It pays to look beyond the usual suspects in the financial services group. The media gives disproportionate coverage to Citigroup (NYSE:C), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM) and a few others. That doesn’t mean these are the best banking stocks. In fact, some smaller regional players offer investors plenty of profit potential.

One of those names is Texas Capital Bancshares (NASDAQ:TCBI). The Treasury Department recently sold $6.56 million in Texas Capital warrants, freeing the company from a big outside constraint. That’s a positive catalyst in its own right, but there are other reasons to give this stock a look. Dallas-based Texas Capital is a conservative bank that does the bulk of its business in its home state.

The Texas economy, second-largest in the U.S., has avoided the pain suffered by many other states during the recession. Texas remains vibrant in part thanks to strong energy prices. More important, though, the Texas real estate market did not overheat like Arizona, California, Florida and Nevada. That means Texas Capital’s balance sheet is not cluttered with risky loans that are susceptible to default.

Another Texas dynamic to consider: There is no bank that would qualify as “major” based in Texas. And yet, Texas is the second-largest state by population and a pivotal market for Bank of America and Wells Fargo (WFC). Despite the fact that the big boys operate in Texas, many Texans prefer to do business with Texas-based banks, a market dynamic that favors the likes of Texas Capital. Many business owners in Texas look to the favorable rates and favorable good-ole-boy system that regional banks offer.

Shares of Texas Capital are up about 30% in the last three months, nearly twice the performance of Bank of America and Wells Fargo. Traditionally one of the biggest reasons to own bank stocks was for their dividends, but many banks have now slashed their payouts to rock-bottom levels. Federal regulators are forbidding dividend increases until the economy improves. That means capital appreciation is what you need in the banking sector. Texas Capital has proven itself to be a winner on that front. The stock has already broken out, indicating more gains may be right around the corner. To play the regional banks in the second-largest economy in the United States, go with Texas Capital Bancshares.

Brandon Clay
Invest With An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

One niche we like is cloud computing. We’ve previously highlighted the cloud computing trend. We talked about several cloud computing stocks that may help investors profit from the group’s rapid growth. Today we add one more name to that list: Informatica Corporation (NASDAQ:INFA). California-based Informatica boasts some strong fundamentals. In the most recent quarter, Informatica reported its profits rose 29% and revenue surged 21%.

Analysts are forecasting earnings growth of 11% in 2010 and 20% in 2011. Those are impressive statistics. According to Investor’s Business Daily, which features Informatica among its top 100 stocks, the number of mutual funds owning Informatica shares rose to 213 from 188 during the last quarter. That’s another positive sign that the smart money crowd is taking note of the stock.

Informatica is taking steps to enter new business segments, highlighted by the company’s January acquisition of Siperian, a master data management company. This was Informatica’s first foray into that space and the company’s biggest acquisition to date. The Siperian buy was greeted warmly by both investors and customers. It makes sense as master data management is one of the fastest growing sub-sectors in the tech space.

Given all of the news, it isn’t surprising to see analysts enthused about Informatica. Just this week Broadpoint AmTech mentioned Informatica as one of its top cloud computing picks. The stock is up more than 15% in the past month and touched a new 52-week high Tuesday on heavy volume.

Whether you call Informatica a growth stock or a momentum stock, the signs are decidedly bullish at this point. Yet the company still has value relative to other tech stocks. For example, the stock trades for nearly five times book value and over 22 times forward earnings. Compare these numbers to Amazon (AMZN), which is trading around 11 times book value and 34 times forward earnings. Informatica looks cheap in comparison.

Regardless of comparisons, Informatica is a strong stock in a strong sector. This means more gains could lie ahead. To play the cloud computing angle with a strong company, go with INFA.

Brandon Clay
Invest With An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Doing business with the government can be tough, especially when the state of the union is not what it used to be. That said, there’s no getting around the fact that Aetna is a well-run company with a dominant market position. Management is making efforts to lower costs, and those efforts are starting to show results. The research arm of Collins Stewart recently upgraded AET from SELL to HOLD. We think it’s closer to a BUY. Here are a couple of reasons.

For one, Aetna’s shares have held up relatively well in the face of lower 2010 guidance. Standard & Poor’s expects Aetna to earn $2.60 a share this year and has a $33 price target on the stock. This represents a decent premium from where the shares currently trade. It’s also worth noting that Aetna said its employer healthcare plans will spend less this year on medical costs, a key metric watched by Wall Street analysts.

Second, when the company reported earnings last Friday, AET options volume was heavily tilted to the call side. The ratio of calls to puts rose to 56%, higher that it has been in a year. This may indicate an increasing bullish bias toward Aetna.

Finally, some investors overlook Aetna’s international business. The company’s Global Benefits unit is exploring growth opportunities in Africa and the Middle East. Aetna sees great opportunity outside the U.S. Global markets could be a positive catalyst for Aetna shareholders going forward.

Health insurers do have some near-term headwinds, but the solid long-term outlook for Aetna makes it a compelling opportunity for astute investors. In addition, the stock may have found support near $28. If you’re looking for a solid, too-big-to-fail healthcare stock that can profit whether or not health care reform passes, go with AET.

Brandon Clay
Invest With An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Take two ETFs designed to track the S&P 500. SPDR S&P 500 Index ETF (SPY) has an expense ratio of 0.09% as does its lesser known rival, the iShares S&P 500 Index ETF (IVV). SPY, the original ETF, is more widely held than IVV. In fact, SPY is bigger than any other ETF in the world having at more than $70 billion. SPY is also very liquid, trading nearly 165 million shares on an average day.

IVV, on the other hand, has “only” $21.2 billion in assets and trades “only” 3.95 million shares per day. It’s big and active, but SPY is even more so. So one might prefer to invest in SPY, right? Not so fast. In news that is likely to have long-term ramifications on the ETF industry, brokerage giant Fidelity announced commission-free trading for 25 iShares ETFs. IVV is one of those ETFs. SPY is not.

Commission-free ETF trading was pioneered by Schwab for its own proprietary ETFs. Fidelity’s move is a response to competitive pressure – and a good one, since iShares is one of the largest ETF issuers in the world. Plus, the 25 iShares ETFs (including IVV) that Fidelity is offering commission-free gives investors many more choices than at Schwab.

Many of Fidelity’s 12 million retail customers could see a big reduction in their trading expenses as a result of this change. The cost-savings could make the choice between IVV and SPY very easy for many investors. The impact of the Fidelity announcement was immediately visible during Tuesday’s trading session. Shares of Fidelity rivals such as Schwab (SCHW), TD Ameritrade (AMTD) and E*Trade (ETFC) all traded lower on the news.

While a brokerage price war doesn’t testify to the future performance of any particular ETF, this move by Fidelity does make choosing between two S&P 500 ETFs that much easier. If you have an account at Fidelity and want to buy the S&P 500, use the commission-free choice: IVV.

Brandon Clay
Invest With An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned. Our affiliate, Capital Cities Asset Management, uses Fidelity Brokerage Services and Ameritrade Institutional as custodians and brokerage for client accounts.

Let me state emphatically that I am not going to become a stock picker. My regular letter will remain focused on the macro economic environment and investments in general. This is not my recommended advice to you but what I am doing as an individual investor. I simply know that many readers are interested in what I am doing personally and in my investment ideas. If this doesn’t make sense to you, then by all means hit the delete button later. With that thought, let’s dive right in.

In the 70s, we had a bubble in gold and commodity stocks. Some stocks had huge run-ups because of major gold finds coupled with the price of gold going up over 20 times over the period. A gold mine became a hole in the ground with four promoters standing around it telling you a story about why there was gold in the hole. Sometimes there was, but often the "gold" was the stock the promoters sold. I was too young and poor for that bubble, although I did get into a few (sadly too few) later winners.

Then we had the tech bubble. And the internet craze. Obviously, some of those stocks are still around and have been longer term winners, but the number of stocks that went public with crazy offerings, no revenues and valuations from left field eclipsed anything I have ever witnessed. I missed that bubble as well, as I was bearish about the markets in general and tech in particular, as I wrote in my first book (1998).

I think there is a potential for another bubble over the next decade. There will probably be several, but there is one I am particularly interested in and that is biotech, with an emphasis on stem cell and gene therapy and their allied kin. For reasons outlined by my friend Patrick Cox, writer of the newsletter Breakthrough Technology Alert, in today’s Outside the Box, I think we are on the cusp of a decade of remarkable breakthroughs which will change the way we do medicine.

While some of these breakthroughs will come via large firms, others will be in smaller companies. Imagine cures for certain types of cancer. Rejuvenation of failing hearts? Livers? Genetic therapies for all types of diseases? The list of potential blockbuster therapies from current research is enormous and growing.

There are going to be some companies which will simply see their stocks explode. Of course, for everyone that has a large run, there will be failures which will go to zero. Or companies that seemingly have "the cure" only to have another company come along with something faster and cheaper, wrecking their share values. (Think of the dawn of the computer age and how many once high flying stocks went to zero. Biotech stocks are not bonds.)

But I think (personal belief here) that what will capture the imagination will be the large winners. Everyone will want to be in at the beginning of a new home run. As the decade goes along, we will see companies go public before they are really ready, just because they have a great story and people will want to fund that story.

It has the classic potential to become a bubble, because there is a deep reality – some substance to the stories of the winners – that will make people look for the next big winner. So far, we as humans have not proven ourselves able to resist bubbles. Maybe this will be the time we all become adults and there will be no bubble. Maybe. But my thought is that it will not be.

And as I have been ending my speeches recently, I have lived through a number of bubbles. I have never gotten to invest in one. This time, dear God, just once please let me be at the beginning of a bubble.

Now, I have no particular expertise in biotech stocks. I go to conferences, read articles and hear amazing stories. They all sound good to me. But for about a year I have been reading Patrick’s newsletter, and have spent a lot of time talking with him (and others in the biotech industry). He does have expertise in looking at all types of breakthrough technologies (and not just biotech). He is one of my main sources for ideas in this space, and if you are interested in the tech and biotech world, you might consider subscribing to his letter (I will provide a link later). As an aside, he will be writing the chapter on biotech in my next book.

Starting this month, I will begin to buy some of the stocks in his suggested portfolio. I will start with four stocks and add to those positions and other stocks over the coming years. I think this is a long term play. My best guess is that the coming recession I predicted last Friday may hurt the value of these stocks, but I simply don’t know. This is not a trade, nor will I be hedging (at least not for some time). I expect to be adding small positions for years.

While gold bullion was ‘only’ up 24%* (and silver up 49.3%*) it did nothing more than match the performance of the S&P 500 and the Reuters/Jefferies CRB indices at 23.5%* for both. Why all the hype regarding gold bullion over the past few months when most other commodities and their related stocks and long-term warrants did so much better?

HUI up 42%

A basket of large-cap gold and silver stocks, as represented by the HUI, was up 42.2%* in (the Gold Miners Index and its ETF proxy were up 36.4%*).

S&P/TSX up 52%

An investment in Canada’s heavily commodity based S&P/TSX a year ago would have generated a 52.3%* return in U.S. dollars.

Commodity Companies Index (CCI) up 126%

Those investors who invested in a basket of stocks consisting of all 36 companies involved in commodities that have long-term (i.e. 24 months duration) warrants trading, as included in my proprietary CCI consisting of

1. 29 companies involved in the mining, developing or exploring of gold and/or silver ( 22), uranium (1), cobalt (1), molybdenum (1), lead (1), coal (2) and iron ore (1)
2. 3 companies involved in buying secondary gold or silver production, i.e. royalty streamers
3. 2 companies involved in oil and gas production and exploration and
4. 2 merchant banks involved in financing commodity-related projects,

would have experienced an impressive gain of 125.8%* in 2009.

Commodity Company Warrants Index (CCWI) up 242% in 2009

The very, very few in the know who invested in the basket of 47 long-term warrants associated with the above commodity categories (6 companies offer two or three long-term warrant hence the larger number) that trade on the Canadian or U.S. stock exchanges, as per my proprietary CCWI, experienced an amazing increase of 242.3%* in 2009. Yes, that is correct: 242.3%!!

For those many who are not familiar with warrants they give the holder the right, but not the obligation, to purchase the common shares of the company at a specific price within a specific time period after which, if not exercised, they expire worthless although they can be traded throughout the period just as with the associated stock.

