Income Tripler

Small Cap Gains: 2 IPOs the Entire Market Should Be Watching

by Louis Basenese, Advisory Panelist
Senior Analyst, The Oxford Club

Write this date (Feb. 11)… and these new IPO tickers down (OGAR and MJN).

Last week, we got the most bullish indicator for a small-cap rally yet. However, most investors didn’t catch it. And it received scant attention in the financial press, too.

But ignoring it could be a big mistake, as it could usher in the first round of sizeable small cap gains (50% or more). And I certainly don’t want you to miss out, so let me bring you up to speed… Read more…

Louis Basenese 2009 Archives, Investment Strategies, Louis Basenese, Stock Tips Site Map, Top Home Page IPOs, small cap companies, small cap gains

32 Billion Reasons The Average Investor Will Fail

by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director, The Oxford Club
Thursday, December 11, 2008: Issue #899

I’ll be the first to concede the going’s tough. That almost every “time-tested” strategy that worked well in bull markets is sputtering and collapsing.

But is it so bad we’ve given up on turning a profit? And just resigned ourselves to preserving our principal, right?

WRONG.

This week the Treasury sold $32 billion in 4-week bills at a yield of ZERO percent.

That’s not a typo. Investors actually clamored for the opportunity to lend the government their money in return for absolutely no return. In fact, investors bid $126 billion at the auction, more than four times the amount available.

As Michael Franzese, the head of government bond trading at Standard Chartered explains, “I have never seen this before… It’s all about capital preservation for the turn of the year, not capital appreciation.”

Forget unbelievable. It’s idiotic. What investors are essentially saying is that absolutely no better opportunity exists in the market right now - that survival is their paramount goal of investing, not profiting. But ignore what the lemmings are doing. Their folly is creating endless (and historic) opportunities for us to increase our wealth. Of course, simply telling you that will not suffice…

Read more…

Louis Basenese 2008 Archives, Investment Strategies, Louis Basenese, Stock Tips Site Map, Top Home Page market investment opportunities, market investments

Small Caps: It’s Time to Think Small

by Louis Basenese, Advisory Panelist
Associate Investment Director, The Oxford Club
Wednesday, November 19, 2008: Issue #888

Over one million jobs vanished this year. Retail sales cratered for the eleventh consecutive month. Auto sales, and for that matter automakers, are headed for the junkyard. And there’s no sign of consumer confidence anywhere.

It’s not official yet. Apparently the committee of “esteemed” economists at the National Bureau of Economic Research (NBER) doesn’t get paid for timeliness. But the statistics don’t lie… we’re in a recession.

And that’s got me giddier than an Obama supporter scoring an inauguration ticket. That’s right. I’m actually glad the economic data stinks. Because when a recession is here, a small-cap rally isn’t far behind.

Accordingly, I’m loading up on small caps in my own portfolio. I suggest you do the same, instead of joining the lemmings piling into Treasuries.

If you’re reluctant and afraid small caps are too risky, chew on this:

In the year following the six major bear markets of the last century, small cap stocks soared an average of 82%, according to Ibbotson Associates.

If the prospect of an 82% gain doesn’t excite you in these trying markets, check your pulse. If it does, read on…

Read more…

Louis Basenese 2008 Archives, Investment Strategies, Louis Basenese small cap companies, small caps, small-cap stocks

Long-Term Investment Goals: Answers to The Top 3 Investing Questions Right Now

by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director, The Oxford Club
Thursday, October 16, 2008: Issue #872

With Investment U having over 360,000 members and The Oxford Club with over 70,000, Alex Green and I always get a steady stream of questions. But in recent weeks, as the market has accelerated its descent, they’ve become increasingly alarmist.

As I’ve learned, when we give into panic, we act hastily. And often undermine our long-term investment goals.

So today, let’s put to rest some of your pressing concerns. And make sure that doesn’t happen.

Long Term Investment Goals: Is My Cash Safe?

When my grandfather died, my grandmother found $17,000 lying around the house. He was Italian. So yes, some was stashed under mattresses. Some was in coffee cans behind the refrigerator in the basement. And more still was found in his sock drawer.

Forget the terrible investment implication of earning no interest on this money. My father almost burnt the house down when he was 12. And my great uncle was convicted of arson. So an “accidental” fire, not inflation, was a bigger threat to his savings.

My point: There’s a lot of fear in the market. Banks continue to go under. Many people are trying to predict the next collapse, and move their assets in advance. (I can empathize because I bank with Washington Mutual, now JP Morgan.) But whatever you do, be smarter than us Italians. The mattress is not a safe or smart place for cash.

