Table of Contents

1.  Market Outlook
2.  Healthcare Buyouts
3.  WT Intl SmallCap Dividend (DLS)
4.  Additional Investing Ideas
5.  Investor Trivia -- Beating the Market with Buffett's Mentor
6.  Featured Topic -- Turn Pain at the Pumps into Profits with Big Oil
7.  Free Investing Resources

Today's Top Stock Picks

Get Ready for a Buyout Boom in the Healthcare Sector
Due to patent problems and poor research pipelines, Big Pharma companies are in need of new drugs -- and they are paying premiums as high as +84% to get them. Read More. . .

Take Advantage of Two Major Market Trends with Only One ETF
Historically, both small-cap and international companies outperform the broader U.S. markets. One fund applies these principles and purchases international small-cap companies, providing the potential for outsized returns. Read More. . .

Market Outlook

The major averages drifted without much direction at the beginning of last week before plunging on Wednesday and further extending their losses on Friday -- snapping a near month-long weekly winning streak.

Absent any major news, traders have finally begun to take notice of surging oil prices. Fueled partly by supply disruptions in Nigeria, partly by a pullback in the dollar, and partly by speculative talk of crude reaching the $200 per barrel level, oil futures spiked further into record territory and are now approaching $130 per barrel. In case you were wondering, that is roughly double the $62 per barrel level where oil was trading at this time last year.

Meanwhile, gasoline prices have followed suit, rising to a new peak of $3.67 per gallon on average nationwide. Worse still, there is typically a lag before fluctuating oil prices show up at the pump, meaning recent up ticks in oil futures still haven't worked their way through the system -- and some analysts are forecasting $4 per gallon gas prices in the very near future.

Aside from pushing a tank of gas to $50, $60, or even more, elevated oil prices are also causing other, less obvious headaches. For example, higher prices for diesel (which is used to fuel most of the nation's trucking and shipping fleets) are raising transportation costs for food and other products.

All of this is going to put further strain on U.S. consumers, many of which have already taken steps to reign in their discretionary spending. April's retail sales tallies seem to bear this out, as discounters like Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) posted better-than-expected same-store sales figures, while department stores and mall-based apparel chains struggled with declining sales.

Tripped up by the effect of rising oil prices, the Dow Industrials surrendered more than 300 points on the week, and all three of the major averages slipped more than -1%.

With the economy slowly grinding to a halt, defensive investors are taking a hard look at stable sectors like healthcare -- after all, sick people need items like prescription drugs in both good times and bad. But that's just one reason why biotech stocks might be just the right prescription for an ailing portfolio. As Marc Lichtenfeld, Senior Editor of the Smart Profits Report, explains below, a confluence of factors could have a wave of merger and acquisition (M&A) activity washing over this sector in the coming months.

Also in today's newsletter, StreetAuthority Market Advisor editor Paul Tracy provides some thought-provoking tips for fund investors. If small-caps typically outperform large-caps and foreign stocks outperform domestic stocks, then the WisdomTree International SmallCap Dividend (NYSE: DLS, $63.02) fund should be worth exploring. Sitting at the intersection of these two attractive asset classes, the fund provides exposure to a diversified basket of up-and-coming companies culled from promising markets all around the world.

Good Investing!

-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

In a few days, I'm giving a speech at the 13th Annual Pharmaceutical and Biotech Licensing and Deal Making Summit.

To prepare for my presentation, I spoke to many of my hedge fund contacts. Given that I'm already a biotech bull, I wanted to know what they expect from the merger and acquisition landscape regarding the biotech sector.

And what I heard from my sources made me more positive than ever on the future outlook for the biotech sector. So if you'll pardon the pun, here's the deal...

The Sugar Daddies Of The Healthcare World

Big pharmaceutical companies are analogous to "Sugar Daddies." You know, the rich, older guys who want some pretty young girl to spice up their lives.

In the healthcare world, the Sugar Daddies are the large-cap pharma companies who are loaded with cash, but their patents are getting quite gray. And their pipelines (drugs in development that haven't yet been approved) are, shall we say, not quite as robust as they used to be.

But just as it means nothing to the Daddy to lavish his new object of affection with cars, diamonds and apartments in the city, a large-cap pharma can easily drop $800 million for a biotech company.

For example, GlaxoSmithKline (NYSE: GSK) has nearly $7 billion in cash, while Novartis (NYSE: NVS) boasts more than $10 billion. And Pfizer's (NYSE: PFE) coffers are bursting with $25.4 billion in cash.

