TheStockAdvisor

Keith Fitz-Gerald: Fiscal Hangover

steven@thestockadvisors.com (Steven Halpern) — Sat, 21 Nov 2009 10:02:38 PST

Get a $10 discount on Keith's new book on global investing -- Fiscal Hangover -- by clicking here.

Holly Corp. (HOC): A 'potential double'

steven@thestockadvisors.com (Steven Halpern) — Thu, 19 Nov 2009 21:00:00 PST

Congratulations to Mike Turner, a member of the StreetAuthority advisory team, on the launch of his new advisory service, Mastering the Markets.

Here, he reviews his fundamental and technical strategy and offers a look at Holly Corp. (NYSE: HOC), noting, "This independent petroleum refiner gave a solid 'Buy' signal a little over two months ago and appears poised to continue moving a lot higher."

"Holly Corp. is my top-ranked 'Doubler' -- stocks with the potential to double in price. With regard to HOC's fundamentals, I like the following:

"Holly has delivered impressive year-over-year earnings growth of +34.8%. I also look at multi-year (3 to 5 years) average earnings growth, as this tells me if a particular company has long-term staying power. In this case, HOC has delivered exceptional five-year average earnings growth of +25.7%.

"One way to judge a company's health is to look at its return on equity. The higher this number, the better. In this case, HOC sports a very strong ROE of 26.1%.

"Knowing a stock's price/earnings ratio (P/E) is important, but it's not nearly as important as knowing how that P/E stacks up against the stock's peers. With a P/E of 10.2, HOC is reasonably valued relative to its peer group.

"When I can get a decent dividend on a stock, I consider it a bonus. In the case of HOC, its annual yield is 2.2%.

"In addition, I want all the financial 'stars' aligned when I buy a stock. This means I want the fundamentals and technicals to be strong. However, it is also critically important to monitor the Industry and Sector.

"Because I believe that over half of the reason why a stock moves higher or lower can be tied to its Industry and Sector, I always want both to be moving in a very bullish direction.

"My system calculates the average price of every stock in each Industry and each sector. I want to own stocks when the 'rising tide' is lifting all boats. In this case both the Industry (Oil and Gas Operations) and Sector (Basic Materials) are in 'Bull-Mode,' which is very positive for HOC.

"Further, I use my own set of technicals to determine the very best time to enter a trade. I use fundamentals to tell me 'what' to consider buying, but I use technicals to tell me 'when' to buy.

"Technically, I divide each stock's three-year price chart into four distinct Zones. Each Zone is 25% of the three-year total range or volatility. In general, if an equity is in Zone 1, it is in the lowest 25% of its three-year price range. Zone 4 is the top 25%.

"I rarely short an equity that is in the lower half of Zone 1, but if I can find a stock that is in Zone 1 and has the fundamentals and/or technicals to support a climb back up into Zone 4, then it becomes a candidate for possible inclusion in my Doublers List.

'In this case, HOC is trading in Zone 1, and the stock could double in price without even reaching its previous highs.

"In general, the more shares that are traded per day, the more liquid the stock. For market timers like me, liquidity is extremely important. I want to be able to get in and out of a stock at the price I want, and I don't want a small handful of traders pushing the stock's share price around.

"As such, when I am looking to get into a new position, I seriously consider both the average daily volume of shares and the trajectory of investor interest in the equity. I like to see a stock rise on increasing week-over-week trading volume.

"In the case of HOC, the stock's trading volume, as well as the rate of increase in week-over-week volume, are both very positive. The stock is currently trading around $27 per share, and could easily move back up above $60."

Ebix (EBIX): A stock split buy

steven@thestockadvisors.com (Steven Halpern) — Thu, 19 Nov 2009 21:00:00 PST

In his 2-for 1 advisory, Neil Macneale focuses exclusively on buying stocks that have just announced upcoming stock splits. The latest buy in his portfolio is Ebix (NASDAQ: EBIX).

"As the holidays and the year-end approach, I am feeling much more optimistic about the market and the 2 for 1 portfolio.