In previous articles I have gone on and on about the leverage advantage (i.e. enhanced returns) of warrants and here is a perfect case in point. The warrants in the CCWI generated twice the returns of their associated stock in the CCI with the same degree of risk. That’s the major advantage of warrants vis-a-vis their associated stocks. I will address the specific leverage the warrants achieved in next week’s article.

Gold and Silver Companies Index (GSCI) up 85%

To be totally objective in this analysis, however, the average increase in the stock of the 22 companies with long term warrants trading that were exclusively involved in the mining, developing or exploring of gold and/or silver or in royalty operations were up, according to my proprietary GSCI, an impressive +84.5%* for the year.

Precious Metals Warrants Index (PMWI) up 140%

It gets even better! The long-term warrants of the 22 companies involved in the mining, developing or exploring of gold and/or silver or in royalty operations appreciated, according to my proprietary PMWI, by 139.7%*.

Royalty Company Stock up 93%

Had you had just invested in the stock of the 3 companies with long-term warrants that buy the secondary gold and silver production from base metal miners at fixed prices you would have had a 92.6%* return in 2009.

Royalty Company Warrants up 213%

And best yet the long term warrants of these 3 companies were up 213.0%* in 2009. How’s that for enhanced returns!

Where Should You Invest in 2010?

As you will recall I recently wrote an article entitled “Gold:Silver Ratio Screams Buy all Things Silver!” whose conclusions, coupled with the conclusions in this article, strongly suggest that the buy of this decade will be the warrants of gold and silver mining companies and, more particularly, the warrants of gold and silver royalty companies and specifically the warrants of silver royalty companies.

Conclusion

Don’t follow the herd when it comes to investing in gold (and silver) in 2010. Remember, gold was ‘only’ up 24%* in 2009 and the HUI ‘only’ 42%* yet the long-term warrants of the gold and silver mining companies were up 140%* and the long-term warrants of the gold and silver royalty companies were up 213%*. If the current bull market in commodities continues in 2010 it behoves you to seriously consider investing some money accordingly. The next time you read an article hyping gold consider the better returns available invest in the alternatives to gold bullion.

(*All performance return calculations in this article have been on the basis of realizing profits in U.S. dollar terms. Posting criteria does not permit me to name the companies in the GSCI/PMWI or CCI/CCWI so please visit my site and look under the "Warrants/LEAPS/Options" section for articles on "GSCI/PMWI Constituent Companies" and “CCI/CCWI Constituent Companies” for such lists.)

Everyone is making 2010 forecasts. So today I’ll jump on the bandwagon and share one of mine with you:

In 2010 you’ll hear a lot more

about the “Next 11.”

The Next 11 (N-11) is a list of fast-growing countries identified by Goldman Sachs (NYSE:GS) as potentially good investments in the coming years. However, before I tell you where in the world can you find them, I should probably tell you about the First 4 — the so-called “BRIC” countries.

BRIC is an acronym coined by Goldman Sachs a few years ago to describe four top emerging markets: Brazil, Russia, India, and China. These countries have a huge part of the world’s economy and natural resources. And together, they account for about 25 percent of the world’s land mass and 40 percent of the global population.

You can read more about the BRICs in our free Special Report, Get Ready For The New World Order, by clicking here.

As big and influential as they are, however, the BRICs are already well-known among professional investors. And that’s where the Next 11 countries come in … they’re the next big growth stories.

The Next 11 countries are the next big growth stories.

While they aren’t on the scale of the BRIC nations, the Next 11 countries all have large populations. Indonesia is the largest at about 229 million, while South Korea is the smallest with around 48 million.

More important, their populations are growing — not shrinking as is the case in many developed nations. Other things being equal, more people usually means more business opportunities …

When you combine a good-size, growing population with a modern industrial base you get a critical mass: The ability to produce consumer goods, and the consumers who can afford to buy them. Having natural resources, such as oil, in your back yard helps too.

All of this creates the potential for major consumer and business growth. And the investment opportunities — for those who are patient and do their homework — could be enormous!

Here is a complete list of the Next 11, from West to East:

• Mexico

• Nigeria

• Egypt

• Turkey

• Iran

• Pakistan

• Bangladesh

• Indonesia

• Vietnam

• South Korea

• Philippines

I’m surprised that Mexico is the only country in the Americas present on the Next 11 list. I personally believe some countries like Chile, Peru, and Argentina are also capable of showing tremendous growth in the decades ahead. But then again, it’s Goldman Sach’s list — not mine.

Are the Next 11 countries “Emerging Markets?” That depends how you define the term. South Korea, for instance, is as modernized as the U.S. and France. The same holds true for parts of the others. The point isn’t where they are now. The point is where they are going in the long run — and from everything I’m seeing, the answer is bound to be up!

How to Invest in the Next 11

ETFs are opening new markets to U.S. investors.

I wish I could tell you about an exchange traded fund (ETF) that gives you easy access to the top companies in the Next 11 countries.

Unfortunately, none exists at the moment. Although, an index provider for fund sponsors, Structured Solutions AG, already has three Next-11 related indexes up and running. So we’re sure to see ETFs based on these indexes hit the market soon.

Meanwhile, you can get part way there with single-country ETFs that provide exposure to some of the Next 11 markets. Consider checking out funds like …

• iShares MSCI Mexico (EWW)

• iShares MSCI South Korea (EWY)

• iShares MSCI Turkey (TUR)

• Market Vectors Indonesia (IDX)

• Market Vectors Vietnam (VNM)

If you buy any of these ETFs, be sure to invest only a small slice of your portfolio. The long-term prospects are great for all of them, but in the meantime you could see some huge short-term swings.

Until next time, Happy New Year and welcome to 2010!

Best wishes,

Ron Rowland
Money and Markets

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

On the other hand, you can’t ignore commodity futures completely. Some stocks are directly tied to commodities they produce or process. For instance, American Italian Pasta Company (AIPC) could be affected if wheat moves sharply up or down. Sugar is another member of the commodities family. Like all commodities, sugar prices are affected by the worldwide supply and demand of sugar. When there’s a glut of sugar, prices fall. When sugar crops are threatened or supply is tight, sugar futures rise. That’s what is happening now.

Worldwide sugar prices are rising for two reasons: rising ethanol consumption and harvest problems. Most of the world’s sugar is made from sugar cane in tropical zones. Major producers include Brazil, India, China, Mexico, and Thailand. Brazil is the largest sugar producer and exports 30 million tons, or 20%, of global sugar production. Brazilian sugar exports include regular table sugar and ethanol. As alternative fuel interest continues to expand, so does demand for sugar-based ethanol.

Others have picked up on the underlying demand for sugar. Agribusiness player Bunge (BG) recently bet on rising Brazilian sugar by purchasing a local producer called Moema. It was Bunge’s largest sugar cane purchase to date. The Indian government recently acknowledged rising sugar prices by asking factories and millers to share profits with farmers. Whether or not sugar socialism will be imposed on the Indian subcontinent will be determined at a later date. For now, the market is just readjusting to a rising commodity. So is this week’s pick: the Brazilian ethanol and sugar producer Cosan Limited (NYSE:CZZ).

Cosan produces, distributes and exports ethanol and sugar. The São Paulo-based manufacturer is diversified in both hydrated ethanol and industrial ethanol. In addition, they produce different sugars like crystal sugar, organic sugar, refined sugar and altered sugar. Cosan also deals with combustible alcohol and sugar-cane cultivation. Sugar and ethanol exports head from Brazil to the US, Japan, and Europe.

With a market cap around $3.5 billion, Cosan is not a small company. Revenues run around $3.77 billion. Granted, their diluted earnings per share is running -$0.76. However, rising sugar prices are a boon to the stock price. JP Morgan recently upgraded CZZ to “overweight”. CZZ recently broke out of congestion, moving up $1 to around $9 per share following rising global sugar prices. To go with rising sugar prices in the sugar export capital of the world, buy CZZ.

Brandon Clay
Invest WIth An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

EZCORP Inc. (EZPW) is an operator of pawn shops and a provider of credit services such as payday loans. These aren’t glamorous businesses, and payday loans are downright controversial. Many states have passed substantive legislation limiting the scope of these loans in an effort to protect consumers from the high interest rates. Sometimes they are as high as 20% or more on loans of just $1,000. Despite the political pressure, payday loans are still a big business in the U.S., and Texas-based EZCORP is one of the dominant players in this space. They have 477 short-term loan centers throughout the country.

The company also has significant international exposure. Their partnership with Albemarle Bond & Holdings, a U.K.-based pawnbroker, and Cash Converters International, an Australian equivalent to EZCORP, gives the company a foothold in Australia, Spain, South Africa, and France among other countries. EZCORP also has 369 pawnshops in the U.S. It’s reasonable to expect traffic at these locations has been brisk as consumers trade in jewelry, collectibles, and other related fare to get their hands on some extra cash.

The performance of EZCORP’s shares would indicate as much. While the stock trails the S&P 500 on a year-to-date basis, zooming in on a more recent timeframe tells a different story. Over the past three months, EZCORP shares are up about 30%, nearly six times the performance of the S&P 500. EZCORP had a 20% correction back in June, but the shares have rocketed higher since then, touching a new 52-week high on December 21.

Of course, EZCORP has the fundamentals to support such a run. For its fiscal fourth quarter ending September 30, the company reported a 31% jump in profits as revenue rose 34%. In other words, EZCORP’s top line growth helped feed the bottom line – an impressive feat at a time when so many big companies were paring costs to meet profit targets. The company earned $1.42 a share for fiscal 2009, but the outlook is even brighter for fiscal 2010 when the company forecasts profits of $1.65-$1.69 a share. Chart lovers may note the point and figure chart signaling a run to $24 could be in the offing for EZCORP. Fundamental analysts may agree the bullish sentiment surrounding the stock is warranted. Either way, EZCORP trades at just nine times forward, making it a fairly cheap way to acquire such robust growth. To buy into cash-hungry consumers in an uncertain market, go with EZPW

Brandon Clay
Invest With An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

At a recent Casey Research editors’ meeting, the team took on the question of whether the somewhat steady recovery since last February’s washout bottom in the broader markets had any of us thinking that the recession might be over. The gathering of minds included: Doug Casey, Managing Director David Galland, CEO Olivier Garret, Casey Chief Economist Bud Conrad, Senior Energy Analyst Marin Katusa (my counterpart on the energy side), myself heading the metals division, and several other editors.

Doug’s guru-vision remains locked on the disaster channel. The U.S. economic problems, he says, remain so profound and, if anything, have been worsened by the government’s actions, that Americans are headed for a significant lowering of their standard of living.

As this reality unfolds, it will send out shock waves that will impact much of the world: the Greater Depression.

And the next step, Doug believes, will be a change in interest rates. The Bright Boys in DC will resist doing this, but while they seem willing to let the dollar slide to ease their mounting debts, they don’t want it to crash. They may soon be forced to raise interest rates. When that happens, Wall Street usually moves in the opposite direction – which could be the end of the “Things Aren’t as Bad as We Thought” rally of 2009.

Bud Conrad – in proper, responsible chief economist-style – considered the question carefully and conceded that there do indeed seem to be many “green shoots” now, but still concluded that conditions will continue deteriorating. He sees the government deficits in the driver’s seat, the main variable to keep a watch on.

As the U.S. government persists with its spending spree, valiantly dousing the deficit fire with more debt-gasoline, it will continue destroying the dollar, and that will push ever more people into gold.

A year ago, Bud predicted that gold would top $1,150 by year-end 2009. His call was bolder than most forecasters’ – but he was right. Looking at the numbers today, Bud’s new baseline 2010 forecast is for gold to top $1,450. He sees a “possibility of further international instability or currency debasement as adding to that baseline.” In plain language, Bud’s confident that resource stocks of all sorts will, on average, benefit greatly from the demise of the U.S. dollar.

Somehow, I can’t shake the image of Bud singing Don’t Fear The Reaper with Blue Öyster Cult for back-up… but that’s really more like something Marin would do.

Speaking of Marin Katusa, he commented that there is money to be made in the current rebound environment, but speculators should be extremely cautious: “You should know you’re dancing with the devil in the pale moonlight. You need to make sure you know the dance steps: get in early and exit before you get the dip by the devil at the end of the song.” (Marin not only has made huge amounts of money for our subscribers, he sings in a rock band, so he knows what he’s talking about.)

My own thinking has evolved into seeing 2009 as being like the eye of a monstrous storm.

