AIA Advocate for Absolute Returns

Association of Investor Awareness - Week of 10/29/2009

Research & Editorial Staff — Thu, 29 Oct 2009 14:49:00 GMT

In This Issue:

Investors Are Deciding Which Way To Jump
Earnings Count More Than The GDP
Beat The Fixed Income Blues
A Dividend Honor Roll
If You Can't Beat Them...
The Bottom Line This Week

The past 30+ days was a weak period for stocks. Since our September newsletter, the Dow fell 0.6% and the Nasdaq dropped 2.3%.

However, investors have little cause to complain. The market delivered a 56% gain since March 9. At this point, a timeout could be a pause that refreshes. That's especially true since October has often been a tough month for stocks, particularly when it was preceded by a run-up. Another such shock was definitely not welcomed.

Investors Are Deciding Which Way To Jump

Of course, we may still have a correction after investors have a chance to consult their crystal balls and compare what they see coming in the economy with current stock values.

Pessimists think the economy won't justify the big gains we have seen so far, much less any additional advances. They point to the World Bank's estimate that the U.S. will grow only about 1.2% next year. If that level proves to be correct, many stocks are undoubtedly overpriced.

More bullish investors think the World Bank has such a poor track record with estimates that it should stop making them. Several economists with much better credentials put growth in the 3% to 4% range for 2010. If that mark proves to be correct, stocks still have some catching up to do.

Earnings Count More Than The GDP

Since we don't buy the market, we are not particularly concerned with what the overall growth rate proves to be, so long as it is above the zero mark. What we care most about are the earnings of companies we are following.

Fortunately, earnings for most of our recommendations are doing very nicely. That's no surprise since we have been favoring blue chip exporters that benefit when the value of the dollar declines.

That was good strategy. So far this year the dollar has dropped about 14% against a basket of foreign currencies, and our exporters are reporting solid sales increases.

The outlook for earnings is actually much better than the dollar's decline would suggest. During the tough recession, most companies cut costs so much that they were able to remain profitable through the worst of the troubles. Now that orders are increasing, nearly every dime is going directly to their bottom lines.

Beat The Fixed Income Blues

As you probably know all too well, the returns from fixed income investments are on the floor. Most money market funds pay under 1%. CDs are paying more, but not by much. Even longer term bonds typically return only about 3.3%. As one retired person we know lamented recently, "Those returns are driving us to the local soup kitchen."

We think the solution for most people who need current income is to move some money to successful stocks that pay attractive dividends. Several of our recommendations fit the bill. Some of them pay about twice what can be earned in the fixed income market.

Of course, there is no sense buying a stock that pays good dividends if it is likely to drop sharply in price. That's a common trap for investors who only look at yields. Since the yield is calculated by dividing the most recent dividend by a stock's current price, the number will soar if the price starts heading for the cellar.

To make matters worse. If the price is tanking, it probably means the company's earnings are also declining. In that case, the dividend will probably be cut. That happened at many of America's largest and most prosperous banks during this tough recession.

The way to minimize your risk is to select stocks that have good yields, and are also doing well in the market. If the companies have long histories of paying dividends, all the better. The cream of the crop raise their dividends every year. Here are three stocks that hit all the bases.

A Dividend Honor Roll

Kinder Morgan Energy Partners, L.P. (KMP) heads the list. http://finance.yahoo.com/q/bc?s=KMP The company owns and operates over 26,000 miles of oil, natural gas, and fuel pipelines in the U.S. In addition, the company has 150 terminals that store and transport petroleum, petrochemicals, coal and other bulk items by rail and truck.

Kinder Morgan also has a timely carbon dioxide business. Huge quantities of the greenhouse gas are now being pumped into older oil wells to increase their yields. Of course, the process also gets rid of the nasty gas. Talk about killing two birds with one stone.

Although Kinder Morgan trades like a stock on the NYSE, it is actually a limited partnership that distributes its available cash to investors each quarter. Over the past five years, the partnership had an attractive 6.5% average yield. Currently, the yield is an exceptional 7.4%. Best of all, only part of the payout is taxable.

