3 ‘Buried Treasure’ Stocks Set to Triple: EZPW, AKRX, EGHT

If you want to find a real home-run investment, you are not going to find it in large-cap stocks. They’ve already had their glory days. They’ll provide you with stability and reliability, and even a dividend. But the key to outperforming the market and your peers rests in your ability to hunt down undervalued small-cap stocks. I have three stocks that have been totally overlooked by the market that I believe are set to triple from current prices. The stories are beyond compelling.

EZCorp

EZCorp (NASDAQ:EZPW) is exactly the kind of Peter Lynch stock that deals in an area that some might (wrongly) find distasteful, but is enormously profitable and totally overlooked. The company owns more than 1,000 pawn and payday loan stores in the U.S., Mexico and Canada. Mexico, in particular, is a solid new growth engine for EZCorp. As EZPW and its competitors jockey for position down south, they stand to reap big benefits, as 80% of Mexico’s population are potential pawn customers vs. 20% in the U.S.

EZCorp has been seeing sizable same-store-sales growth in pawn. Analysts are projecting 30% earnings growth this year, 20% next year and 15% beyond. I believe that 15% number is low. A 25 P/E on next year’s earnings of $3 gives EZPW a fair value of $75, a triple from today’s prices. The company has $27 million in cash and about the same in debt, and is seeing huge increases in free cash flow every year.

Akorn, Inc.

Akorn, Inc. (NASDAQ:AKRX) engages in the manufacture and marketing of diagnostic and therapeutic pharmaceutical products, hospital drugs and injectable pharmaceuticals. Akorn is a highly specialized company and has 22 drug applications sitting with the FDA, looking to capture a $3 billion market. Analysts see 25% annualized growth over the next five years, or 66 cents per share in 2015, but my own research suggests that’s an undervaluation.

I see revenue from a randomized sample of possible approved drug applications vastly exceeding analysts, and see about $1 per share in 2015, meaning AKRX stock would have a fair value of $25. In the meantime, the company sits on $134 million in cash and $99 million in debt. Unlike many pharmaceutical companies, Akorn isn’t burning cash. In fact, it has positive free cash flow of almost $10 million this year.

8×8 Inc.

The oddly named 8×8 Inc. (NASDAQ:EGHT) develops and markets telecommunications services for Internet protocol (IP), telephony and video applications. The company offers 8×8 Virtual Office Business Telephone Service, an alternative to traditional private branch exchange systems that offers automated attendants to assist callers. This story is all about the company’s products, and they are being adapted by a lot of businesses.

8×8 reported earnings Wednesday and saw sequential revenue growth of 7%, and year-over-year increases of 14%. Churn is only 2.2%, meaning customers stick with the company’s products. Despite this, the market saw fit to discount the stock even further, creating an even greater bargain. The company’s earnings look set to double by FY13, and 27% annually thereafter. The beautiful thing about this microcap company is that is has no debt, and $19 million in cash, giving it an effective stock price of only $3.57. For those interested in return on equity, EGHT is tearing it up: 44.5%. That’s almost impossible to find. I believe 8×8 will be earning 50 cents per share in FY16, and a 27 P/E gives a target of $13.50.

Of course, one can never be certain how microcap and small-cap companies will fare in the future. That’s the point of risk/reward, however. If you are fine with mid-single-digit returns, that’s why there are stalwarts. But if you want to roll the dice and go for the gold, that’s why there are stocks like these.

Commodities Snapshot: Oversold For Now, Dollar Holds The Key

Below are trading range charts for 10 major commodities from the Bespoke Group. All 10 commodities are currently at or below the bottom of their trading ranges, which would suggest at the moment, a good opportunity to get in at oversold levels for investors looking to gain long-term exposure.

However, U.S. dollar has been strengthening as investors fled the Euro debt and financial crisis seeking safety in the dollar. Since most commodities are priced in dollar, dollar movement will have considerable impact on commodity prices. EconMatters guest author, Frank Holmes at US Global Investors, estimates that a 5% appreciation in the dollar could be associated with a 25% decline in commodity prices, based on the relationship between the CRB Index basket of 19 commodities and the Dollar Index.

So if the U.S. dollar continues to strengthen, which is quite probable with the burning Athens, and the lack of leadership and clarity in the Euro Zone, it would most likely put downward pressures on commodity prices.

But on the other hand, the U.S. Federal Reserve has already telegraphed the intention of yet another round of quantitative easing (QE3). So the effect on the dollar, and thus commodities, would depend on how QE3 is implemented. We suspect that the Fed now understands how QE2 has artificially jacked up commodity prices as well as inflaiton (although they will never admit it in public), and most likely will strive for a "commodity neutral" QE3.

