How To Win With A FULL HOUSE Every Time

$30 Billion Dollars… How’d you like to grab your share of that pie?

In 2005 the American Gaming Association announced revenue from US gaming (their polite word for gambling) activity surpassed $30 billion annually!

And it’s not just casinos throwing big money around.  State lotteries, horse racing, and charitable gaming all add to the dollars flowing into the industry.  Big money can be made in this industry… and that’s why for the longest time mobster’s have played a role.

In 1947 mobster Bugsy Siegel opened the Flamingo Hotel in downtown Las Vegas… forever cementing the relationship between the mob and casinos.

Now, almost 60 years later, many of the casinos in Las Vegas are owned and operated by corporations.  It was inevitable.  The small casino operation has morphed into a mega resort.  It’s a model with huge hotels, giant banquet rooms, massive convention centers, and tons of non-gaming entertainment.

The money it takes to get new facilities up and running is mindboggling.  And now, casinos are a vital part of the business and vacation travel markets!

The fact that they spit out more cash than a broken ATM is just another benefit to their owners.  If you want to grab your share of this lucrative industry, now’s the perfect time to invest in a successful casino operator…

But which one’s the best?

Allow me to introduce a small but rapidly growing industry participant…

COMPANY DESCRIPTION

Full House Resorts (FLL), is a rapidly growing casino owner and operator.  They own the Stockman’s Casino in Fallon, Nevada.  And they recently purchased the Grand Victoria Casino in Rising Sun, Indiana.

But that’s not all…

Management’s also struck a few agreements to run other casinos.  These are fantastic agreements, giving Full House a fixed fee for running operations.  Recent contracts were signed with the FireKeepers Casino in Battle Creek, Michigan, and the Harrington Raceway & Casino in Harrington, Delaware.

Now, Full House doesn’t just show up and run the casinos… they assist with everything from soup to nuts.  They often assist with regulatory approval, development of the property, architecture design, construction management, and even financial planning.

This experience has paved the way for future growth and expansion.  Two areas warrant special attention… and I’ll get to those next.

BUSINESS OVERVIEW

Management has a two pronged expansion strategy.

First, they began the process of acquiring successful, established casinos.  But they didn’t just rush out and buy anything on the market.  They are focused on buying casinos that immediately added to their bottom line.

Full House also has a unique demographic strategy.  They focus on areas where there’s a steady demand for gaming and relatively few competitors.

This practically guarantees a nice, even stream of revenue.

Given the recent market downturn, opportunities are now more plentiful than ever!

Second, Full House made a conscious decision to partner in the Native American Casino market.  They offer their casino management experience to these clients… and get to charge some heavy fees.

For example, through a subsidiary called Gaming Entertainment Delaware the company runs the Harrington property in Delaware.  This property is nicknamed a Racino.  Now, a Racino is a unique type of casino, it combines the casino experience with the racetrack.

They’re relatively rare and new.  And Racino’s are only legal in 9 US states right now.

As Full House acquires new casinos, or expands their management of others, their top line is sure to grow… and that eventually leads to bigger profits for shareholders.

Speaking of profits, let’s take a look at their financial statements.

FULL HOUSE’S FINANCIALS

Just a week ago, we got the financial numbers for Full House… and let me just say they were fantastic!

In 2010 Full House revenues skyrocketed!

In 2009 FLL reported a mere $19 million in revenue… by 2010 their revenue grew to over $32 million!  All of this growth is due to management’s focus on the casino management side of the business.  The best part is, the contracts allow for annual increases… so we know the revenue number is only heading higher!

Just imagine how revenues will grow as the economy recovers…

As a result of stronger revenue, the company reported a net income of $7.6 million in 2010.  This is a huge step up from the $4.7 million they reported in 2009.  That’s a 60% jump in net income in one year!

As a result of the strong earnings, the company reported EPS of $0.43, a 65% increase from 2009.

What’s more, the balance sheet is clean and strong!

Full house has more than $13 million cash on the books and no debt.  It’s the perfect combination for big growth and further corporate development.

Needless to say, the company is reporting some amazing financial results… but do you have to pay through the nose to buy this high flyer?

VALUATION

As I write this, FLL stock is trading for $3.68 a share.  And in my opinion, it’s a screaming deal.

First, let’s look at earnings.

Right now, Full House is trading for a P/E of only 9.8x.  Not bad.  But when you compare it to the rest of the industry you make an interesting discovery… The Resort and Casino industry as a whole trades closer to a P/E of 29x.

That means the Full House stock would have to almost triple in value just to reach parity with the rest of the industry!

But that’s not all…

Their growth is off the hook. Some analysts are expecting even bigger growth from the company over the next few years.  Right now, five year estimates are calling for a 30% growth rate for the company… this blows away the 14% growth rate the industry is expected to experience.

Any way you slice it, this stock is heading higher.

 

 

 

Chart courtesy of StockCharts.com

Now, I’m not the only one who thinks the stock is undervalued.  One of the larger shareholders is Austin Marxe.  If you’re wondering who he is, just crack open the list of the Forbes 400.

He’s the President of AWM Investment Company… and they’re considered by many to be the “Smart Money!”

Anyway, Mr. Marxe owns an astonishing 10% of the company!  I call that a real vote of confidence.

Full House is a unique company, poised to profit from a rebound in the casino industry.  Management has made a concerted effort to grow the business not only through acquisition, but by also by signing key casino management contracts.

On what is arguably one of the most difficult economic times, the company has posted amazing revenue growth of 68%, and grown net income by 60%.

And right now, the stock can be bought up for cheap.  It’s trading at close to 30% of the industry averages, despite having some of the biggest growth rate expectations.  I could see this stock double or more in the coming months!

ACTION TO TAKE

If you like what you’ve read, do your own research… then Buy FLL up to $3.99 a share.

 

Prices as of March 14, 2011
The “Recommended Price” is as of the date and time recommendation (adjusted for splits and dividends), you may pay more or less.  “Buy -up -to” means don’ t pay more than this price for the stock. If you can get it cheaper, then great!  “Hold” means hold if own it, but don’t buy it if you don’t. “Sell” means sell.  Remember to consult your investing professional before making any trade or investment.  And remember all investments have some risk.

Warren Buffett Loves…

Wouldn’t you love to be a big league investor… even just for a day!?!  If you’re reading this, you’re probably not managing billions of dollars, or running leveraged buyouts… but with a little secret I’m going to share, you can access the same information these investing titans use.

More on that in a moment…

First, consider how fun it would be to act like a billionaire investor… You’d get phone calls from Goldman Sachs offering up sweetheart deals.  You’d rub elbows with other rich and famous investors, and enjoy the finer trappings of life.

Of course you’d have to work… if you could call it that.

You’d fly first class all over the world visiting your investments.  Your “corporate partners” as you’d call them would wine and dine you.  Only the best hotels… restaurants… meals… wine… cigars…

You’d have your own private jet… no waiting in line for a TSA patdown.