When we look at Kinder Morgan's strong business and its excellent dividend, it is easy to see why it resisted the recent stock market sell-off. The company should make an excellent choice for investors who seek high current income plus a chance for long-term capital gains.

Consolidated Edison (ED) is also very attractive. http://finance.yahoo.com/q/bc?s=ED The company supplies electric power, natural gas, and steam to a total of over 4 million customers in New York, Pennsylvania, and New Jersey. The company also sells surplus power to other utilities in the Mid Atlantic region. Additionally, Con Ed designs and installs modern energy-efficient heating, ventilating, air conditioning, and lighting equipment throughout its service area.

There aren't many companies with a longer history of success than Con Ed. It was founded in 1884 after Thomas Edison proved that electric networks were feasible. More importantly to investors who seek income, the company raised its dividends 35 years in a row. That's an outstanding track record. The yield is currently an attractive 5.6%

Eli Lilly (LLY) was founded in 1876, which makes it one of the very few American companies with a longer history than Con Ed. http://finance.yahoo.com/q/bc?s=LLY Lilly has a large line of drugs that treat diabetes, attention-deficit disorder, schizophrenia, osteoporosis, several cancers, and cardiovascular problems – to name only a few. The company also has a full line of successful animal health care products.

Nevertheless, investors are nervous about the company due, in part, to the impact the proposed national health care program may have on drug company profits. Investors are also unhappy that Lilly's patent on Prozac expired a few years ago, and Zyprexa, its best selling drug today, will go off-patent in 2011. However, Lilly has a large drug development pipeline that will bring many new products to market over the next few years.

Eli Lilly currently pays a healthy 6.0% dividend. In addition, the company has declared dividends since 1885, and it has raised them for 42 years. Lilly more than qualifies as one of Standard & Poors' elite Dividend Aristocrats.

If You Can't Beat Them. . .

Speaking of large banks, Goldman Sachs (GS) is emerging from the financial service turmoil in fine shape. http://finance.yahoo.com/q/bc?s=GS Part of the reason is the banking meltdown removed several of its competitors. Now Goldman has a clear shot at rebound profits in many areas.

Goldman also shines because it is an international company that benefits from the expanding global economy that is growing several times faster than the U.S. China, for example, just announced that its growth rate reached an astounding 8.9%. Nearly all of Asia is also rolling along in high gear. As an international bank and trading company, economic growth will mean rising profits for Goldman.

Lastly, Goldman Sachs looks good for the very reason many people hate the company: its political connections are strong. Whatever you may think about that relationship, it should be worth millions of dollars in profits over the next several years.

Earnings are already on an upturn, an excellent achievement given the difficult climate that exists for banks. The yield is only 0.80%, but Goldman Sachs should be purchased for its potential appreciation, not for income.

The Bottom Line This Week

Notwithstanding the last few days, the stock market has continued to rise, but at a far slower rate than it did earlier this year. It does not surprise us to see some correction. Once it runs its course, however, we think the improving economy will justify another leg up for stocks.

A big problem many investors face today is a lack of good income opportunities. Everything from money market funds to long term Treasuries are paying very little.

On the other hand, some high quality stocks have attractive yields. Three that we like very much are Kinder Morgan Energy Partners, L.P., Consolidated Edison, and Eli Lilly.

Investors who have been looking for a promising bank to emerge from the financial service carnage should consider Goldman Sachs. We think the company has a lock on growth.

Until Next Time

The AIA "Advocate For Absolute Returns", a publication of The Association for Investor Awareness, Inc., tracks market trends, industry news, the SEC, global trade and finance and Washington developments for you because they affect your investments. But who doesn't? Many sources report these issues as abstract facts. We feel that's not enough. The AIA Advocate's job is to warn you of what's important and how these developments translate to ground-level forces and threats that directly affect your wealth as well as your current investment opportunities. Not just information, but information you can use. Until next time ...