However, if QE3 does translate into a similar effect to QE2, then commodities would be artificially inflated even further, which would suggest stagflation, and hyperinflation could be expected in most of the developed countries, and developing economies, respectively.

Chart Source: Bespoke Group, Oct. 20, 2011

Jim Rickards: Extremely High Risk of US Dollar Collapse

from King World News:

With so much uncertainty in gold, silver, stocks and currency markets, today King World News has released the eagerly anticipated audio interview KWN Resident Expert Jim Rickards, Senior Managing Director at Tangent Capital Markets. When asked about the risks of current Fed policies, Rickards replied, “What’s interesting, Eric, is that it shows how this is all manipulation. I’m describing how the Fed is thinking about it, but that doesn’t mean it makes sense, it doesn’t mean they are right. And what it shows you is they are trying to manipulate us every way they can. The targeting policy is designed to manipulate you into thinking inflation is right around the corner.”

Jim Rickards continues: Read More @ KingWorldNews.com

The Secret to Living Well on $11,000 a Year

Our last story on frugal living, "The Secret to Living Well on $20,000 a Year," stirred up some heated comments, many of which argued that $20,000 a year represents a king's ransom. "Someone should do an article on how to live on less than $10,000 per year. I am a single mother who is doing just that," wrote Rici of Wyoming.

An anonymous commenter from Texas wrote, "[I'm] not impressed. I live on $8,796 a year."

"I am retired and living on less than $1,000 a month [from] Social Security," wrote Liz Ortiz of Colorado.

Glenn Morrissette, 42, wrote in to say that he lives on just $11,000 a year, and he does it by living full-time in an RV. As a result, he pays no rent, needs no car, and can live wherever he wants. Unlike Joseph Fonseca, the writer we profiled in our "Living Well on $20,000 a Year" article, Morrissette has health insurance. A professional musician, he can work by computer from any location. He might not have a family support, as the teacher living on $40,000 a year does, but we thought Morrissette's story was interesting enough to share. We spoke with Morrissette, who is currently in New Jersey, about his lifestyle, which he also describes on his blog, To Simplify. Excerpts:

Why did you decide to live in an RV?

I had an apartment in Burbank and was the typical Los Angeles apartment dweller. I started to feel a strong desire to simplify my life. I had a garage full of stuff I never used, my closets were full, and I started to see that it was costing me money to have an apartment big enough to hold all the stuff I never use.

Glenn Morrissette

My initial plan was to scale back and move into a smaller apartment. Before long, I realized I didn't need too much to be happy. I could fit into a small space. That's when the RV idea occurred to me. I was just sitting in traffic and an RV pulled up. I said, "I could probably fit in that thing." The more I looked into it, the more I realized how practical it would be. For what I was paying for rent in LA, I could own my "house" free and clear and not pay rent, and own my car as well.

How do you stay under $11,000 a year?

The two key things that make it possible are not having rent or a mortgage payment. I own my RV, so that was an initial expense [of about $14,000], but I have no house or car payment. Gas is controllable; I don't drive if I don't want to. Most months, I spend less than $300 on gas. I estimate that I save about $1,000 a month compared to what I was spending in LA.

What do you eat?

I eat pretty well. I don't skimp on food. I eat a lot of grass-fed meats, fruits, and vegetables ... some people call it the caveman diet. I go to farms, farmers markets, and health food stores. I probably spend about $250 a month on food. I could spend a lot less if I didn't care about eating well.

Do you have health insurance?

Yes. I'm self-employed so I purchase my own plan. I have a high-deductible plan and pay $80 per month. It would be even cheaper if I was 28. I don't understand young people who say, "I can't afford health insurance." Last year, my appendix ruptured, and the insurance was a life-saver. I learned my lesson.

What about clothes?

I'm a pretty basic jeans and T-shirt kind of guy. I don't have to go to the office, so I don't need a wardrobe. I have nine to 10 shirts and a couple pairs of jeans. I do have a suit so I can get dolled up when I have to, but my normal wardrobe is pretty minimal. I do one load of laundry every week, and I don't see the point of owning more clothes than I can do in one load of laundry.

Do you spend money on entertainment?

I don't go out much at all. I prefer the food I make to what I get in restaurants. More often than not, I'm disappointed. I'm pretty health-conscious and I want my food to be real food, so I'm content eating what I make. The idea of spending $30 at a restaurant--that seems like four to five days' worth of food to me. Years ago, I ate out every single meal. I'm kicking myself now, if only I had invested that money instead.

I'm not a big drinker, although I drink somewhat socially. I'm a pretty simple guy. Music is my life. Even if I'm not working, if I have a free day, I will spend a big chunk doing music. It's a profession and a hobby.

Do you splurge on anything?

The food I eat. I don't feel like I'm skimping at all. It's a form of health insurance to me.