The moment you land a chauffeur would pull up next to the plane.  No waiting for the 300 people in front of you to de-plane.  Your black limo would be standing by to whisk you off at an instant to your next destination.

Everyone would watch your every move.  And fellow investors would beg for a hot stock tip!

Wouldn’t it be nice!?!

Well, in the real world not everyone can be a superstar investor.  All of the traveling could wreck your home life… and the jet lag is a drag – trust me.  The fancy meals often come with an upset stomach… and a constant battle losing 5 or 10 pounds!

And the private jet and limo… just wait till you have a losing quarter – your investors will want to string up your hide for misappropriating investment funds!

Look, not everyone can make billions.  Not everyone can move markets with their comments.

However, you can look over the shoulder of the greatest investors of all time.  You can see almost trade for trade what they’re investing in.  You can sit in on those smoke-filled back rooms where the big deals are cut and see exactly what they’re investing in.  (Without inhaling all of that cigar smoke!)

It’s easy to do.  And it’s FREE!

So while you may not be able to get the ear of investing greats like Bill Gates, Warren Buffett, or T. Boone Pickens you’ll know what they’re doing.  You’ll be able to see what they’re buying, what they’re selling… and if you read between the lines you may be able to figure out what they’re thinking!

How is this possible?

Let me share a secret with you.  And to be honest, we have the Federal Government to thank for this inside look at the big boys of the investing world.

See back in the 1930s and 1940s, after the great depression, the government was looking for a way to level the playing field.  They were sick of the little guy always getting crushed.  One of the big problems back then was big investors secretly taking big positions in certain companies.

When an industry tycoon decided to buy up a local railroad, all he had to do was start buying the stock.  Nothing illegal, mind you, but once others figured out what he was doing, they’d start buying too.  A stock could shoot the moon overnight.

But here’s where it gets tricky… that same industrial titan could then start dumping his stock and not tell anyone.  He’d laugh all the way to the bank as the small guy who bought alongside of him watched the price plummet.

And it worked the other way too.

If some big industry tycoon decided to unload a big stake in a company – even his OWN company – he could do so easily.  There were no restrictions.

You can see how this would cause problems… and if left unchecked, it compromised the very stability of the markets.  So, congress took action… and the rules changed.

If you are a big player in the market, you have to disclose your holdings.  You have to make your filings public.  It’s a law from Section 12 of the Securities Exchange Act of 1934… and it calls for the filing of a form SC 13-D.  It sounds complicated, but it’s really simple.

Whenever anyone… and I mean anyone… acquires more than 5% of the stock in a company they must file a “13-D”.

Now, not only do these “Big Investors” need to tell people when they take a big position (more than 5%) but they also have to make another filing if their position changes materially!  So if they want to keep buying… or start selling… they have to tell everyone!

But wait – there’s MORE!

It gets even better.  These big league investors don’t just need to tell you when they buy 5% or more of a company… every quarter they need to tell you what they hold.  This is the famous “13-F” filing.

Here are the specifics – anyone managing more than $100 million must file a 13-F within 45 days of the end of the quarter.  They need to list not only the name of the company, but the number of shares they hold, and the total market value.

It’s like playing poker with the other guy playing his cards face-up!

If you want to see what Warren Buffett is buying… take a look at the 13-F for Berkshire Hathaway.

Want to know what Bill Gates is holding?  Look at the 13-F for Cascade Investment LLC… that’s Bill’s private investment vehicle.

To see what T. Boone Pickens is buying… you got it.  Just look at the 13-F filings by his investment company BP Capital Management.

These documents are a wealth of knowledge.  You can see what’s new… what the investors are buying more of… even what they are selling.  Now it will take a bit of detective work… but you can also figure out just how much of their investment portfolio is in each security.

Imagine the power you have at your fingertips knowing when investment greats are getting into… or out of… a particular industry.  And if they really like a company… and own more than 5% you’ll be able to see that too in the 13-D filings.

You can uncover all of this information yourself by going to the sec.gov website and doing a search by investor name, investment Company, or even by the stock.

I recommend every investor look at the holdings of these big players before ever making an investment.  You never know – you may just find out that the very stock you’re considering buying is loved by Warren Buffett!

Consumer Confidence Is Back… Should You Care?

Two years ago, we were in the depths of the recession. The markets were plummeting, the economy was on life support… And the American consumer looked like Rocky Balboa after his first fight with Apollo Creed!

It was bloody…

Here we are, a mere 2 years later and it’s certainly brighter out. Now, I’m not talking about the great weather we’re having… sunny and 80 degrees is hard to beat (and great for golfing). But what’s brighter in my mind is the outlook for the economy.

How can I tell?

I can just feel it… can’t you?

For the longest time, people have tried to put a number on the economic outlook. They’ve struggled to quantify an outlook for the future of the economy. Then in 1967 a group called

The Conference Board started a mail survey on the health of the economy… but they did it a little differently.

They decided to look at it from the perspective of the consumer. This is a key point and you’ll see why in a moment. But back to our story…

By the 1970s, the survey morphed into a monthly collection of data. And most importantly, the Conference Board started publishing their findings. Today, this simple survey is closely followed by investors, traders, and economists all over the world. It’s been a reliable measure of consumer confidence for decades.

This isn’t easy. You have to appreciate the importance of measuring the consumer’s mood.

You’re trying to measure feelings and perception.

Your emotions play a key role in your thinking and actions. And those thoughts influence the economy.

Let me give you an example…

When April 15th comes around you get mad at the tax guy and all the wasteful government spending. You suddenly see the cost of taxes directly impacting you… and you don’t want to pay as much! This feeling causes some people to “Cheat” on their taxes.

Others simply stretch the truth!

That’s a perfect example of an emotion impacting your finances… here’s another.

Think about your last Christmas bonus (or year-end bonus – if you want me to be Politically Correct). When bonuses were big you felt great… you felt safe… you felt secure.

You became very confident in your decisions as a consumer. You felt joy when you bought a new car. Or you felt excited buying furniture for the house.

You got a great deal of satisfaction buying new golf clubs, a new wardrobe, or the fancy watch you’d been eyeing.

When you made those decisions as a consumer you had a lot of confidence.

You’re not going to rush out and buy a new car unless you’re confident in your finances.

You need to have a base level of confidence in your future… your job… your earnings potential… and ultimately in the economy.

Now take your thoughts and feelings about spending money and multiply them by a hundred million people. You start to get an idea of just how powerful the American consumer is… and why their outlook on the economy is so important. It’s also why The Consumer Confidence Numbers are so important!

So let’s answer one key question… why should you care about the confidence of the consumer?

It’s really simple, and can be summarized in one key fact. More than 70% of all economic activity in the United States starts with the consumer. The coffee at Starbucks you buy… the t-shirt from Target… the food from Safeway. Your Ford pick-up truck, the restaurant you dined at last night. The local pizza joint… the beer you buy.

The success of all these companies and products depend on consumer spending.

And when the consumer isn’t happy, ain’t nobody happy.