The sky has cleared substantially, and the sea looks amazingly calm, given what we’ve just been through. But it’s not over yet; the trailing edge of the storm always delivers the most damage, and that’s yet to come. Anyone fooled into abandoning shelter is taking a terrible risk.

This doesn’t mean we should stay huddled in our huts, however – it makes more sense to go out, restock supplies, repair what damage we can, and get ready for the deluge to come. The renewed fury of the storm will sink many more ships, but it will also make vast fortunes for those who invest in the ships that survive and even thrive in the tumult.

Essential strategy: For the near term, buy only an initial “tranche” (portion of your desired position) in the most storm-proof (cash-rich) companies you can find – ideally with great discovery or development stories that will deliver exciting news regardless of market conditions – and hold a good chunk of cash in reserve for the next big buying opportunity.

Nothing goes up in a straight line, as share prices over the last month have amply demonstrated. There are some great picks that have been heading up all year that are now paused in their advances. Any more correction in precious metals could put them on sale, temporarily, offering great buying opportunities with a lot of the technical (e.g., discovery) risk removed from the plays. You’ll kick yourself if you don’t have any cash on hand to take advantage of them – and kick twice as hard if you paid too much for a large whack of something that goes on sale.

Worried about sitting on cash with the U.S. dollar in a death spiral? Remember: gold is also cash, highly liquid, and with terrific speculative upside to boot.

With gold having just corrected sharply (as I predicted it would in Casey’s International Speculator), gold is unquestionably the best investment we can recommend right now – fluctuations aside, it has nowhere to go but up for quite some time. Perhaps as long as a decade.

That, plus our essential “eye of the storm” strategy as above is what we’re recommending to all our subscribers – and indeed to all investors around the world who want to not only survive the trailing edge of the financial storm still to come, but thrive because of it.

While gold has gone up 38% since last December, junior gold stocks can provide even greater gains than the yellow metal itself. Currently, for example, Louis is following eight juniors that have all the right conditions to become takeover targets by gold majors… which would drive share prices through the roof. If you want to get in early, this is the time: with our special holiday offer, you’ll save $400 on a one-year subscription of Casey’s International Speculator – but only until midnight, December 18. Hurry up and click here to learn more.

One consequence of recession is that drivers often hang on to their cars longer. To keep an older vehicle in good working order, you need to spend money on maintenance and spare parts. Those factors make Monro Muffler Brake (NASDAQ:MNRO) a compelling play on the thrifty consumer. New York-based Monro offers an array of mundane auto services from oil changes to brake repair. They’re a sizeable company with 710 stores in 17 states.

With a market cap of just under $617 million, Monro qualifies as a small cap stock. However, many on Wall Street view it as a mid cap play. Either way, investors should note that small caps historically outperform larger stocks coming out of a recession, and Monro’s 2009 performance has a growth-stock feel. Monro shares have outpaced the S&P 500 in recent months – all the more impressive when considering that the Cash For Clunkers program was going on during that same time period.

Even so, Monro does not seem overvalued by most standards. Trading at just 17 times forward earnings, one could argue Monro is a value stock with growth stock traits. That P/E ratio is roughly in line with the broader market, but it also puts Monro at a discount to its peers. The company reported a 30% jump in fiscal second-quarter profits even as sales slumped a bit. This indicates the management team knows how to control costs. Over the past year, sales have grown nearly 9% and earnings per share more than 23%.

Want more reasons to like Monro Muffler Brake? The aftermarket for cars and trucks is a significant business opportunity for Monro at $240 billion in the U.S. and $370 billion globally. Furthermore, with some 3,000 auto dealers expected to close in the U.S. by the end of next year, more drivers will need places like Monro to work on their cars.

The bottom line is that slack auto sales and lower consumer spending isn’t always a bad thing. Some niches can outperform even when the consumer is struggling. Monro Muffler Brake is in just such a niche. To go with a solid stock for the value-minded driver, buy MNRO.

Brandon Clay
Invest With An Edge

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The four year old Bakken play has created huge shareholder wealth for investors, as companies like Crescent Point Energy and Petrobank bought out junior after junior after junior to increase their land base and production profile.

The same thing is now starting to happen in Alberta’s Cardium play.  And valuations (read: stock prices) are getting much richer, much faster than what happened in the Bakken.

As an example, TSX listed Result Energy is a Cardium-focused play that was just taken over and re-capitalized by the management team from TriStar Oil and Gas, a Bakken play that itself was bought out in August 2009.

Brett Herman and his TriStar team announced several acquisitions immediately, and one Canadian analyst estimated they paid $275,000 per flowing barrel for them.  As comparison, the average Canadian listed junior trades at about $60,000, the intermediates at $71,000, and if it’s a natural gas weighted producer, it can be as low as $30,000.

Even the leading juniors in the more profitable Bakken play – Painted Pony Explorations would be a good example of this – trade at $140,000 per flowing barrel. 

The Result Energy transaction had an immediate effect on the other junior players in the Cardium play.  Two other bigger Cardium players – West Energy, Midway Energy – saw their valuations increase that day.  Even Bonterra, a $30 stock with a large Cardium land position, had a jump of 6%, or $1.89/share.

Wellington West Capital immediately upped their target on Cardium junior producer Berens Energy by 10% to $2.20 on the increased valuation that the Cardium producers started receiving this week.
Why are valuations increasing so much?

As background, both the Bakken and the Cardium are “tight” or “unconventional” plays, where the oil is hosted in a rock, as opposed to a more porous, and usual sand formation. 

They were well known but uneconomic zones until a few years ago, when advancements in horizontal drilling and fracing technologies allowed them to be exploited.  The Bakken is ranked by most Canadian analysts as the most profitable oil play in the country now, with Cardium as #2.

With the Cardium in particular, there is very little geological risk.  It has been drilled through thousands of times to get to the oil in the more porous, productive zone below it.  The market loves these low risk plays that are very “repeatable” – each new well is likely to produce just as the one before it.

Thirdly, these new technologies are continually improving the economics in these formations.  Four years later, companies are still increasing production from Bakken wells, and increasing the overall amount of oil recovered from the formations.  The Cardium is a younger play, only a year old, and as management teams tweak the way they drill and frac these wells, it may one day get even closer to Bakken economics.
(Of course, being so young, another year or two of exploration in the Cardium may find it’s not near as repeatable as the Bakken is at all!)

A final benefit the Cardium play for investors is that it is rescuing moribund, natural gas weighted juniors that could otherwise go bankrupt with current low gas prices.  This could be a strong catalyst for increased mergers and acquisitions in the Cardium in 2010, as there is a huge valuation gap between these gas weighted producers with Cardium lands, and the higher priced, pure Cardium oil producers.

Unlike the Bakken, most of the Cardium had already been staked when it was discovered that oil could now be produced from a second, tight oil formation.  And many of these companies were heavily gas weighted, and heavily indebted to their bankers – with truly little hope to give investors through 2009 and 2010. 

The valuations on these natural gas companies reflected their poor balance sheets and cash flows.   But these companies’ stocks have been revitalized by their Cardium land positions.  Many have seen large gains in the last quarter of 2009 as investors discovered who had Cardium lands.  Companies like Berens and Bellatrix Explorations (the former True Energy trust) are examples of this – both have more than doubled in the last 90 days. And companies like these still have low valuations compared to the pure oil producers in the Cardium.

Just who will emerge as the Petrobank or Crescent Point of the Cardium has yet to be seen, but investors can expect significant M&A activity in 2010, as the Cardium is highly profitable, and there is a large gap in valuations. 

A partial list of companies with Cardium Formation properties include:

Arc Energy Trust                           AET.UN-TSX
Bellatrix Explorations                     BXE-TSX
Berens Energy                               BEN-TSX
Bonterra Oil and Gas                     BNE-TSX
Enerplus Resources                        ERF.UN-TSX
Midway Energy                              MEL-TSX
NAL Oil and Gas Trust                   NAE.UN-TSX
Nexstar Energy                               NXE.A-TSX (just bought out by Result Energy, RTE-TSX)
Penn West Energy Trust                 PWT.UN-TSX
PetroGlobe Inc.                              PGB-TSXv
West Energy                                   WTL-TSX

I own positions in Berens, Bellatrix, Midway, and West.

About Oil & Gas Investments Bulletin

Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets – and stocks – in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry – and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin – they see what he’s buying, when he buys it, and why.

The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies.  The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.

There will be a lot of media coverage and grandstanding. But we don’t expect much except for plenty of theatrics and non-binding resolutions. We expect the most interesting aspect to be the inevitable competition among the alarmists trying to devise a prophecy more radical than the next (think Congress sound bites on steroids).

There is, however, one very important sideshow to this circus. A sideshow investors should pay close attention to because it will prove to be exceptionally lucrative as one energy sub-sector (it’s not what you think) becomes more profitable than it already is.

The Greater of Two Evils

In order to show the U.S. is serious about climate change, the EPA decreed that carbon dioxide is a dangerous pollutant earlier this week.

The political ultimatum from the Obama administration was aimed squarely at Congress – “You can do something, or we’ll do something.”

After that, it’s safe to say regulation of carbon dioxide emissions in the U.S. is all but inevitable.

That’s why we’ve got to jump ahead to where the opportunity will be.

Now, as with all government economic intervention, there are unintended consequences. And there are unintended winners and losers. That’s why when the government takes a bigger step into a specific industry, one of the safest and most lucrative things to do is figure out the unintended winner.

Carbon regulation will be no different.

In this case, the end result of more regulation – whether through EPA decrees or cap-and-trade – will be an increase energy prices.

It doesn’t matter which system. The results will be the same.

For example, the lesser economic evil is cap-and-trade. It is specifically designed to push electricity prices higher. And that’s exactly what it will do. The University of Missouri recently released a study where its electricity costs would increase by 50% under the proposed cap-and-trade scheme. The Heritage Foundation found electricity prices would increase by 90% under cap-and-trade.

The EPA regulations would likely be even worse. The President of the U.S. Chamber of Commerce says the EPA regulation “could result in a top-down command-and-control regime.” And we all know what the resulting politically allocated capital resources would lead to – higher prices.

Either way you look at it, we have higher prices. Option A – higher prices. Or Option B – higher prices.

One Big Winner

Higher prices are bad for consumers and good for producers. So the winner will be in the producers.

There are basically three types:

Low-Cost/High-Carbon – this is the fossil fuels – coal, oil, and natural gas. They are cheap, but they produce the most greenhouse gases.

High-Cost/Low-Carbon – this is the alternative sources like wind and solar. They produce very little carbon, but they are very expensive to build and operate.

Low-Cost/Low-Carbon – the perfect combination – nuclear. Nuclear power is cheap (aside from the high start-up costs which are amortized over 40 years or more) and produces very little carbon. It’s the best of both worlds.

Economically, fossil fuels and nuclear are a win because of their low costs.

But once you attribute a cost to carbon, the cost benefits of fossil fuels are reduced or eliminated.

Nuclear,as the only source of low-cost and low-carbon electricity, is the clear winner.

The Easy Way to Win

Of course, investing in nuclear power isn’t exactly easy. There are a lot of popular ways to get in on the benefits of nuclear power. But there is one great way.

One popular way is uranium mining. For years there has been a supply/demand imbalance for uranium. Will it ever pan out? No one knows. But we do know one thing, mining is risky. There are even more risks when it comes to uranium mining though.

Basically, a rise in uranium demand, which would make miners better positioned to get better prices, is predicated on the massive scale of new nuclear power plants. So far the world has lagged far behind the aggressive nuclear power construction plants of the last few years.

So uranium mining may be a good way, but on a risk-adjusted basis, it’s hardly the best way.

Another way is with what your editor calls the real supply crunch coming in uranium. That’s in enriched uranium. Uranium is useless in a nuclear reactor unless it is enriched. And that’s where the real supply crunch will hit.

The problem here is there are very few pure-plays on enriched uranium. And the easiest pure-play to invest in is USEC (NYSE:USU), and USEC is actually facing the most headwinds.

Back in 2007, investors were jumping over each other to bid up USEC shares. USEC’s American Centrifuge, a brand new enrichment facility, was making headlines and USEC shares flew to new 10-year highs.

At the time your editor felt pretty lonely saying USEC was “using a seriously outdated enrichment process.” Technically, they were using a process developed for the Manhattan Project. And its well-publicized American Centrifuge project was “facing constant delays and budget overruns” and, basically, wasn’t going to work anytime soon.

