Author: forex-trader

By The Sizemore Letter

It can be a lonely life as a contrarian value investor.  By definition, you constantly find yourself in the minority.  And by betting against the herd, you are subtly (or not so subtly) sending the message that you are smarter than everyone else.

This is not the sort of thing that makes your popular at a cocktail party.  When you are right, your acquaintances are by definition wrong and you look like an insufferable know-it-all.   And when you’re wrong?  Don’t expect any sympathy.

Still, taking a contrarian mindset and, in the words of the great Warren Buffett, being greedy when others are fearful, is the only way to score outsized returns over time.  To paraphrase another great investor, the late Sir John Templeton, you can’t outperform the market if you buy the market.

Of course, once in a while, the herd is actually right, and a cheap stock continues to get cheaper until the bitter end.

So, which is the case with Research in Motion (Nasdaq:$RIMM)?  Is the former tech darling the contrarian buy of the decade?  Or is it a value trap, luring hapless investors with its siren song of cheap earnings multiples?

RIMM released its quarterly earnings yesterday after the market closed, and the news was mixed. The number of subscribers rose to 77 million, and RIMM’s cash balance continues to rise, up by $610 million to $2.1 billion. Yet revenue fell 19% for the quarter to $4.2 billion, and the company posted a net loss of $125 million.  Adjusting for good-will impairment and other one-time charges, the company saw earnings-per-share of 80 cents a share, a penny shy of analyst expectations.

Investors have gotten used to disappointing earnings announcements from RIMM, so none of this should come as a shock.  But this is where it gets interesting.  RIMM finally appears to be taking its problems seriously, and major management changes are in the works.  Jim Balsillie, former co-CEO and the man perhaps most blamed for the company’s recent turn of fortune, is resigning from board.  He will certainly not be missed by RIMM’s beleaguered shareholders.

Additionally, two other high-level executives, chief technology officer David Yach and chief operating officer for global operations Jim Rowan, will be leaving the company.  CEO Thorsten Heins is cleaning house; it’s a shame it wasn’t done sooner.

Surprisingly little was said about BlackBerry Mobile Fusion, which I continue to believe is the company’s best (and perhaps only) chance at staying relevant over the long haul (see prior article for a longer discussion of Mobile Fusion).  However, Heins did make it very clear in the post-announcement conference call that the company would be looking to refocus on its strengths in the enterprise market and look to new partnerships to address its weaknesses.

Some analysts took this to mean that the company is looking to eventually exit the handset business and focus instead on its core services business.   I, for one, would encourage such a move.  IBM (NYSE: $IBM) made the painful decision to largely exit the hardware business a generation ago, and it certainly proved to be the right one.

Heins also refused to rule out an outright sale of the company, and given the RIMM’s price I view a sale as a real possibility and a potential floor on the stock price.

RIMM is one of the cheapest companies in the world.  It trades for 5 times forward earnings (which are, admittedly a bit of a moving target) and just 0.36 times sales.  Value investors should take note that RIMM trades for substantially less than book value.  At just 0.69 times book, RIMM could be sold off for spare parts and be worth more than its current market price.

A large chunk of RIMM’s book value is its cash in the bank.  RIMM has more than $4 per share in cash and investments.  At its current price of $13.40, that amounts to nearly 30% of the value of the company.

RIMM’s portfolio of technology patents—which have real value and can be sold—are estimated to be worth anywhere from $2 to $7 billion.  To be conservative, we’ll assume they are worth no more than $2 billion.  At that value, $4 billion of RIMM’s $7 billion market cap is in cash and patents.  That means that everything else—the property, plant and equipment, the inventory, the receivables and the going-concern value of the business—is being valued at just $3 billion, or $5.72 per share.

For a company that still has 77 million subscribers, a dominant position in the enterprise market, and over a billion dollars per quarter in cash flow from operations, that is crazy cheap.

I continue to recommend RIMM as a contrarian buy.  At current prices, it is simply too cheap for me to ignore.

A word of caution is warranted, however.  You have to have thick skin to own this stock.  Take a look at some of the banter in the Tweetosphere, and you’ll see what I mean: RIMM StockTwits feed.

You also have to have faith that management won’t erode the value of the company’s assets before RIMM either turns it around or sells out to a larger buyer.  Given the company’s recent track record, there are no promises on that count.

Still, you’re not going to score quick triple-digit gains by buying what everyone else is buying.  And at current prices, I believe that RIMM presents a fantastic opportunity for returns of 100-200% over the next year.

Disclosures: RIMM is a current recommendation of the Sizemore Investment Letter

Avoid bond funds in 2012. These investors are about to get slaughtered.

At our 14th Annual Investment U Conference at the beautiful Grand Del Mar in San Diego last week, I discussed a number of attractive investment opportunities available right now.