Just look at the consumer confidence numbers back in December of 2008. The consumer confidence number sat at a pathetic reading of 38. This was worse than the readings during the recession of the early 1970s.

Clearly, we’d hit the depths of the economic collapse. And it was painful.

The apocalypse was upon us. Talking heads on TV called for the end of the world! Bank failures were rampant. Job security was non-existent, and unemployment was steadily moving higher. Home foreclosures were skyrocketing. Restaurants closed for want of customers. Car dealerships begged for buyers. Retail stores closed.

Consumer spending ground to a halt.

Now this is important. Which areas of the economy were hit the hardest?

In my opinion, some of the hardest hit industries were restaurants, casinos, hotels, and of course, banks and real estate. Who else got hammered?

Anyone relying on consumers spending “disposable” income…

Coffee shops took a hit as consumers brewed at home. High end grocery stores watched customers flee for cheaper “middle of the road” food. Restaurants were hurt as families ate out less.

But that’s not all.

High end jewelers, auction houses, and even retailers were punched in the face. Car dealerships were crushed. And oil and gas companies suffered as demand for gasoline fell.

Everyone was driving less.

Businesses closed up literally overnight. Do you remember Circuit City, Linens ‘n Things, or Washington Mutual? Gone, gone, and gone.

It was looking bleak at the end of 2008.

Just a few short months later, consumer confidence numbers bottomed out and started moving higher. And so did the stock market.

By December of 2009 consumer confidence rallied from 38 to over 53.

By December of 2010 consumer confidence surged to just over 63.

The economy is showing signs of life and some areas are starting to thrive. The turnaround came none-too-soon if you ask me.

Right now, consumer confidence numbers are reaching new highs… levels not seen in years. And that’s great news for investors all around the globe. And it’s going to be a great thing for your trading account… here’s why.

Despite the confidence numbers almost doubling, we’re still a good bit away from “normal.” Many consider a reading of 90 or above good for the economy. I’ve got no doubt we’ll be back to those levels in a few years.

What it means is we’re going to see consumer spending expand in the coming quarters.

The economy is improving every day. Consumer confidence is improving. And stock prices are heading even higher. Now this is where I tie everything together… so pay attention!

Remember all those industries nearly destroyed in the recession? As consumer spending jumps, we will see these areas of the market rebound the fastest.

The thinking is simple… what’s one of the first thing consumers cut back on during the recession? Dining out. Instead of dining at the fancy steakhouse, or taking the family out for a Wednesday night dinner, consumers started eating at home.

Amazingly, a nice dinner out is a fast and easy way to satisfy a consumer.

The value factor is strong too. It’s hard to justify spending $35,000 for a car, when you can get a big level of satisfaction buying dinner for $35 bucks at the local restaurant.

Another area set to rebound is the retail stores.

Many people stopped shopping all together. They cut back on their trips to the mall. They even downshifted to cheaper brands. The high end stores suffered as consumers took a break.

Now many consumers feel deprived. They long for the days of buying anything they want…

We’re already seeing customer numbers improve in the retail sector.

So where else does consumer confidence play a role?

There are lots of other industries that benefit from the rebound in consumer spending… unfortunately I don’t have the time to talk about all of them here. But I’m going to point you towards one other area many investors overlook.

Consider real estate. Now before you roll your eyes at me, I’m not talking about single family homes here.

Think about what I said earlier… We’re seeing more people driving to the malls and shopping centers. More consumers are visiting stores and buying stuff. And when retailers see a jump in spending, the big winners will be the shopping center owners!

That’s right. The Real Estate Investment Trusts who own shopping centers and stores will see retailers once again grow their footprint. Stores that were closed will see new life as new tenants are found. Better occupancy rates will lead to increased demand. And best of all, lease prices will start to climb once again.

Properly managed, these businesses will see windfall profits.

It won’t happen overnight… but when it does big money can be made.

Now you know why Consumer Confidence Numbers are so important… and how you can make big money from them. Remember to focus on companies set to rebound from increases in consumer spending. Do your research, and soon you’ll be banking the big winners!

Trading the 50-Day Moving Average

So, you want to be a better trader or a better investor. You’re tired of buying a stock only to see it head lower right after you pull the trigger.

You’re sick of selling a stock and they watching it jump significantly higher after you’ve sold.

You’re simply waving goodbye to your hard earned cash!

What you’re experiencing is nothing new.

For as long as the financial markets have been in existence… heck, as long as humans have been trading and bartering, this has been a problem.

There is a simple solution.

It’s called the 50-day moving average. I like to call it the “Money Magnet”.

First what is the 50-day moving average (Money Magnet)?

The 50-day moving average is simply the average price of a stock over the prior 50 days. To calculate it, you add the most recent closing price to the 49 prior days and divide by 50.

There are charting packages and software to do it all for you so don’t stress about it being complicated.

The Money Magnet gives you in a simple look what the overall trend is. Keep in mind 50 trading days is 10 weeks… or almost 3 months.

So it’s easy to see if the stock is trending higher or lower.

Also, since the Money Magnet is an average, big one day swings don’t move it much. So it tends to be a more calming way to look at a stock.

So how can you use it?

Let me give you a real world example…

Take a quick look at this chart of Alcoa (AA). Alcoa, as you probably already know is a Dow Jones Industrial Average Component and one of the world’s largest producers of aluminum.

Chart courtesy of StockCharts.com


Many investors look at the money magnet as a key indicator of when to get into… or out of… a stock.

In its simplest form, if the 50-day moving average is trending lower and the stock moves below the 50-day line, many investors will sell.

You can see that clearly in May on the stock chart. The stock was below the Money Magnet line… and the trend was down!

Now in September, everything changed. You’ll notice the money magnet line started moving higher… and the stock started trading above this point.

It’s a huge buy signal for many investors out there.

And in the case of Alcoa, the money magnet worked like a charm. By following this simple entry and exit strategy, you could have sidestepped a more than 30% loss in AA starting in May.

Then you could have jumped back in for a 55% gain starting in September.

Whenever I’m looking at a stock to buy… or monitoring one I already own, I always look at the Money Magnet line.

It’s an easy way to see trends. And in the blink of an eye you can see if a stock is overbought… or oversold.

And some investors even use it as a signal for entering and exiting investments.

The Money Magnet is an investing tool everyone should know how to use… and apply on a regular basis.

Is Now The Time To Go All In?

Just last week the Dow flirted at the 12,400 level before pulling back…

 

The market’s given up a few hundred points since then…and as a result some traders are calling for a big pullback. Others are calling for a moon shot…saying the market will trade even higher. Yet others think the market will start trading sideways…as a way to take a breather from the two-year Bull Run we just witnessed.

Why is there such a big focus on the level of the Dow right now?

Why do some traders believe we’re only going higher from here?

Why do others believe we’re about to plummet to new lows?

These are all great questions. And buried in the answers are the dominating thoughts on where the market is heading. Depending on which set of facts plays out, savvy investors can start setting themselves up for huge gains in the next few weeks and months.

