Wednesday, August 10, 2011

Get the Bargain of a Lifetime in These 3 Bedrock Blue Chip Stocks: AT&T, CSCO and WMT are oversold

There are various clichés value investors fall back on in times like these. You know — buy when there is “blood in the streets,” how “when Wall Street can’t sell what it wants, it sells what it can.” And so on.

Whatever you think of these annoying slogans, you have to admit there’s a long history of sharp lurches down creating big opportunities for aggressive investors.

Notice I say “aggressive investors.” This is a risky proposition, to be sure, and is not for folks at or very near their retirement age. But if like me you are decades away from retirement, you can afford to miss the true bottom by a month or two. The idea is simply to buy into grossly oversold stocks during the mayhem and expect them to bounce back sometime in 12 to 18 months once the initial shock is long gone.

You might scoff at anyone taking on such risk. But nothing is ever a sure thing when it comes to investing. And in times like these — when even the creditworthiness of the Treasury has been called into question and so-called “high-yield” savings accounts barely keep up with the rate of inflation — it’s a bit naïve to think you can find any place that is truly risk-free.

So if you are inclined to bargain hunt sometime in the near future, here are a few picks to consider: Cisco (NASDAQ:CSCO), AT&T (NYSE:T) and Wal-Mart (NYSE:WMT).


In the depths of the brutal 2008-09 selloff, Cisco flopped from around $25 per share to briefly bottom out under $14. As of this writing, shares are currently hovering in the low $14 range.

According to 34 “experts” surveyed by Thomson/First Call, both the median and mean target on CSCO is $20. The most recent targets, admittedly, have been moving down — such as the new $16 target set by Auriga in its June 27 “hold” recommendation on Cisco — but frankly, I’ll take a stock that “only” has 15% upside from here.

Yes, investors have had good reason to sell off CSCO stock in recent months as Juniper Networks (NASDAQ:JNPR) has elbowed into the corporate marketplace, and bloated operations have stifled Cisco’s ability to adapt to the cloud computing revolution. But there are reasons to be optimistic CSCO is trying to right the ship. In the past year, there has been a big management shakeup, thousands of layoffs and production changes that include a shift away from consumer offerings of its DVR and Flip video camera manufacturing. The turnaround might come at the perfect time for investors who buy in during the current mayhem.

What’s more, Cisco began offering a decent dividend in March and currently boasts a yield of about 1.7% — something you couldn’t say back in 2009.

You could argue these moves are not enough, or you could argue the stock market has a long way left to fall. But with a forward P/E of about 8 and falling fast, I’d seriously consider adding Cisco at under $14 per share.


AT&T dipped down to as low as $22 in March 2009, and aside from a week or two in July 2009, it never again closed beneath $24. Shares currently are around $28 a share — but a 15% slide would put the telecom giant back at the same level as the financial crisis lows more than two years ago.

If AT&T hits $24, I would jump into it headfirst. Heck, I may put as much as half my brokerage account in the stock if it gets that low!

AT&T’s dividend alone is a huge selling point. The company already yields more than 6% per share, and a slide in stock prices would only make that rate even more impressive. Yes, the company does hold a boatload of debt at $66 billion, and a severe meltdown could cut into its cash flow. But with more than $120 billion in revenue, I think AT&T has more than enough cushion and, barring disaster, will keep its track record of 27 consecutive annual dividend increases intact.

And consider that at $24 a share, based on current annual dividends of $1.72 a share, you would have a yield of a stunning 7.2%. That kind of yield is simply unreal.

On top of that, AT&T’s acquisition of T-Mobile has fallen out of the headlines but should not be discounted. The $39 billion deal, if approved, will allow the telecom giant to leapfrog its only true competitor, Verizon (NYSE:VZ), and give the company a roughly 42% market share. That’s a dramatic competitive advantage if legislators allow it to happen. And given the inept behavior in Congress lately and focus on 2012 elections, chances are Washington egomaniacs will be too wrapped up in themselves to stand in the way of this merger when there are bigger issues to make hay over.

AT&T might never get back to the $40 a share it saw before the financial crisis. Heck, it might never get back to the nearly $32 level it saw in early July. But if the stock flops down to $24 a share, it seems to me like you’ll be getting a steal — with a dividend yield you can brag about for decades to come.


Wal-Mart set its low-water mark in February 2009 around $44 per share. Now Wal-Mart stock is looking to break under $50 for the first time in over a year.