Jump ahead two years and USEC shares are down more than 80% after the Department of Energy (DOE) refused a loan request form USEC. The DOE officially said the rejection was due to “technical and financial hurdles” resulting from the American Centrifuge project.

That’s why the final way to reap the benefits of nuclear power is the best.

Yesterday, your editor recommended Prudent Investing readers should buy shares in the largest nuclear power plant operator in the United States. It’s practically a pure-play on low-cost/low-carbon nuclear power being in the best position to reap the rewards of any legislation or regulation which increases the price of electricity.

Nuclear power may not be supported by the Obama administration. And the conference to “save the world” will be more focused on getting more windmills and solar panels installed rather than more cooling towers constructed. But nuclear power is still the cheapest low-carbon source of power in the world.

The world leaders’ goal of pushing electricity prices higher to make their politically favored forms of power generation more economical, is only going to make nuclear power – and the companies that own the power plants – more valuable in the long run.

That’s why when pundits talk about the Copenhagen conference benefitting certain alternative energy companies, they may be right or they may not be. The one thing we do know is that anything that comes out of the conference, EPA, or Congress is going to be nearly an inevitable win for nuclear power. And the nearly inevitable is going to be where I put my safe money and hope you do to.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Editor’s Note: Don’t miss the big, safe gains as politicians do anything they can to drive up energy prices.

The nuclear power stock Andrew mentioned above is in perfect position benefit from all this. Best of all it has a strong track record for outperformance. Since oil last hit $25 a barrel, this nuclear power stock has quadrupled the return of the S&P 500. Get full report now.

Martin Weiss: Two recent mega-events — the Wall Street collapse in 2008 and the Washington response in 2009 … the debt implosion and then the money printing explosion — are mind-boggling in their dimensions.

Neither you nor I can know with certainty what the future will bring. But at this particular juncture, we don’t have to poke around in hidden crevices of the economy. Nor must we stretch our imagination to conjure this or that scenario. To get a pretty good idea of what’s likely to happen next year, all we have to do is follow the path of natural consequences from these two mega-events. And that’s what we’re going to do right here and now.

I have assembled our Weiss Research team of analysts to lay out for you, step-by-step, what those consequences are likely to be in the coming year — 11 startling forecasts for 2010.

Mike Larson is one of the only analysts in the country who accurately predicted both the real estate bust in 2005 and the recent real estate bottom in 2009. Today, he is not only our resident expert on real estate, but also our chief Fed watcher, interest rate specialist and analyst of the entire financial sector.

Larry Edelson, joining us from Bangkok, Thailand, was among the very first to predict that gold would one day exceed $1,000 per ounce, and now that day has come. But Larry’s gold forecast is just one of many that illustrate a special skill he brings to as a Director of the Foundation for the Study of Cycles: Timing the markets.

Claus Vogt, joining us today from Berlin, is the man I’ve personally selected to make the picks — and give the signals — for one million dollars of my own money, based not only on his own years of trading experience but also on the input from our entire Weiss Research team.

I can think of no better person to help us forecast the direction of the global economy and global stock markets.

I hasten to add that forecasting what we believe is likely to happen in 2010 is strictly the first part of our program today. During the second, equally important, part we will give you actionable guidance — investment ideas you can USE to take advantage of the profit and income opportunities that flow directly from our forecasts. And to bring you the best of the best ideas we can, I have also assembled a panel of our investment specialists in each major arena.

Ron Rowland, our specialist on ETFs … Nilus Mattive, our specialist on dividend stocks … and Bryan Rich, our foreign currency expert.

From Southeast Asia, we have our Asia stock specialist Tony Sagami, who just completed a reconnaissance tour of Indonesia and … from Southern South America; we have Sean Brodrick, reporting on his visits to resource companies in Chile and Argentina.

Plus I have invited a special guest, Monty Agarwal, one of the nation’s leading experts on hedge funds, sovereign wealth funds, and global money flows.

Thanks to their participation in this special summit, you benefit from some of the most timely, in-depth and fascinating research in the world today.

Mike Larson: I happen to think the research effort has paid off very nicely. For example, look at the absolutely huge companies that failed, were bought out or bailed out last year! And look how many of those companies Weiss Research specifically named as candidates for failure well ahead of time:

Two of the nation’s largest brokers, Bear Sterns and Lehman Brothers … the nation’s largest mortgage lenders, Countrywide Financial and Fannie Mae … the nation’s largest savings and loan, Washington Mutual … and the nation’s second largest commercial banks, Citigroup.

And next, look at the utterly massive government reaction to those failures that we have uncovered: Fed Chairman Bernanke has responded with the most rapid acceleration of monetary expansion in U.S. history.

Before the Lehman Brothers collapse last year — it took nearly 14 years for the Federal Reserve to double the cash and reserves at the nation’s banks.

But after the Lehman Brothers collapse, it took Mr. Bernanke’s Fed only 112 days — barely four months — to double the monetary base. In other words, he accelerated the pace of bank reserve expansion by a factor of forty-five to one.

Meanwhile, Treasury Secretary Geithner and his predecessor responded with the largest bailouts of all time, helping to triple the size of an already-bulging federal deficit.

On Thursday, it was announced GDP is back on the climb. That was followed with the claim one million jobs were created or saved due to stimulus spending. And that’s right on pace to meet the goal (imagine that?). So the best marketers don’t want to let an opportunity to take credit for the free exchange of goods and services between individuals.

But on NBC’s Meet the Press, Treasury Secretary Geithner may have inadvertently signaled the gold bull market has a long way to run. In the interview, Geithner said, “[The recent positive economic news] shows that — when you act with force — you can stabilize a crisis like this.”

Force…Force is good!?!

Cranking up the printing press, nationalizing major industries, and increasing taxes (healthcare, cap and trade, VAT, and whatever else happens after 2010 elections) will, in the long run, go a long way to preventing a genuine recovery.

But this is part of the process. It’s training the monetary managers to make terrible mistakes, yet not realize they were mistakes. They’re learning the wrong lessons. And when the next downturn comes, whatever the catalyst, they’ll respond with even more “force.”

And it will be that move that pushes gold to much higher levels. In the interim, anticipation of that eventuality will help keep gold prices propped up.

That’s why now, with the markets showing their greatest weakness in months, gold stocks getting hit 10% to 30% across the board is a great time to continue getting in place for the next “forceful” response. Here are the two best spots to start putting your dollars to work in gold.

Exploration is Back

One of the hardest hit sectors during the credit crunch were the gold exploration companies. Their cash-draining business models were left for dead as the gold price fell, institutional investors saved cash to meet redemptions, and hedge funds deleveraged.

That was over a year ago though and a lot has changed. Gold is setting new highs and money is flowing back into the exploration market. More importantly though, there have been some major discoveries in the past few months which will bring even more speculators back into the market.

The biggest discovery of them all has been Ventana Gold (TSX:VEN). It’s a Columbian gold explorer which has leapt from discovery to development in a few short months.

Since we said Ventana was “the next bonanza discovery” and that it “struck gold – lots of gold!” in our free gold stock report a little more than six months ago, its shares have climbed more than 700%. And the company now counts mining entrepreneur Ross Beatty and Brazil’s richest man, Eike Batiste, among its shareholders. Both now own more than 10% of outstanding Ventana shares.

It has gone from unknown penny stock with a small cash position and an aggressive exploration program to a bona fide discovery with a market cap of more than $800 million which just closed a $40 million financing deal.

This is the type of discovery and massive gain (Ventana went from 20 cents per share to $10 per share in about a year) which sparks the greed necessary to help keep the money flowing into gold exploration stocks.

Of course, a lot of things have to come together before gold exploration really gets going. The combination of high gold prices, a rising stock market (increasing risk appetite), and a couple of major new gold discoveries have made it much more enticing though. Right now, there are still a lot of small exploration companies trading for less than $20 per ounce of gold in the ground and they were fetching as much as $50 per ounce of gold in the ground two years ago.

It’s not just the high-risk/high-reward gold exploration stock sector getting some attention; junior gold stocks are still in the relatively early stages of recovery too and offer exceptional value.

Junior Gold Stocks: 60% Undervalued

The other gold sector which just got a lot more attractive in the past week has been junior gold stocks.

A quick look at the McEwen Junior Gold Index shows it all. The index tracks junior gold stocks that are actively traded (minimum $50,000 average daily trading volume) and have minimum market caps of $50 million.

Since November 2007 when the index was hitting all-time highs, gold prices have climbed 30% and the junior gold index is down 60%.

That’s just half the story though. Their outlook gets even brighter when you look at the big gold stocks. The Philly Gold/Silver Index (XAU), which tracks the major gold and silver miners, is down only 15% from its November 2007 highs.

This is a really simple one. Gold is up 30%, major gold stocks are down 15%, and junior gold stocks are down 60%. Which one would you like to buy now?

If you like gold, you have to love the juniors.

The Trend is Still Up

Those are the best two opportunities in gold right now and this is as good a time as ever to start reloading on gold stocks.

You can practically see the confidence of administration and Federal Reserve officials growing by the day. They are now trained and will know exactly what to do next time. Regretfully, that move will likely be what propels gold prices to the next level.

It’s no wonder that while the government claiming “success” and “back from the brink” talk abounds, some of the world’s best investors are loading up on gold and gold stocks. Hedge fund manager John Paulson has led the headlines, but the ranks of newly minted “gold bugs” now includes top-performing investment managers Steve Leuthold,  and many others.

They see what’s coming and I hope you do to. Now, you just have to maximize the opportunity.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Few technology stocks pay dividends like IBM. To be sure, the yield is only 1.8%. But that’s a lot more than you can expect from Apple (AAPL) or Google (GOOG), and IBM is a much better value at just 11 times 2010 earnings. Best of all, IBM’s dividend is as reliable any. The company has paid it every year since 1916. The five-year dividend growth rate is close to 27%.

In addition to the dividend outlook, IBM is in a solid cash position. The company recently announced it will add $5 billion to a share repurchase program that now rests at $9.4 billion. Management isn’t stopping there. IBM said it plans to ask its board for more buyback cash next year. Returning value to shareholders is obviously a priority for IBM, which says it has sent $73 billion to investors in the last decade in the form of buybacks and dividends.

IBM finished the third quarter with $3.4 billion in free cash, up $1.3 billion from a year earlier. In a market that prizes strong balance sheets, IBM is an alluring investment. The company is well-positioned to weather slow economic growth because it helps customers reduce costs and operate more efficiently. At the same time, any economic rebound will provide a jolt to IBM’s top line.

IBM’s cash position and emphasis on creating shareholder value make it one of the safer bets for long-term investors. To go with a growth-like stock and a solid, conservative company, buy IBM.

Brandon Clay
Invest With An Edge 

Disclosure compliant with FTC 16 CFR Part 255 covering myself and my employer: No positions in any securities mentioned. No income, revenue, or other compensation received directly from, or on behalf of, the companies mentioned.

 

Almost every sector has done exceptionally well.

Car rental companies have delivered 500%+ returns from their lows. Banks and real estate stocks just go higher and higher. Oil’s inching closer to $80 a barrel. Natural gas has recovered nicely from its summer beating.

Even long-time contrarian standbys like gold and silver stocks have, in many cases, bounced back to their 2008 highs.

The breadth of the rally has been exceptional. The run over the last six months has pushed the S&P 500 P/E ratio from below 15 in March to above 19 (as tracked by Robert Shiller’s inflation adjusted, 10 year average earnings model). Also, the dividend yield for the S&P 500 sits at a low 2.28%. The index’s yield has historically hit 6% or higher at true stock market bottoms.

Basically, the market is overvalued. Frankly, it has been for more than 20 years.

It will change – eventually. That doesn’t mean there’s no opportunity. As in all type of markets, bull or bear, there will always be safety and opportunity in value stocks. The more out of favor the sector or stock, the lower the downside risk and the greater the upside potential.

But here’s the problem. After such a meteoric rise in the markets, are there any true values really left? Are there any sectors or stocks which haven’t done well in this rally?

Well, all I can tell you is there aren’t many. But there is one that, due to an improbable one-time event, has barely joined in this rally at all. Yet still offers plenty of opportunity in the months ahead as well as exceptional opportunity in the next decade. And a few days ago we got the perfect “buy” signal from the markets.

Anything That Can Go Right, Might Go Right

I’m talking about agriculture. We all know the basic story for agriculture. World population is growing. The world is getting richer. And the world is consuming more food.