So let’s look at these questions one at a time…First, why is the current level on the Dow so important?

 

 

 

 

Chart courtesy of StockCharts.com

This is a question answered best by the technical analysts of the world. See, technical analysts focus on chart action, volume, and price movement. They look at charts like a doctor examines a patient’s x-ray.

Some of the key indicators many technical analysts look at are historical highs and lows, past support and resistance levels, and of course patterns.

We’ve recently passed through a number of support levels and a key one is Dow 12,000.

This level triggers any number of flags. It meets the key criteria as an anchor point for “round number theorists”… those that believe the markets are attracted to round numbers.

Dow 12,000 is also a key level for support and resistance. For example, the 12,000 level on the Dow was first crossed in late 2006. But that’s not all. It acted as a key level of support in early 2007 and again several times in 2008.

The point is, for some reason, the 12,000 level has been an area where bulls and bears battle it out in the market.

These historical levels often continue being a point of importance for years – even decades after they were first identified.

Here’s another reason this price level is so important.

Many investors bought these support levels in 2007 and 2008 – And many have been holding those investments. Can you imagine waiting for more than 3 years to get back to breakeven!?! Now you can understand what these old investors are thinking as we hit these price levels (again).

When we crossed above the 12,000 level, buying pressure overcame selling pressure. As a result, this resistance level has now become support once again.

For many technical analysts, it means we are heading higher!

But this is only the tip of the iceberg.

Don’t forget the Federal Reserve. They are the number one reason many fundamental analysts think the market will move higher too.

I’ve mentioned this before.

The Fed is actively pushing economic stimulus into the markets. Easy money is being dumped onto the banks…and it’s eventually finding its way into investors’ hands. The easy money is being thrown into markets all around the globe. And many believe it will only push the Dow higher.

Given recent chart action, support levels, and the free money ideas of the Fed, we now know why some technical and fundamental analysts are calling for the Dow to move higher.

Let’s take a moment and look at what the naysayers are trumpeting.

Many of the “Bears” in the market believe we are way overvalued.

They say the Dow at these levels is a joke. All of the stimulus will eventually disappear, and the hot air is coming out of the markets. We’re heading for a double dip in the economy…and in the Dow.

They’re calling for another leg lower.

The “perma-bears” biggest argument lies in the crash of 1929. Most investors don’t realize the crash of 1929 was followed quickly by a rebound in stock prices. The market moved higher for a number of months from late 1929 to around April of 1930, setting a trap.

After the bear trap rally fizzled, the market continued making new lows until 1933!

Today, many analysts are calling for the same market action. They say that this time around is no different from the 1929 crash. They believe the current rally to well over 12,000 is a long overdue bear trap…and when it’s sprung, the markets will be devastated.

They might be right…but I doubt it.

See, the difference between 2011 and 1929 can be counted in hundreds of ways…But there are two reasons I focus on the most. First is the Federal Reserve and second is corporate profits.

First the Federal Reserve is making money cheap and easy. We’ve talked about it time and time again. But here’s the difference…that wasn’t the case back in 1929. Back then when money stopped flowing, businesses went under.

Think of the bank where you deposit your money. You can walk up any time and take your money out from a teller or an ATM. It’s safe as can be.

That wasn’t the case in 1929. If your bank went belly up…so did your savings. It was gone.

That’s not happening this time around. Look, no doubt the last few years have been tough and a lot of money has been lost in the markets.

But it’s a lot different than what we experienced during the great depression.

Huge amounts of wealth were lost back then to bank and business failures. We’re not seeing that same devastation today. Businesses are more stable than ever before. And while unemployment (at 9%) is high, it’s not destructive.

The other reason I don’t think we’re going to see a double dip in the markets is because of corporate profits.

It’s hard to destroy a company that’s making money. You might cut its stock price down, but once the profits start rolling in, it’s only a matter of time before the stock price rebounds.

And that’s what we’re seeing right now.

Corporate profit levels are reaching some of the highest points ever. Some of that is due to US economic activity…but a big portion is due to the growth in emerging markets. And according to Bloomberg, the amount of cash held by US corporations is near all time highs…more than $2.4 trillion is sitting in bank accounts.

Remember we’re seeing inflation concerns all around the globe.

Economic demand for goods and services in emerging market countries is growing.

Demand for US made goods is huge. And nearly 50% of the revenue for the S&P 500 comes from overseas sales.

If sales are growing, it’s going to be hard for US Corporations not to make a profit…and remember, it’s hard to destroy a profitable company.

With the fed throwing out easy money, and corporate profits moving higher, the risk of a double dip recession is virtually eliminated. So much for a repeat of 1929.

So where do we head from here?

What we are seeing right now is the next wave in American business. It’s business growth overseas. Emerging markets can and will push the US Markets higher for the next decade or more! Despite the support of the Fed, or their eventual tightening of the money supply…despite support and resistance lines watched by technical analysts…despite fears of a second leg down or a double dip in the recession, Dow 12,000 is just a start.

I could see the Dow doubling in the next few years. Corporate profits are strong and balance sheets are stronger. When the global recovery catches its wind, the markets will really move…and the only place I want to be is fully invested in stocks!

This Stock Is Going To The Moon! Grab Your Share Of The Profits Now!

As I’m looking at this chart, all I can think is… “I know what’s happening!”

I found a stock that’s caught the eye of investors. The stock bottomed in July of 2010 and has been shooting for the moon ever since.

This stock is up almost 103% in just 7 months.

Is it too late to get on board?

Not by a long shot. Back in 2007 this stock traded for over $10 a share… If it reached the old highs, it could double in value again! And I think we’ll get back to that level in the next few months.

But that’s not the only reason why I like this company.

The stock I’m going to introduce to you is in an industry poised to rebound…They have a unique business model generating hundreds of millions in revenue… the stock is hugely undervalued… and the stock pays a fat juicy dividend.

Do you really need more of a reason to buy?

I didn’t think so… now without further delay let me introduce my latest hot stock pick.

COMPANY DESCRIPTION
The company I want to introduce to you today is none other than NorthStar Realty Finance Corp (NRF). They trade on the New York Stock Exchange for about $5.18 a share.

The stock has seen a huge run in the last few months… but I’ll get to more on that in a moment. First, I want to tell you more about what this company does.

NorthStar first and foremost is a REIT.

In other words, they are a Real Estate Investment Trust (REIT). That means two things… first, they are focused entirely on the real estate industry. And second, as a REIT they are required by law to pay out a big portion of their profits to investors.

So what do they do?

It’s a bit complicated, but in a nutshell, NorthStar uses their capital… their cash… to buy real estate securities. They leverage up the investment and use cheap money to buy mortgage backed securities, rated notes, mezzanine financing, structured financing, secured financing, and other real estate debt.

These investments throw off nice streams of cash…

Best of all, the cash profits get returned to shareholders – just like you and me!