As with Cisco, there are bigger issues at work with Wal-Mart stock than simply a broader correction. Discounters like Dollar Tree (NASDAQ:DLTR) have been eating Walmart’s lunch for a while, and the big-box giant hasn’t posted same-store sales growth in the U.S. for the last two years.

But this mega-cap retailer isn’t exactly going out of business. WMT revenues and yearly EPS have both grown steadily each of the last four fiscal years despite the economic downturn and trouble with same-store traffic.

Also, the company has been trying to reconnect with consumers with big strategic initiatives. A plan to squeeze Wal-Mart into urban locations with smaller store plans could tap into big revenue streams domestically. And if not, a big emerging-markets push could help offset the company’s U.S. shortfalls. The global Wal-Mart plan — including May’s $2.4 billion buyout of South Africa retailer Massmart and a recent report that indicates a nearly $760 million investment in Brazil — could help reverse the company’s fortunes.

And even if Wal-Mart has to wander in the wilderness a little longer, shares throw off a respectable 2.8% yield at current pricing. If WMT gets back to $45 a share, that yield jumps to 3.2%. Not a blockbuster dividend, but a pretty good safeguard against further declines.

VIX and Investing

Going back to its inception in 1993, there are only five other episodes in which the VIX topped 45:
  • September 1998: Russian default
  • October 1998: Long-Term Capital Management (LTCM) implosion
  • August 2002: WorldCom collapse
  • September 2008: Lehman Bros. bankruptcy and ensuing Panic of ‘08
  • May 2010: The incestuous “flash crash.”

In four of five of these spooky episodes, you could have done very nicely for yourself buying the Dow 30 as soon as the VIX topped 45... and holding those shares for a year. The blue chips picked up between 1,500-2,500 points each time.

Faber On U.S. Downgrade: U.S. To Have "Some Kind of Default", But Market "Incredibly Oversold"

By EconMatters

Markets saw its worst day since the 2008 financial crisis on Monday, Aug. 8, the first trading day since Standard and Poor's downgraded the United States' credit rating. Under the weight of a possible twin crisis in Europe and in the U.S., Dow Jones industrial plunged 634 points. Stocks have lost 15% of their value in just two and a half weeks.

On a day like this, who else other than Marc Faber, publisher of the Gloom, Boom & Doom report, would be more appropriate to appear on Bloomberg to talk about the aftermath of the U.S. debt downgrade. Below are some of the highlights in the Bloomberg interview. Regarding equities, Faber believes the U.S. market is "incredibly oversold" and could bottom out in the next few days, but the rally will unlikely make new highs this year.

Faber indicates a bear market already started on May 2, 2011 when S&P reached 1,370. The downgrade on U.S. debt by S&P is actually moderately positive on equities as it showed investors that in addition to the conventional interest rate risk factor, now there's another risk--sovereign credit downgrade--in government bonds anywhere in the world. So in the next 10 years, investors will be better off in equities, precious metals than in bonds.

Concerning the downgrade by S&P, Faber goes beyond and says 'some kind of default" will happen for the U.S. as the country's "fiscal position is a disaster" if you include the unfunded liability. There are two ways a government can default:

  1. Default by not paying the interest and restructuring its debt as happened in Argentina and other countries repeatedly.
  2. Repay debt and interest in a depreciating currency, and U.S. dollar is losing more value and purchasing power than other currencies.

On the possibility of another round of quantitative easing (QE3), Faber sees QE3 would take place when the economy shows significant weakness, or S&P index falls to 1,100 or 1,050 levels. (Note: In a CNBC interview just prior to the S&P downgrade, Faber projects S&P 500 index would hit 1,050 to 1,100 in Oct/Nov timeframe.), Currently, he's allocating his personal portfolio about 20-25% each in equities, real estate in Asia, gold or silver, and corporate bonds.

Some Thoughts from EconMatters

As pessimistic as Faber thinking S&P's downgrade is "backward looking" not fully reflecting the actual fiscal state of the U.S., there's Warren Buffett who's blasting S&P, ".... remember, this [S&P] is the same group that downgraded Berkshire," and said "The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” in a separate Bloomberg interview. Buffett's Berkshire is the biggest shareholder of Moody’s Corp. that just reaffirms the AAA rating of the U.S. on Monday partly responding to S&P's action.

All eyes are on Fitch now to see if it will follow S&P or Moody's making it a crucial swing vote. Things (and markets) could get worse if two out of three major rating agencies end up downgrading the U.S. U.S. fiscal and debt situation is horrendous, and probably deserves a downgrade.