It’s there, its long term, and everyone knows it. The way the agriculture situation is shaping up, the only way you will not come out ahead is if you sell out too early or don’t have a long enough time frame.

Despite all the obvious long-run upside potential though, agriculture sector stocks have fallen grossly out of favor lately. But it won’t last forever. And there will be a few opportunities to buy in at great prices. Right now is one of those times.

The past year or so has been tough for agriculture for a number of reasons.

First, there was a truly massive agriculture bubble last year. Hedge funds were leveraged to the hilt raking in massive gains on the steady 5% to 10% monthly returns from stocks across the agriculture sector. All the warning signs were there. The bubble was a great ride up and led to an equally great fall when it burst.

Second, the past year’s growing season turned out to be another exceptionally great one. The agriculture growing season could not have started out any worse. South American farms’ harvest was devastated by drought to start off the year. Floods in the leading agriculture-producing states pushed plantings weeks and, in some cases, months behind schedule. And the credit crunch cut into farmers’ risk appetite and they scaled back greatly on fertilizer use.

It was the perfect storm for agriculture. But again, this is farming and there are a lot of other variables. The most unpredictable and most important one is weather. This year the weather turned out perfectly. Farmers needed sun, they got it. They needed a break for rain, they got it.

Anything that could have gone right did go right. The expected disaster was, for one more year, narrowly averted. The US Department of Agriculture officially reported “bumper crops” across many major agriculture commodities like wheat, soybeans, and corn.

But farmers won’t be able to bypass Murphy’s Law like they have been over the past three years forever. An off-year will come. And, quite frankly, it’s due.

That’s why, after the third stellar annual harvest, agriculture stocks are looking as good as they have in years. And right now is looking like a good time to move into them.

The Greatest Buy Signal of All

The old saying, “buy on bad news, sell on good news” has worked out exceptionally during the last bull market. Odds are that if you bought on bad news between 1982 and 2007, the stock would eventually reach a higher point.

Bull markets have a tendency to make almost any strategy look good though. And we’re no longer in a bull market. As a result, the safest and most profitable opportunities will come to those who wait for the really bad news.

The really bad news came for agriculture stocks last week. Although the mainstream financial headlines were focused on gold, banks, and real estate, one of the world’s leading fertilizer stocks quietly sent out a buy signal early last week.

You see, Mosaic (NYSE:MOS), a company which produces the full spectrum of fertilizers, reported its earnings fell 91% when compared to the same quarter last year. The company cited a sharp decline in sales. Mosaic’s top-line revenues fell from $4.32 billion in the same period a year ago to a paltry $1.46 billion this year.

On top of that, Mosaic missed already tragically low expectations Wall Street had for it and other fertilizer companies (see table below for how low the estimates were).

In Mosaic’s case, analysts were expecting earnings of 35 cents per share. The company only posted 23 cents in earnings per share.

Everything that could have gone wrong went wrong for Mosaic. But something odd happened. Shares of Mosaic actually went up.

That’s the “buy” signal. When terrible news comes out or exceptionally poor earnings results and the stock goes up, it’s a clear signal all the sellers who wanted out have gotten out.

It’s Tough to Go Wrong When Everything is Expected to Go Wrong

That’s why there are a lot of reasons to like agriculture – specifically fertilizer stocks – even more so right now.

Sure, we have the long-term fundamentals. There’s pressing issue of Peak Soil, growing world population, ballooning global middle class, etc.

But there’s also another very important reason for a strong year for fertilizer next year which most investors are just catching onto. That’s the impact of this year’s bumper crop. Plants take nutrients out of the ground. The bigger they grow, the more nutrients they use. That’s why after this season’s exceptional crop, farmers will need to use a lot more fertilizer next year to make up for the lost nutrients.

Finally, from a timing perspective, it really is tough to go wrong when expectations are so low. Remember, great expectations tend to produce great disappointments. And the same is true inversely.

So yes, the markets are soaring. Yes, there aren’t very many undervalued sectors out there. Yes, despite the strength and length of this rally, we’re still in a long-run bear market. But, for those willing to find them, there is always some sort of opportunity out there.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Back in the mid- to late 1970’s, as gold went up from its 1972 low of $60 to $850 in 1980 (and silver to $50), gold and silver stocks realized absolutely amazing gains:

·                                 Lion Mines – 1975 price: $0.07 / 1980 price: $380 i.e. an increase of 542,757%!!!

·                                 Azure Resources – 1975 price: $.05 / 1980 price: $109 i.e. an increase of 217,900%!!

·                                 Wharf Resources - 1975 price: $.40 / 1980 price: $560 i.e. an increase of 139,000%!!

·                                 Mineral Resources – 1975 price: $.60 / 1980 price: $415 i.e. an increase of 69,067%!!

·                                 Steep Rock – 1975 price: $.93 / 1980 price: $440 i.e. an increase of 47,212%!!

·                                 Bankeno – 1975 price: $1.25 / 1980 price: $430 i.e. an increase of 34,300%!!

The percentage returns above, averaging 70,627%, seem totally unbelievable but they are verifiable. They were achieved by investing in the right stocks at the right time. Imagine, and the above companies were only a handful of the gold and silver stocks that generated such astounding returns.

To put things in perspective let’s look at it this way. Had an astute investor divided a $10,000 investment equally among the 6 companies mentioned above in 1975 it would have grown to $7,072,700 just 5 years later!  I can’t imagine that ever happening again but that is what actually happened back then. It is absolutely amazing, isn’t it? Even a 10,000% appreciation would have turned that $10,000 into $1 million dollars! Remember, it only takes a few good investment decisions in one’s life to be exceedingly successful and that was such a time.

I know, I know, you think that was then and this is now and increases in excess of 500% let alone 1000% or more would never happen again. Well, that was not the case. Take a look below (chart compliments of Doug Casey’s International Spectator) at what happened to the shares of mining companies during the mini-bull market in gold in 1993-1996. The larger producers did well (+84.2%) but look at what happened to a selected group of juniors during that 3 year period. The returns averaged 1,546.4%!

Will such happen again within the next 5 years? Most likely! In fact, just in the past 12 months the Gold/Silver Companies with Warrants Index (GCWI) of 22 such companies (5 large-cap; 3 mid-cap; 2 small-cap; 12 micro or nano-cap) has already appreciated by 183.7% from its 52-week lows while the 24+ months duration warrants of those companies (26 in total) in our Precious Metals Warrants Index (PMWII) have already gone up 366.2%. That is correct: 366.2%!  And that only represents the first year of major gains.

As seen below the GCWI is up 51.6% YTD and the PMWI is up 73.8% YTD. Yes, the Commodity Companies with Warrants Index (CCWI) and Commodity Warrants Index (CWI) are up by even greater amounts (85.5% and 153.7% respectively) but these indices also include other mining companies (8), oil and gas companies (2), merchant banks (3) and 1 mutual fund with one or more warrants each (47 in total).

Last Week’s % Performance(1)

All calculations are based on U.S. dollar equivalents

(2) Week ending October 2nd, 2009

(3)HUI is the symbol of the AMEX Gold BUGS Index consisting of a Basket of Unhedged Gold Stocks. It is a modified equal dollar-weighted index of 15 large/mid cap gold mining companies that do not hedge their gold beyond 1.5 years.

(4)GDM is the symbol for the NYSE Arca Gold Miners Index. It is a modified market capitalization weighted index of 31 large/mid/small cap gold and silver mining companies.

(5)CDNX is the symbol for the S&P/TSX Venture Composite Index. It consists of 558 micro and nano cap companies of which 44% are engaged in the mining, exploration and/or development of gold and/or silver and other mineral resources and 18% in oil or natural gas pursuits.

(6)CCWI represents the Commodity Companies with Warrants Index. It is an equal dollar-weighted index consisting of 36 commodity-related companies with warrants of at least 24 months duration outstanding trading on the Canadian and U.S. stock exchanges.

(7)CWI represents the Commodity Warrants Index. It is an equal dollar- weighted index consisting of 47 warrants of at least 24 months duration associated with the 36 companies in the CCWI.

(8)PMWI represents the Precious Metals Warrants Index. It is an equal dollar-weighted index comprised of the 26 gold and silver warrants, of at least a 24 months duration, found in the CWI.

(9)GCWI represents the Gold/Silver Companies with Warrants Index. It is an equal dollar-weighted index comprised of the 22 gold and silver mining and royalty companies with warrants in the CCWI.

Sources: preciousmetalswarrants.com (warrant and stocks-with-warrants data), oanda.com (exchange rates) and stockcharts.com (index and commodity prices).

Are you are of the opinion that the U.S. dollar is going to continue to weaken against other currencies? Are you of the opinion that we are going to have significant inflation in the next few years? If so, then we are going to see gold and silver doubling or tripling in price as a result. As such, it is imperative that you invest in either the stocks of the companies that mine the gold and silver and/or in the royalty companies that buy the gold and silver from mining companies at predetermined fixed prices. Better yet, much better in fact, is that, wherever possible, you should purchase certain of the long-term warrants offered by some of the gold and silver mining and royalty companies as a means of realizing your +5,000% returns.

Why Buy Gold and/or Silver Mining/Royalty Stocks instead of Physical Gold or Silver?  To Double Your Returns – or Possibly More!

If gold, for example, were to escalate considerably in price (i.e. to $2,000, $3,000, or even more) in the next few years it would have a significantly positive impact on the profitability of the companies who mine it and the royalty companies that buy it from marginal producers. For example, with gold priced at $1,000/oz., and the cost of production at perhaps $600/oz. the gross profit margin of gold mining companies would be 40.0%. If 2 years from now, however, gold were to increase to $2,000 and the cost of production were to increase by only 20% to  $720/oz. then the mining companies’ gross profit margins would have gone up from $400/oz. to $1280/oz. or 220%!

That’s called leverage and historically, in a rising market, the ratio for gold and silver mining/royalty shares vs. physical gold ranges from about 2.5:1 for large-cap companies (currently 2.6:1 YTD for HUI companies according to the table above) on average to as much as 6:1 for gold and silver mining/royalty companies (currently 3.9:1 YTD according to the Gold/Silver Companies with Warrants Index), on average and even 10:1 in exceptional circumstances for certain truly outstanding performers. All the more reason for you to do your due diligence to find and invest in those gold and silver mining and/or royalty companies with the right mix of capable management, strong financing, major resources and geographically and politically well-located properties and reap the major benefits of such a surge in the future price of gold and silver.

Why Buy the Warrants instead of the Stock of Certain Gold/Silver Mining and Royalty Companies? To Further Double Your Returns – or More!

For those of you who are prudent enough to do your homework and buy the right long-term warrants associated with the right gold and silver mining and/or royalty companies at today’s undervalued prices, your eventual returns would likely be 1.5 to 3 times greater (currently 1.4:1 YTD for the Precious Metals Warrants Index vs. the Gold/Silver with Warrants Index) on average than had you invested in their associated stocks. For companies whose stock prices go through the roof with monster gains that ratio could even be as high as 5:1.

That’s referred to as leverage-on-leverage or doubling-up on the leverage factor. The catch is, however, that you have to know whether or not the warrant associated with the stock you are interested in buying is the right warrant i.e. has a leverage/time value sufficiently high enough to justify its purchase given the anticipated appreciation in the price of the associated stock. For those who don’t have a clue what a warrant is, which companies have them, which have the best values, exactly how to go about buying them and which on-line brokers are sufficiently knowledgeable and capable of placing American, European, Australian and Asian orders (there are no problems for Canadians placing such orders with their brokers as most such securities are traded on their TSX or TSX Venture exchanges) check out the PreciousMetalsWarrants site below.

Can Gold and Silver Equities Expect +5,000% Returns Once Again?

Using the above ratios the answer is: “Yes they can!”  True, not all such companies with reap such returns but a few of the well chosen ones will once again see returns that most gold bugs dream about. All it is going to take is an environment in which some combination of a declining U.S. dollar, rampant inflation (or fear thereof), high interest rates, ongoing financial instability, further economic turmoil and occasional acts of terrorism come together to interact with high gold and silver prices and some trading mania. We are moving in that direction right across the board so it is just a matter of time.

We are in the eye of the storm and when the other side of the vortex engulfs us gold and silver will increase considerably, their associated stocks will go up substantially and their warrants, where available, will escalate dramatically. Those mega returns can be yours in the future if you start today to prepare for that day.

To my readers:

Contact me at Lorimer@preciousmetalswarrants.com with questions and comments. I promise a reply. Don’t be shy – drop me a line or two.

