Thursday, December 1, 2011

Top 6 Stocks for December

Focus on Earnings and Dividends

High unemployment, a shaky economy with talk of a “double-dip” recession, and more debt crises in Europe drove stocks lower in late November. But third-quarter earnings accelerated, and gross domestic product increased at an annual rate of 2%.

Looking ahead, the first indications of holiday season sales look very positive, and consumer confidence is on the rise. This could help stabilize the stock market.

But volatility remains high, so this month investors should concentrate on stocks that have shown strength in earnings and price with an emphasis on dividend increases.

Here are your top stocks to buy for December:

Top Stock to Buy #1 — Chevron Corp. (CVX)

Major international energy company Chevron Corp. (NYSE:CVX[1]) primarily engages in the exploration, refining, transportation and storage of crude oil and natural gas. The stock ran to a high at over $110 before triple-topping and falling to its major support zone at $87.

S&P has the stock rated as a “five-star strong buy” with a target of $132. Q3 earnings were $3.92 versus $1.87, which was significantly higher than analysts’ consensus. The consensus estimated earnings for 2011 are $14.20 versus $9.48 for 2010 and $13.65 in 2012. Credit Suisse’s target price for CVX is $130.

Technically if a triple-bottom at $87 holds, CVX could easily trade north of $120. The annual dividend is $3.24, providing a yield of 3.5%.

CVX Chart
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Top Stock to Buy #2 –EnterpriseProducts Partners (EPD)

Integrated natural gas and natural gas liquid services provider Enterprise Products Partners (NYSE:EPD[3]) is experiencing demand for pipeline services. The company is well-positioned to benefit from its strong asset base and geographical position, and is expanding its infrastructure to capitalize on the natural gas drilling in the Eagle Ford and Haynesville shales and thePermianBasin, which are all major sources of natural gas. The company has no general partners, thus avoiding incentive distribution rights.

EPD has provided shareholders with a 9.5% total annualized return over the past 10 years, and has raised its dividend for 28 consecutive quarters. S&P has a “five-star strong buy” on the stock with a price target of $54. Its current dividend yield is 5.6%.

Technically the stock broke from a wide support zone in October, but pulled back to support at just under $44. The fundamental analysts’ target for EPD is $54, but a break above its recent high could yield a faster trading target of $50.

EPD Chart
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Top Stock to Buy #3 — Target (TGT)

Retail giant Target (NYSE:TGT[4]), which operates about 1,500 stores in theUnited States, is a victim of a slow economic recovery, and its stock performance shows it. TGT hit a high of over $60 last December, but gapped lower and attempted to stabilize in January at its 200-day moving average.

However, same-store sales have shown significant improvement throughout 2011, and the stock has responded by forming a saucer bottom. Then, in October, its 50-day moving average crossed above the 200-day creating a “golden cross,” which is a very bullish development.

The MACD indicator is not very oversold, so the stock will most likely find solid support at the 200-day moving average just over $50. TGT has a dividend yield of 2.3%. The near-term technical trading target is $56.

TGT Chart
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Top Stock to Buy #4 — Merck & Company (MRK)

Merck & Company (NYSE:MRK[5]) is one of the world’s largest drug makers. With a consensus earnings estimate of $3.77 for this year and $4 in 2012, the stock is selling at just over 8 times earnings. Analysts note that the company has a number of promising drugs in its pipeline that could have an impact on earnings next year.

Credit Suisse has a target price of $44 on MRK. Additionally, the company has a history of increasing its dividend, which is now at an annual yield of 4.6%.

Technically the stock is oversold following a recent sell-off to $33. It is currently resting on support and should rally to $37 within 60 days.

MRK Chart
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Top Stock to Buy #5 — Intel (INTC)

Intel (NASDAQ:INTC[6]) is the world’s largest semiconductor chip maker, but for two years the stock has traded in a flat band from about $20 to $24. That may be coming to an end since the introduction of Ultrabooks and Windows 8 provides Intel with a new growth opportunity, according to Credit Suisse analysts, and the company should also benefit from “Big Data/Fast Data trends.”

