Table of Contents

1.  Market Outlook
2.  Insider Buying
3.  Waste Management (WMI)
4.  Additional Investing Ideas
5.  Investor Trivia -- High-Return India ETF
6.  Featured Topic -- Security and Defense
7.  Free Investing Resources

Today's Top Stock Picks

A Terrific Opportunity in a Mammoth Sector... and the Profit Window is Open Now
Insider buying is one of the best indicators of a stock's future success, and the hard-hit financial sector is seeing an inflow of insider money... right now.  Read More. . .

Waste Management (WMI) Turns Trash into Nearly $1.2 Billion in Cash a Year
WMI is one of the most recession-proof firms around, throwing off cash no matter what the market environment is like. Read More. . .

Market Outlook

As earnings season kicks into high gear, quarterly results, rather than the economic news du jour, have been the major driver of the market. And through the first couple of weeks of reporting, very few clear trends have emerged: round #1 went decisively to the bears, but the bulls have come out swinging in round #2.

With stocks still ailing from a batch of generally uninspiring reports the week before, Johnson & Johnson (NYSE: JNJ) injected the market with just the right medicine on Tuesday. Thanks in part to strength in its consumer-products division, the global healthcare giant reported both top and bottom-line totals that handily topped expectations -- and raised its forecast for the year.

And by mid-week, a flurry of other upbeat reports blanketed Wall Street in a fresh coat of optimism. Coca-Cola (NYSE: KO), IBM (NYSE: IBM) and eBay (Nasdaq: EBAY) all posted upside surprises, and JP Morgan Chase (NYSE: JPM) even helped the battered financial sector get back on its feet.

Cell phone maker Nokia (NYSE: NOK) and a few others later counterpunched with disappointing numbers, but they were shrugged off quickly when Google (Nasdaq: GOOG) dealt a punishing blow to the bears. On Thursday evening, the Internet search king reported first-quarter profits of $4.84 per share (about $0.30 above estimates) on revenues that surged +42%.

The news (along with short covering) helped Google skyrocket $90 per share and triggered a massive rally in the broader market as well, pushing the Dow Industrials up more than 200 points. Added to the gains scored earlier in the week, the major averages all finished well into the green.

Only about 50 of the S&P 500 companies have turned in earnings thus far, so it's still too early to draw any definitive conclusions. But according to Thompson Financial, overall profits are showing a -14.5% year-over-year decline -- soft, but certainly better than many feared.

Yet, while many sectors have a cloudy near-term outlook, some others are looking forward to stable demand in both good times and bad -- like garbage collectors. And below, Market Advisor editor Paul Tracy hits the high points on one of the best in the business, Waste Management (NYSE: WMI, $35.76).

But before that, Karim Rahemtulla, editor of Smart Profits Report, discusses the importance of insider buying as an early market indicator. Financials have been some of the hardest-hit companies in the past year, but as insider purchases in many of the top financial institutions continue to increase, the shares should begin to see gains too.

Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

Pop quiz: Over the past six months, one sector of the market has seen more insider buying than any other. Can you name it?

If you think it's technology, you'd be wrong. Yes, the sector has enjoyed a resurgence in recent months, but not enough to whip up a heavy enough wave of insider buying as the sector I'm talking about.

Healthcare? It's an excellent investment area during tough economic times due to the essential nature of drugs and medicine that produces plenty of repeat business. But that's not it either.

No... the answer is the financial sector. Large insider purchases have occurred at some of the following companies: Wells Fargo (NYSE: WFC)*, Bank of America (NYSE: BAC)*,
Wachovia Bank (NYSE: WB), Fifth Third bank (Nasdaq: FITB), American Express (NYSE: AXP), Genworth Financial (NYSE: GNW) and Colonial National Bank (NYSE: CNB). I've specifically marked the companies that Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) has been buying recently with an asterisk.

But for all the strong insider buying, financial shares have endured a beating.

What gives? Insider buying is one of the best market indicators. Always has been. But could all these insiders be wrong? And if they are, the question is: if the guys running these companies can be so wrong, what chance do ordinary investors have? After all, these are the people involved in the day-to-day operations and privy to details that will never be public. Are they just plain stupid? Let's find out...