Guest Contributors are welcome – just send me a draft of your proposed article for consideration. That’s how I got started. It is a very enjoyable and stimulating activity. I will be speaking at the World MoneyShow in Toronto in October. If you attend please introduce yourself.

We have two web sites that we believe will help you make money in these very volatile times.

a) www.PreciousMetalsWarrants.com provides a free one-of-a-kind database (updated weekly) on all commodity-related warrants trading on exchanges in the United States and Canada. PMW also offers a modestly priced subscription service that ranks all warrants according to our proprietary leverage/time calculations at four projected stock price appreciation levels. You can also sign up for a free weekly email highlighting events in the precious metals marketplace and in the wonderful world of warrants in particular.

b) www.InsidersInsights.com, another modestly priced subscription service, alerts subscribers as to when corporate insiders of a limited number of junior mining and natural resource companies are buying and selling.

Thanks for the read.  – Lorimer.

For the typical individual investor it’s easy to get caught up in the hype of the stock market. These days the hype is generated 24 hours a day across major media channels. And after the major decline driven by the global financial crisis, the attention to stock prices has perhaps never been greater.

But the market has roared back 62 percent in just seven months. And there’s a vast crowd who thinks they’ve missed the boat on this historic run. A lot of that has to do with false expectations of what the stock market index offers and misconceptions on its past returns.

Remember, It’s All about Risk!

Most professional mutual fund managers do not beat the S&P 500.

Inexperienced investors think they should be able to buy at bottoms, sell at tops and make gobs of money. But that’s a highly difficult task.

The long-run annualized return for the S&P 500 (including dividends) is 9 percent. And after fees, most professional mutual fund managers do not beat the S&P 500.

Moreover, too many investors do not understand the risk they’re asked to take to achieve a 9 percent return.

The volatility of stock market returns is best measured by looking at the dispersion of returns around the average return. This gives you a clue as to how much risk you have to endure to achieve your expected return. It’s called the standard deviation and is a good way to measure risk.

The standard deviation of the S&P 500 is 19 percent.

This means roughly 70 percent of the time, the S&P 500 should trade plus or minus 19 percent around its long-term average return. So if you use standard deviation as a gauge of risk, you’ll find that the broad stock market pays you only 1 unit of return for 2 units of risk taken.

Take a look at these two hypothetical charts …

Both investments have an 8 percent average annual return. But Investment #1 has a wide range of returns, while Investment #2 has a stream of returns that more tightly hug the average annual return.

If each of the points on the charts represents a monthly return and both investments achieve the same end result, which investment should you choose?

The answer: Investment #2 — the one with the tighter distribution of returns since it gives you a higher probability of achieving a higher return.

Here’s why: Your investment’s performance will largely depend on when you enter and when you exit. If you enter or exit at any given point along the path of Investment #2, the likelihood of success is greater than it would have been with Investment #1.

So unless you think you can pick the exact bottom to enter and the exact top to exit, you’re far better off finding investments that have a tighter distribution of returns.

The bottom line is, a buy and hold strategy in the broader stock market index just doesn’t compensate you for risk. That’s why it’s important to find more sophisticated strategies using a wide range of investments options (including stocks, bonds, currencies, and commodities) that target positive returns and offer diversification to your portfolio.

The Goal:
Positive Risk-Adjusted Returns

Whenever the stock market has a down year most mutual fund managers start talking in terms of relative returns. You might see a manager’s monthly letter tout how well they did relative to the S&P 500. For example, they may be down 35 percent when the S&P 500 was down 38 percent. That’s a win in their eyes! And the manager gets a bonus.

But as ridiculous as that sounds, the same can be said for the other side of the coin … when stocks are rising, relative returns are equally as meaningless.

Alternatively, investors should keep a constant focus on achieving positive annual returns, year-in and year-out. And those returns should fairly compensate them for the risk that is being taken. By that, I mean you should expect to achieve greater than one unit of return for each unit of risk taken. In other words: You want a positive return that’s adjusted for risk.

This investment strategy will give you a better chance of growing your money during your specific holding period.

Currencies As an Alternative Asset Class

Currencies can help you profit and reduce your portfolio’s risk.

In addition to stocks, currency investments are a great way to add risk-adjusted returns that are uncorrelated to stocks to your portfolio.

What’s more, there’s always a bull market in currencies since the decline in one currency always reflects the rise in another currency. That means no matter what’s happening in stocks, bonds, commodities or real estate, you can profit!

So if you think that you may have missed the boat on the stock market’s recent surge, remember this … currencies still offer loads of opportunities to earn terrific returns … ALL the time!

Regards,

Bryan Rich
Money and Markets

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

But for years, Americans had a hard time gaining access to the smaller international markets. Try to buy a stock from, say, Jakarta, and most stockbrokers would hang up the phone! Opportunities in those places were available only to a select few investors.

Exchange traded funds (ETFs) are solving this problem. Now you can diversify your portfolio into many hot, new markets with one simple trade on a U.S. exchange.

Let’s take a look at five, recently-launched international ETFs that can help you get off the beaten path …

International Opportunity #1:
Market Vectors Vietnam (VNM)

Vietnam was a closed society for many years following the communist takeover. Now, much like China, it’s turning capitalist with a vengeance.

Vietnam is one of the world’s fastest-growing economies.

With a young population, a strategic location, and abundant natural resources, Vietnam is one of the world’s fastest-growing economies. The country exports rice, oil, cashew nuts, and black pepper. Privately owned businesses are thriving! And the industrial sector is growing fast.

VNM gives you a slice of the local stock market, including financial, energy, industrial, and consumer companies. Risky? Yes, but the opportunities are huge as nearby China takes its place as a world economic superpower.

International Opportunity #2:
Market Vectors Indonesia (IDX)

You might think that a country with the fourth-largest population in the world would be a little better known. Strangely, though, Indonesia isn’t on the radar screen for most U.S. investors. It should be …

With more than 17,000 separate islands, the Indonesian archipelago straddles trade routes that have been important for centuries. And its many ethnic groups are united by a common language.

Like Vietnam, Indonesia has a wealth of natural resources, including oil, natural gas, gold, copper, and a huge variety of agricultural goods. The vibrant internal market makes the country less dependent on exports than many Asian markets. In fact, Indonesia’s service sector is larger than its industrial and agricultural counterparts.

With IDX, you can buy into the Indonesia growth story quickly and easily. This ETF includes banks, telecom, energy, materials, and industrial stocks.

International Opportunity #3:
iShares MSCI Peru (EPU)

Peru’s Machu Picchu was once a great Inca city.

Peru has some of the most varied terrain in the world — snow-capped Andes peaks, Amazonian jungles, coastal plains. And back before Columbus came along, Peru’s Inca were the largest civilization in the New World.

Today Peru is a top metals producer. And EPU makes the most of that by investing heavily in companies that mine gold, copper, and other metals. What’s more, the government is working hard to diversify the economy, and it’s making good progress. A 2006 free trade agreement with the U.S. was a major step.

When metals prices are rising, Peruvian markets tend to do well. EPU is a great tool to take advantage of those opportunities.

International Opportunity #4:
Global X InterBolsa FTSE Colombia 20 (GXG)

Just north of Peru is Colombia, where ethnic diversity has produced a rich cultural heritage. It’s a country with plenty of risks — and enormous potential rewards.

Coffee is one of Colombia’s top exports.

President Alvaro Uribe and his government have made big steps in subduing Colombia’s illegal drug trade, expanding the economy, and strengthening relations with the U.S. and other trading partners. The result: One of the fastest economic growth rates in Latin America.

GXG is a concentrated portfolio of mostly financial and energy stocks. Like all emerging markets ETFs, I expect a lot of volatility in GXG, but I also see a lot of potential. And although Colombia is booming, it still has plenty of room to grow.

International Opportunity #5:
Global X FTSE Nordic 30 ETF (GXF)

The funds discussed above all cover a single country. But GXF is different in that it focuses on a region: The Nordic nations of northern Europe including Sweden, Denmark, Norway, and Finland.

In contrast with Colombia, these Nordic nations are among the most stable in the world. The population is educated, multilingual, and prosperous. Are there challenges? Of course, but you can’t argue with results. And the results of the Nordic stock markets have been impressive indeed.

GXF includes 30 companies from the region, with Sweden having the most weight at almost half the portfolio. The stocks in GXF do business around the world. So if you want both growth and stability, this ETF might be just what you need.

These five new ETFs give you tremendous opportunities for profit that you can’t find in regular mutual funds. They’re even more proof that ETFs are revolutionizing the way we invest.

However, let me close today with a word of caution: Single-country international ETFs are always risky. And because they’re relatively new, trading volume can be rather thin. If you buy any of these funds, pick your entry point carefully, use a limit order, and be prepared to ride out some big swings. Also, don’t invest too much of your portfolio in one place.

Best wishes,

Ron Rowland
Money and Markets

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Let’s have a look at the concept of contrarianism to find out whether it can give us some guidance during these exciting times …

Contrarians are investors with deep knowledge and strong self-efficacy. They possess a rare nature: They’re willing and capable of forming an independent opinion and sticking to it. Even if a huge majority of analysts, journalists, colleagues, and friends hold an opposite point of view.

As the legendary Wall Street analyst Henry Kaufman wrote in his memoirs:

” … most predictions fall within a rather narrow range that does not deviate from consensus views in the financial community. In large measure, this reflects an all-too-human propensity to minimize risk and avoid isolation. There is, after all, comfort in running with the crowd. Doing so makes it impossible to be singled out for being wrong, and allows one to avoid envy or resentment that often inflicts those who are right more often than not.”

Warren Buffett doesn’t mind bucking the trend when he gets the right signals.

But contrarians usually don’t take the easy route … they’re accustomed to swimming against the stream. And they rarely make friends by doing so. Instead they expose themselves to mockery when they’re wrong and to wrath and envy when they are right.

In Fact, There’s a Risk with
Always Being a Contrarian …

Contrarians may be early with their timing. For that, they will be laughed at. But they don’t mind … they know that they’ll eventually be proven right.

They know that imbalances and the madness of crowds can go on much longer than anyone can imagine ― so they wait for the unavoidable to happen. Hence contrarians need patience and discipline. They have to have the guts to try again and again to finally catch a major trend change.

Only by luck, though, will they hit a homerun with the first try. More often than not they have to implement a position step by step to average down their costs. Or they’ll try to get in a few times, only to be stopped out with a small loss again and again until finally they get it right — and hit it big!

My Point Is Simple:
It’s Good to Always Think Like a Contrarian, But You Should Only ACT Like a Contrarian When the Time Is Right …

Markets are trending, and strong trends can regularly go on for many months or even years. As long as a trend is intact, investors should embrace it and run with it. Only during its end, when it’s on the verge of turning, should you jump off and become a contrarian. Otherwise you’ll always find yourself fighting the trend instead of making some nice gains.

So it should be clear then that a successful investor must approach the market with the skepticism of a contrarian but also know how to follow the trends.

How can this be accomplished?

By applying technical analysis and common sense.

There’s no holy grail of investing. But there are some very good and rather simple tools, or indicators, that can help you know when it’s time to follow or buck the trend.

One of the best known trend-following tools is the 200-day moving average. As long as it’s rising, you should be looking to buy the dips. And when it’s declining, you should be looking to sell the rallies.

Combine it with the advance/decline line and the advance/decline volume line to give you early warnings of a possible trend change.

Smart investors know when it’s time to leave the crowd … and become contrarians.

Of course that’s not all it takes to become a good investor. Monetary policy and macro-economic analysis should be added to your analytical tool box, too.

And here’s a piece of old Wall Street wisdom that’s regularly forgotten exactly when it’s needed the most: “Never fight the Fed.” So contrarians watch for short-term rates to go higher than long-term rates. That tells them that a recession and a stock market plunge could be coming.

Finally, you should follow the leading economic indicators (LEI). In my August 26 Money and Markets column, I told you how the LEI is the most successful recession predictor I know of. When they signal a recession, you should believe them and start to leave the bullish crowd. And when they’re predicting that the economy will grow, you should value this insight and act accordingly.

Today the LEIs are predicting that the economy will grow. Fed policy is very lax. And the S&P 500 index’s 200-day moving average is rising as are the advance/decline lines.

Therefore, you should expect the stock market’s rise to continue no matter what the little contrarian inside you might be thinking.