"Our latest buy is Ebix; the company has announced a 3 for 1 split on 10/12/09, to be delivered on 12/10/09. This is rather remarkable given this company split its shares 3 for 1 just one year ago.

"Ebix develops and sells software for the insurance industry. The company is based in Atlanta, GA but, in fact, is an international business. Fortune magazine ranked Ebix #4 on its August, 2009 list of the 100 fastest growing companies and #2 as the best investment within that group.

"So what’s to like? The company has a relatively high PE ratio, pays no dividend, and has a rather precarious balance sheet. This is not my type of stock and I was not interested when the split was first announced.

"However, there is the growth. Apparently, what Ebix sells has become essential within the insurance industry as companies strive to cut costs and to become more customer friendly. Ebix has had an average growth in earnings of over 66% per year for the last five years.

"And experts see no reason to think there is a slowdown over the horizon as the world’s economies and the insurance industry recover from the recession. Growth like this makes Ebix look very undervalued.

"While I’m a little out of my comfort zone with this recommendation, it seems worth the risk. As split stories go, Ebix has one of the best and, after all, our portfolio is all about stock splits."

Activision Blizzard (ATVI): 10 reasons to buy

steven@thestockadvisors.com (Steven Halpern) — Thu, 19 Nov 2009 21:00:00 PST

"As a conservative long-term oriented investor I tend to keep individual position sizes to no more than 5% of the overall portfolio; however in the case of Activision Blizzard (NASDAQ: ATVI), I'm building a more concentrated position that I expect to pay off in the next two to three years," says Asif Suria.

In his The SINLetter advisory, he offers 10 reasons why he believes the stock is an attractive core long-term investment.

"My goal is to eventually build this position until it represents 20% of my personal portfolio. Here are 10 reasons for making Activision Blizzard a core holding.

Activision released the highly anticipated game Call of Duty: Modern Warefare 2 and racked up $310 million in sales from the U.S. and United Kingdom over a 24 hour period. With Christmas right around the corner, the final sales numbers for this edition of Call of Duty are going to be much bigger.
World of Warcraft: Cataclysm for the MMORPG (Massively Multiplayer Online Role Playing Game) is expected to be released in 2010 to the 11.5 million active users who pay every month (or by the hour in China).
The Blizzard division of Activision that created World of Warcraft also has another potential blockbuster game called Starcraft 2 scheduled for release in the first half of 2010. More than a decade after the release of the original Starcraft game millions of people are still playing it on Blizzard's online service called Battle.net.
Activision's line up of franchises like Guitar Hero and Call of Duty continue to perform well. According to Activision's CEO Bobby Kotick Guitar Hero was the year's #1 best-selling third-party franchise in North America and Europe through September 2009.
With the increase in mobile gaming both from regular devices like the Nintendo DS and smartphones like the iPhone, Activision gains additional distribution channels for its content. Shortly after the release of Call of Duty 2, the company release a pared down version of the game for the iPhone called Call of Duty: World at War: ZOMBIES.
Shifting gears beyond the product to what makes the stocks interesting, the company reported better than expected results when it reported third quarter results, gained 3.1% market share and ended the quarter with $2.7 billion in cash and investments and no debt.
The company repurchased $960 million to be precise as of 9/30/09 out of a $1.25 billion share repurchase program.
Activision reiterated its earnings target of 26 cents per share for full year 2009 on a GAAP basis. On a non-GAAP basis, earnings are expected to be 63 cents per share. The discrepancy between the two is primarily on account of deferred revenue related to online games. Activision has to spread out revenue from such games over the life of the subscription instead of when it actually makes the sale.
Using the non-GAAP revenue number of $4.5 billion and earnings of $0.63, we get a forward P/E of 18.55 and P/S of 3.3. Backing out the $2.7 billion in cash and investments from the $14.83 billion market cap, I arrive at an enterprise value of $12.13 billion and an EV/Sales ratio of 2.7. I have no qualms about paying under three times annual sales for a company that expects to post (non-GAAP) operating margins of over 25% for full year 2009.
A CEO who turned a $440,000 investment into the largest gaming company with a market cap approaching $15 billion over nearly two decades despite never having picked up a joystick.