However, to me, a downgrade action needs to be supported with charts and tables showing why the current and projected risk profile warrants a downgrade action and how to rectify, rather than the U.S. politics cited by S&P as its main downgrade thesis (Name one Western country where politics do not come into play in the decision-making process?), not to mention some indications of a possible 'unfair distribution' of this downgrade information.

So far, the downgrade has only added to the stock market turmoil, while driving up Treasury demand. Is this not counter-productive and counter-intuitive? Hopefully, markets would quit panicking like Faber says so not to be dictated by one rating agency's highly debatable conclusion.

Chart: Platinum Gold Ratio

10 Money Ideas That Will Change Your life

10 Financial Lessons for a Richer Life

Personal finance isn’t nuclear physics – just spend less than you earn, save and invest the rest – but knowing what should be done and actually doing it, however, are two different things. Here are 10 money lessons I wish I had known when I was 20 which have the power to change your life if you are willing to embrace them. Words: 1340

So says Jeffrey Strain ( in edited excerpts from his original article* which Lorimer Wilson, editor of (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Strain goes on to say:

10. Money Doesn’t Buy Happiness

It took me several years of working in a large corporation making good money, but not enjoying my job, to finally get it through my head that money in [and of] itself does not make you happy and the accumulation of money will do very little for your happiness unless you know how to use that money once you have it.

Happiness comes from the opportunities money makes available so that you can do the things that you want to do. If you have no idea what these things are then no amount of money will make you happy.

9. Goals Are the Key

The old saying that if you don’t know where you’re going, it’s difficult to get there is never more true [than] with your financial goals. It wasn’t until I took the time to write down my financial goals in detail that I began to find financial success.

Financial goals give you something to strive for and give you clear knowledge on how you want to spend the money that you earn.

8. Impulse Purchases Dash Dreams

Impulse spending (or spending money on anything that isn’t important to you and your goals) is the worst type of spending that you can do, yet this is how most people spend their money when they don’t have financial goals. It’s especially destructive if it also leads to credit-card debt.

Impulse purchases come about when you aren’t really sure what you want in your life or what will make you happy which is why advertising is so effective. Advertisements make you believe that buying a product or service will give you the happiness that you are seeking, when this is rarely the case.

If you can learn to be patient with your money and avoid impulse purchases by knowing what your financial goals are, you will have made major strides in getting your finances in order.

7. Buy Memories, Not Things

A big con our society plays on us is that stuff will make us happy…[but, frankly,] buying experiences and memories with those whom you care about is a much better use of your money than purchasing material things. It’s not the house that you buy, but the home that you make with your family inside it that matters.

When you look back on your life, you will remember the times, memories and experiences far above the things that you have purchased. Understanding this will ensure that you get much more value out of the money you spend.

6. TV Is a Dream Killer

If you are the average person, the time you don’t [supposedly] have to achieve the goals that they have is being spent in front of your TV. If you want to achieve your goals and dreams, the first thing to do is start to wean yourself off your TV.

You can’t imagine the amount of extra time that you have and all the extra things that you can accomplish when you take the time spent in front of the TV (or computer or whatever other form of procrastination you use) to work on the financial and other goals that you have.

5. Money Seduces

At some point in your working life you [could well] be offered employment that pays you…a good salary [at a time] when you aren’t yet sure what your dream job is. You will likely justify taking the job because the extra money will outweigh the compromise of putting off what you want to do and you may assume it will even help you to pursue your dream job in your spare time since it will mean you have more money. This is a false justification that will only serve to make you lose sight of your true goals in life.

Be very careful of the seduction of a higher-paying job, because when you accept it, it will be difficult to leave.

4. Financial Mistakes Aren’t All Bad

Everybody makes their fair share of financial mistakes but they can actually be a great benefit for you in the long run. The key is learning from them instead of repeating them over and over again. Instead of getting down on yourself when you make a mistake, take the time to learn from it and make sure that it never happens again.

If you learn from your mistakes, you will come out far ahead than if you’d never make any mistakes at all over never learn from them.

3. Do What You Love and the Money Follows

The money probably won’t be there at first, and it might seem impossible for you to figure out a way to make money from it, but if you are truly passionate about it, there is a way to succeed and make a living doing what you love. It takes a lot of time, effort and persistence, and it won’t be easy [but it will be worth it in the end]. You will likely have to become quite creative to make it happen, but if you truly love what you’re doing, that effort will be the reason you are willing to put in the extra hours it takes to succeed.