Best wishes,

Claus Vogt
Money and Markets

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Back in July we discussed a new search engine: Bing. The brainchild of Microsoft (MSFT), Bing is actually a re-branding of MSN/Live search. Since its well-touted (and amply funded) launch, Bing has been eating into Google’s enormous search market share.  MSFT is dedicating a lot of resources to catch up with Google.   Microsoft made a smart move by focusing on search and search advertising. Growth dollars are there for the taking, especially with their new search deal with Yahoo.

Yahoo (YHOO) recently made news when new CEO Carol Bartz downplayed the company’s search engine by saying, “We have never been a search company.” In context, Bartz was underscoring Yahoo’s efforts to build websites and communities while not focusing completely on search. She is is right about one thing: search is not the only place for online media growth. Consumers and businesses may use search engines to find things, but they spend most of their online lives at websites. Think Facebook, Twitter, DrudgeReport, and Yahoo. Bartz thinks building up those online assets will have a higher payoff that an improved search engine.

This brings us to Google (GOOG).  Betting against the Googleplex hasn’t been a good move very often, and there’s good reason not to do it this year. Still holding 65% of the online search engine market, GOOG is also expanding its ad network to emphasize display advertising such as banners, videos and partner websites. Display advertising is Yahoo’s playground, but Google wants a slice of the pie as well.  The question is whether is they can do it well while maintaining their position in search advertising.

If individual stocks are not your thing, check out PowerShares Dynamic Media (PBS). This ETF holds a mixture of traditional and new media companies.  Top holdings include Google, Comcast, News Corp, Viacom, and Disney.  PBS is up more than 40% this. We still like the prospects for online media.  PBS is an easy way to play this sector.

Brandon Clay
Invest With An Edge

Always buy undervalued stocks and sell them when they’re overvalued. Or more commonly: “Buy low, sell high.” Of course, if you’ve invested for more than a week, you know this is easier said than done.

Undervalued (cheap) and overvalued (expensive) are such subjective measures when it comes to investing. Most times we end up guessing and most times we end up overpaying.

But today, let me show you one amazingly simple way to always buy stocks that are truly cheap…

Why America’s Most Successful Investors Buy “Low-Density” Stocks

All you have to do in order to invest like Warren Buffett, or any of America’s most successful investors – and rack up easy double-digit gains – is to buy what I call “low-density” stocks.

I define density like this: The value the market assigns to the cash that a company has in the bank.

• A high-density ratio: Means the market overvalues the cash.
• A low-density ratio: Means the market undervalues the cash.

The reason I focus on cash is straightforward: It’s the most tangible, liquid asset – and the easiest to value. After all, $1 is worth $1, so it’s easy to tell when you’re overpaying or getting a discount.

Let me use an example to make this concept crystal clear…

• Company XYZ trades for $1 per share and has $1 per share in cash (total cash divided by shares outstanding).
• To calculate the density ratio, we simply divide the price per share by the cash per share. In this case, the result is 1.

Here’s the thing, though: A one-to-one ratio is uncommon.

Most of the time, you’ll have to pay a premium for a company’s cash. Right now, for example, the density ratios for more than 480 companies in the S&P 500 are higher than 1, meaning you’ll pay more for these shares than they’re worth in cash.

But it’s even rarer to find a stock trading at a density ratio below 1.

Density Ratio Below 1 = Cheap Stock & Massive Gains

A density ratio below 1 means a stock could be worth $10 in cash, yet it trades for $7.50. Or it’s worth $1 and trades for 75 cents, etc.

And rest assured, whenever America’s best investors can buy $1 for 75 cents or less, they do. And you should, too. That’s because these discounts, understandably, don’t last for long.

Just take a look at Cynosure, Inc. (Nasdaq: CYNO). It traded at a density of roughly 0.70 for about a month this year. Once investors woke up to the bargain on offer, shares surged 138% higher.

There’s another low-density stock up for grabs at the moment, too…

Buy This “Low-Density” Stock Today

If you want to put my low-density strategy to work today, consider Trident Microsystems, Inc. (Nasdaq: TRID), which makes specialized semiconductors used in flat panel televisions.

• With zero debt, $2.87 per share in cash, and a market price of $1.90, it trades at a density ratio of 0.66.
• In other words, when you buy Trident, you’re buying $1 for 66 cents.

Incidentally, such a steep discount also makes Trident a prime takeover target. And with $2.21 billion in cash, Broadcom Corp. (Nasdaq: BRCM) could easily afford the $125 million market cap Trident.

But, even if Broadcom doesn’t pounce on the opportunity, history dictates that other investors will.

Based on its low-density ratio, Trident needs to rebound 51% to return to a density ratio of 1.

I recommend you capitalize on this truly cheap stock before it’s too late.

Good investing,

Louis Basenese
Investment U

Since April, the commodity has embarked on an extreme upside move, shooting to highs not seen since sugar hit $0.45 per pound in 1981. The chart below illustrates it perfectly…

Sugar Chart: http://www.investmentu.com/images/sugar_082509.gif

The main reason for such a large jump was news from India, which indicated a potentially low sugar crop.

Over the past couple of weeks, the sugar market has surprised many analysts by trading even higher. I say that because while fundamental news like this often results in impressive-looking moves, its impact has a limited lifespan.

So be warned. Moves like this usually indicate that the news is factored into the price and we’re entering the last phase of the bullish run.

Based on my experience in the commodities markets, where I’ve seen this type of pattern many times, I believe we’re headed for an inevitable turnaround for the sugar market. Here’s what you can do to profit form this, and two other commodities to keep an eye on.

How to Play the Sugar Market to the Downside

If you want to play the sugar market to the downside, I suggest you buy put option contracts, or by selling limited-risk call option spreads. At the moment, the October 2009 and March 2010 option contracts are the most active.

As you can see on the chart of the October 2009 futures contract above, the price surpassed the $0.2300 per pound level twice, moved back to $0.2150 per pound, then trotted past the $0.2300 mark again.

This is what technical analysts call a “triple top” and if sugar doesn’t move above $0.2300 again, we can seriously count on the market having a big retracement lower – most likely between $0.1900 and $0.2000 per pound.

So if you play the downside and it does make that retracement, I’d suggest taking profits at that $0.1900 to $0.2000 level.

Oil Heading For $80… And Beyond: Three Ways to Play the Move

Given the historic rise and fall of the oil market and the current state of the global economy, you’d never think that it could even consider the idea of moving higher again.

But the market continues to amaze everyone with its resilience and strength, with the current price hovering around the $74.50 per barrel area.

And with conflicting reports on the global demand for oil over both the near term and long term – plus weekly inventory reports that show a strong buildup of supplies one week, followed by draw-downs the next week – it’s easy to see how this can be a very treacherous market.

Here’s the deal: Regardless of what statistics are released and how Congressional attempts curtail oil trading limits, it’s clear that the oil market continues to bring in speculators from all levels – and will most likely keep trekking higher.

Check out the oil chart below. The price is currently trading above all three main moving averages (20-day, 50-day, 200-day) and is now looking to pop above the recent high of $75.27 from June 11. If that happens, we could easily see oil shoot to $80 from there – with $90 probably right behind.

Oil Chart: http://www.investmentu.com/images/oil_082509.gif

There are a couple ways to play the oil market – be it on the long or short side…

• The futures and futures options that trade on the floor of the NYMEX. This is usually best for experienced commodities investors.
• Through an ETF like United States Oil (NYSE: USO), which tracks the price performance. This gives you broad exposure to the market through one investment, rather than playing individual companies. It’s also a less expensive way to play the market and doesn’t require a commodity trading account.

You can either play the USO shares directly, or the options on the ETF. No matter whether you’re bullish or bearish, pick an option expiration period at least three to six months in the future, as that will give your directional call ample time to mature.

The Grain Markets: Summertime Means We’re on “Grain Watch”

Finally, let’s hit the grain markets (corn, wheat, soybeans)…

During summer, these markets can really turn to the upside, as the growing season can be extremely volatile, particularly if the weather is less than ideal.

The June-October period typically sees more speculation in the grain markets than any other time of year, purely because of the prospect of more volatility. Regardless of what any fundamental data may show, nothing can compare to the sheer panic-buying when we receive weather reports that show how a drought could wipe out a year’s worth of crop.

And some of it doesn’t even need to necessarily happen… it’s merely the potential for it happening, based on previous history. Fortunes can be made or lost in just those few summer months.

Buy Corn Commodities Low… And Ride the Bullish Move Higher

This year, for example, we’ve seen corn and wheat prices shuffle around their annual lows, due to government reports that show ample planting, high carry-over levels from last year and crop production that is ahead of schedule.

Corn Chart: http://www.investmentu.com/images/corn_082509.gif

With corn currently at its lows, if any potential weather disruption does occur over the next few months, taking a bullish position here could be a low-risk way to get involved.

Like with the sugar market, the best way to play corn is through limited-risk option strategies. Stick with expiration months of December 2009 or March 2010, so that you give the market plenty of time to mount a bullish move.

Good trading,

Lee Lowell
Investment U

So when it comes to reporting on it, you could easily come to the conclusion that I’m about as far away from an unbiased journalist as you can get.

But you’d be wrong. You see, I also own a computer that runs the Windows operating system published by Microsoft (not because I necessarily want to, but because I have to). I used to own a Palm, Inc. (Nasdaq: PALM) Treo smartphone, too.

I’m not going to write another article that’s solely a comparison of Apple’s products to its competitors. There are plenty of writers out there doing that already.

Besides, Apple is so far ahead of its competitors in product design and functionality that it’s hardly worth the comparison, except in a few cases.

But what about Apple as a company? What sets it so far apart from others in the consumer electronics sector? More importantly, how is it as an investment? Is it far ahead there as well? The short answer is a resounding “yes.”

The company rarely fails to disappoint, both on the design side and especially when it comes to revenues and earnings. The company takes a lot of heat from analysts due to its conservative stance when it comes to forecasting revenues and earnings.

But which would you rather have? A company that makes wild forecasts and rarely meets them, or one like Apple that consistently beats them? I know what makes me feel better (analysts are just like you and me in that regard).

The Mt. Everest of Cash Piles vs. Mounting Debt Pile

Apple’s balance sheet is the envy of Wall Street: It’s sitting on a mountain of cash – north of $31 billion – and not one shred of debt. An enviable position anytime, but even more so in the current recessionary climate.

Palm, on the other hand is sitting on a pile of mounting debt, and if its current losses continue, it will soon be faced with raising more cash. Not a good thing if you’re a Palm shareholder.

Here’s the bottom line on Apple as an investment: If you’d bought a few shares of Apple as a Christmas present for someone back in December 1980, they’d be your best friend. The stock has climbed 4,463% since then.

But they would be calling you names had you bought them a few shares of Palm, which has declined 97% since March of 2000 (its public debut).

How Does Apple Do It?

Ok, I’ll forget the product comparisons, but just consider these incredible facts:

• Forget the fact that its iPod has dominated the portable music player market, completely changing the way music is sold at the retail level…
• Forget for a minute that its computers command a significant price premium over similarly configured Windows machines…
• Forget that so many mobile phone companies came before it, with pricing plans cast in stone…

The company’s management is the proverbial outside-the-box thinkers:

• When Apple decides to enter a particular space, and introduce its initial product, it nearly always changes the ground rules, completely upsetting the apple cart for its competition.
• And just when a competitor thinks it has Apple’s product strategy figured out and manages to introduce a “me-too” widget, Apple introduces a faster, better one with even more features that customers want.

Notice I didn’t say cheaper: There’s never been a company in modern history that’s monetized great consumer product ideas the way that Apple has. I defy you to name one that’s done it as well.

The best part about Apple is that every time a new would-be competitor comes along, the mainstream media hacks decry “the next iPod killer,” or “the iPhone has run out of steam.” Nervous investors sell, and long-time Apple shareholders just buy their shares.

Palm’s Pre: The Next iPhone Killer? You’ve Got to Be Kidding…

Right… The latest “iPhone killer” was supposed to be the new Pre smartphone, introduced with much fanfare by Palm this past January. So where is the Pre now?

Judging from Palm’s latest anemic sales numbers, the Pre’s going nowhere fast. Even faster than most analysts estimated. So it’s not surprising that investment firms are starting to reverse course on Palm. Morgan Joseph recently downgraded Palm to a Sell rating, stating Palm is failing to meet even the lowest sales numbers for the Pre.