"Sure there are risks to buying Activision just like there are with any investment. My biggest worries are huge recent insider sales especially by Activision's CEO Bobby Kotick, a recent drop in video game software sales, longer console refreshment cycles and a general market decline.

"Despite these risks, my goal is to eventually build this position until it represents 20% of my personal portfolio."

ETF expert targets energy

steven@thestockadvisors.com (Steven Halpern) — Thu, 19 Nov 2009 05:00:00 PST

"One sector I’ve been watching closely for an attractive entry point is energy, and that point is here in the Energy Select Sector SPDR (NYSE: XLE)," says Doug Fabian in The ETF Trader.

"This fund’s components include companies from the following industries: oil, gas, energy equipment, and energy services.

"The fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index.

"With XLE, you are getting the best-of-breed energy companies out there today. Companies such as Exxon Mobil, Chevron and Schlumberger are three of XLE’s top holdings.

"Technically, XLE is trading above both its short-term, 50-day moving average as well as its long-term, 200-day moving average. More importantly, after hitting a new 52-week high in mid-October, XLE now has pulled back just enough to where we can enter into the fund at an attractive price.

"Of course, we always must place a stop-loss order whenever we buy something, so along with your market order to buy XLE, I also want you to place a stop-loss order of $54.50. This price is approximately 7% below today’s closing value of XLE.

"You don’t want to be long in a volatile sector like energy without a safety net, so please make sure you have your protection firmly in place.

"This market just has too strong of a penchant for going higher and, as such, we are not going to try and buck the trend. Of course, if things change, so too will our position. But until then, go long in this market with XLE."

Revlon (REV): A beauty buy

steven@thestockadvisors.com (Steven Halpern) — Thu, 19 Nov 2009 05:00:00 PST

"Revlon (NYSE: REV) promises a better look for both consumers and investors," says Ian Wyatt. In his The SmallCap Investor, he says, "The company is firing on all cylinders."

"Revlon, a $770 million market cap consumer goods company has seen its shares surged 220% since October 1.

"The New York City based company makes, markets, and sells a range of women’s cosmetics, hair-care, beauty-care, and skin-care products.

"We’re not talking about a high margin business here - Revlon has a paltry 3.7% profit margin over the last twelve months.

"But the company is firing on all cylinders – it generated free cash flow for the first time since its IPO in 1996 and has grabbed 22.3% market share in lip makeup – good enough to put it back at number one.

"Revlon has grown 2009 earnings at a clip of 304% over 2008, reporting EPS of $0.45 in the third quarter. Trailing 12-month earnings are $0.92 per share – not bad for a company that analysts had expected to lose $0.47 per share in the last three quarters.

"Investor’s can by shares of Revlon at 16.5 times trailing 12-month earnings – a significant discount to large-cap competitor Estee Lauder, which has a trailing earnings multiple of 30.

"Revlon is getting its debt load in order – and the results are paying off, literally. On November 9 the company received lender consent to issue $330 million in senior-secured debt, due in 2015. This allowed the company to refinance its high-interest debt that had been due April 2011.

"The stock surged 38% after these financing moves. Many other companies have been forced to dilute shareholder value with equity offerings, only to be rewarded with crushed share prices.

"Clearly, the fact that Revlon was able to refinance and sell debt in an economy where credit has been tight –- especially for notes that Moody’s rates B3, or ‘junk’ – is a testament to the company’s strength.

"Even in an environment of high unemployment, people want to take care of themselves. And perhaps you can help take care of your investment portfolio with health and beauty stocks like Revlon."

Global picks for a 'Fiscal Hangover'

steven@thestockadvisors.com (Steven Halpern) — Thu, 19 Nov 2009 05:00:00 PST

Congratulations to Keith Fitz-Gerald; his just released book, Fiscal Hangover, has just hit #1 on Amazon's Finance and Investing list.