Association of Investor Awareness - Week of 09/24/2009

Research & Editorial Staff — Thu, 24 Sep 2009 16:48:00 GMT

In This Issue:

Will The Right Fundamentals Please Stand Up?
The "Uncle Sam Effect"
Small Investors Are Coming Back To Stocks
Inflation Fears Are Increasing
First Some Bad News, Then Some Good News
Easy Index Gains May Be Over
These Four Favorites Should Stay On Top
And So Should China
The Bottom Line This Week

Despite all the worries about overvalued stocks, the market is continuing to advance. To be sure, the gains aren't coming by leaps and bounds anymore – but they are still adding up nicely. Since our last newsletter, the Dow and the Nasdaq rose another 1.8% and 5.1% respectively.

Will The Right Fundamentals Please Stand Up?

When it comes to stock fundamentals, value is in the eye of the beholder. Traditionalists believe the market is too expensive for the weak economic recovery they expect to see. The analysts argue that the economy may take over a year to justify the whopping 46% gain in the Dow since March. Some analysts think the recovery will never gain the necessary strength.

However, many other number crunchers believe the data suggests that stocks have further to run. Their main argument is that earnings were whacked so hard by the economic downturn that even a small uptick in growth will have a big impact on profits. The more bullish analysts believe that even a 2% expansion will double the profits of many top companies. It follows that if earnings shoot up, so should stock prices.

Other bullish investors believe it's a mistake to look solely at a company's U.S. potential. The globalists point to the much stronger recovery that is happening in the world economy. The bulls insist that investors in well-run companies with a substantial amount of business overseas can expect to prosper over the next few years.

The "Uncle Sam Effect"

We think even the most optimistic fundamental investors are missing the biggest plus for the stock market: a great deal of Uncle Sam's stimulus and bailout money is moving into equities. That's not surprising since increasing stock values was almost certainly one of the Fed's goals. That's as it should be since raising equity prices is one of the best and broadest ways to increase America's economic health.

So far, the government has pumped about $2 trillion (that's trillion with a "T") into the economy. Another $2 trillion or so has been earmarked for additional programs. Since stocks are the best-performing investments available now, it isn't surprising that they are attracting much of the money.

Small Investors Are Coming Back To Stocks

Another plus for stocks is individual investors are starting to come back to Wall Street. If that trickle becomes stronger, there should be an attractive new leg up for the bull.

Small investors hold a great deal of potential because they have some $5 trillion available to buy stocks. Money market accounts alone contain over $3 trillion, most of which is earning returns below one percent. It is no wonder that investors are chomping at the bit to find better opportunities for their cash. High quality stocks that pay good dividends are moving to the top of that list.

America's baby boomers are especially eager to boost their investment returns. Most retirement portfolios took huge hits when the market collapsed two years ago. Although the boomers are being very careful not to lose even more money, they know they must recoup their earnings if they want more than a subsistence old age.

Since April, only about $56 billion has come out of safe harbor accounts to be invested in stocks. It doesn't take a math wizard to see that a great deal of money is still available to purchase equities.

Inflation Fears Are Increasing

The huge amount of stimulus and bailout money the government is pouring into the economy is causing many people to worry about rising inflation. That's especially true since most of the money was created out of thin air for the occasion. Since the new money isn't represented by additional goods and services, many economists say it will soon begin to push prices up.

The threat of sharply rising inflation is adding to the need to find greater returns. That's because the value of cash can be expected to fall at whatever rate inflation rises.

On the other hand, the tangible asset values are likely to keep pace with inflation. That's not true for all of them, of course. Real estate, for example, doesn't look very attractive right now.

However, precious metals and some commodities should do well if inflation returns. But those hedges don't appeal to many mainstream investors. Most people are more attracted to high quality stocks that have a long history of keeping up with inflation. The icing on the cake is the best companies also pay dividends.

First Some Bad News, Then Some Good News

When we put all the stock market pros and cons together, we think the odds favor more gains. However, we should not expect additional returns to come as easily as those we received in recent months. Progress from here is likely to be bumpy.

One of the first, and perhaps the biggest, bumps may be close at hand. After the market's 46% run-up over the past six months, a correction seems overdue. If you don't wish to run the rapids, this would be a good time to take some profits. If you want to remain in the market, but with lower risk, we heartily recommend the use of stop loss orders. The more nervous you are, the tighter you should place your stops. Just be sure to pick prices that are outside each stock's normal trading range.