But I also warned them about one of the worst investments you can make. Take a minute now to make sure you don’t have it in your portfolio right now.

As I mentioned in a recent Investment U column, we’re at the tail end of the biggest 30-year rally in bonds the nation has ever seen. Three decades ago, Fed Chairman Paul Volcker pushed the prime rate up to 21.5% to squelch inflation. Long-term Treasury yields reached 16%. From that pinnacle, long-term yields have plummeted to 3.1% today. Bond prices have soared accordingly.

But the financial crisis is over and the economy is beginning to show a pulse. Higher inflation may be just around the curve. And as yields move up, bond prices move down. And perhaps way down.

Just about the worst thing you can own when interest rates are moving up is a leveraged bond fund. When a fund manager borrows short term at low rates in order to buy additional long-term fixed-income investments for his fund, it’s the equivalent of buying stocks on margin. It works fine while bond prices are flat or rising. But when bond prices fall – as they will when interest rates rise – these shareholders take a shellacking. If you’re not sure whether the bond funds you own are leveraged, don’t guess. Call the funds and ask.

And if you owned a leveraged closed-end fund, don’t even call. Just get out, especially if the fund is trading at a premium to its net asset value (NAV).

Recall that closed-end funds are not like Fidelity or Vanguard mutual funds. Like ETFs, they trade on an exchange and can be bought and sold throughout the day (not simply redeemed at the closing price like open-end mutual funds).

However, closed-end funds can see their prices fluctuate well above or below their net asset values (NAV). When a fund trades above its NAV, it is said to be trading at a premium. And when it trades below the NAV, it is trading at a discount.

There is no easier (or more obvious) buy or sell signal than to buy these funds when they trade at big discounts and sell them when they go to a premium.

If those premiums are huge – as many are in the fixed-income sector right now – they are ticking time bombs that you definitely don’t want in your portfolio. Here are just a few that are particularly dangerous right now:

And then there is the biggest stink bomb of them all: PIMCO High Income Fund (NYSE: PHK), currently trading at a 60.4% premium to its net asset value. Over 60%! That is completely nuts. These shareholders are clearly asleep – and overdue for a rude awakening.

Even if your closed-end funds aren’t on this list, don’t be complacent. Call your mutual fund and ask if the manager is using leverage. Or visit a free website like www.cefconnect.com and check out the relationship of your closed-end funds to their net asset values.

It may well be the most important three minutes you spend on your portfolio this year.

Good Investing,

Alexander Green

Article by Investment U

By TraderVox.com

Tradervox (Dublin) – The Euro has been on a bearish run against major currencies this week due to the eurozone finance ministers meeting today which is expected to endorse a plan to combine the European Stability Mechanism kitty with that of European Financial Stability Facility. This will be done in a bid to strengthen the region’s financial firewall safeguarding the region’s economy against any crisis like the one for Greece. The idea of combining these two facilities had been vehemently contested by Germany and Ireland; however, these two countries have softened their stand and now they are willing to comprise in order to secure the currency bloc.

Currently the EFSF has 248 billion Euros out of its total capacity of 440 billion Euros. The ESM is set to have 500 billion Euros lending capacity and it is expected to take over from the EFSF completely. Therefore, it is expected that the Final ESM would have 500 billion-Euro capacity which include the amount that has already been utilized by the EFSF leaving only 308 billion Euros at the disposal of the newly created entity. Analysts are warning that this would lead to a less favored outcome that is likely to exert downward pressure on the euro.

Since this option is less favorable for the region, another version, which is a bit optimistic and opposed by Germany is letting EFSF and ESM to run concurrently, meaning that the kitty would amount to 748 billion Euros now, as 192 billion Euros have already be used from the EFSF kitty. The third scenario which might be acceptable is to let the EFSF and ESM to run concurrently up to then end of June when the EFSF expires and thereafter to continue with the ESM which has a capacity of 500 billion Euros.

Since the third option has been agree upon across the market, this might be the likely scenario outcome which will be against the traders’ expectation precipitating a scenario of “buy the rumor, sell facts.” It should also be noted that the high inflation rate, which despite lowering to 2.6 percent still remains above the ECB target, will affect the demand for the euro after the meeting.

Disclaimer
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After touching 1.5991 previous high resistance, GBPUSD pulled back from 1.6000, suggesting that a cycle top is being formed on 4-hour chart. Initial support is at the lower line of the price channel, and the key support is at 1.5770, as long as this level holds, uptrend from 1.5602 could be expected to resume, and another rise towards 1.6300 is still possible. On the other side, a breakdown below 1.5770 will indicate that the uptrend has completed at 1.6000, then deeper decline to test 1.5602 support could be seen.