Meanwhile, in his Money Map Report, the advisor focuses on developing a diversified, long-term investment portfolio made up of "dynamic companies with global exposure." Here's a look at four of his current favorite positions.

"The last time the world’s stock markets rose nearly straight up for eight months, they then spent a few months sideways before heading sharply higher.

"Not surprisingly, much of the growth today is coming from China, where third-quarter GDP hit 12.2%, and South Korea, where GDP is growing 8.2%. Chinese retail sales have risen 30%, and even beleaguered Japanese exports are up 31% annualized.

"Of course, not all bailouts are equal. So the growth is proceeding at an unequal pace. But the point is that the world is growing.

"Therefore, any correction or consolidation should present us with the ability to buy more dynamic companies with global exposure and solid cash flows at even bigger discounts. We’re very excited and trust you are, too.

"One thing that developing countries around the world cannot do without is power. And ABB Ltd. (NYSE: ABB) is one of the global leaders in large-scale electrical infrastructure projects.

"As of September 2009, ABB was sitting on $26.1 billion in backlogged orders. Recently, the company announced that orders from emerging markets now account for 55% of total orders.

"That’s good news. Emerging markets seem to be getting their economies back on track ahead of the hamstrung developed economies in the U.S. and Western Europe. ABB also offers a 2.3% yield.

"At the current rate (12% increase a year), China’s oil consumption will equal current U.S. oil consumption in 2018. The story is the same for China’s demand for other key natural resources, as well.

"As a key exporter of natural resources to China, Brazil could benefit for decades to come while China continues grow its GDP at a blistering rate. iShares MSCI Brazil Index (NYSE: EWZ), our recommend play on this market, yields 2.87%. It’s averaged 9.28% a year… for 40 years.

"POSCO (NYSE: PKX) recently announced two newly developed products: DP (Dual Phase) steel and FB (Ferrite Bainite) steel. Both are suitable for producing lighter automobile components, which contribute to improving fuel efficiency.

"As Asia flexes its muscles as a new automotive power, PKX’s new products and proximity to the region could help boost the company’s already strong top-line growth. Of course, the fastest growth in 25 years in South Korea isn’t hurting matters.

"Among our 'base-builder positions, PIMCO Strategic Global Government Fund (NYSE: (NYSE: RCS) offers asset diversification and a hedge against the U.S. dollar through a managed portfolio of international corporate and agency debt. RCS delivers a healthy 8% yield."

Editor note: I would encourage anyone interested in building a long-term, globally-diversified portfolio to read Keith's new book, Fiscal Hangover. His strategy focuses on protection against risk, while positioning oneself for maximum upside gains. The book is now available from Amazon, and you can get a $10 discount from the publisher's price by clicking here.

A 'Select' pick in technology

steven@thestockadvisors.com (Steven Halpern) — Tue, 17 Nov 2009 21:00:00 PST

"I remain bullish on technology heading into 2010," says fund expert Jim Lowell. In The Fidelity Investor, he reviews one of his long-standing buys in the sector -- Select Technology (FSPTX).

"Critically, my view of technology's probably rebound parallels my past assessment that this year would likely deliver a jobless recovery wherein technology would be the leverage that companies used to gain production efficiency.

"We now know that this forecast has been confirmed. But the trajectory of increased earnings growth as meted by greater profitability now relies upon the profitability for economic recovery.

"Fidelity Select Technology has served us well; it's the top performing Select fund from the technology group this year, up 66%.

"Managed by Charlie Chai, this is the catch all fund of the group. Diversified across the tech spectrum, it has been my preferred fund as the market began to make the case for recovery.

"Chai invests in companies that benefit from technological advances, as well as companies involved with computer products, data processing equipment, electronics, aerospace and defense, and telecommunications. Foreign investment make up 21.5% of the holdings.

"The fund's top ten holdings are Apple, Microsoft, Google, Cisco, Intel, Hewlettp-Packard, Oracle, BMC Software, Red Hat and Micron Technology."