Easy Index Gains May Be Over

When the market started to surge in March, investors in broad index funds did very well. For the first six months, making money was a no-brainer.

From now on, however, we think investors will need to be more selective to find attractive profits. As many brokers advise, "It's time to trade your shotgun for a rifle."

Another reason to choose stocks carefully is investors have become more conservative and risk averse than they were during the boom. Whiz-bang widget makers with big dreams and short histories are getting scant attention. Instead, the market now favors known companies with proven products and solid track records. The best blue chips fit those criteria perfectly.

These Four Favorites Should Stay On Top

Four companies that we like very much this fall are:

Alcoa (AA) http://finance.yahoo.com/q/bc?s=AA,

Deere & Company (DE) http://finance.yahoo.com/q/bc?s=DE,

General Electric (GE) http://finance.yahoo.com/q/bc?s=GE, and

Caterpillar (CAT http://finance.yahoo.com/q/bc?s=CAT.

We first recommended them in our June 25 newsletter, and they have since done very well. Here are the numbers:

Name	Symbol	Price on 6-24-09	Price on 9-22-09	Percent Change	Yield
Alcoa	AA	$10.69	$14.26	33.4%	0.90%
Deere	DE	$41.83	$46.18	10.4%	2.50%
GE	GE	$11.79	$17.01	44.3%	2.40%
Caterpillar	CAT	$34.06	$54.34	59.5%	3.10%

Because all four companies are tied to the global economy, they are very efficient, and can prosper even in a slow growth environment; we continue to recommend them.

And So Should China

Another place we think you should take aim is China. While the U.S. and Europe remain mired in recession, China is booming.

In August, for example, the country's industrial production rose 12.3%. Retail sales surged over 15%. Real estate development jumped 14%. The list goes on and on. All together, China's economic growth is in the 8% range.

China is one place where stock gains are so broad that investing in an index fund makes sense. Our favorite is the PowerShares Golden Dragon ETF (PGJ) that tracks the performance of the Halter USX China Index: http://finance.yahoo.com/q/bc?s=PGJ.

The selective index contains Chinese stocks that trade on U.S. exchanges, and which have capitalizations of at least $50 million. We think the ETF is an excellent way to participate in the further growth of China.

For those investors who prefer individual stocks we have several favorites that we continue to follow and believe have significant upside potential.

Universal Travel Group (UTA) http://finance.yahoo.com/q?s=UTA

Universal Travel Group, a fast growing (20 to 25% top and bottom lines)travel services provider is engaged in providing reservation, booking, and domestic and international travel and tourism services throughout the PRC via the internet and through customer representatives. Under the theme "Wings Towards a More Colorful Life" the Company's core services include tour packaging for customers and booking services for air tickets and hotels.

Currently trading in the $13 range, multiple analysts have pegged UTA with a $20 price target.

NF Energy Saving Corp (NFEC) http://finance.yahoo.com/q?s=nfec.ob

NF Energy Saving is an integrated provider of energy conservation solutions utilizing energy-saving equipment, technical services and energy management re-engineering project operations to provide energy saving services to clients. Headquartered in Shenyang city of China, the Company currently has 220 employees and multiple proprietary energy saving technologies and patents.

In a press release issued early Wednesday morning (9/23/09) the Company stated that "based on customer orders received and anticipated project completion schedule for the remainder of 2009, the Company expects revenue for the fiscal year ending December 31, 2009 to reach $24 million, a 52% increase over revenue of $15.8 million for the fiscal year ended December 31, 2008."

Currently trading below $5, NFEC is seen by several noted small-cap analysts as a good bet to hit $8.50 to $10 a share.

Shengkai Innovations, Inc. (SKII) http://finance.yahoo.com/q?s=skii.ob

Shengkai Innovations is engaged in the design, manufacture and sale of ceramic valves, high-tech ceramic materials and the provision of technical consultation and related services. The Company's industrial valve products are used by companies in the electric power, petrochemical, metallurgy, and environmental protection industries as high-performance, more durable alternatives to traditional metal valves.

SKII has delivered 128% in gains for January investors and with an attractive P/E of 10.00 it seems to just be getting started. Check out these strong financial results.