NORTHSTAR’S BUSINESS
Now, you know NorthStar invests in real estate securities… but that’s not all they do.

NorthStar sets itself apart from the pack by also taking its business a slightly different direction. They offer what they call “Net Lease Properties.”

This is a very unique strategy.

The company partners with a corporate client who needs to operate in a big space.

NorthStar invests in the property and signs a net lease with the tenant. They only do this with big organizations.

It’s a great deal for both parties.

The corporate client gets a great piece of property without having to front all the cash to buy it. NorthStar grabs a nice piece of real estate and now has a solid tenant who signs a long term lease and pays all the bills. The arrangement is designed to throw off a nice stream of profits too!

Now, I know what you’re thinking… real estate!?!

The entire industry has been in the trash lately. The homebuilders are getting crushed.

Home values are down across the board. And the news is filled with horrible stories about rampant foreclosures. The commercial market isn’t any better!

Despite the horrible news, the industry isn’t going away.

Think about it. We’re always going to need a place to live and an office to work in. We’re going to need manufacturing plants, and production facilities… and distribution centers.

The heart of all these locations is real estate… and despite the recent market turmoil, now’s the time to be buying.

You buy when prices are low.

You buy when other investors are afraid.

You buy when nobody else is… and that’s when you grab the really big profits.

And that’s what NorthStar is doing. They’re holding tight to the real estate market.

They’re using this challenging time to buy up good quality securities and properties nobody else wants.

Here’s a perfect example…

Just a few months ago, NorthStar bought $28 million worth of real estate notes for only $2 million. Does that mean they just made $26 million? Of course not… but if these notes return just 20% of their original value, NorthStar (and their shareholders) will be making big money!

Clearly, the financial situation is key – so let’s take a closer look.

NORTHSTAR’S FINANCIALS
Now the third quarter was a bit rough…

Revenue was strong at over $126 million. Most of this was interest income from their portfolio and rent payments. However, the company did post a loss. Net loss to
common stockholders for the third quarter 2010 was $144.1 million. That’s about $1.87 per share.

However, keep in mind, $198 million was due to an unrealized loss on their investments. If you kicked just those losses out of the numbers, the company would have been profitable.

Now, before you start worrying, remember – we’ve just survived one of the most brutal economic recessions of our time. As we see the markets improve, I believe the company will see its portfolio increase in value again… not fall. And that will provide a huge driver to the stock.

Now the valuation on this company is a little ridiculous.

I feel like I’m buying the Tiffany Diamond for $5.18 at a garage sale!

Consider their book value. That’s the value of all the assets after subtracting out all of their debts. The book value is $15.78 per share! Right now you can buy the stock for a 60% discount off of book value… that’s a huge deal.

Another valuation metric I like to look at is Dividend Yield.

As a comparison, the S&P 500 dividend yield sits at around 1.78% right now. So, for every $100 invested, you get back $1.78.

With NRF it’s a little different.

NRF paid out a dividend of $0.10 last quarter (and have for the last 8 quarters). Assuming they continue paying out at that rate… it means the company is sending about $0.40 a year to shareholders.

With a stock price of just $5.18, it works out to a dividend yield of about 7.75%.

In a nutshell, for NRF to reach parity with the S&P 500 on a dividend yield basis, the stock would have to climb by over 440%!

If that’s not a nice return I don’t know what is!

Now, I’m not the only one who likes this company. While doing my research, I came across a document filed with the Securities & Exchange Commission. It’s form SC- 13G/A, filed by none other than the investment company BlackRock.

In case you didn’t know, BlackRock is one of the largest investment managers in the world.

They manage more than $3.56 trillion dollars of capital.

Here’s the takeaway… According to these filings from early February, BlackRock owns over 4 million shares of NRF in their various funds. That’s more than 6.35% of the company.

Clearly they see the huge upside potential like I do!

ANALYSIS OF NRF STOCK
The stock is volatile and tends to bounce around a lot… but that’s “OK.” This is one company you want to buy now and hold for a while. Given the improving industry fundamentals, low book value, high dividend yields, and great market position… this stock could be a huge winner for us.

 

 

 

 

Chart courtesy of StockCharts.com

 

 

ACTION TO TAKE
If you like what you’ve read, do your own research… then Buy NRF up to $5.35 a share.

 

Prices as of February 14, 2011
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less. “Buy-up-to” means don’t pay more than this price for the stock. If you can get it cheaper, then great! “Hold” means hold if you own it, but don’t buy it if you don’t. “Sell” means sell. Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.

Insider’s Secret To Making Big Money In Stocks!

Have you ever wanted to make big money trading stocks?  Have you ever dreamed of swooping in and picking up a stock for only a few pennies… then watch it explode in value?  Do you dream of becoming a millionaire almost overnight?

Of course you do.

Everyone dreams about big financial gains.  That’s what keeps state lotteries running despite their horrible odds!

You can become a successful investor… and give yourself the opportunity to hit a few home runs on your stock investments.  But there’s a catch.  A problem actually.  See, most investors don’t have the time or the gumption to study the markets.

They don’t want to make the effort to uncover the ONE are of the market where you can turn a few hundred dollars into thousands… or hundreds of thousands… almost overnight.

Big gains can be had… you just need to know where to look.

After years of studying and working in the financial markets, I learned some invaluable lessons.  One of those lessons I’m going to share with you today.

Now before I share a very valuable secret with you, let me start by saying this…

Your stock broker is out to screw you.

Seriously.

His goals do not align with yours… they never have, and they never will.  Look, your stock broker works for a living.  He sells people things.  You are a customer… he’s not your advisor.  He (or she) may be a nice guy.  You might enjoy their company.

But at the end of the day, he only cares about you, IF you can buy something from him.

If you get that simple notion in your head, you’ll be light years ahead of all the other investors trying to find their way in the market.

So let’s get down to business…

One of the most important realizations you can make is the old way of investing on “Wall Street” is dead.  The old school way of making money is gone forever.  This is a huge secret you must learn now!

What strategy am I talking about?

“Buy and Hold”

It used to be, when you invested your money in “Wall Street” you’d buy a stock or two with the idea of holding them forever.   Hence the adage – “Buy and Hold.”  You invested for the long run.  It was easy.

If you bought the right stock your account grew in value.  The advice was simple… Keep holding for bigger gains down the road… you’re making money.

And if your investment value fell?  Advisors would say… “Well, just hold tight!  After all, you’re investing for the long haul – RIGHT!?!”

You were told, Buy and Hold was the gateway to wealth and prosperity.  Buy and Hold was the way to a safe and prosperous retirement.   Buy and Hold was the ONLY way to invest.

I’m here to destroy that kind of stagnant thinking.

Buy and hold is DEAD!

If you need proof, look no further than the Dot-Com crash of 2000.  How many people bought near the peak and are still sitting on huge losses?  How many people still own former high flying tech stocks… stocks that over a decade later are nowhere near their all-time high levels?

Want more proof?

Just look at the last decade in the stock market.