Research in Motion (RIMM): Blackberry buy

steven@thestockadvisors.com (Steven Halpern) — Tue, 17 Nov 2009 21:00:00 PST

"Suddenly, no one likes Research in Motion (NASDAQ: RIMM) any more, at least that's the impression you get from the media," observes Gordon Pape.

In his Internet Wealth Builder, the advisor looks at investor's "love-hate" relationship with this stock and offers his own bullish long-term assessment.

"To hear some analysts tell it, the BlackBerry maker is going the way of Nortel; it's just a matter of time.

"For example, analyst Jim Suva of Citigroup Global Markets recently issued a sell signal on the shares, saying that RIM's long-time dominance of the smart phones market is over.

"For the record, many analysts disagree with Suva's assessment. Credit Suisse has reiterated its 'outperform' rating with a target price of $95. Bank of America/Merrill Lynch has a $100 target, Scotia Capitalhas a $103 target and CLSA Asia-Pacific Markets has a target of $100.

"RIMM has a long love/hate relationship with investors. No one paid much attention to the stock after it went public in late 1997 until it suddenly caught fire in 1999, gaining more than 2,800% in less than two years.

"Then the tech bubble burst and RIM came crashing down. In 2002, you could have bought shares for as little as $2.20. Don't you wish you had done so?

"From there they moved steadily back up to over $140 a share in mid-2008 before they were socked by the market meltdown that followed. Now they are trading for less than half that price.

"Can they go lower? Sure. That's why I stressed from the outset that this stock is only suitable for investors who can tolerate risk. If your stomach starts to churn on every piece of bad news, you don't want to be here.

"I recommended RIMM because I believed it had been oversold, and still do. The company has proven its resiliency before and I believe it will continue to do so. It has met every challenge with new and improved products. Why should that suddenly stop?

"Yes, its market share may drop. But the market itself is growing. The BlackBerry used to be seen strictly as a business tool; now it is becoming increasingly popular with consumers.

"The introduction of the iPhone had a lot to do with that and the Apple product is certainly a major competitor. But based on the evidence to date, I believe that RIM's sales and profits will continue to grow.

"However, the decision to buy back up to 21 million shares for as much as $1.2 billion sends mixed messages to investors. On one hand, the company is effectively saying that it considers the current market price to be too low and that a buy back is one of the best investments it can make.

"On the other, it means that a large chunk of money that could have been spent on staying a jump ahead of the competition is instead being used to support the stock price.

"RIMM's board of directors seems to feel the company can have its cake and eat it too, saying in a press release that 'a share repurchase program will not impact RIM's ability to execute its growth plans.

"Perhaps. But for a company that is facing the most aggressive challenges of its relatively young life, the buy-back has to be seen as a gamble.

"Despite my concern, I am maintaining my Buy rating on the stock. I thought it was cheap when I originally recommended it in September at $75. Well, it's even cheaper now. Just remember, RIMM is not for the faint of heart."

Harris (HRS): 'Under the radar'

steven@thestockadvisors.com (Steven Halpern) — Tue, 17 Nov 2009 21:00:00 PST

"Technology stocks are helping drive the stock market higher; in our view, one under-the-radar quality technology issue is defense industry player Harris Corp. (NYSE: HRS)," says Brandon Clay.

In his Invest with an Edge, he observes, "Harris is proving a tech company doesn't need to do anything flashy to generate flashy returns."

"At its core, Florida-based Harris is an information technology company. Admittedly, this is a stodgy area in the tech world, but don't let that deter you.

"There’s a lot to like with Harris. For instance, the U.S. government is one of the company's biggest customers.

"Companies that rely on Uncle Sam for the bulk of their sales and profits, as does Harris, have predictable revenue streams. They’re often able to weather economic downturns more easily than other companies.

"Harris designs and builds communications technology used by the U.S. military. Given that the U.S. is involved in two armed conflicts with no end in sight, demand should remain steady for the company's products.

"Harris recently reported a 12% drop in fiscal first-quarter earnings, but sales climbed by almost 3%. That is significant. Unlike many companies that spent the better part of 2009 cutting costs, Harris is showing top-line growth.