And I just try to put myself in interesting places. I'm surprised how easy it is to do that. A lot of stuff is free out there. There's a lot of beautiful scenery in this country and it doesn't cost anything just to park. You can just drive into a national forest and live there for two weeks. I always try to give myself great real estate, whether it's by an ocean, a lake, or in the center of a cool little town. So I always have a great front yard, real estate that people would pay millions of dollars for, and it doesn't cost me anything.

I'm pretty frugal otherwise, and I don't miss it. I used to be part of the whole consumerist cycle, buying stuff I didn't need, and I don't do that anymore. It's liberating. I can maximize my savings. That's true freedom, to get to the point where I can say no to work anytime I want because I have a big enough nest egg. I'm not there yet, but that's my goal.

Do you have a retirement account?

Yes, I'm an avid investor. I guard my nest egg like crowned jewels. But I don't see myself ever retiring. I love what I do. I'd much rather do what I love and live small, and enjoy life.

8 Great Stock Trading Opportunities : CMG, GDX, GOOG, LVS, PCLN,

Those who are inclined to trade, rather than invest, have faced a challenging environment so far in the second half of the year. While volatility has been high, the success or failure of most trades has come down to the latest headlines about Europe or Fed policy. But if the charts of a number of stocks in the large- and mid-cap spaces are any indication, the market is about to get much more interesting.

That’s because the charts of eight higher-beta names — all of which tend to be favorites of short-term traders — are near key levels. All of these stocks are in the territory between important breakdown and resistance points, indicating that moderate moves in either direction could set up a much larger trade. While in some cases the stocks have a long way to go to get to their key technical levels, all are fast movers that can cover ground quickly in this type of market.

As far as which way these stocks break, each chart tells its own story. However, an important factor to keep in mind right now is that the Fed — through the comments of its board members and Jon Hilsenrath’s front-page article in The Wall Street Journal on Friday — essentially is telling us that it’s a matter of if, not when, it will enact its next round of stimulus. History has taught us that this is a dangerous time to fight the tape, so it appears the wisest course of action is to focus on stocks set to break out rather than betting on protracted downside.

Here are eight stocks, their resistance and support, and the percentage move needed from Friday’s close to hit both levels. Also included are a handful of bonus stocks with charts that might warrant future research.

Chipotle Mexican Grill

Click to EnlargeStock: Chipotle Mexican Grill (NYSE:CMG)

Friday’s close: $333.49

Breakout level: $364.78 (+9.4% from Friday’s close) (52-week high)

Support: $294 (-11.8%) (lower trendline) (more)

Europe’s Crisis May End in a ‘Violent Blow-Up’: Galbraith

After yet another summit this weekend, European leaders still have not finalized a solution to save Greece from default and recapitalize Eurozone banks.

"Work is going well on the banks," French President Nicolas Sarkozy told reporters at the Brussels summit yesterday. "On the question of Greece, things are moving along. We're not there yet."

Sunday's meeting marks the 13^th summit by European leaders in less than two years, and now all eyes are on the next, scheduled for Wednesday, where EU leaders have vowed to present their plan to solve Europe's sovereign debt crisis and reassure global markets contagion will be averted.

So what are the big takeaways from Sunday's meeting? There are six things of note, according to Goldman Sachs' director of macro and markets research Francesco Garzarelli and chief European economist Huw Pill, via Business Insider:

1 - A "Crew Cut" for Greece: Basically, due to deteriorating fundamentals, it's not certain that big haircuts for bondholders are an inevitability.

2 - A larger bank re-cap: The number is now up to 100-110 billion EUR.

3 - External support for the EFSF?: There's definitely chatter about more IMF/SWF/BRIC involvement to leverage the European Financial Stability Facility (EFSF), which would be viewed as a market positive.

4 - Italy Holds The Keys: Italian reforms must happen right away. Berlusconi is already holding emergency cabinet meetings.

5 -Towards Treaty Changes: There's some nascent movement to treaty changes that would see more fiscal integration.

6 - Redistributing Growth: Plans are underway for new schemes, likely via the European Investment Bank, to boost growth in the periphery.

But regardless of the final outcome, many still question the viability of the plan without a fundamental restructuring to Europe as a whole.

"Over the long term a critical factor remains the improvement of the competitiveness of not only Greece, but of all the Eurozone's weaker performing economies, including Italy and Spain," writes IHS Global Insight Chief European and U.K. Economist Howard Archer in an analysis this morning. "Without this the Eurozone will remain vulnerable to tensions and speculation over its long-term ability to survive in its current form."

James Galbraith, professor of economics at the University of Texas, agrees with this analysis but goes a bit further. He tells The Daily Ticker's Henry Blodget that what is really needed is "a complete reversal and upheaval in the ideas that presently govern Europe, [and] you'd have to have a much greater sense of European solidarity" to save the other countries.