2. Money Is Emotional

You know yourself better than anyone else and what motivates you…Take this knowledge and use it to your advantage. While personal-finance books will tell you the best way to handle your finances from an unemotional perspective, this advice is worthless if it doesn’t work with your personality. Adopt the methods that will help you get to your financial goals the quickest, leveraging your personal habits to do so.

Doing something (even if it is a longer process) is almost always better than the choice of doing nothing because the method advanced doesn’t work well for your personality.

1. Embrace Compound Interest

If you want to be wealthy, understand compound interest and how it is your best financial friend from an early age. To retire early you don’t need to make a lot of money – all you need to do is begin saving small amounts early.

The earlier you begin to put money into retirement savings, the more you’ll have, and the sooner you will be able to retire [or. at least, retire financially comfortable]. Most people think that it is a matter of working hard and making a lot, but the true path to wealth is simply to start saving and investing from an early age.

Insiders are Buying by Mark Hulbert

All right, all of you who say you're contrarians: Now's the time to see if you really walk the walk, not just talk the talk.

You say that the time to buy is when the blood is running in the streets. Well now would certainly appear to be one of those times. How many of you are stepping up to the plate to buy?

Not many, I am sure.

But there is one group that appears to be doing so. And they have a history of being more right than wrong about the market's direction.

I'm referring to corporate insiders, a group that includes corporate officers, directors, and largest shareholders. You may recall that, three weeks ago, corporate insiders were selling at an abnormally high pace. By one measure, in fact, they were then selling at the fastest pace in the nearly 40 years that insider data had been collected.

With the Dow Jones Industrial Average (^DJI - News) now more than 1,400 points lower, the insiders appear to be shifting back to the buy side in a big way.

Consider an insider indicator calculated by the Vickers Weekly Insider Report, published by Argus Research. This indicator is a ratio of the number of shares that insiders have sold to the number that they have bought.

For insiders transactions last week, according to the latest issue of the Vickers service, which I received late Monday night, this sell-to-buy ratio stood at 1.68-to-1. That's bullish, according to Vickers, since the long-term average level for this ratio is between 2 and 2.5 to 1.

To further put the current level of this ratio into context, consider that in the week ending July 22, this ratio stood at 6.43-to-1. And among those companies whose stocks are listed on the NYSE and the AMEX, the ratio during that week stood at 13.10-to-1 — which is the highest, and most bearish, reading for the ratio since Vickers began collecting data in 1974.

Further confirmation that the insiders are responding in true contrarian fashion to the market's plunge: Vickers' sell-to-buy ratio steadily improved last week as the market dropped. For transactions just last Friday, for example, the day after the Dow's 513-point plunge, the ratio stood at an extraordinarily bullish 0.33-to-1.

To be sure, you should never throw caution to the winds when following any one stock market indicator. After all, the insiders aren't always right. And even when they are, the market doesn't always respond as immediately as it did following their record level of selling in mid July.

Still, it is comforting that a group of investors who presumably know more about their companies' prospects that the rest of us consider the low prices of their stocks to represent attractive bargains.

Jay Taylor: Turning Hard Times Into Good Times

The Road to Serfdom

click here for audio HOUR #1 HOUR #2

Don’t Run With the Herd: Sell Your Gold, Avoid Treasuries : SHV, NSRGY, UL, JNJ, MSFT, INTC

On the first trading day after Standard & Poor’s historic downgrade of the United States’ credit rating, investors are left with one enormous question on their lips: What do we do now?

Within an hour of opening, the Dow already had fallen nearly 400 points, and the Nasdaq and S&P 500 were down even more in percentage terms. Gold soared by more than $50 per ounce to new all-time highs as investors ran for cover.

But perhaps most interesting was the action in the Treasury market. Treasuries were downgraded by Standard & Poor’s. In a normal world, this would cause yields to rise, as investors would demand a higher yield in response to lower credit quality.

Yet in the upside-down world of today’s market, yields instead fell. Investors sold off their stock positions because of the bond rating downgrade … then promptly plowed their money into downgraded bonds. The 10-year Treasury now yields 2.39%.

Before you despair, keep a couple important things in mind. Nothing fundamentally has changed in the economy. It was bad before the announcement, and it still is bad today. S&P’s announcement changes nothing. The Federal Reserve has said it will continue to accept U.S. Treasuries as collateral and that, as far as the Fed was concerned, Treasury debt still counts as AAA for the purposes of bank capital requirements. In other words, the people that run the international banking system don’t appear to be all that worried.