"More importantly, Harris offered robust full-year guidance. They expect to earn $3.85-$3.95 a share on sales of $5.1-$5.2 billion, topping previous estimates.

"The company landed a combined $286.5 million in new contracts from the State Department and U.S. Navy on the same day in late October. Two weeks before that, Harris acquired a $419 million contract from the U.S. Army. In August, Harris won a $10 million contract from the U.S. Air Force.

"The bottom line is that it is clear Uncle Sam is a big Harris customer, and that's good news for Harris shareholders. I think they will deliver on the higher guidance.

"Harris has more than $231 million in cash at the end of the most recent quarter and raised its quarterly dividend by 10% to 22 cents a share.

"This company is proving a tech company doesn't need to do anything flashy to generate flashy returns. To go with a solid defense contractor in the hot tech sector, buy HRS."

Royale Energy (ROYL): Gas gains

steven@thestockadvisors.com (Steven Halpern) — Tue, 17 Nov 2009 06:00:00 PST

Konrad Kuhn, a specialist in low-priced stocks, sees upside potential in Royale Energy (NASDAQ: ROYL), a speculative play on natural gas. Here's the latest from The Kon-Lin Letter.

"The firm is a small, leading independent oil and natural gas producer; it diversifies the development of its properties by selling a portion of the working interest in each lease that it acquires to third party investors and retains a portion of the prospect for its own account.

"The strategy of shared ownership in multiple wells provides investment opportunities that minimize risk while seeking superior returns for shareholders. The firm operates 49 natural gas well in California, 6 in Utah and 17 in Texas.

"The company's strength is continually reaffirmed by investors who participate in funding over 50% of its new projects. Of the 8.5 million shares outstanding, insiders own 43% and institutions hold 9.3%.

"Royale was first recommended last month, and the discovery of a new natural gas field sent the stock soaring. The company is recognized as one of the fastest growing firms amongs natural gas and oil producers in the US.

"An established independent producer of domestic oil and natural gas for nearly 20 year, Royale is well-positioned for continued growth for the balance of the decade.

"The shares can be bought in the $2.50 to $.275 area for a first target of $5 to $5.50 and an ultimate target of $8."

Gold & silver: Frishberg looks behind the scenes

steven@thestockadvisors.com (Steven Halpern) — Tue, 17 Nov 2009 06:00:00 PST

Former Wall Street insider and current host of BizRadio, Daniel Frishberg offers a fascinating glimpse behind the scenes of the gold market.

In his The Moneyman.com Gold & Oil Report, he questions the role of not just overall market fundamentals, but the impact of short positions held by institutions. He also looks to a new favorite long position in silver.

"There are plenty of reasons to be bullish on the future of gold prices, including a weak US dollar. Further, India's Central Bank recently announced they wanted to buy IMF gold.

"Russian and Chinese Central Bankers have also expressed an interest in purchasing the remaining IMF gold. Do major players know or suspect an announcement by the IMF that the remaining 204 tonnes of gold have been sold?

"Another possible reason for strong gold prices is the lifting of purchase restrictions in Vietnam. The country suffers from high inflation and citizens are purchasing gold rather than holding currency.

"They currently pay $25 or more above spot gold prices on the black market so eliminating restrictions will increase purchase volumes.

"Gold prices could also be higher because of the smoldering feud between Iran, the US and Israel. There is also the fear of impending inflation as the Federal Reserve continues to make more dollars available.

"Chairman Bernanke's plan is to eventually sell the Federal Reserve's treasure trove of low interest rate Treasuries and toxic mortgage bonds for dollars, and then retire the proceeds, i.e. destroy the money.

"In this way, excess money can be withdrawn from the monetary system. At least this is how the plan will work in theory. Of concern is once the Federal Reserve limits their buying, interest rates will go up, choking off the recovery. So what happens next?

"The 1000 pound gorilla in the room is believed to be JP Morgan Chase. This bank and its clients are believed to be the largest holders of short positions in both gold and silver.