In a last ditch attempt to save it, I expect Palm to announce pre-holiday price cuts to try to spur sales. It won’t work, of course, and the Pre will go the way of Microsoft’s Zune music player… down and out of the picture.

Morgan’s sell target is $7.50 a share, and with Palm shares currently trading in the range of $13, shorting the stock seems like a viable idea for those investors wanting to capitalize on the negative aspects of Apple’s rising dominance in the smartphone market.

iPhone: It’s Already the Smartphone Gold Standard

The iPhone on the other hand, is so popular, during its recent earnings conference call, Apple announced that it’s having trouble keeping up with demand.

It’s no wonder: There’s more than 60,000 applications available for the iPhone, from seeing the weather where you’re standing, to reading MRIs on the golf course, and just about everything in between.

When it first came out, few analysts gave the iPhone a chance against Research in Motion’s  (Nasdaq: RIMM) very successful BlackBerry devices. But that, too, is rapidly changing, as Apple is making significant inroads into the educational, corporate and government smartphone markets.

Now Apple’s competitors are starting the all too familiar “me-too” look alike product changes. Flattering, but futile. I predict that Apple’s iPhone will continue to gain market share, and in a few short years, relegate most of the competitions devices to also-ran status.

And you just might want to be along for that ride.

Good investing,

David Fessler
Investment U

Blockbuster, still king of brick-and-mortar rental stores, learned first hand the threat an innovative upstart can pose when it ran up against Netflix’s DVD-by-mail business model.

With movie theater tickets costing upwards of $10 (and that’s not including the popcorn or sodas), Netflix’s $8.99 1-DVD plan with unlimited exchanges and streaming video access represents a decidedly better deal for consumers that are tightening their spending amid rising unemployment and waning confidence.

Netflix celebrated its 10 millionth subscriber in February, noting that it added more than 600,000 net subscribers since the beginning of the year. In its second quarter ended June 30, Netflix said it had a total of 10.6 million subscribers, with paid subscribers representing 98% of the membership. The company expects its total membership to rise to between 11.6 million to 12 million by the end of the year, upping its previous quarter’s guidance of 11.2 million and 11.8 million.

Churn, a measurement of customer cancellations, rose to 4.5% in the second quarter from 4.2% a year ago, Netflix said.

“It could be the economy,” Netflix Chief Executive Officer Reed Hastings said of increasing churn in an interview with The Motley Fool. “It could also be that we make it very easy for subscribers to put their accounts on hold if they go on vacation or don’t have enough money for a month or two. When a subscriber goes on hold, we count that as a cancellation. What you can look at – as a good stable indicator – are net additions. And net additions continue to grow.”

Netflix’s top and bottom lines continue to grow as well. Revenue grew to $408.5 million in the second quarter, up from $337.6 million in the same period a year ago. Profit grew to $32.4 million in the second quarter, up from last year’s $26.5 million.

As subscribers, sales and profit rise, so too does Netflix’s stock. Shares of Netflix have jumped more than 45% since the start of the year, and managed to sidestep the doldrums experienced by the markets in March.

Still, it’s no time for Netflix to rest on its laurels, lest it suffer the same fate as Blockbuster. That’s why CEO Hastings is quietly preparing for the death of DVDs themselves. Ultimately, consumers will one day dump the plastic discs in favor of movies delivered straight over the Internet, Hastings told The Wall Street Journal.

So Hastings, who is a self-proclaimed student of companies that stumble by failing to adapt to technology shifts, is quickly trying to shift Netflix’s business so that more videos are available online.

While Hastings is having success in getting Netflix instant video onto devices, the biggest challenge facing his company is convincing Hollywood executives to license their content. While 12,000 choices may seem like a lot, many are older AAA movies or TV shows, or newer movies that weren’t commercially successful. New releases of hit movies usually take months or even years to appear in Netflix’s streaming video catalog.

That’s because Netflix is competing with pay cable channels such as Time Warner Inc.’s (NYSE: TWX) HBO and Viacom Inc.’s (NYSE: VIA) Showtime, which gain exclusive rights to show movies and generally have larger audiences. To get the movies and TV shows consumers want, Netflix will have to boost its licensing spending from the roughly $100 million it spent last year, an anonymous source told The Journal.

“Netflix has yet to show that it has the resources and profitability to be in the markets where licensing is the business policy,” said Warren Lieberfarb, former head of Time Warner’s Warner Bros. home video division.

The company has had some success in the licensing department earlier this year when it inked a deal with Liberty Media Corp. (Nasdaq: LMDIA) to show movies from its Starz pay cable channel.

Netflix’s library of 100,000-plus DVD titles is made possible by the “first-sale doctrine” of U.S. copyright law, which allows buyers of DVDs to lend them out without the consent of studios.

Too Little, Too Late?

It’s difficult to say when Blockbuster’s fall from grace began, but it was somewhere between its well-publicized late fee fiasco and the proliferation of Netflix.

Blockbuster’s operating income at the end of its second quarter in 2004 was $105.3 million. That was just before Netflix entered mainstream consumer consciousness. Blockbuster’s operating income at the end of its second quarter this year was a loss of $1.5 million.

In spite-of an 8.3% industry-wide increase in rental revenue, Blockbuster’s revenue fell 13.3%.

The company blamed the drop partly on reduced inventory as it tries to generate more cash to handle its debt load, the Los Angeles Times reported.  Although Chief Executive Officer Jim Keyes told analysts in a conference call a renegotiation of a revolving line of credit meant stores would be fully stocked and more aggressively marketed, he admitted last week that didn’t happen.

“Temporarily during the first and second quarter, we put our plans for increased availability on hold,” Keyes said on the call. “We made this change with the recognition that we were also facing new and very aggressive competition who are better capitalized and would likely take share from us as we pulled back.”

Still, Blockbuster is doing everything it can to stay afloat, from closing stores to kiosk deployment.

“We’re deploying as many as 10,000 vending machines by the middle of next year,” Keyes told Bloomberg News in a telephone interview, adding that his company is focused on increasing cash flow rather than boosting sales in a “very challenging credit market.”

Blockbuster’s $250 million revolving line of credit is due on Sept. 30, 2010, and the company has more than $350 million of long-term debt outstanding that it must pay by the end of next year, according to a research note written by Wedbush Morgan Securities Inc. analyst Michael Pachter. Blockbuster had $99 million in cash and equivalents as of July 5, down 36% from $154.9 million on January 4, Pachter said.

“[Blockbuster needs] the credit markets to loosen up and they need to refinance,” Pachter told Bloomberg. “They’re not on track to repay this debt in the time frame they need to, so they’ve got to extend the terms.”

Pachter downgraded his rating on Blockbuster stock from “outperform” to “hold” last week. Blockbuster shares have tumbled more than 44% since the start of the year.

The Little Red Box That Could

Blockbuster was effectively rendered obsolete by Netflix’s quick response to changing technology. But Coinstar Inc.’s (Nasdaq: CSTR) Redbox Automated Retail LLC, which offers consumers new release DVDs for $1 per night, is hoping to avoid a similar fate.

Kiosk vendor Redbox, initially funded by McDonald’s Corp. (NYSE: MCD) and Coinstar in 2002, saw Coinstar acquire its remaining shares in February. The company’s $1-a-night DVD rentals are found in places like McDonalds restaurants, grocery stores, and numerous locations owned by retail giant Wal-Mart Stores Inc. (NYSE: WMT) that that serve at least 15,000 customers a week.

Redbox plans on having 21,000 to 22,000 kiosks throughout the United States by January, up from 13,700 a year earlier. The company’s sales, which were $188.9 million in the second quarter, account for 57% of Coinstar’s overall sales, up from 41% in the same quarter last year. Coinstar’s stock has risen more than 62% since the beginning of the year.

At a time when consumers are strapped, Redbox is perfectly positioned for those looking to save money. But now Hollywood is looking to stunt Redbox’s growth.

Tinseltown accuses Redbox of depressing DVD prices and depriving studios of the same revenue-sharing opportunities they now enjoy with traditional DVD rental houses such as Blockbuster, Reuters reported.

Three studios – News Corp.’s (Nasdaq: NWS) 20th Century Fox Home Entertainment, Warner Bros. and General Electric Co.’s (NYSE: GE) NBC Universal – are vowing to withhold their DVD distribution to kiosks like Redbox until 28 days after they are released.

To counter, Redbox has filed a lawsuit against at least one of the studios, 20th Century Fox. 

“At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at Redbox retail locations nationwide,” said President Mitch Lowe. “Despite this attempt, Redbox will continue to provide our consumers access to all major new releases including 20th Century Fox titles at our more than 15,000 Redbox DVD rental locations.”

Speaking to the LA Times, Lowe said Redbox isn’t a threat to Hollywood, but instead an additional source of income. However, Papi Capital analyst Richard Greenfield disagrees, writing that Redbox’s pricing is a “substantial risk” to the movie industry.

“It sets an ultra-low price point for movie content that will impact consumers’ decision-making process about all forms of movie-related commerce – theater-going, DVD purchase, video-on-demand," Greenfield wrote.

Of course, distribution withholding and lawsuits aside, if Netflix’s Hastings is right and DVDs do walk the path of oblivion like CDs are now, Redbox will need to adapt and find a way to enter the already-crowded Internet video market.

By Bob Blandeburgo
Money Morning

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Usually, the two don’t go hand-in-hand – especially not in the small-cap sector.

But that doesn’t mean to say that it’s impossible to grab the best of both worlds.

If you’ve read my columns here or in our monthly Xcelerated Profits Report newsletter, you know that I focus on the small-cap space – both in my specialist areas of healthcare and biotech and other sectors, too.

Typically, these small-cap stocks are ripe for big gains more so than income through dividends. But I’m actually a big fan of dividends, too.

So what if there were a way to load your portfolio with outstanding profit potential and generate income, too? There is – and I’ve got three stocks below that can do the job…

Digging For Dividends

I’m not a market timer so I’m not going to tell you that now is the time to get out of equities before the market turns lower.

But what I will say is that with the Nasdaq and Russell 2000 (small-cap) indexes having blasted off their lows by 58% and 67% respectively, it makes sense to get a bit more defensive.

The reason is two-fold – and very simple: Owning dividend-paying stocks generates income and improves a portfolio’s return over the long-term.

However, it’s hard to find good small-cap companies that pay dividends. Smaller companies usually pour any excess cash back into the business to help it grow, rather than distributing it back to shareholders.

In fact, of more than 7,400 stocks with market caps under $1 billion, only 1,356 pay dividends. And if you want a meaningful dividend yield – let’s say 3% – the number decreases to less than 800.

I further whittled down the list to companies with high current ratios, low debt, and profit expectations to help ensure that dividends would continue to get paid.

I also stayed away from companies that paid a very high dividend. Companies with yields approaching 10% or higher may find those payouts unsustainable if business continues to be difficult.

Yes, if you want a higher potential reward, you do need to take on more risk. But buying stocks with sky-high dividends is riskier than those with solid but more sensible yields.

Here are three of the best from my small-cap dividend stock screen…

A Trio Of Small-Cap Dividend Stocks

• WD-40 Company (Nasdaq: WDFC): The company makes everyone’s favorite industrial lubricant – WD-40 – plus household cleaners and other products. Through the first nine months of its fiscal year, it generated $18 million in profits and boasts $36 million in cash versus $21 million in debt. Earnings per share are expected to grow 13% in fiscal 2010.Current dividend yield: 3.4%

• American Ecology Corporation (Nasdaq: ECOL): The firm handles America’s hazardous waste. Not a great business if you’re the guy with the rubber gloves moving barrels of the stuff. But not bad if you’re an investor – particularly a new one, given that the shares have endured a beating over the past year.ECOL is profitable, has $24 million in cash and no debt. Over the first six months of 2009, it generated $17 million in cash from operations. So far it has paid out over $6 million in the form of dividends.

  Current dividend yield: 4%

• CDI Corporation (NYSE: CDI): The company provides engineering and information technology staffing services. With so many businesses cutting jobs, it’s had a tough time over the past year. But it’s still profitable, with earnings per share expected to nearly double next year. It has $77 million in cash, no debt and generated $10 million in cash from operations.Current dividend yield 3.6%.

If you have any small-caps paying dividends in your portfolio, use the “Comments” link below to let me know which ones are your favorites and I’ll run a follow-up column, featuring stocks sent in by readers. Be sure to tell me why you like the stocks, too.

Hoping your longs go up and your shorts go down.

Marc Lichtenfeld
Smart Profits Report