In all seriousness, if we take a few simple steps, we can keep all our cash in the bank, and make sure every penny is insured.

The rescue package increased the FDIC limits up $250,000 per qualified account. This increase alone brings almost 75% of deposits in the United States under coverage. The expanded coverage remains in effect until December 31, 2009.

If you have more than $250,000 in cash, you don’t have to move it to another bank to get an additional $250,000 in coverage. Simply set up another account under a different ownership category (single, joint, IRA, revocable trust, corporation, etc.). For most banks, this can even be done online.

For those interested in insuring large deposits, up to $50 million, you might want to consider EverBank’s Insured Advantage Certificates of Deposit (CDARS)*.

Long Term Investment Goals: Should I Worry About Mutual Fund Companies Going Bankrupt?

No. We’re protected here, too. The Investment Act of 1940 requires each fund to be set up as an individual corporate entity, with a board of directors. That entity then hires the mutual fund company to manage its assets. So if the mutual fund company goes belly-up, its creditors can’t touch the fund’s assets. And the board of directors simply hires a new manager, after getting shareholder approval.

The only way your mutual fund can go bankrupt is if the actual value of all the stocks or bonds in the portfolio drop to zero.

Long Term Investment Goals: What if My Broker Goes Out of Business?

Again, we’re covered. Brokerage firms are restricted from co-mingling funds by SEC Rule 15c3-3 - the Customer Protection Rule. Or as they used to tell us at summer camp - boys are blue, girls are red. And we don’t want any purple running around here.

As the Financial Industry Regulatory Authority (FINRA) explains, “In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm.”

But we all know that Wall Street doesn’t always abide by the rules. That’s where SIPC insurance comes in. Created in 1970 as a non-profit, non-government membership corporation, funded by member broker-dealers, the SIPC’s primary role is to return funds and securities to investors if the broker-dealer holding these assets becomes insolvent.

SIPC coverage is limited to $500,000 per customer, including up to $100,000 for cash. But again, we can easily increase coverage by establishing multiple accounts under different ownership structures.

Good investing,

Lou

P.S. If you’re looking to put your money back to work, or if you’re looking for some ideas of what to do with your cash holdings, take a look at our Perpetual Income Portfolio. It’s yielding over 17% right now.

* Disclaimer: The publisher of Investment U maintains a marketing relationship with EverBank, but it’s important to note that we’d recommend their products and services anyway.

Louis Basenese 2008 Archives, Investment Strategies, Louis Basenese, The Truth About Investing future investing goals, long-term investment goals

The Visa IPO: Why We’re Going Long…

by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director, The Oxford Club
Monday, March 24, 2008: Issue #778

The Visa IPO went public on Wednesday. And it tipped the scales as the biggest IPO in U.S. history, raising $19.65 billion.

I’ll tell you one thing - after tracking hundreds of IPOs in the past four years, I can’t remember a single deal that got so much mainstream coverage. Sadly, most of it was just fluff.

While everyone wanted to talk about the deal (and did), none offered much actionable advice. To me, it’s not worth discussing a particular investment unless you’re willing to get off the fence and pick a side.

So today, I will.

• If you get a chance to buy Visa below $65 per share, pull the trigger.

Visa could easily be worth $80 by year-end. That’s a potential double-digit upside, a rare opportunity in these markets. So grab it. (By the way, the “back door approach” - buying the companies with a stake in Visa - is not a good idea. See today’s Crib Sheet below to find out why.)

Now, here are the reasons I like Visa so much…

The Visa IPO: Own A Piece Of A “Relative” Monopoly

The pitch for Visa is simple, it’s a rare opportunity to own a piece of a relative monopoly, as evidenced by the charts below.

Based on every conceivable metric (total volume, total transactions, cards issued, profit margins, loyalty, etc.), Visa outclasses all of its competitors by wide margins. And there’s little chance it will ever be dethroned.

Since we’re in the throes of a credit crunch, it’s also important you understand that Visa is NOT a credit card issuer, NOT a lender, and NOT exposed to consumer credit risk. It simply is a processor that collects a fee based on the number of transactions and the dollar amount of the transactions it processes.

And to put it simply, business is booming…

The global payments industry is undergoing a massive shift - away from cash and check, to card-based and other electronic payments. In fact, since 2001, credit and debit card purchases went from 13% of payment volume to 27%, a compound annual growth rate close to 15%. It’s worth noting that Visa grew twice as fast over the same period.

Rest assured, this trend still has great legs.

According to The Nilson Report, we can expect the global card purchase market to expand by at least 11% per year through 2012, with particularly strong growth coming from international and emerging markets. Again, expect Visa to deliver even stronger growth.