"There are a couple of other banks holding large short positions, but the identities of all the big players are cloaked in secrecy. By US law, identities are protected so there is little transparency in either the gold and silver futures markets, at least not yet.

"In the past, these banks have always been able to engineer a sell-off allowing them to profitably cover their short positions. These banks have the financial power to control bullion prices and routinely buy short positions to cap gold and silver advances.

"They have been increasing their short positions since gold was in the mid $900 range. One estimate I saw is their net short position for gold is now $1billion underwater. If this seems like a large negative position, remember it is held by banks who reported billions in profits last quarter.

"At some point, these big players will be forced to cover their short positions. Their best case scenario is to engineer another forced long liquidation (panic selling) and cover most of their short positions at a profit.

"This is also best for us as mining share prices will fall along with gold and silver prices. The decline will be temporary, allowing us to repurchase shares at bargain prices.

"So far, the banks holding short positions have not been able to force a sell-off. In fact, this time could be different. Market forces may be just too strong with any dip in prices halted by willing buyers. If this is the case, we will buy back positions at higher prices.

"For now, we are 50% invested in gold with 50% in cash. If gold prices continue higher without a pull-back, purchasing shares at higher prices gives up some of the potential move. If gold prices temporarily decline, mining shares can be purchased at bargain prices increasing the potential for long term profits.

"Although it is frustrating watching gold prices go higher without being fully invested, I still see a bias to the downside short term. This is also what mining share prices are telling us as they are lagging behind bullion prices.

"Am I being overly cautious? Maybe, but if gold prices were to climb to $1800 or $2000 an ounce, we could declare all of this worry about whether we should be fully invested at $1119 as being trivial.

"With all of the above said, more exposure to precious metals appears warranted, especially in the silver market. A new position in a silver mining company is being recommended. Silvercorp Metals (NYSE: SVM) is a Canadian company with Chinese joint venture partners.

"The mine is located in China so this is an exposure to foreign exchange as well as metal prices. The mining operations produce lead/zinc/silver. The great thing about this mining operation is silver is produced for free.

"Actually, after subtracting credits for lead/zinc sales, 1.2 million ounces of silver was produced last quarter for a negative $6 an ounce. The company just turned profitable so expect share prices to move higher with silver prices."

CVS (CVS): A Ben Graham value

steven@thestockadvisors.com (Steven Halpern) — Tue, 17 Nov 2009 05:00:00 PST

In The Cabot Benjamin Graham Value Letter, an exceptional service that picks stocks meeting the criteria of the legendary investor, J. Royden Ward looks at CVS Caremark (NYSE: CVS).

"CVS Caremark recently reported solid third quarter sales and earnings. Sales increased 18% and EPS rose 8%, meeting our forecast.

"The company's October 2008 purchase of Long's Drugstores is well ahead of schedule and producing better than expected results.

"The company's Caremark pharmacy benefit management division, however, lost several large contracts to competitors.

"CVS expects the Caremark problems to continue in 2010, although the company is taking aggressive measures to win new contracts and retain old business. We believe the problems at Caremark are short-term and will be solved quickly.

"CVS also reported that the Federal Trade Commission is investigating the company's business practices. We believe the investigation will be inconsequential and will not harm CVS's fine reputation. Therefore, we view the current weakness in CVS shares as an outstanding buying opportunity."

Cninsure (CISG): Insuring China

steven@thestockadvisors.com (Steven Halpern) — Mon, 16 Nov 2009 05:00:00 PST

"The hands-down choice for growth in the insurance sector is in China, where the industry is just getting off the ground." says growth stock expert Timothy Lutts.

In The Cabot Stock of the Month Report, he notes, "Cninsure (NASDAQ: CISG) is the king of the sector. We believe the stock is the most attractive investment in China's insurance industry today."

"When properly managed, a property and casualty insurance company is an excellent vehicle for participating in a region’s growth.

"However, the average age of top insurance companies in the U.S. is 108 years and their assets of the U.S. are growing slowly.