Revenue for the year ended June 30, 2009 increased 21.5% to $39,297,235, compared to $32,355,693 for YE 2008. Net income increased $3,490,655 or 34.6% to $13,577,694 for the year ended June 30, 2009 from $10,087,039 for the comparable period in 2008.

The Bottom Line

Although the stock market is no longer shooting up at its former rate, it is still continuing to deliver attractive gains. A correction seems likely after such a big run, but we think stocks will recover and go on to greater heights.

Four stocks that are doing even better than the market are Alcoa, Deere & Company, General Electric, and Caterpillar. All of them should continue to do well as the world emerges from the recession.

One country that looks especially good is China where growth is still an impressive 8%. We think investors who seek a broad stake in China should consider the PowerShares Golden Dragon ETF that tracks the performance of the country's most successful companies. Or, for individual stock picks three small-cap profit opportunities include Universal Travel, NF Energy and Shengkai Innovations.

Until Next Time

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. The Association for Investor Awareness, Inc. (AIA) and respective staffs and associates may or may not have investments in any companies, stocks or funds cited herein, may or may not have long or short positions and/or options and warrants relating thereto and may purchase and/or sell these securities or options at any time in the open market or otherwise without further notice. AIA, its Officers, Directors, Employees and Affiliates may receive compensation for the dissemination of this information.

Communications from AIA are intended solely for informational purposes. Statements made by various contributors do not necessarily reflect the opinions of AIA and should not be construed as an endorsement either expressed or implied. AIA is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not necessarily indicative of future performance.

In the interest of full disclosure, John M. Casson, Executive Director of AIA is president of Casson Media Group, Inc. (CMG), an affiliated company. CMG has received cash compensation and allocated $2500 for the transmission of this publication as part of a comprehensive corporate communications services agreement for Universal Travel Group. Although the Research and Editorial Staff of AIA conducts independent research and analysis, you should be aware of this potential conflict of interest.

Association of Investor Awareness - Week of 08/27/2009

Research & Editorial Staff — Thu, 27 Aug 2009 19:06:00 GMT

In This Issue:

The Outlook Is Better For An Improving Economy
Profit Growth Can Be Misleading
Big Companies Still Have An Advantage
Emerging Countries Are Making A Strong Recovery
Two Long Term Dividend Payers Look Good
Fasten Your Seat Belts, Oil Prices Are Roaring Back
The Bottom Line This Week

It's been a bear market for bears recently as their many doom-and-gloom pronouncements have gone wanting. The old bull just won't quit, despite all the logical arguments that predict his demise. It's a good lesson that paying attention to what is actually happening in the stock market is more profitable than following theories. Mother Market always has the last word.

The numbers tell the story. Since our last letter on July 29, the Dow and the Nasdaq have gone up 5.2% and 2.9% respectively. In only one of the four weeks did the market slide into negative territory, and then by less than 1%. By contrast, the best week registered a 7.3% gain. That's the sort of tailwind we like to have.

The Outlook Is Better For An Improving Economy

Of course, the rally could come to grief overnight. Stocks are rising on the expectation that the economy is finally coming out of recession, and companies will again make oodles of money. The unofficial office pool index suggests that most people on Wall Street think growth rates will be higher than Grandpa Bernanke at the Fed is predicting.

One accomplished tea leaf reader we talked to said his off-the-record prediction is that growth may exceed 4% next year. That would be quite a jump from two points behind the zero line, which is where the economy is today.

Profit Growth Can Be Misleading

Even if the economy doesn't win the long jump next year, most well-run companies should continue to see their profits increase. That's because nearly all of them have been on lean-and-mean programs that have cut costs to the bone. So even though revenues have been abysmal, profits have been on an upswing.

Of course, lean-and-mean can only go so far. At some point, all the useful cuts will have been made and profits must come from actually selling more goods. That change will mark the real beginning of a recovery.

Big Companies Still Have An Advantage

The big blue chips have a king-sized advantage when it comes to selling more products, even if the optimists are wrong and the U.S. economy just dribbles along. The global economy, where most mega companies do most of their business, is still doing well – and it should do even better next year. If so, the multinationals will once again prove that big is the size to be in the 21^st century world.