Daily Forex Forecast

By Paul Tracy, dividendopportunities.com

It’s a country that rarely gets any mention by the mainstream investing press.

Sure, you hear about India, China, Russia, and Brazil. And for good reason — those countries are growing at incredible rates, which has made many investors rich already… and will make even more people wealthy in the years ahead.

But for my money, I don’t know if there is a better place to invest than Chile.

It’s small — total GDP is roughly $215 billion. That’s about 70 times smaller than the United States’ economy. Meanwhile, only 17 million people call Chile home… giving it a smaller population than Florida.

Right now, Chile’s economy is growing at a 5% annual rate. That growth is accompanied by perhaps the most fiscally conservative government on the planet. National debt in the United States sits at 100% of GDP. But Chile’s public debt totals just 9% of GDP, according the CIA World Factbook.

In fact, it is required by law to run a budget surplus unless there are extreme circumstances. In 2011, it ran a surplus of 0.6%. For comparison, the United States ran a deficit of nearly 9% — or $1.3 trillion — last year. And we haven’t seen a budget surplus since 2000.

This good governance has allowed the country to flourish. Poverty has fallen from 45% in the ’80s to 27% today — still high, but a dramatic move in a little more than two decades. Meanwhile, unemployment sits at just 6.6% today.

One more thing… Chilean companies are required by law to pay dividends.

That sounds almost too good to be true for U.S. investors. It’s one thing that income investors have always had to remember — dividends are optional.

Dividends can be cut at any time, for any reason. While bonds are required to pay interest, there is usually nothing requiring a company to pay a dividend to its investors.

But in Chile, public companies are required to pay at least 30% of their net income out to shareholders. In that regard, the mandate is basically a tax… but instead of the government grabbing their share, it goes to investors.

There’s more good news. You don’t need a specialized brokerage account to own Chilean stocks, and you don’t have to buy the stocks directly from the Santiago Stock Exchange.

For example, the Aberdeen Chile Fund (AMEX: CH) holds a stake in about 20 Chilean companies. By simply buying shares of the fund here in the U.S., you’re buying a stake in these companies. Right now the fund is yielding well into the double-digits.

But more important than Chile’s prosperity, or the fact that its companies are required to pay dividends, is what Chile represents.

The country is a perfect example of the opportunities for income coming from foreign markets. As I’ve told you before, the vast majority of the world’s highest yields aren’t being paid out by U.S. companies.

When I ran the numbers a few weeks ago, just 17 profitable U.S. companies had stocks with yields of 12% or more… compared to 210 abroad.

I want to make something clear — I don’t think you should drop everything and put every dollar you have into international high yielders. Truth is, the size and scope of the U.S. market makes it a great place to search for income investments.

But limiting yourself to only the U.S. is like going to a restaurant and limiting your options to just one side of the menu. Sure you can find something you like… but wouldn’t you rather see all the options?

I have more details — including the full list of 17 U.S. stocks yielding 12% — in a presentation I recently put together. You can visit this link to watch it now.

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist — High-Yield International

Disclosure:  StreetAuthority owns CH as part of the company’s various real-money portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.

USDCAD stays in a trading range between 0.9841 and 1.0050. As long as 1.0050 key resistance holds, the price action in the range is treated as consolidation of the downtrend from 1.0422 (Dec 14, 2011 high). Another fall to test 0.9841 would likely be seen, a breakdown below this level could signal resumption of the downtrend. However, a break above 1.0050 will indicate that the fall from 1.0422 had completed at 0.9841 already, then the following upward movement could bring price back to 1.0400 zone.

Forex Signals

AUDUSD is facing the resistance of the downward trend line on 4-hour chart, a clear break above the trend line will suggest that lengthier consolidation of the downtrend from 1.0855 is underway, then range trading between 1.0336 and 1.0550 could be seen. On the other side, downtrend could be expected to resume after touching the trend line resistance, support is now at 1.0425, a breakdown below this level could signal resumption of the downtrend.

Daily Forex Forecast

GBPUSD’s upward movement had completed at 1.5922. Another fall would likely be seen later today. Support is at 1.5770, a breakdown below this level could signal resumption of the longer term downtrend from 1.5991, then further decline to test 1.5602 could be expected. On the other side, a break above 1.5922 will indicate that the pair remains in uptrend from 1.5602, then further rise towards 1.5991 previous high could be seen.

Forex Signals

Being contained by 1.3290 resistance, EURUSD pulled back from 1.3284, suggesting that a cycle top is being formed on 4-hour chart. Further decline would likely be seen later today, and next target would be at 1.3050 area. Key resistance is at 1.3290, only break above this level will indicate that the fall from 1.3486 had completed at 1.3003, then the following upward movement could bring price to test 1.3486 previous high resistance.

Daily Forex Forecast