"For real growth opportunities in the insurance business, you need to go to countries with better growth prospects … and with younger and smaller insurance companies. In China, the industry is just getting off the ground.

"Reason one for this is the simple fact that Chinese people have substantially more stuff worth insuring each year. Reason two is a growing shift in cultural norms (toward more American standards) that rewards the accumulation and protection of wealth.

"Cninsure was founded in 1999 as an automobile insurer—it added property and casualty insurance in 2002 and life insurance in 2006—and its revenues have grown every year.

"Last year they mushroomed 105%, from $60 million to $123 million. No doubt growth will slow in the years ahead as the company gets larger, but we still that growth of 25% or more may be a conservative projection.

"The lion’s share of the company’s growth has come from acquisitions (more than 30 over the past three years), and we expect that pattern to continue.

"CISG came public in October 2007, an absolutely horrible time, market-wise. It traded as high as 26 on its ﬁrst day, and it hasn’t been back since. The bear market low was 5, and since May CISG has been beating the market on the upside, climbing back toward its old high.

"CNinsure is not a classic undervalued stock; it’s too fast-growing to be that. But the growth prospects appear to more than justify the current P/E ratio, and that makes it a value stock.

"The biggest potential problem, in our opinion, is the market. It’s ripe for a cooling-off period, and there’s no guarantee that CISG would be immune to a widespread retreat.

"So our advice is this: buy a little now, ideally around 21, where we see the uptrending 50-day moving average. And then wait. If the stock breaks out convincingly above 24, you can buy more."

Bank on Regions Financial (RF) ... and DRIPs

steven@thestockadvisors.com (Steven Halpern) — Mon, 16 Nov 2009 05:00:00 PST

"Direct Investment Plans -- or DRIPs -- are a great way to invest regardless of the market environment; in fact, avoiding emotional decisions may be their greatest strength," observes DRIP expert Vita Nelson.

In her MoneyPaper's Direct Investing, she reviews the basics of DRIPs and discusses her new "Bargain Corner" pick -- Regions Financial (NYSE: RF).

"This strategy involve the four Ds -- dividend reinvestment, dollar-cost averaging, diversification, and discipline.

"Ibbotson Associates has reported that dividends accounted for about 40% of investor return since the mid-1920s. Reinvesting those payouts adds the 'miracle of compounding' to those returns, and DRIPs allow every penny to do so becuase they even buy fractional shares.

"Dollar-cost averaging spreads investment dollars (and pricing risk) out over time, avoiding the usual tendency to buy at market tops (out of greed) and sell at market bottoms (out of fear).

"Given the long term uptrend in stocks, an investor's cost basis ends up being much lower than the value of the shares that they accumulate. This technique is especially easy with DRIPs, since most allow investments of as little as $25 or $50.

"Diversification can be accomplished just as easily, since such small amounts can be spready among many companies, reducing the risk of being too heavily committed to one or two equities.

"The final D -- discipline -- can be achieved either automatically (through monthly bank drafts) or through habit (seeing the shares accumulate with each quarterly reinvestment and optional cash purchases.

"Meanwhile, our latest featured stock, Regions Financial, is a bank holding company with about 1,900 offices in 16 Southern and Midwestern states. It has total assets of over $143 billion and a $93 million loan portfolio.

"The bank suffered from the same credit squeeze and real estate meltdown that was experienced by most of the large banks in the country. Region's experienced management team is now leading it back from these problems.

"At last tally, just over 5% of its loan portfolio was 90 days past due, which means that the other 95% have been keeping up with payments.

"Consensus estimates call for Regions to lose about $0.95 a share this year and and $.061 in 2010; it's expected to return to profitability in the second half of next year.

"Despite earnings losses, the shares have a book value of $12.35, more than twice its current market price.The recovery potential out to 2013-14 could be substantial, with the company earnings about $1 a share by then.

"The company also represents an attractive takeover candidate for a larger bank, but we don't recommend speculating on such an event. Although the stock holds some risk in the wake of the housing collapse and credit crisis, the company remains a relatively strong entity in a geographic area that features about average population growth."