 

 

 

 

Chart courtesy of StockCharts.com

At the start of the millennium… January 3, 2000 to be exact, the Dow was trading at 11,357.  Today, more than 10 years later, the Dow is trading around 12,200!

The returns were so bad, one group started calling this decade “The Big ZERO!”

You don’t need me to do the math.  Gains of this size are pathetic.  You’d have been better off investing in a bank CD or government bonds.  Why risk your money for returns measured in fractions of a percent? It just doesn’t make sense.  It doesn’t hold true anymore.

Buy and hold is dead as a doornail.

I realize this is blasphemy to many.  And for others, it will serve as a big wake-up call.

I’m here to tell you that investing for the long term is “OK”.  But you’re not supposed to blindly hold onto any and every investment you make.

No longer should you stand idly by as your investments fall in value.  No more watching your trades fall 20%, 30%, 40%, or MORE.  No more standing by doing nothing.  You must take action.

No more hanging on and not managing your portfolio.  The best way to cure yourself of these stagnant ways of thinking is to play a more active role in your investments.  Look at them.  Watch them.  When you have a big win, don’t be afraid to pull a little off the table.  There is nothing wrong with the idea of investing with house money!

And if a trade goes against you… get it out of your portfolio.

Never again should you buy a stock (or any investment) and hold regardless of movement, valuation, or price.

This simple lesson alone can differentiate you from the herd of sheep that blindly follow the advice of their brokers.  You don’t want to blindly hold stocks forever.  Don’t ride stock after stock into the ground and wonder where your life savings went.

Now you realize just how important it is to actively manage your own portfolio.

With that as a starting point, I want to share with you the best way to make big money in the stock market!  It’s not a secret trade or a source of insider information.  Nope.  One of the ways I like to invest… and make big money is with small cap stocks.

Specifically penny stocks.

Now before you roll your eyes at me, consider this.  The value of a small company is more likely to double than the value of a mega-capitalization market giant!

Just look at Exxon Mobile (XOM).  You know this company… everyone knows this company.  They own giant oilfields throughout the world and make their money selling petroleum products.  Right now they have a market value of around $400 billion dollars.

They’re a huge company.  And their stock trades for $80 a share.

Consider this… for their stock to simply double.  To go from $80 to $160 a share, their market value would approach $800 billion.  At $800 billion Exxon would rank number 16 on a list of countries according to GDP.

Exxon would be bigger on a GDP basis than the Netherlands, Turkey, Indonesia, and even Switzerland.

The idea of Exxon quadrupling in value is mindboggling.  They would break into the top 10 list leapfrogging countries like Canada, India, and Russia!

Imagine one company, and only one company, exceeding the GDP of these entire countries.  Is it impossible?  No.  It’s not likely to happen any time soon.

Now consider a much smaller player.

Take a look at a company called Hansen Natural Corp. (HANS).  This company wasn’t a household name back in 2000.  And it’s not really a household name today… unless you like their products.

The company produces several lines of natural sodas, fruit juices, and energy drinks.  Nothing shocking here.

Back at the start of the decade, HANS had a market cap of $40 million and the share price was a mere $0.54 split adjusted.  You could have bought a share for around the price of a soda.

Over the next decade the company grew like a weed.

Just look at their chart.

 

 

 

 

Chart courtesy of StockCharts.com

The stock skyrocketed from just $0.54 to over $56 a share, where it stands today.  A little back of the envelope math and you can see it’s a return of more than 10,270% during the “lost decade”.  This company value jumped from a mere $40 million to over $5.0 billion today!

Just imagine if you’d have invested a small $1,000 in Hansen Natural stock.  You would now be sitting on more than 1,851 shares… worth more than $103,703!

Do you see the power of investing in penny stocks?

Just a few hundred dollars can turn into thousands when invested in the right companies!  Take a few minutes and look around.  You’ll find this isn’t the only example.  I could go on for days with example after example of big penny stock winners.

Oh!  And just so you don’t think I’m trying to steer you wrong, Exxon started trading January 3, 2000 with an adjusted stock price of $30.51… today it’s worth just over $82.  I guess turning that same $1,000 into $2,687 isn’t too bad…

Remember, if you’re looking to make big money in the stock market, you need to look where the big money has always been made…. Penny Stocks.

A Billionaire Is Buying This Stock…Should You?

Today I’m going to tell you about a stock that I really like…but I had my doubts. I didn’t want to tell you about this company. See, this stock is trading for more than $8.50 a share.

Normally I like to focus on much cheaper stocks. Many of the penny stocks I follow trade for under $5, and a bunch trade for less than $1…but this story was just too good to pass up. So I decided not to hold back.

I figured I’d let you decide.

Now, before I introduce my hot pick of the week, let’s take a second and talk about what’s been happening in the market.

Unless you’ve been roughing it in the wilderness for the last two weeks, you’ve no doubt heard about the peaceful protests in Egypt…and the violence in Libya. You’ve probably also heard about the impact these protests are having on oil prices.

Investors, traders, and oil industry veterans are afraid of the unrest and violence taking place in the Middle East. The fear is that civil unrest will spread from Egypt and Libya, to other oil producing nations like Saudi Arabia or Kuwait.

But the fear isn’t over social unrest. It’s over oil supplies being disrupted, or oil production being compromised!

For the first time in more than 2 years oil traded hands at over $100 a barrel!

As you would imagine, oil companies all around the world are seeing their stock prices jump. The threat of restricted supply signals a big opportunity for Oil & Gas explorers, developers, producers and other businesses supporting oil production.

Many investors are making money hand over fist – but one billionaire investor is laughing all the way to the bank!

Mexican investment guru Carlos Slim currently holds a huge position in a tiny US drilling company…and his shares have been skyrocketing in value.

Who is Carlos Slim and why should we follow what he does?

Carlos has managed to amass a fortune of over $50 billion dollars…And Forbes proclaimed him the richest man in the world in 2010. Carlos made his money through savvy investments and important business decisions.

He holds huge ownership stakes in a number of companies throughout Latin America, Mexico, and the United States. In addition to owning Mexico’s largest telephone company, he also owns a construction conglomerate, and has made investments in retail organizations, and newspapers.

Many investors have found success following in the footsteps of billionaires, and this idea is no exception.

COMPANY DESCRIPTION

So which Carlos Slim investment am I so focused on?

It’s none other than Bronco Drilling Company (BRNC).

Bronco Drilling is headquartered in Oklahoma and runs a fleet of drilling rigs. Bronco contracts with oil & natural gas exploration companies to do their drilling. The company has 25 drilling rigs and considers their fleet to be “Premium.”

Now, the company description isn’t too exciting.

However, Bronco has developed a number of capabilities not every drilling company can claim. They often drill where others can’t…they have the capability to drill to extreme depths, or even horizontally.