Short Versus Long
In the investment world, there are two types of investors:

Short-term: These guys look to be in and out of a stock in a matter of weeks, sometimes days. They're looking for trading opportunities, not necessarily value.

Long-term: These investors look past the daily market noise and hype, focusing instead on the next 12-18 months for a return on their capital.

Insiders definitely tend to have a longer-term outlook. Insider buying is historically a very early indicator. For example, insiders cannot buy shares on Monday, knowing there will be good news on Friday, because they can't trade on material information.

Instead, they buy shares on anticipation and optimism that their company is poised for future success. In addition, insiders can't sell shares for a good length of time after buying them.

So when it comes to the current financial sector pain, the insiders who bought shares in their own companies are suffering just like regular investors.

However, here's why you should pay attention to these trends...

Putting Their Money Where Their Mouths Are
More often than not, insider buying is a very accurate indicator -- especially when a certain company's insiders buy shares in a cluster pattern. They're right more often than they're wrong -- and usually by a very wide margin.

You have to remember that insiders buy thousands of shares with several thousand, sometimes millions, of their own dollars. It's not just a few hundred bucks here and there.

Ask yourself why anyone would bet the farm like this just to lose it. It may happen occasionally, but rarely when insiders buy with such gusto and such size. Such heavy buying usually signals some serious optimism.

And with the financial sector, there's another factor at work...

A Unique Opportunity In A Mammoth Sector
In terms of financial sector shares, many insiders realize that that the current battering gives them a unique opportunity: to buy high quality stocks at very discounted levels.

This is a real "kitchen sink period" for financials -- companies want to announce all their ugly losses to the market at once and get the pain over with quickly.

Financial stocks with heavy insider buying look extremely attractive now. They may look even more attractive next week. But I'd say that a year from now, they will look much less attractive from an investing standpoint.

So what's the best way to follow the insiders?

The All-Important "Insider Window"
The key to following insider trades is timing.

If you're looking to hop on the bandwagon with these astute folks (and remember, they know more about their companies than anyone else), you want to buy after the insiders buy.

That means you want to buy in a 3-6 month window after the insider buying has taken place. Why? Because insider buying as a forward-looking indicator is usually not confirmed by the market for a period of at least 6-9 months in the future.

You must be patient. Don't fall into the trap that many ordinary investors do -- that is, they do all the hard work by following the trends and buying shares, but then get antsy and sell at a loss within that 6-9 month period because "nothing" happened. They then watch as the shares begin to move up in "miraculous" fashion.

But it's not a miracle at all. It was the insider buying indicator working in time-tested fashion: buy shares when they're cheap and hold them until they are expensive.

Believe me, insiders also have an uncanny knack for selling at (or near) the top. Right now, they're not selling in the financial sector; they're buying like there is no tomorrow. We'll check back at the end of the year to see if their strategy has worked or not, but you could do a lot worse than buying some financial sector shares now.

Talk to you again soon.

Karim

* * * * * * *

Today's Notes

Whose words matter most? The analysts? Portfolio managers? The yap-happy hosts on CNBC? Or the actions of insiders? When it comes to filtering out the facts from the fiction with a certain company, the executives and directors easily have the most accurate, up-to-date information on their company's orders, supply and demand, and overall prospects. And it's not so much what they say, but what they do. And don't be fooled by insider selling activity. It doesn't necessarily indicate pessimism or imminent doom. Often, sales are planned once the stock hits a certain level, or an executive wants extra funds in order to diversify, or pay for personal items. While insider activity is not a guarantee of future performance (nothing is), the trends can provide excellent clues.

Fundamental and technical analysis is crucial... but so too are other powerful indicators like insider buying trends. While not reflective of a company's balance sheet strength or a stock chart's potential breakout move, insiders can lead you to profits just as effectively. Karim has used heavy insider buying trends to buy two of the financial sector's biggest companies in the Xcelerated Profits Report newsletter -- and the May issue is set to go to press imminently. This month, we're buying a company seeing plenty of "activist" interest (some of Wall Street's biggest players are involved with this one)... making some strong progress in a $14.6 billion global market... and could be subject of a Big Pharma buyout. Find out how you can get involved too by clicking this link, plus get a whole year of stock recommendations from our team of pro traders.

