Friday, August 26, 2011

Time To Buy Bulk In Costco Stock? : BJ, COST, TGT, WMT

One of Michelle Obama's favorite stores, J. Crew, opened its first Canadian location August 18 to crowds of disappointed customers. It turns out the retailer is charging around 15% more in Canada versus the U.S. for the same item, this at a time when the Canadian dollar is worth more than the U.S. dollar. As a Canadian, I find this price gouging abhorrent. However, it's good to know not all American retailers are so driven by greed. Costco (Nasdaq:COST), which has been in Canada since 1985, understands that Canadians know how to comparison shop. As a result, it tends to sell items for the same amount on both sides of the border. Its fair pricing policy is one of many reasons to own the big-box retailer's stock. Here are some others.

Same-Store Sales
Costco had a strong July to go along with an even better June, and with one month left in its fiscal year. Double-digit same-store sales growth in fiscal 2011 is looking very realistic. Year-to-date, same-store sales are up 10% due to 7% growth in the U.S. and 16% internationally. Averaging 12% for the June-July period, it beat both BJ's Wholesale (NYSE:BJ) and Target (NYSE:TGT), which averaged 8.3% and 4.3% respectively. Wal-Mart (NYSE:WMT) doesn't report monthly sales, nor does it report quarterly comparables for its non-U.S. stores. Costco stores continue to benefit from a difficult economy. Costco, to a certain extent, transcends income levels, but certainly its average customer possesses a higher income than those at Wal-Mart.

Stock Performance
As they say in the mutual fund ads, past performance is not an indicator of future success. While that's true to an extent, knowing that Costco's stock has been in the black in nine out the last 11 years, including this year, when the S&P 500 is down almost 10% with four months to go, should be reassuring. Successful investing isn't always about hitting homeruns, but simply getting on base. Averaging 15% total returns over the past 15 years with most of it coming from capital appreciation rather than dividends, its stock is about as solid as they come; especially when you consider its ability to generate revenues and profits in good times and bad. Not many retailers can match it.

This is where it gets tricky. Currently, Costco's enterprise value is 8.9-times EBITDA. That's much higher than both Wal-Mart and Target. Further, BJ's Wholesale sold itself earlier this summer to Leonard Green & Partners and CVC Capital Partners for $2.8 billion or 6.2 times EBITDA. In addition, Costco's trailing 12-month P/E ratio is 23.4, considerably higher than the S&P 500's at 13.6. The question is whether this premium is justified. Certainly, over the 15-year period, the answer is a resounding "yes". Costco's return beat the index by 910 basis points annually over those 15 years. Investors are usually willing to pay more for quality. If you're still concerned about overpaying, and you should be with its stock just 11.4% off an all-time high of $83.95; remember that Costco's current valuation is equal to its five-year average for P/E, P/S and P/B. More importantly, its P/S is one-third the index at 0.4 times. Lastly, it's one of the few large retailers with a net cash position on its balance sheet. Smart and safe is always a good combination.

The Bottom Line
CEO Jim Sinegal is 75 years old. The fact that he's still running Costco has a lot to do with its values. J. Crew could learn a thing or two about that. At the end of the day, Costco is a long-term, stick-it-in-the-drawer kind of stock. The future will take care of itself.

Benjamin Fulford : Wall street virtual economy will implode just a matter of time

Benjamin Fulford : the only reason we are not seeing hyperinflation in th markets is because the huge amount of dollars that the FED have ben printing is circulating amongst its circle of cronies , but some day reality will prevail , what I mean is the real economy will prevail for example everyday the amount of FOREX Foreign Reserve Exchange trade that takes place in the banking system is worth a thousand times the underline trade in physical goods and services and that virtual economy is just going to keep deflating , people who make real things will continue to prevail over these wall street crooks and con artists it is just a matter of time before the system implode , the Euro is not likely to survive

China’s Looming Debt Disaster

In the aftermath of Washington’s debt-ceiling debacle, Vice President Joe Biden was in Beijing on Friday, desperately trying to reassure the Chinese government that the American economy is not in a downward spiral.

