fingertips. Sign up now.

Enjoy a free weekly newsletter -- Dr. Leeb's Market Forecast -- Free street smarts from Dr. Stephen Leeb. 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 to receive Dr. Stephen Leeb's FREE newsletter.

 


Good investing in the coming weeks!



Nathan Slaughter
Co-Editor
TopStockAnalysts Digest



Paul Tracy
Co-Editor
TopStockAnalysts Digest

TopStockAnalysts
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