While management calls for a 20% increase in earnings, I’m convinced that’s a conservative estimate. A growth rate of 30% to 35% is more likely. Why?

4 Fundamentals Driving Visa’s Stellar Earnings Growth

• First, there’s not a weak spot in Visa’s revenue mix. Sales are increasing at healthy double-digit rates across all business segments and geographies.
• Second, Visa benefits from significant operating leverage. For example, since 2003, total transactions increased by 61%, but costs only increased by 12%. And with its payment processing network (VisaNet) capable of handling twice its current volume with almost no increase in costs, any incremental increases in revenues will result in dramatic increases in earnings.
• Third, Visa’s likely to significantly reduce its tax rate. And the savings will flow directly to the bottom line. Prior to the IPO, Visa never had a reason to obsess over tax management. As a result, it has the awful distinction of being one of the few companies with a 41% tax rate. In comparison, MasterCard sports a 35% rate. But this will change.
  
  Expect Visa to get to the same tax level as MasterCard in short order. And a 5% savings on hundreds of millions of dollars in income will no doubt have a dramatic impact on earnings.
  
• The last reason to own Visa is because it boasts a rarity - a business that’s increasingly recession proof.
  
  A total of 42% of its revenue is now derived from non-discretionary spending. Plus, 80% of its volume is locked into multi-year contracts.

Moreover, history bears out the recession-proof nature of its business. During the last two recessions, Visa kept growing, in terms of total transactions and total volume. And in each of the last 13 months, while a recession has become more and more likely, business continues to grow at high single-digit or low double-digit rates.

The Visa IPO vs. Mastercard’s IPO

Many keep benchmarking the Visa IPO against MasterCard’s wildly successful IPO. But there’s really no comparison. Visa is a far superior company, with a rare combination of growth and safety. Accordingly, it warrants a higher valuation. And that means shares are destined to head higher.

Good investing,

Lou Basenese

Louis Basenese spent years with one of the country’s leading investment and brokerage firms as a top analyst and trading expert, specializing in corporate takeovers and IPOs. He is now the Associate Investment Director of The Oxford Club and regularly contributes his ideas to Investment U.

The Investment U Crib Sheet - The “Indirect” Approach to the Visa IPO is a Bad Idea

• A lot of commentators are suggesting you sidestep the hoopla and play Visa (NYSE: V) indirectly by purchasing shares of one of the companies below: Company: JP Morgan Chase (NYSE: JPM)
  Stake in Visa: Class B 23.3%
  Company: Bank of America (NYSE: BAC)
  Stake in Visa: Class B 11.5%

  Company:National City Corp. (NYSE: NCC)
  Stake in Visa:

  Class B 8%

   

  Company: Citigroup (NYSE: C)
  Stake in Visa: Class B 5.5%
  
  Company:U.S. Bancorp (NYSE: USB)
  Stake in Visa: Class B 5.1%
  
  Company: Wells Fargo (NYSE: WFC)
  Stake in Visa: Class B 5.0%

   

• The rational seems logical: Since they control a sizeable stake in Visa, they should benefit without the risk of buying into the traditionally volatile shares of a newly public company.
  Bad idea.
  
• The same thing happened when VMware (NYSE: VMW) stormed the markets. Back then, everyone suggested buying EMC Corp. (NYSE: EMC) instead, because it retained an 80% ownership stake. (Louis took a stance then, too, and instructed subscribers of his HOT IPO service to buy VMW immediately. A move that handed them a quick 77% gain.)
  
• The fundamental problem with this indirect strategy is two-fold.First, even a 23% ownership stake in Visa will barely move the needle for these companies. Take JP Morgan Chase, for instance. It raked in $3.17 billion in revenues in the fourth quarter. Visa’s sales checked in at $1.49 billion. Doing the math, JP Morgan’s share of those revenues, approximately $342 million, would account for only 10% of its overall sales.In essence, if you buy JPM, you’re getting 90% JPM, and only 10% Visa.
  
• And aside from watered down ownership, the indirect approach also carries unnecessary risk…
  

   

• The credit card industry is highly litigious, and Visa currently faces billions of dollars in claims. The same is true of MasterCard (NYSE: MA). However, Visa put safeguards in place to protect new shareholders.
  
• As part of the reorganization and IPO, Visa funded a $3 billion escrow account to cover litigations arising from operations prior to the IPO. But the big banks don’t benefit from this protection. As Class B owners, they’re prevented from cashing out until all pre-IPO litigations are resolved. And if the dollar amount exceeds the allocated $3 billion, guess who’s on the hook? Class B shareholders.So while the value of their stakes might be massive now, an unfortunate turn of events could quickly change that. But if you buy Visa directly, you don’t have to worry about the past coming back to bite in the rear.