Earnings are estimated at $2.45 this year and $2.65 in 2012. At under 10 times earnings, this widely recognized brand is targeted by analysts at $32-plus.

Technically the stock broke from the two-year consolidation in October, but quickly pulled back giving investors an opportunity to buy at $22 with a price objective of $35. Intel has a dividend yield of 3.7% and a history of dividend increases.

INTC Chart
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Top Stock to Buy #6 — Wells Fargo & Co. (WFC)

Many analysts consider Wells Fargo & Co. (NYSE:WFC[7]) to be the highest quality large bank in theUnited States. Q3 results hit record highs for net income and EPS, but trading resulted in lower net interest margin. S&P estimates earnings for 2011 at $2.83 and $2.97 in 2012. At just 11 times earnings, the stock should sell at $32 since it has commanded a higher multiple in the past.

Technically the stock bottomed between $22 and $23, and that should be a solid support zone. The 12-month target for WFC is $33. The stock has a dividend yield of 2%.

WFC Chart
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BNN: Top Picks

Eric Nuttall, Portfolio Manager, Sprott Asset Management, shares his top picks.

click here to view


McAlvany Weekly Commentary

The Thirteen Days of Christmas: A European Implosion

A Look at This Week’s Show:
-There are thirteen days in December that literally could define the fate of the European Union.
-Iranian crises revisited? British Embassy in Iran is attacked with reminiscent echoes of three decades past.
-Wall Street celebrates Black Friday spending spree. More evidence of a complete cognitive disconnect with reality.

Marc Faber: Be Careful, The Chinese Economy May Crash

from King World News:

With the Dow rallying more than 400 points and gold trading up over $30, near the $1,750 level, today King World News has released the eagerly anticipated interview with legendary investor Marc Faber, author of the Gloom Boom and Doom Report. Faber warned KWN that the Chinese economy may crash and noted this will have a huge impact on various economies and markets, “Well if we define a bubble as a period of excessive growth and artificially low interest rates, then China had a huge bubble. Usually bubbles are not deflated by a soft landing, but by a hard landing and this concerns me, actually, much more than the European situation.”

Marc Faber continues: Read More @


Gold Shares Cheapest Since 2002 Are ‘Coiled Spring’ for Rally: Commodities

Gold mining stocks are trading at their cheapest level in at least nine years even as the industry’s profits are estimated to almost double this year and bullion trades close to its historic high.

The benchmark NYSE Arca Gold BUGS Index (HUI) that includes Barrick Gold Corp. (ABX), Newmont Mining Corp. (NEM) and AngloGold Ashanti Ltd. ended last week at 17 times earnings, the lowest since at least November 2002 and below a five-year average of 37 times.

Investors sold equities across the board as Europe’s debt crisis soured the corporate profit outlook, and they’re ignoring analyst projections for bullion and gold producers. The gold index’s 16 members will increase combined per-share earnings 94 percent this year, according to estimates compiled by Bloomberg.

“When you look back in history, you will say this was a buying opportunity,” said John Wong, a portfolio manager at CQS Group’s New City Investment Managers in London and lead manager of the $200 million Golden Prospect Precious Metals Ltd., a fund holding gold and silver stocks. “It’s like a coiled spring.”

Gold equities have fallen 4.7 percent this year, heading for the first annual decline since 2008. Gold reached a record $1,921.15 on Sept. 6 and is set for an 11th annual gain.

“The market doesn’t trust big spikes,” said Jon Bergtheil, an analyst at Citigroup. “People will wait to see if gold holds above $1,600 for a while.”

‘Substantial Disconnect’

Gold averaged about $1,706 an ounce in the third quarter, 39 percent more than a year earlier, and is forecast to average $1,859 next year, according to the median estimate of 18 analysts compiled by Bloomberg. It gained 0.5 percent to $1706.74 at 10:49 a.m. London time.