Waste Management (NYSE: WMI, $35.76) is the largest provider of municipal solid waste management in the U.S. with a roughly 26% share of the $52 billion industry.

Roughly 64% of revenues come from waste collection fees, 22% from landfill-related tipping fees, 9% from recycling and 5% from WMI's waste-to-energy operation, Wheelabrator.

Competitive Advantages:  WMI's primary competitive advantage lies in its unparalleled network of landfill capacity. In total, WMI owns or operates 283 landfills in the U.S. -- capable of handling some 116 million tons of waste per year. This represents the largest number of landfills of any U.S. waste management firm.

Even better, WMI's landfills are far from full -- the company estimates that its facilities have 30 years of life left. That means WMI could keep collecting and depositing waste at its current rate for roughly three decades without running out of capacity. Currently, WMI has filed for expansion permits for more than 50 of its existing facilities; if all those permits are granted, then WMI's remaining landfill life will top 37 years.

And WMI's landfills are well-diversified geographically, meaning WMI has access to landfill capacity in just about every imaginable market for waste disposal. In total, about 70% of WMI's markets include both collection and landfill capacity.

And in addition to plain vanilla landfills, WMI has a huge network of other waste disposal facilities. The list includes 131 waste recycling centers capable of handling 8 million tons of recyclable materials per year -- the largest network of recycling capacity of any waste management firm. And WMI also owns 370 transfer facilities used to temporarily hold and consolidate waste before transport to landfills.

Given the extensive regulatory barriers for building new landfill, recycling, and transfer station capacity, it would be very difficult, time-consuming, and expensive for a competitor to recreate WMI's asset base. And since the top three waste management players own nearly two-thirds of U.S. landfill capacity, it would be impossible for a competitor to buy up small landfill owners to recreate WMI's capacity.

This gives WMI two key advantages. First, the company internalizes the majority of its waste volumes, meaning it both collects and landfills its own waste. In addition, the company can charge lucrative tipping fees for competitors to dispose of waste on its properties or in its recycling centers.

Growth Drivers:  The main growth driver for WMI is a renewed focus on profitability over volume growth. WMI has been purposely giving up business and waste volumes in recent years.

The reason is simple -- WMI is allowing marginally profitable collection contracts to expire, and management has refused to bid aggressively just to win business. Instead, the company has been refocusing attention only on markets where it has a competitive advantage because it owns both landfill capacity and collection infrastructure. Due to the size of WMI's landfill network, this focus still leaves plenty of high-potential markets, and the end result of these measures has been strong growth in profitability.

Since total waste volumes processed by WMI have been falling over the past couple of years, the firm's recent growth is a direct result of efforts to increase pricing and focus only on the most profitable contracts. Overall operating margins -- a measure of operating profits divided by total revenues -- jumped from 15.6% in 2006 to 16.9% in 2007. With a significant number of important contracts due to reset in 2008, WMI has plenty of additional room to fuel growth by raising prices in markets where it has a near-monopolistic position.

Valuation and Outlook:  WMI trades at 14 times estimated 2009 earnings and sports a long-term growth rate of +11%. That yields a P/E-to-growth ratio (PEG) of 1.3 -- a cheap valuation for a company with such a steady earnings profile.

Even better, WMI's renewed focus on its most profitable markets has led to a surge in free cash flow generation. WMI generated nearly $1.2 billion in free cash flow for 2007. In 2008, WMI expects to generate enough free cash flow to pay $530 million in total dividends and manage $870 million in stock repurchases. Both repurchases and rising dividend payouts are shareholder-friendly moves for WMI.

Finally, while WMI's Wheelabrator waste-to-energy business accounts for only a small chunk of total revenues, it's still the second-largest waste-to-energy player in the world. Wheelabrator is expecting decisions on five new waste-to-energy projects for 2008; contract wins for this business could expand its importance to WMI's revenue pie and offer an additional upside catalyst for the shares.

With all of these factors in mind, WMI looks like a solid recession-proof "Buy" at any price below $45 per share.