The stronger global economy will also help many U.S. firms that don't have facilities overseas. Many exporters are beginning to see their order books fill up as foreign firms ramp up their operations to meet their expected needs. As a significant side benefit, rising exports will help the U.S. trade balance, which has been suffering mightily for several years.

Emerging Countries Are Making A Strong Recovery

Speaking of the global economy, nobody is doing better than the emerging market countries. You may remember them from a few years ago when they were also on a roll. However, the high achievers plunged when their main customer, the U.S., slipped into the red.

Now many developing countries are growing quickly again. This time around, the countries are tapping into their own regional markets rather than putting all their efforts into winning U.S. orders. Fortunately for the local suppliers, the approximately 2.5 billion people in developing countries want just as many plastic salad shooters and cars as their American counterparts.

Doing best of all are the BRIC countries (Brazil, Russia, India, and China). The first two are in the catbird's seat for growth because they are major suppliers of energy and raw materials to industrial countries of all sizes.

From an investor's standpoint, emerging markets still look good for long-term portfolios because they are many years away from reaching their peaks.

To that end, we once again recommend the iShares MSCI Emerging Markets Index ETF (EEM) http://finance.yahoo.com/q/bc?s=EEM. When we first presented the fund on June 26 it was $32.32. The price is now $36.47, a 12.8% gain. We think more is on the way, but we can expect some bumps along the road. Emerging markets will always be volatile, which is why we think the best way to invest is with a diversified fund.

Two Long Term Dividend Payers Look Good

Closer to home, we continue to recommend stocks that pay rising dividends. Although fears about inflation are continuing to make the rounds, deflationary forces are still at work in our economy. As long as that situation continues –which we think will be longer than most people think— the buying power of dividends will increase.

If you purchased a selection of the blue chip companies we have been recommending in recent months, you probably don't need to make additions to your dividend portfolio. But if you want to gild the lily, we think you should add Sysco Corp. (SSY) to the group. http://finance.yahoo.com/q/bc?s=SYY

Sysco is the leading supplier of food to colleges, hospitals, corporate cafeterias, hotels, and restaurants in the U.S. The company has been winning many orders because it can operate more efficiently than its customers can do on their own. At the same time, Sysco can usually provide a better and more diverse menu.

We think Sysco has excellent prospects for several years of growth. The company has been strengthening its business capabilities by purchasing other food suppliers in its field. As a result, Sysco will be coming out of the recession much better equipped to generate new business than any of its rivals.

Sysco also shines in the dividend department. The company currently boasts a 3.8% yield which should increase by 10% annually for the next few years. The stock price is also likely to do well.

Another stock with an attractive yield is Abbott Laboratories (ABT) a 121 year old company that produces and sells healthcare products throughout the world. http://finance.yahoo.com/q/bc?s=ABT

Abbott, of course, is best known for its many successful pharmaceuticals. But the company also offers a variety of diagnostic products that are in widespread use. In addition, Abbott produces infant formula and adult nutritional drinks – and it supplies stents, vessel closure devices, and related products for coronary applications.

One of the reasons we think that Abbott is attractive is the stock is down due to all the worries about a national health care program. If such a plan is passed, there is a possibility that drug prices will be forced down. However, we think the large increase in the number of people who will receive care will more than make up for the shortfall.

Abbott's yield currently stands at 3.5%. As with Sysco, Abbott Labs will probably continue to increase its annual payout, as it has been doing for 37 straight years. Nearer term, the stock should make an attractive catch-up move once the outlook for national health care clarifies.

Fasten Your Seat Belts, Oil Prices Are Roaring Back

Although it has not yet caused gasoline prices to shoot up, the price of oil has more than doubled since its low point earlier this year. In fact, at about $75 a barrel, oil is about half way back to its all-time high of $149 that it set during the late, great economic boom.

The main reason oil prices have been rising strongly is China and other developing countries have been buying all they can find. The countries are stockpiling as much as possible because they think that supplies will become tight again as the global economy improves. We think they are right.

China is not just buying oil, it is also buying producers. The country has become Brazil's biggest customer, and is rumored to be in negotiations to purchase the largest oil company in Venezuela.