Hedge fund manager David Einhorn said Nov. 1 that a “substantial disconnect has developed between the price of gold and the mining companies.” Einhorn’s Greenlight Capital Re cut holdings of the commodity in the third quarter and moved funds into the Market Vectors Gold Miners ETF, which tries to replicate the Arca Gold Miners Index (GDM) of metal producers. Bullion has more than doubled since the start of 2008 while gold stocks have advanced about 33 percent.

Gold miners’ earnings per share and per-share cash flow reached the highest levels in at least nine years during the third quarter, according to data compiled by Bloomberg.

“When earnings are reported, the market will be all goggle-eyed about how much cash is flowing in to these companies and what their balance sheets look like,” said Bergtheil. You tend to get a response at that time.’’

Debt Crisis

Gold equities have been dragged down as investors seek a haven from market turmoil stoked by the sovereign debt crisis. The MSCI All-Country World Index has fallen 12 percent this year while the Stoxx Europe 600 Index has sunk 16 percent.

Barrick Gold, the world’s biggest producer, has slipped 6.1 percent in 2011, even after posting record earnings in the third quarter. AngloGold Ashanti (ANG), Africa’s biggest supplier, has slipped 10 percent, while Newmont Mining has advanced 6.3 percent. Randgold Resources Ltd. (RRS) and Yamana Gold Inc. (YRI) are the only members of the Gold BUGS Index to have outperformed the metal this year, up 27 percent and 22 percent, respectively.

The Gold BUGS index today rose as much as 4.7 percent, the most in eight weeks.

Investors have been increasing holdings in exchange-traded products physically backed by gold to bet on gains in prices for the precious metal, without accepting the potential negatives that come with holding company shares.

Record Gold Hoard

“Investors are voting with their feet,” said Ian Preston, a resources analyst with Goldman Sachs Australia Pty in Melbourne. “They can get all of the leverage they want out of going straight into an ETF without any of the operational risk, or political risks, or general risks associated with equities.”

Holdings in gold ETFs on Nov. 23 reached a record 2,350.8 metric tons, valued at $127.6 billion, according to data compiled by Bloomberg. Hedge funds and other speculators increased their net-long position, or bets on higher prices, for four weeks, the longest stretch since March, Commodity Futures Trading Commission data show.

“Gold equities will come back,” Norm Pitcher, chief operating officer of Vancouver-based Eldorado Gold Corp. (ELD), said in an interview yesterday. “The one thing you don’t have when you are buying an ETF is any upside to exploration, and I think the companies that have good exploration assets are the ones that will probably be valued a little higher.”

That attraction of ETFs over stocks may also fade when concerns ease that the European debt crisis will ravage corporate profits, said New City’s Wong.

“Gold mining shares are still equities, so they are determined by the equity market as a whole, not just gold,” said Wong. “The performance of equities in a bear market is bad. Once there is some stability and people are prepared to take risks, I see that there will be a massive move.”

New Gold currently sells at a discount to its peers, but is about to break higher: NGD

New Gold (AMEX:NGD) — This mid-cap gold company with assets in the Americas (mainly Canada) is expected to increase earnings in 2012 by 9% to 59 cents, a 29% growth projection, according to Zacks. NGD reported Q3 earnings of 9 cents per share, which met the consensus of nine analysts.

The acquisition of two venture exchange companies was announced in October, which is part of a long-term expansion plan.

Technically, in early August, the stock broke from a four-month consolidation at just over $11 supported by very high volume. But a general correction in gold has driven the stock to its bullish support line and quadruple-bottom where the stock is accumulating buyers.

NGD sells at a discount to its group and technically could break its high and drive to $14 within three months. Buy NGD at the market.