And some have already splashed their fat wads of cash in a big way...

Two Reasons For An Imminent Biotech Buyout Boom

Take Glaxo, for example, which spent $720 million of its $7 billion horde to buy Sirtris Pharmaceuticals (Nasdaq: SIRT) last month. That was an +84% premium to SIRT's closing price the night before.

And on the other side of the world, Japanese drug giant Takeda Pharmaceuticals is buying Millennium Pharmaceuticals (Nasdaq: MLNM) for $6.6 billion -- a +53% premium. That's also roughly one-third of Takeda's $18 billion of cash and securities.

My sources tell me this type of activity is going to continue -- and for a couple of key reasons:

Patent Problems: Many of Big Pharma's blockbuster drugs are set to lose their patent exclusivity in the near future. This means the door opens for more generic competition and eats into a Big Pharma company's previously exclusive revenues from the drug.

Poor Pipeline: Surprisingly, the large-cap companies don't have particularly full drug
pipelines. Since a pipeline is the lifeblood of these corporations, it's easy to see why they go after smaller rivals who do boast stronger pipelines and/or cutting-edge technology. Some consider it less risky to buy a drug midway through development (or even in the latter stages) than to develop it from the start.

And this is why I think healthcare will become a rich addition to your portfolio...

Wanted: Drugs... Price: A Boatload Of Cash

The bottom line is this: Big Pharma companies have cash and want drugs. And for the right price, biotech firms will be happy to sell to them.

Moreover, based on the recent M&A activity within the healthcare sector and laws of supply and demand, the prices may stay high or go higher.

For example, imagine you're the CEO of a promising biotech firm and you're seeing the +50% to +80% premiums that Big Pharma companies are paying for your fellow biotechs -- many of which have unproven technologies. You can be sure that if a potential buyer comes sniffing around your firm, you're going to try to extract as much money from them for your shareholders as possible.

With drug patents expiring and sparse pipelines, Big Pharma will continue to pay up for smaller biotechs because it has to. And it's these small-cap biotechs that will reap the benefits. So although the big Sugar Daddy pharma firms have all the cash, it will really be the small biotechs that will be asking, "Who's Your Daddy?"
 

WisdomTree International SmallCap Dividend (NYSE: DLS, $63.02) is an exchange-traded fund (ETF) that invests in small-capitalization foreign firms with significant dividend yields. Over the long-run, smaller firms tend to outperform large-cap companies. For example, the S&P 600 Small-Cap Index has returned more than double the gain of the large-cap focused S&P 500.

There is no single explanation for that outperformance. However, one key reason is that smaller firms tend to have more room to generate growth. That's because larger capitalization firms have, in many cases, already exploited the bulk of the growth possibilities in their industries.

Meanwhile, portfolios containing a healthy dose of international stocks tend to outperform those invested exclusively in U.S. companies. A study by Vanguard covering the period from 1973 to 2003 shows that European stocks actually offered about a +1% annualized advantage over U.S. stocks -- returns of approximately +12.5% annually against just +11.5% for the U.S. Meanwhile, emerging markets did even better, offering returns of nearly +15% annualized over the same period.

Although +1-2% annualized gains might seem like a trivial advantage, that's certainly not the case when looked at over a long time period. For example, $100,000 invested for 30 years at +11.5% would grow to about $2,610,000 -- a very respectable sum. However, if you were able to invest that same $100,000 at +12.5% per year, then you'd end up with over $3,400,000 at the end of 30 years -- an improvement of almost one million dollars.

And more recently, international stocks have outperformed even more significantly thanks to strong growth in emerging markets such as China and India. Consider that over the past five years Hong Kong's Hang Seng Index is up three times more than the S&P 500. 

DLS sits at the heart of these two key market trends, as the fund invests in small-cap companies in international markets. The fund is widely diversified, with its top ten holdings accounting for barely 6% of total assets -- that reduces the overall risk of the portfolio. And DLS is also widely diversified by country with holdings in Europe, Asia and Latin America.

With leverage to fast-growing international markets, DLS looks like an attractive holding for aggressive dividend-focused investors willing to weather the occasional volatility inherent with small-cap stocks. Meanwhile, investing overseas is an excellent way to protect your wealth against a weakening U.S. dollar -- a weaker dollar boosts returns from portfolios of foreign stocks.