Louis Basenese 2008 Archives, Investment Strategies, Louis Basenese visa initial public offering, visa IPO, visa stock

The TakeOver Trader: 3 Ways to Master the “Skim” Trade This Year

by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director, The Oxford Club
Wednesday, January 9, 2008: Issue #750

Potential takeover targets represent one of the best short-term moneymakers that exist. The profits just can’t be beat…

Research out of The Journal of Economic Perspectives pegs the average gain at 38%, based on a sample of more than 4,200 deals. And that’s in a single day. Obviously, the averages only tell part of the story…

There are countless examples of much higher returns. Last year, for instance, my TakeOver Trader subscribers netted a 63% gain when Oracle announced it was acquiring Hyperion Solutions for $3.3 billion.

I’ve yet to find another investment with similar upside potential in such a short amount of time. And I have a great way of spotting these deals early. Three ways, actually…

Takeover Payday Is as Easy as 1, 2, 3…

To win at the takeover game, you have to identify companies in time to “skim” profits as a deal is announced. And it’s actually not that difficult if you know what to look for…

After evaluating hundreds of deals in recent years, I’ve discovered three signs a takeover could be nigh. Here they are, plus several companies where the takeover potential is particularly high right now…

Takover Target #1: Tracking the Merger Monday Phenomenon

For some reason, the bulk of M&A deals are announced on Mondays. My guess is that investment bankers use the weekends to finalize deals, when there’s no chance someone can leak information and impact current prices ahead of a final agreement.

Regardless of the reason, if you simply clip out the deals announced in the Monday edition of the Wall Street Journal for a couple weeks, making note of the industries or sectors of each company, you’ll be able to hone in on takeover targets with ease.

You see, consolidation is a powerful force. And when multiple firms in the same industry or sector get gobbled up, chances are good that deals involving their closest competitors won’t be far off. It’s this strategy that recently tipped me off to MicroStrategy Inc. (Nasdaq: MSTR) and Wimm-Bill-Dann Foods (NYSE: WBD) - two stocks I consider compelling takeover targets today.

Takover Target #2: Follow the Insiders

Nobody knows better than insiders if they’re preparing the company for an eventual sale. So keep an eye on their buying activity. If they start buying in clusters, a takeover could be in the works. And if the company happens to be in an industry that’s consolidating as well, the chances are even greater an offer is expected.

Both conditions currently apply to Colonial Bancgroup (NYSE: CNB), a regional bank that’s been unfairly punished in the broad-based financial selloff.

Takover Target #3: Look For Spikes in Options Trading Volume

We’ve all been told secrets before. And what do we do? We eventually share them with someone. On Wall Street, privileged information leaks out in a similar fashion. And the way to track such secrets is through daily options trading volumes.

If you’ve found a stock that meets criteria #1 and #2 above, pay attention to trading activity in the front month call options. As a Yale study confirmed, “Prior to takeover announcements, call volume imbalances are strongly positive related to next-day stock returns.”

Put simply, if a stock is trading for $10 and investors pile into $15 front-month calls, the only explanation is a takeover. Nobody’s foolish enough to buy options that require a 50% move in the stock in less than 30 days to profit. Unless, of course, they have very credible information. We saw this phenomenon play out several days before a deal for Alltel was announced, which eventually netted TakeOver Trader subscribers another double-digit gain.

In short, expect the takeovers to keep coming in 2008. And don’t be misled into thinking it’s too late (or difficult) to get in on the frenzy.

Good investing,

Louis Basenese

Editor’s Note: To get a steady stream of these takeover “skim” trades delivered right to your inbox, here’s how to use Lou’s service to put an extra $5,250 a month into your account. This year, Louis plans to capitalize on “attractive targets for international buyers, as I’m convinced a weak dollar will encourage more cross-border deals in 2008.” Learn more.

Today’s Investment U Crib Sheet

• The takeover frenzy is certainly alive and well, and on Mondays indeed… The first three Mondays in December were the busiest since July, according to Reuters, when “deals hit the market before investors have even had their first cup of coffee.” Take a look at the worldwide M&A volume on these days…

  Monday, December 3rd $35.9 billion

  Monday, December 10th $42.4 billion

  Monday, December 17th $26.5 billion

• Of course, shareholders of Shore Financial Corporation (Nasdaq: SHBK), prefer Wednesdays… This morning at 6 a.m., Hampton Roads Bankshares (Nasdaq: HMPR) and Shore announced that the two companies are merging. It’s a cash and stock deal that sent shares of Shore Financial 41% higher today, to $18.25. Not bad.