“And very sincerely, I want to make clear that you have nothing to worry about,” the vice president said.

Whether or not he succeeded in soothing his hosts’ anxiety remains to be seen. Yet in trying to placate Beijing, the vice president was making a major miscalculation. China may own $1.2 trillion in U.S. Treasury obligations, but from the get-go, Biden should have eschewed playing defense and gone on the offensive. He should have asked the Chinese to reassure him about their debt problems and, more urgently, their impending economic slide.

Despite all the apocalyptic pronouncements about America’s budget problems, the reality is that the U.S. has a higher credit rating than China and, unlike Beijing, has never repudiated its sovereign debt. More important, the People’s Republic has been understating its debt for years to avoid global attention and criticism.

Indeed, China claims its debt-to-GDP ratio—the standard measure of sustainability—was a healthy 17 percent at the end of last year. Yet Beijing-based Dragonomics, a well-respected consultancy, put China’s ratio at 89 percent—about the same as America’s. Worse still, a growing number of analysts think the Chinese ratio was really 160 percent. At that astronomical level, China looks worse than Greece.

The wide discrepancy in estimates is due to the so-called hidden debts. The largest of these off-the-books obligations have been incurred by local governments and state banks. Yet there are other components, including central-government debt incurred for municipal and local projects, Ministry of Finance guarantees related to partial bank recapitalizations, and miscellaneous obligations such as grain-subsidy payments. No one actually thinks Beijing will default on its outstanding external debt, but these hidden obligations matter; to work down the crushing debt load, the country’s technocrats are adopting strategies that will cripple growth for a decade, maybe longer. (more)

BNN: Top Picks

Jaime Carrasco, Investment Advisor, Macquarie Private Wealth, shares his top picks.

click here for video

Buy the Miners — It’s Like Getting Gold for $1,100: Fund Manager

Okay, friends. Step right up, and set your eyes on the deal of a lifetime. If I could show you folks how to own gold at a third of its true cost -- would you do it?

Pardon my lapse into snake-oil salesman mode, but having just heard two investors in as many days pitch me on the virtues of buying gold mining stocks as the price of gold plunges, well, I must be having a touch of the TGTBT Syndrome (too good to be true).

"The reason to buy a gold mining company is because that discrepancy in value is so wide," says Darren Pollock of Cheviot Value Management, referring to a 30% gap between the gains in gold and the mining companies who produce it.

It's certainly not a new problem for the miners but is one that Pollock thinks is about to change. To be clear, this is not a call for gold to go down. Quite the contrary. It's a call that gold will stay higher and that miners are not being fairly compensated for their exposure to it.

Case in point: Newmont Mining (NEM). It's not only Pollock's largest position but a stock that he says has sat at $60 a share since January at a time when gold rose 25%. And if you go back five years, he says, you'll still see Newmont sitting at $60, but the price of gold was $500 then, less then a third of what it is now.

What's worse, Pollock says, is that Newmont's production and reserves have continually grown while its costs to extract gold from the ground has gone down.

"Newmont Mining's cash costs are about $600 an ounce, so we're looking at huge gross margins right now," he says. "It's pure profit going forward."

While he is still a long-term advocate and owner of gold, Pollock says the short-term drop was expected because "hot money flees as quickly as it comes in."

That said, the case for mining stocks is predicated on the idea that investors are finally accepting that the elevated price of gold is going to be around for a while. The last time this discrepancy/performance lag happened was a few decades ago, but miners have enjoyed a great period of catch-up and price appreciation, according to Pollock.

While the Market Vectors Gold Miners ETF (GDX) is better known, he prefers the tax advantage that comes with the Central Fund of Canada (CEF).

Hurricane Irene Stocks: Valero(VLO), Western Refining(WNR), and DIG

The panic is setting in and Gov. Chris Christie declared a state of emergency today. Fellow Masters its time to think about building positions in the refiners such as Western Refining (NYSE:WNR) and Valero (NYSE:VLO). Better yet just buy the best of the the oil and gas sector using the coveted ProShares Ultra Oil & Gas ETF (NYSE:DIG).