This type of advanced drilling is becoming more commonplace in North America. As a result, Bronco drilling teams are highly sought after. And the company can charge top dollar for their services. More on that in a moment…

BRONCO’S BUSINESS

The demand for oil seems to be insatiable these days, and as the Wall Street Journal recently noted, “Oil-drilling activity in the U.S. has accelerated to a pace not seen in a generation.”

According to recent research, 818 rigs are drilling in the US right now…more than double the number just a year ago!

This puts Bronco’s services in even more demand!

With oil prices continuing to climb, oil exploration becomes more profitable. That means once unrecoverable deposits become economical. And hard to reach deposits are now being targeted for drilling.

But high oil prices aren’t the only reason drilling activity is accelerating in North America.

With a changing economic landscape comes a changing global landscape. The Middle East is a tinderbox of instability. Who can forget the protests and riots of Tunisia, Egypt, and Libya?

The question of the day seems to be – “Who’s next?”

As a result, demand for safer more secure oil supplies like those in North America become highly sought after. And as demand for drilling climbs, the price Bronco can charge has only one direction to go…UP!

Now, it’s clear that with oil prices high, the demand for drilling services climbs… but what sets Bronco apart from the others?

One key aspect is the focus on refurbishing rigs. Over the last few years the company has been able to acquire and refurbish 25 drilling rigs, and a lot of ancillary equipment.

Their intimate knowledge of how the rigs operate is important.

See, the key to operating a rig is uptime. Bronco really only makes money while they’re drilling. So if a rig breaks or can’t run for some reason, it’s bad news. No surprise there!

Since it’s all about uptime for a drilling rig, repairs and maintenance become vital. Because Bronco does rig refurbishment in-house, they have the knowledge and experience to make repairs.

For example, if a part needs to be repaired, Bronco isn’t relying on a third party supplier (who may or may not be reliable). They make their repairs and maintenance in-house, reducing downtime, and operational issues.

Bronco’s secret sauce…

As I mentioned earlier, Bronco drilling teams have unique experience when it comes to drilling at extreme depths, or even doing horizontal drilling. This is a key selling feature for customers.

Often, Bronco is able to sign longer term drilling contracts with customers who need their experience. Some contracts can extend out for a year or more! This is a great steady stream of revenue for the company.

Bronco’s other ventures…

While the majority of Bronco’s business is based in the US, the company also has a 40% ownership stake in a Mexican drilling company, and a 25% stake in an international drilling company.

Given these market conditions, there couldn’t be a better time to invest in domestic oil drilling. And Bronco is positioned perfectly to benefit from the rising market.

Now, let’s take a look at the numbers…

BRONCO’S FINANCIALS

Because oil prices have been down over the last few years, Bronco has struggled to show significant financial gains.

However, don’t let this throw you off the story.

The latest news from the company is looking very strong. In early February they announced a rig utilization rate of 96%! Remember, utilization rates are a key factor in determining how much revenue the company can generate.

The company also noted the “day rate” – or amount they can charge for operating a rig – increased to $17,529.

The numbers are significantly better than what the company witnessed in the third quarter of 2010…back then their utilization rate was only 64% and their day rate was just over $16,600.

Remember, as oil prices continue to climb, demand for drilling services will increase… and Bronco can then charge more for their services!

Right now, almost 20% of their fleet is under long term contract extending into 2012.

Now, the most recent financial data available is from the third quarter of 2010.

Revenue from drilling was a robust $34.8 million, and the company showed a loss from operations of just over $1 million – after adjusting for one time charges.

Knowing utilization rates and rig “day rates” are both up, I’d expect the company to see some serious improvement in the fourth quarter.

While the company hasn’t provided guidance, various estimates call for the company to generate just over $147 million in revenue…an 18.7% increase. Of course stronger revenue numbers lead to stronger earning estimates, with initial 2011 EPS estimates hitting $0.04 per share.

The best part is, all of these 2011 estimates are low enough for the company to blow them out of the water… and we all know upside surprises can really drive a stock higher!

Fourth quarter and year end numbers are set to be released on March 4…I’ll be watching those very closely.

So, Bronco is operating in a very exciting industry where demand is growing. The company is well managed, and looks to be turning things around financially. Their utilization rates and day rates are moving higher, and profitability is on the horizon.

It’s a great story but how does the stock look?

ANALYSIS OF BRNC STOCK

Bronco is selling for about $8.79 per share. We’re well off the lows set last June of $3.25.

Don’t let the recent price jump scare you…back in late 2008 when oil prices were trading well above $100 a barrel, BRNC traded over $18 per share!

 

Chart courtesy of StockCharts.com

Now, as you recall, Billionaire investor Carlos Slim has a large holding in Bronco…but he’s not the only one. BlackRock recently started acquiring shares, and as of the latest reports, they own just over 2.2% of the company.

In case you didn’t know, BlackRock is a major player in institutional investments. They manage over $3.4 Trillion Dollars.

Clearly the smart money owns this stock.

Now, let me toss out one more important fact.

Bronco’s book value per share is $10.85. With a current price of $8.79, the stock is selling at a 19% discount! Value investors rejoice!

But that’s just peanuts compared to what it could trade for.

Remember when oil prices were sky-high, demand for their drilling services went through the roof. The company’s margins improved, and so did their profitability. Back in 2006 Bronco made $2.43 a share, and their EBITDA was over $129 million!

Given the importance of the oil & gas industry, Bronco’s unique position in the market, recent improvements in utilization and billing rates, and the acquisition of shares by major “smart money” investors, I see lots of value in this company.

I think BRNC could be trading over $18 a share in the next few months. And if the market really takes off, we could see gains of 127% or more!

Bronco is riding an upward trend in share price. Take advantage of this awesome opportunity while you still can!

ACTION TO TAKE

If you like what you’ve read, do your own research…then Buy BRNC up to $9.05 a share.

 

Prices as of January 31, 2011
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less. “Buy-up-to” means don’t pay more than this price for the stock. If you can get it cheaper, then great! “Hold” means hold if you own it, but don’t buy it if you don’t. “Sell” means sell. Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.

Did You See Apple Stock This Week?

Unless you were hiding under a rock, you no doubt witnessed the crazy roller coaster ride that shareholders of Apple (AAPL) experienced this week.

To be honest, I’m sure some investors lost their lunch… even if they didn’t own Apple.

If you cut though all the news, there’s an important lesson to be learned here… but more on that in a minute.  What I want to do is touch on what’s transpired in just the last few days.  Then I’ll give you my thoughts on what it means for the future.

Just a week ago, there was a major news announcement in the technology world.

Verizon (VZ) one of the world’s largest cell phone carriers announced they would now be carrying the iPhone.  As you know iPhone is the wildly popular, cell phone made by Apple.

This little bundle of technology is allowing people to connect in ways never before thought of.  Apps, Apps, and more Apps seem to be the focus of the iPhone.  You can download an App… or mini program… to do almost anything.

Some apps can translate signs for you.  Others help calculate the tip at a restaurant.  Apps can help with a science class, and there’s even an App that turns the phone into a level.  Another App is a compass, and yet another is a map.  If you can think it, there’s an App for it!