In Africa, where there are few local oil companies with which to do business, China's approach is to extract the oil itself by setting up its own operations. Local governments and warlords are happy to give China a free hand to do whatever it wants in exchange for their piece of the action.

The price of oil is like the proverbial tide that lifts all boats. When it goes up so do the profits for companies that sell it. Since ExxonMobil (XOM) has a delightfully large amount of the stuff, we think it is the company to buy. http://finance.yahoo.com/q/bc?s=XOM

The Bottom Line This Week

Like the Energizer bunny, the stock rally just keeps going. The downside with both the bunny and the rally is, when the end comes it will be sudden. Therefore, we think this would be a good time to take some profits off the table, and to put stop loss orders on everything else.

Two new companies that look very good to us are Sysco Corporation and Abbott Laboratories. Because they are in defensive sectors, the stocks should not be as sensitive to a market correction as their more aggressive cousins. We also like the dividends the two companies pay, and the prospects for more.

With oil prices on a tear again, this appears to be a good time to buy more ExxonMobil, a stock we recommended on several occasions.

Until Next Time

Association of Investor Awareness - Week of 07/30/2009

Research & Editorial Staff — Thu, 30 Jul 2009 16:10:00 GMT

In This Issue:

Stocks Got A Second Wind In July
But, How Long Will It Last?
Technology Appears To Be Turning Around
Blue Chips Top The Best Sellers Chart
The Economy Looks Better, But Not Great
Asia's Growth Is Much Stronger
A Single Stock Covers China And Its Neighbors
The Bottom Line This Week

As everyone knows all too well, the government has been working overtime to send billions of dollars in bailout money to banks. That's only fair since the poor banks depleted their resources taking such good care of us. And they say there are no more American heroes.

In any event, some of that money found its way to the stock market where it triggered the nice rally that has been warming our hearts and wallets for several months.

Stocks Got A Second Wind In July

Whatever the reason for the rally may be, after stocks hit their nadir on March 9, prices climbed an impressive 38.5%. The gains put all the major averages into positive territory for the year, an accomplishment that no one would have imagined possible a few months ago.

The big question now is, should we put away the party hats, or does the rally have further to go?

But, How Long Will It Last?

The best way to answer the question is to look at valuations. After the recent run-up, most high quality stocks are trading at about 15 times estimated earnings. That's between three and five points higher (depending on the stock) than the bear market lows. It's clear that the market is no longer in the bargain basement.

But 15 times earnings is also between three and five points below typical market tops. That means stocks could have further to run, particularly if investors look beyond 2010 for company earnings. Economic growth by then should be strong enough for efficient companies to increase their profits significantly.

Another way to answer the question is to look at the performance of individual sectors. Since consumers are counting every penny, the retail industry hasn't been doing well – and probably won't for quite some time.

Technology Appears To Be Turning Around

On the other hand, many technology companies have been making good gains, especially those that do a lot of business in countries with strong economies. We think tech could keep going quite a bit longer even if the broader market begins to sag.

Happily, many of the best-performing tech stocks were recommended in this newsletter. The list includes Apple (AAPL) Intel (INTC), IBM (IBM), Cisco Systems (CSCO), and Oracle (ORCL) – to name only a few.

Besides having robust sales, technology companies also look good because they are not burdened by debt or underfunded pension plans. Neither are they facing the blizzard of new regulations that Washington has coming down the pike for many former highflying companies.

Within the technology sector, however, investors are being very picky. Microsoft, for example, is currently out of favor. The company just reported its first ever fall in sales on an annual basis. Likewise, Dell drove many investors away when it warned that the public's preference for cheaper laptops is having an impact on its profit margins.

Blue Chips Top The Best Sellers Chart

In addition to several of our tech recommendations, many of our other stocks have also been doing well. The rally even gave an 8.2% boost to the picks from our June newsletter. Here are the numbers:

The point isn't that a group of our stocks did well. It's been known to happen. The important message is that blue chips are what investors have in their sights.

That's exactly what we would expect in a damaged economy where a recovery can only be low and slow. Tough conditions always favor large companies that are well established in their markets. The big boys can dig in and eke out profits when growth isn't strong enough to support smaller firms.