Louis Basenese 2008 Archives, Investment Strategies, Louis Basenese, The Truth About Investing mergers, private equity, takeover trader, takeovers

Blue Chip Stock: Here’s A Stock that Keeps On Winning, No Matter What

by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director, The Oxford Club
Wednesday, December 5, 2007: Issue #738

Stuck in traffic yesterday, on my way to meet a friend and former Morgan Stanley analyst, I decided to swap out Bloomberg for the “Big 80s” channel on my Sirius satellite radio. (Love the service, hate the stock, in case you’re wondering.)

Sure enough, I surfed into the chorus of one-hit wonder Matthew Wilder’s reggae-infused “Break My Stride.” Remember it?

“Ain’t nothing gonna break my stride, Nobody’s gonna slow - me - down, Oh no, I’ve got to keep on moving…”

My mind drifted.

Not to images of tight-rolled pants, gravity-defying hair dos and hyper-color shirts, thankfully. But to this instead: With so much uncertainty pressuring the markets right now - from subprime losses and tightening credit markets to a China bubble and a Fed about to exhaust its interest-rate morphine drip - is there a blue chip stock that can channel Matthew Wilder? A company that nobody or nothing can slow down?

Nestle (OTC: NSRGY.PK) immediately came to mind. Here’s why…

The Ultimate Non-Cyclical Blue Chip Stock

Everyone’s got to eat. And the demand for food is ever increasing.

Just scoot over to the calculator at www.census.gov to see for yourself. The world population expands by about 75 people every 30 seconds.

I know, talk of non-cyclical investing isn’t sexy. But the story’s different here. Nestle represents an “iron-man” stock, playing defense and offense. And doing both particularly well.

On one side, Nestle’s portfolio covers practically all food and beverage categories, including well-known brands such as Dreyer’s, Lean Cuisine, Buitoni, Stouffers, San Pellegrino, and Perrier. In fact, Nestle is the world’s largest food company.

In my opinion, no better defensive play exists.

Even better, Nestle’s already proved it’s recession-proof. Over the last decade, the stock returned an average of 15% per year - more than double the return of the S&P 500.

The more recent performance is similarly instructive. Not only did shares barely budge during the mid-summer swoon. They soldiered higher and higher. Take a look…

Clearly, Nestle thrives in any business environment, making it perhaps the bluest of blue chip investments.

It’s this virtual immunity to all things that earned the stock a spot in The Oxford Club’s Anti-Terror Portfolio years ago - a collection of investments meant to protect against the unthinkable. And since its inclusion, prices have more than doubled.

We’re not surprised…

$80 Billion A Year… And Growing?

While we originally favored the stock for its protective characteristics, we’re increasingly encouraged by its growth prospects, too…even though it tips the scales at roughly $80 billion in annual revenues.

First, management’s repositioning the company’s products into higher-margin nutrition, health and wellness segments.

Second, the company continues to grow by double digits in emerging markets… and via acquisitions. (Most recently, Nestle bought the Swiss mineral water company, Sources Minerales Henniez, S.A.)

Third, Nestle’s Globe project, a strategic plan that aims to boost efficiency and save costs, is now seeing significant improvements, according to outgoing Chief Executive Peter Brabeck. And as one analyst noted, the cost benefits here could be “massive.” Expect earnings to get a meaningful (and positive) boost as the plan keeps gaining traction.

Fourth, earnings should get another jolt from timely divestitures of the company’s stakes in L’Oreal and Alcon, Inc.

Fifth, Nestle announced a record $1 billion share buyback program in August. And research out of the University of Illinois at Urbana-Champaign proves companies buying back their own shares typically outperform the broad market over the next four years… by as much as 45%.

Last, and certainly not least, owning Nestle provides a dollar hedge as shares are denominated in Swiss francs. We all know the dollar is the world’s favorite whipping boy right now. So, if it keeps sliding, shares will naturally head higher. No matter what happens with the underlying business.

All told, Nestle represents the only stock I feel safe recommending no matter what’s happening in the markets. And adding it to your portfolio will only help, not hinder, performance in the year ahead.

Good investing,

Lou Basenese

Editor’s Note: Louis, a former equity analyst at one of the nation’s leading investment banks, is a regular contributor to The Oxford Club’s twice-monthly Communiqué. That’s where the Club publishes all of its premium stock opportunities, which have beaten the S&P 500 nearly 3-to-1 for five years running. To see how the Club has changed the life of one of your fellow readers, here’s his story.

Louis Basenese 2007 Archives, Investment Strategies, Louis Basenese, Stock Tips Site Map blue chip stock, blue chip stocks, investing in blue chips