Trade of the Day – New Gold (AMEX:NGD)

Stocks in This Developed Country are too Cheap to Ignore

I've been looking at stocks since I was in high school, back in the late 1970s. I eventually chose to turn my fascination with investments into a career. I figured stocks represented the single-best path to wealth creation, thanks to one simple statistic: If you hold an investment for an extended period, then history shows that riskier investments will generate better returns. This means during any 20-year period going back to the Great Depression, stocks always outperformed bonds, and bonds always outperformed cash. Because I was planning on a 50-year career, I was well prepared for short-term plunges, with the expectation that stocks would make up lost ground -- and then some -- during the subsequent decade.

That axiom still applies here in the United States. The S&P 500 has more than doubled in value since 1990, even with the gut-wrenching past few years.

But for Japan, that axiom is no longer true...

Home to the world's second-largest economy, Japan has seen its main stock index, the Nikkei, tumble, tumble again and tumble some more during the past 20 years. Take a look...

Frankly, it's hard to see how Japan's Nikkei index will ever revisit the 37,000 mark it reached in 1990 -- at least in our lifetime. It would take an unimaginable 350% upward move. Sure, small but fast-growing markets can generate this kind of gain within a few decades, but Japan is a mature economy with far too many demographic and fiscal headwinds. And yet, for contrarian investors, this market holds some tremendous bargains. These bargains involve companies that are thriving in the global economy, even if their home country's too-strong currency makes life difficult for exporters.

Focus on banks
While most global banks were making loans to debt-addled governments in Europe, Japanese banks steered clear and will not likely need to take write-downs if Europe goes into a deep funk. This is hardly an endorsement for Japanese banks, but they do possess a lot less downside risk than their western counterparts. Meanwhile, they are strikingly cheap by a range of measures.

Japan's largest bank (in terms of assets), Mitsubishi UFJ Financial Group (NYSE: MTU), hit an eight-year low this week (Nov. 27). Though it was once valued at more than $200 billion, it is now valued at just $57 billion. Meanwhile, this bank generated an eye-popping $49 billion in free cash flow in fiscal (March) 2011, according to Thomson Reuters. Mitsubishi UFJ Financial has one of the premier providers of financing for intercountry trading transactions, providing shippers, manufacturers and other financial-services firms with logistical capital. In the first six months of the current fiscal year, the bank posted $9 billion in net income, or about $18 billion when annualized. This means it trades for a little more than three times annualized income.

Investors interested in the Japanese banking sector should also check out Mizuho Financial (NYSE: MFG), Sumitomo Mitsui Financial Group (Nasdaq: SMFG) and Nomura Holdings (NYSE: NMR). These bank stocks also hit fresh lows this week, erroneously tied to the widening crisis in Europe.

Toyota: down, but not out
Toyota Motor (NYSE: TM) remains the world's largest automaker and, after shedding $100 billion in market value since 2007, the stock is now also a bargain. To be sure, the weak global economy has crimped financial results during the past few years. Toyota generated $47 billion in EBITDA in fiscal (March) 2007 and $48 billion during fiscal 2008. This figure has slid to just $20 billion in each of the past two years.

Yet it's important to remember that Toyota's engineering department may be the most innovative in the industry. For example, the company is on track to sell more hybrids in 2011 than the rest of the auto industry combined. Look for a series of Prius spin-offs to hit global showrooms in coming quarters, which should help the company maintain this lead. Meanwhile, Toyota is quickly boosting its manufacturing presence in lower-cost countries and shedding capacity in Japan. That's why analysts think earnings per share (EPS) can rise more than 100% in fiscal (March) 2013 to about $6.25, even with sales projected to grow less than 10% in the same period. In the meantime, shares trade at levels seen back in 1999.

The No.2 printer in the world
For all its troubles, investors note that Hewlett-Packard's (NYSE: HPQ) printing division is a huge source of profits. Right behind HP in the global printing business is Japan's Canon (NYSE: CAJ), which can boast its own impressive financial profile. Free cash flow topped $5 billion in 2010 on $48 billion in sales. Few hardware-focused companies can generate free cash flow margins that exceed 10%.