This is a classic no brainer play as Hurricane Irene could push up the refiners stocks in a heartbeat should the impact hit the East Coast.

The stocks to play...

Western Refining Inc (WNR) shares have traded between $4.01 and $21.75 over the past 12 months. Today WNR is at $16.26 a share, trading with a P/E Ratio of 15.6 and EPS of 1.04.

Valero Energy Corp (VLO) shares have a 52-week range $15.49 and $31.12, today they are at $20.43. Valero shares are now trading with a P/E Ratio of 8.8 and EPS of 1.2.

Finally the DIG is your weapon of choice as it contains the best oil and gas companies on the planet with the largest holdings consisting of 22% Exxon (XOM) and 12% Chevron Corp. (NYSE:CVX). The ProShares Ultra Oil & Gas (DIG) shares have traded between $25.53 and $63.63 and today are at $40.30

How Much Gold Do You Need, Must Read.

By Dan Steinhart, Junior Analyst

Casey readers of any duration already know how to avoid silent robbery by inflation: own gold.

Since the beginning of 2002, according to the CPI (which famously understates inflation), the dollar has lost over 20% of its purchasing power, a precipitous decline in less than 10 years. During this period, gold owners have not only protected themselves, they've most likely profited in both nominal and real terms. But for all of the non-gold bugs just now awakening to the doomed reality of the dollar, how much gold is actually needed to protect yourself from inflation?

Probably less than you think. The graph below charts the purchasing power of a hypothetical portfolio; each line represents a different allocation between dollars and gold, from 100% dollars to 100% gold and everything in between:

(Click on image to enlarge)

Let's start from the bottom with the dismal dollar: unsurprisingly, if you held no gold, your purchasing power would have dropped in conjunction with the dashed gray line, down to about 78% of its 2002 level.

But the next data point may surprise you. The dashed red line line represents a cash/gold allocation that would have maintained purchasing power at 2002 levels. How much gold would you have needed to hit this breakeven point? Only 5.75% of your portfolio! Even a gold skeptic could handle that tiny allocation: for every $30,000 in your portfolio, keep one gold eagle coin, and you're covered against inflation.

Of course, just because that worked for the last 10 years, it doesn't guarantee it will be enough for the next 10. Inflation will likely ramp up at some point in the near future, and when it does, you'll want more gold. But the point remains: holding just a little bit of gold does wonders to combat inflationary erosion of your cash.

Now that we know how to break even, let's step it up a notch. We here at Casey Research recommend a 33% allocation to gold. Under such an allocation, your purchasing power would not only have been preserved, it would have more than doubled in less than 10 years. Not too shabby.

For comparison's sake, we also included how you would've done with allocations of gold all the way up to 100%. While we certainly don't recommend such extreme positions, any outliers who held the majority of their portfolios in gold can now buy over 400% more "stuff" than in 2002.

The moral of the story? If you don't own gold, get some. Paper dollars are shrinking before our eyes, so offset (or outpace) your losses with concurrent growth in the value of gold.

Buying Foreclosures At A Bargain Price

If you have the cash, a steady job and the desire to become a homeowner, you may be tempted by the thought of buying a foreclosure. While there are some bargains to be found, you do need some education and some professional guidance before you jump into making an offer.

Types of Foreclosure Purchases
The term "foreclosure" gets tossed around a lot, and generally refers to properties that have been repossessed by the lender because the homeowners were unable to pay their mortgage. Some foreclosures are owned directly by a bank, but others are owned by Fannie Mae, Freddie Mac and HUD. Some foreclosures are sold through real estate agents, while others are sold at auction.

The first step you should take if you want to buy a foreclosure is to consult with a lender. No matter which method you use to buy a foreclosure, or who you buy it from, you will need financing. Be prepared to document your income and assets, and to have your debt-to-income ratio and your credit history reviewed. If you are purchasing the home as an owner-occupant, you may have more financing options than if you are purchasing as an investor, since there are some special financing incentives from government agencies to encourage buyers to purchase a foreclosure and live in it. Investors generally need to make a higher down payment when purchasing a home, often as much as 25% or more.