Meanwhile, the European Central Bank has taken unprecedented steps to stop the contagion that many feared would spread to Italy and Spain. The ECB has broken from tradition and gone on a buying spree of Spanish and Italian debt. This should be enough to avert a new round of crisis, at least for the time being.

Still, investors are scared, and the markets are in freefall. Given this sense of chaos, what are investors to do? Here are a few suggestions:

Stay out of Treasuries

Do I think the U.S. government is at risk of default? Absolutely not. I have no doubt the bonds will be paid. But at a pitiful 2.39%, investors are locking in a cash return that is almost sure to disappoint — and almost certainly capital losses to boot. When the markets return to some semblance of normal, yields will rise back to a more sensible range of 3% to 4%. That means that investors buying today at 2.39% will see their “safe” Treasuries decline in value. More adventurous traders might want to short Treasuries in the futures markets or using an inverse ETF like the iShares Lehman Short Treasury Bond (NYSE:SHV).

Stay out of Gold

I understand the argument that gold is insurance against capital market instability. I get that. But would you buy insurance on your home after it already had burned down? Or on your car after it already had been totaled? In the real world of insurance, no agent would sell you a policy after the event has happened, but in the financial world, “agents” are all too happy to do so.

Remember, gold has no “intrinsic value” as it pays no income and has no earnings. So, it is impossible to ever say whether gold is “cheap” or “expensive.” All we can say is that gold has been in a raging bull market for more than a decade, and its price action is starting to look like a lot of other financial bubbles we’ve seen in the past.

If you missed out on gold’s recent gains, you’re probably kicking yourself. Don’t. Once the dust settles, it is likely to be the gold bugs who are kicking themselves. I recommend avoiding gold, but more adventurous traders might want to short it, like Treasuries, in the futures market or using an inverse fund like the PowerShares DB Gold Double Short ETN (NYSE:DZZ).

Use This as an Opportunity

Buy some of the solid blue chips you’ve been itching to buy “if only they were a little cheaper.” I recommend American and European companies with rock-solid balance sheets, consistent dividends and a large presence in emerging markets. These are the kinds of companies you know will survive this mess intact. If you end up being a little early, what of it? If you buy a good company at a good price, a little short-term volatility is nothing to be afraid of.

Some stocks to consider: Nestlé (PINK:NSRGY), Unilever PLC (NYSE:UL), Johnson & Johnson (NYSE:JNJ), Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC).

I should mention that Microsoft and Johnson & Johnson now have a higher credit rating than the United States of America!

I understand it is scary out there. But it is times like this when an investor can differentiate him or herself by taking a bold, contrarian stand. Use the current mood of hysteria to your advantage. Sell down your expensive bond and gold holdings and reallocate your funds where you can find real, durable value.

Fed: Low Rates “at least through mid-2013″

Well, it looks like it’s one down, three to go for the Federal Reserve as, today, they promised to keep short-term interest rates freakishly low for at least the next two years (and possibly much longer) while holding in reserve three other options – changing their mix of assets to lower long term rates (which doesn’t appear to be necessary at the moment), spurring banks to lend by paying less on excess reserves, and, of course, the big kahuna of about a trillion dollars more in Treasury purchases, otherwise known as “QE3″.

By promising to keep rates low “at least through mid-2013″ in the policy statement released earlier today, the central bank assured the nation’s big banks of continuing to make big profits for the next two years on the interest rate spreads.

Of course, this will continue to punish the nation’s savers who, for the foreseeable future, will be looking at rates of one percent or less for certificates of deposit.

Good luck, risk averse seniors…

There were three voting members of the Fed who disagreed with this action – Richard Fisher, Narayana Kocherlakota, and Charles Plosser – so, retirees will at least have some company in objecting to yet another first-of-its-kind monetary policy move that benefits the big banks and hurts the little people.

The Fed also downgraded their outlook on the U.S. economy, noting that growth has been “considerably slower” than they expected so far this year with indicators suggesting “a deterioration in overall labor market conditions”.

About the only other important change in the statement was the acknowledgment that the slowdown in growth has not just been due to temporary factors such as the disaster in Japan and high energy prices, the committee noting that these factors “appear to account for only some of the recent weakness in economic activity”, meaning that, we probably won’t hear the word ‘transitory’ from the Fed for quite some time.