Europe in Crisis: Impact on the United States

William Dudley, the New York Federal Reserve president, on Monday cited Europe as one of the major headwinds for the economy.

"The sovereign debt crisis in Europe has weakened the outlook for global growth and with it, U.S. exports. These problems have also contributed to pressures in financial markets globally that have resulted in a decline in stock market wealth," he says in prepared remarks for a speech at Fordham University. "In addition, some financial institutions are facing pressures to cut back lending. To date, these effects have been much more acute in Europe than in the United States, but there are spillovers to our nation, and we need to monitor them carefully."

Europe in Crisis: How It All Ends

"The peripheral countries of Europe are in deep difficulty [and] Greece in particular is being destroyed," says Galbraith, referring to forced cuts in healthcare, education and public services that have led to many violent protests. "I think [Europe's sovereign debt crisis] ends when there is a really violent blow-up on the periphery, probably originating in Greece or possibly in some other place ... . At some point the destruction of the society becomes intolerable, and that's where you'll see the flash point, it seems to me."

How to Trade Gold and Oil Prices This Coming Week

How To Trade Gold & Oil – The past couple weeks have been tough for most investors. The recent light volume rallies which have taken place in gold, oil and stocks has been generating mixed signals for technical analysts like myself. In order avoid a large draw down on your trading capital you must focus on the long term intraday charts.

What is a long term intraday chart you ask? It is simply a 4 or 8 hour candlestick or bar chart. For example the charts below in this report are 4 hour charts. So each candlestick represents 4 hours.

Why should you use these long term intraday charts instead of say a daily chart? There are four main reasons for this:

1. If you used a daily chart then this information would be condensed showing you the daily high, low, open and closing prices. While the 4 hour futures chart shows you large multi intraday chart patterns that most traders would never see… Patterns not seen by the average investor have a higher probability of working in your favour. Also these patterns are much larger than just normal intraday patterns which you see on the 5, 10, or 60 minute charts. Remember the larger the pattern the more potential profit there will be.
2. These longer time frames allow us to follow gold, silver, oil and stock indexes around the clock 24/7 using futures contracts. Think about it… regular trading hours from 9:30am – 4pm ET only allows you to see 1/3^rd of the price action each day. That means you are only seeing parts of larger patterns while the 24/7 contracts show you ALL Price Action.
3. The last reason you must use futures charts is for the volume readings. Futures show real volume levels which can be used for trading. So the volume you see on ETFs will not have the proper volume levels for that specific commodity or index. More times than not it almost the opposite…
4. My last reason for trading long term intraday futures charts is because the price of the underlying commodity or index moves true while the ETFs which try to shadow these commodities generate false breakouts and breakdowns on a regular basis. Watch my video about this here: http://www.thetechnicaltraders.com/ETF-trading-videos/TTTOct19Oil/index.html

Let’s take a look at the charts…

Gold Futures Contract – 240 Minute (4 Hour) Chart

Gold finally broke down from the bearish rising wedge which it had been forming through late September until mid October. I know the majority of traders, investors, and financial newsletters have already positioned themselves either long or short the metal as they anticipate the next major move.

I will agree that a large move either up or down is just around the corner but what sets me apart from others is the fact that I don’t bet my hard earned money when the odds are 50/50. I don’t pick tops or bottoms; rather I wait for a clean break out or low risk entry point. Only then will I take action. Until the blue box on the chart has been broken with some type of retest I will continue to observe and analyze the chart of gold.

Crude Oil Futures Contract – 240 Minute (4 Hour) Chart

The past month crude oil trading has been very profitable for subscribers and me. We shorted crude oil using an inverse etf in September which moved over 20% in our favour within a few trading sessions. And just last week we shorted it again for a 7.5% move in less than 24 hours.

Overall I am still bearish on oil but have moved to cash until I see another high probability setup unfolding. The recent price action in crude oil makes the odds about a 50/50 bet as to which way it will break next. This is why I have moved back to cash and pocketed the quick gain.

SP500 Exchange Traded Fund – 240 Minute (4 Hour) Chart

This chart is not the SP500 futures contract. This is just the SPY ETF but what I wanted to show was how the market was showing mixed signals. The past couple weeks price has been broadening and this can be taken two different ways…

More times than not it is seen as a bearish pattern and price generally falls afterwards. But in rare situations which I think we could be experiencing now this broadening price action can be very bullish, meaning much higher prices ahead. So I continue to observe and prepare for a possible trade setup.

Weekend Gold, Oil and Stocks Trend Conclusion:

In short, I feel the market is on the verge of a strong move. The problem is that price action, market sentiment and economic news are all giving mixed signals…

The best position right now is in cash and if something unfolds this week to our favour, then we will get involved but I am not going to take a 50/50 guess on what the next move is until the odds are in favour to one side or the other.