And that’s part of the reason iPhones are so incredibly popular.

So clearly the partnership between Verizon and Apple is a big deal.  The announcement got a lot of press.  But what got even more press was what was missing.

The central figure behind the market leading dominance of Apple is the company’s CEO Steve Jobs.  Steve didn’t attend the Verizon iPhone launch… and immediately the rumors started.

Then over the long Martin Luther King holiday news broke.

Steve was taking a break from Apple to focus on his health.  The guy had a liver transplant just a few years ago.  He’s looked frail and weak ever since.  But he needs to dial it back for now.

The rumors picked up speed.

His cancer was back… the liver transplant didn’t take… He’s dead, or dying.  How sick he really is has become the key topic of debate.  Personally, I wish him the best and hope his health returns right away.

Immediately the investing world started prying into Steve’s most intimate details.  Some crazy people even called for his medical records to be made public.  Look, I’m all for full disclosure, but this is getting ridiculous!

Regardless of the disclosure, the news of his reduced responsibility was traumatic for the stock.

Investors did what they do best during times of uncertainty… they sold their Apple.  Just look at the chart.

Chart Courtesy of BigCharts.com

You can see the stock plummeting as clear as day.  When it closed on January 14th, the stock was at $345.68 per share.  On January 18th, only 30 minutes into trading, you could buy shares of AAPL for a mere $326.  Almost $20 a share was shaved off the price of the stock.

Let me put that in perspective for you.  Apple stock lost OVER $18 billion in value in less than 30 minutes… you could hand $75 to every man, woman and Child in America and still have some left over!

But the drop in stock price wasn’t the scary part…  This is where the roller coaster ride does a double loop followed by a barrel roll.

After the loss of more than $18 billion in value, something strange happened.  Apple put out a press release.  With all the focus on the Steve Jobs’ medical announcement, many investors forgot Apple was releasing their quarterly financial results that day.

It was good news.

Apple blew away numbers and the stock rallied.  All of a sudden, nobody cared about Steve Job’s health problems.  And for a short time the stock had almost recovered to their previous highs.

The stock market reaction was exciting, gyrating, and nauseating all at the same time.   Now you know what I mean when I say some people lost their lunch!  Volatility like this made me want to throw up… and I don’t even own the stock.

So what’s the lesson to be learned in all of this?

It’s simple.  Wall Street is a very intense place with a very short attention span.  What might drive a stock lower… and cause some people to question the very existence of a company… could be replaced moments later by news that takes a stock through the stratosphere.

Now here’s my key takeaway.

Everyone’s still focused on the Apple news… but take a step back for a moment.  Apple’s results weren’t a fluke. The company is doing really well… and that’s a sign as clear as day that technology stocks are starting to shine!  When a market leader, like Apple, can shake off bad news and post incredible results, it’s a sign of leadership.

It’s a sign that we need to start watching technology stocks much more closely.  I know I’m going to.  And I recommend you do too!

How high could this stock go?

This week I have another one of my favorite stock picks for you.  I added this company to my portfolio a while back and it’s treated me well.  Best of all, this stock has lots of room to run.

I’ll give you the company name in a moment… but first a little background on why I like this stock so much.

We all know how aggressive the Federal Reserve has been when it comes to flooding the economy with cheap and easy money.  How can you argue the point with $600 billion in stimulus entering the market, and interest rates at 0.25%.You simply can’t!

Now I’ve been watching for companies performing well in cheap money environments… and today’s company is one I really like.

Now keep in mind, this isn’t another tirade on the falling value of the US Dollar or how inflation is going to spin out of control (though it eventually will).

The key to this company’s success is low borrowing costs.

My pick this week is a company who borrows money very cheaply and then invests for a higher return.  It’s a strategy called capturing the spread… and the profits can be fat and easy in today’s market place.

So what company am I talking about?  None other than MFA Financial (MFA).

Now I’m sure you’re wondering who MFA is and how they make their money.  And I’m glad you asked.

Think of MFA like a bank… they borrow money very cheaply and then invest the money in higher yielding investments.  Their investment of choice is mortgage backed securities.

Wait a minute, aren’t mortgage backed securities as good as MUD after the financial meltdown?  Well, yes and no.

You see, the MFA management team is smart.  They only invest in quality mortgage backed securities.  That means while other “risky” funds put their money in high risk, high yield mortgage pools, MFA stuck with the most stable and secure.

It cost them a little in earnings… but when the crisis hit they were looking good!

Now, here’s where I need to let you in on a little secret that most people don’t know.  These mortgage backed securities are special.  MFA is able to borrow against their own investments!

Banks will loan MFA money… as long as the mortgage backed securities back up the loan.

This means MFA can leverage up their investment.  Consider this… for every one dollar the company has to invest, they can borrow another 5 to 10 dollars… which they use to buy… you guessed it… more mortgage backed securities.

MFA owns almost $8 billion of the mortgage backed securities.

So by borrowing and investing, MFA is capturing even more of the spread.  So how profitable is investing for the “Spread”?  In the third quarter of 2010 the company captured a spread of 2.56%.  It doesn’t sound like much.  However, during that time, MFA was able to generate a net income of over $75 million!

Not bad…

But I haven’t even told you the best part about this investment.  MFA is set up as a REIT. So by law, they have to send shareholders their cut of the profits.  In the third quarter it worked out to a dividend of over $0.22 per share.

Now 22 cents won’t get you very far in life… but consider on an annualized basis (and with the stock around $8), MFA yields more than 11%!

Let’s see you get that kind of a return in a savings account… it’s just not going to happen.

Now, before you rush out and load the boat on this one… there are some risks.  Obviously, if the banks stop lending to MFA, or their loans get called the company could be in a pickle.

They are also at risk once interest rates start moving.  This risk doesn’t really concern me… remember good old Ben Bernanke at the Federal Reserve is working hard to keep rates low and the easy money flowing.

Besides, the MFA management team has been around for a while.  And they’ve all worked in environments where interest rates have been much, much higher.

So how high can MFA’s stock go?

That’s a million dollar question.  Just remember, a few short years ago the stock was trading for over $10 a share.  That’s a 20% return from here.

Don’t forget too, the yield at 11% is an attractive one.  Bigger companies often have dividend yields of around 2% or 3%.

Assuming the dividend payout of $0.88 per year stays the same… MFA would need to see the stock climb to $17.50 a share (more than double current levels) to see the yield fall to a more reasonable 5%

Chart courtesy of StockCharts.com

Despite the recent run-up from $7.50 to $8, I still think this is a good area to establish a position in MFA.

ACTION TO TAKE

If you like what you read, remember to do your own diligence.  Buy shares of MFA Financial (MFA) up to $8.75 a share.

 

Prices as of January 14, 2011
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less.  “Buy-up-to” means don’t pay more than this price for the stock.  If you can get it cheaper, then great!  “Hold” means hold if you own it, but don’t buy it if you don’t.  “Sell” means sell.  Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.