You can buy a foreclosure with FHA, VA or conventional loans provided the home meets the loan guidelines for condition. One option that many foreclosure buyers have taken advantage of is an FHA 203(k) loan that allows you to wrap renovation costs into the mortgage.

Of course, if you can pay cash, you'll find it much easier to buy a foreclosure.

Many buyers assume that buying a foreclosure means you are getting a bargain, but this is not always the case. Banks that are selling foreclosures are hoping to recoup as much of their costs as possible, so, if the property is in good condition, it may be listed at market value or just below market value. Homes that are priced extremely low may be in terrible condition or the bank may also be hoping to encourage a bidding war. Foreclosures in some markets receive multiple offers and can end up selling far above the list price.

If you become involved in a bidding war, or are purchasing a home at an auction, make sure you know your comfort level with your mortgage payment and have worked with a real estate agent to evaluate the market value of homes in your area so that you don't overpay.

Foreclosures are sold as is, which means that while you can have a home inspection for knowledge of the property, the owner (the bank or government agency) is under no obligation to fix anything. Some foreclosures have been vandalized and will lack appliances and even kitchen cabinets, while others have been vacant for so long, that they have issues with mold or other damage. On the other hand, some foreclosures have been maintained or even improved with some new appliances, fresh paint and new carpet. Just make sure you are aware of the condition and understand the costs you may incur if you have to make repairs. A bargain isn't such a bargain if you need to spend thousands of dollars to bring the home to a livable condition.

Fannie Mae offers special financing and incentives to buyers of its foreclosures through its HomePath program, including closing cost assistance up to 3.5% for owner-occupants and low down payment loans.

Freddie Mac offers its First Look program to owner-occupants that allows them the first chance at buying one of its foreclosures before investors are allowed to make an offer. The Freddie Mac HomeSteps program includes a home warranty and savings on new appliances.

HUD foreclosures located in areas that need revitalization are available at bargain prices for law enforcement officers, teachers, firefighters and EMTs. The HUD Home Store offers details about HUD-owned homes in every state.

The Bottom Line
Purchasing a foreclosure can be a great way to become a homeowner, but you need to work with a Realtor with experience in foreclosure purchases and plenty of local knowledge to make sure the home you buy is truly a bargain rather than a money pit.

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Technical Analysis: How Low Can Gold Go On A Correction

Technical analysis of the gold price gives an indication of how low the price could fall, yet still remain within its bull trend after its recent excessive sharp increase.

Gold is in the second phase of a Bump-and-Run Reversal Top pattern, which typically occurs when excessive speculation drives prices up steeply, and is now at a critical juncture where substantially lower prices could be realized. Let me explain.

According to Thomas Bulkowski, the Bump-and-Run Reversal Top pattern (read here for details) consists of three main phases:

  1. A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the warning line which is parallel to the lead-in trend line.
  2. A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.
  3. A run phase in which prices break support from the lead-in trend line in a downhill run.

As the chart above shows the price of gold has breached the sell line at $1,830 so we can expect to see a correction with downside price targets for support as follows:

  1. $1,750 for support from the dotted pink line.
  2. $1,650 for support from the warning line.
  3. $1,500 for support from the lead-in trend line.

U.S. Slashes Marcellus Shale Gas Estimate By 80%

The U.S. will slash its Marcellus Shale reserve estimate to 84 trillion cubic feet of gas from the earlier estimates of 410 trillion, according to Bloomberg.

Geologists from the U.S. Geological Survey provided the new number, which supersedes estimates from the Energy Information Administration. The EIA does not contest the new number: "They’re geologists, we’re not. We’re going to be taking this number and using it in our model,” an EIA analyst told Bloomberg.

Although the new number is higher than USGS's last estimate in 2002, it represents a 80% decrease from the recent EIA estimate.

The Marcellus Formation spans from New York to Kentucky and was seen as America's next great hope for energy.

An April estimate from the EIA increased Marcellus reserves by a multiple of 42 based on new technology and information. As part of this estimate, the EIA said America had enough recoverable natural gas to heat homes and run power stations for 110 years. WHOOPS.