To augment its position in printers and cameras, Canon has been targeting the high-end of the cinema camera market while quickly increasing presence in the medical-imaging market. The weak global economy is currently impeding growth, so sales are likely to increase less than 5% in 2011 and 2012. But make no mistake, this is another long-term winner with fortunes tied to many markets -- not just Japan. With shares hitting a 52-week low this week, it's time for a fresh look at this stock.

Risks to Consider: These Japanese companies face rising competition from rivals in other parts of Asia, so they will need to readjust their manufacturing bases and other cost inputs in order to remain competitive.

Action to Take-- >
Perhaps the greatest appeal of Japanese stocks right now is the rising purchasing power of many neighboring Asian countries. Rising living standards in the region will most likely lead to higher demand for Japan's goods and services. This isn't to suggest that Japan is on the cusp of a robust economic revival, but only notes that the stocks of major Japanese companies such as the ones I mentioned above have become too cheap in light of their still-strong global footprints and could be set to rebound in a big way.


Here’s a fairly alarming prediction heading into the seasonally strong winter months for oil prices. Amrita Sen, commodities analyst at Barclays was interview on CNBC recently to discuss the outlook for energy prices and to shed some light as to why oil prices have diverged from many other commodities and remained so firm in the face of severe global headwinds. Sen says the likelihood of prices falling much below current levels is close to nil:

“It’s been the supply side. Libya went off the market. Lots of problems in the North Sea. Brazil, I mean, there were problems everywhere. Inventories Are about are about 50 million below the seasonal average heading into the winter. There is no way prices can fall much from where they are now. You just don’t have enough inventories around.”

Not a good sign for the economy. Cost push inflation via rising energy prices is likely to continue to be a major headwind in the future. Real resources continue to hinder economic growth. Like the last few years, this is going to be a major risk heading into 2012.

See the full interview here. It’s quite good:

China Begins Monetary Easing, Lowers Reserve Ratio By 50 bps: Gold, Crude, Futures Spike

It appears that China has already forgotten its close encounter with inflation as recent as a few months ago leading to assorted riots, and is instead far more concerned with the collapsing housing market. As a result it just announced a 50 bps reserve ratio cut, well in advance of when most commentators thought it would happen, on what is now the start of a monetary policy loosening cycle. The kneejerk reaction is for futures to surge and gold to spike, and crude to pass $100, even as the EURUSD was once again drifting lower overnight. And while this is beyond bullish for commodities, we doubt equities will remain bid unless Europe mysteriously fixes itself overnight too. Which won't happen. More from Reuters: "China's central bank cut the reserve requirement ratio for its banks on Wednesday for the first time in nearly three years to ease credit strains and shore up activity in the world's second-largest economy." Naturally, this ties Bernanke's hand even more as Chinese inflation will now be stoked internally in addition to importing any excess inflation to be generated by the Chairman, likely leading to an even faster spike in global inflation the next time we get US-based quantiative easing. Look for Chinese-based purchases of gold to surge.

and as shown by Bloomberg:

More from Reuters:

The 50-basis-point cut in the reserve ratio showed China's monetary policy has swung into easing mode as economic growth slows while inflation eases.

The cut lowers the reserve ratio for China's biggest banks to 20 percent from record highs, and frees up funds that could lubricate lending to cash-deprived small firms.

The new ratio is effective December 5, the central bank said in a short statement on its website.

The central bank last cut the reserve ratio in December 2008, when China's economic growth floundered on the global financial crisis.


Milos Dedovic – “Prices Doubled Every Day and a Half”

from CaseyResearchFAN:

At the Casey Research/Sprott Summit When Money Dies, Milos Dedovic, of the Serbian-American Chamber of Commerce, spoke with David Galland, Managing Director of Casey Research about his experiences with the hyper-inflation in then Yugoslavia.