Most blue chips are also in the catbird's seat to make full use of faster-growing foreign opportunities. The big multinationals are everywhere. They almost always have at least one market that is hot. Today, the sizzler is China. India is cooler, but only by comparison to its bigger neighbor. India's 4% growth is a skyrocket compared with most countries.

There is another reason that blue chip stocks are doing well. The inflation cycle, that nearly everyone is expecting, has yet to arrive. Instead, deflation is still hammering the economy. Everywhere we look we see it at work. Job losses, wage reductions, rising foreclosures and bankruptcies, and sinking asset values fit the pattern chapter and verse. In addition, deflation has so much momentum, it may persist into 2010.

In a deflation, of course, cash is king. That makes dividends much more valuable than they are in rosier times. Most dividend stocks are blue chips. That's pretty much the end of the story.

The Economy Looks Better, But Not Great

Many investors attribute the stock rally to a positive change in the economy. However, about the most that can be said about it is the recession is weakening. Perhaps it has even hit bottom.

However, slowing down is a far cry from saying that a recovery is about to begin. Considering the amount of damage that's been done, it's likely to be quite awhile before growth can return to anything that resembles normal.

The biggest obstacle to a rebound is most consumers are no longer able to shop until they drop. Since consumer spending makes up 70% of the GDP, the slowdown is having a big impact. Until America's cash registers start playing tunes again, the economy won't do much better than limp along.

Unfortunately, Joe and Sally won't be back to the malls and auto dealers anytime soon. Not only are people being hammered by the recession, most of them are still mired in debt from their last big bash. The hangover won't go away for at least a year, and probably two.

Housing is also unable to make its normal contribution to growth. Although home prices have been inching up in some areas, it's too early to call a turn in the market. As with the recession, housing may be bottoming, but that doesn't mean a rebound is close at hand.

Asia's Growth Is Much Stronger

The economic outlook is far brighter in many foreign countries, especially those in Asia. The Chinese are leading the pack once again with an impressive 8% growth rate. The strength surprised many analysts because the weak American economy greatly reduced the demand for China's exports.

However, with 1.2 billion people, China has the world's largest domestic market. In addition, the country is like a young married couple that is just starting out – they need virtually everything. Filling the demand could keep China's economy in high gear for years.

The majority of China's neighbors are also doing well, and for the same reasons. India, for example, has a billion people that are starting to improve their lives. Taken together, the remaining Asian countries have another billion consumers.

The bottom line is, investors who are looking for excellent gains should include Asian stocks and funds in their portfolios. Of the group, China currently looks the most attractive.

A Single Stock Covers China And Its Neighbors

We continue to like the long-term outlook for China Mobile (CHL). The company offers every wireless service imaginable – including voice, text, long distance, music downloads, video, caller ID, and conference calls – to name only the most common. http://finance.yahoo.com/q/bc?s=CHL

China Mobile also does business in other parts of Asia. The company has 451 million customers, which boggles the mind. That number is 151 million higher than the entire population of the U.S.

Nevertheless, the mobile market in Asia is nowhere near saturated. China Mobile has a good record for growth, and it is currently paying an attractive 3.4% dividend. What's not to like?

The Bottom Line This Week

The stock rally is lasting longer than we expected, not that we are complaining. After such big gains we think it's time to become more cautious. If you have nice profits, it's probably a good idea to take some of them off the table. Please protect your remaining portfolio with stop-loss orders.

Going forward, we think the majority of Wall Street's winners will be blue chips with large foreign businesses. Technology stocks look particularly good. So do leading Asian companies such as China Mobile.

One investment we would avoid at this point is a broad market fund. From this point forward, you should do better if you trade your shotgun for a rifle.

Until Next Week

The AIA "Advocate For Absolute Returns", a weekly publication of The Association for Investor Awareness, Inc., tracks market trends, industry news, the SEC, global trade and finance and Washington developments for you because they affect your investments. But who doesn't? Many sources report these issues as abstract facts. We feel that's not enough. The AIA Advocate's job is to warn you of what's important and how these developments translate to ground-level forces and threats that directly affect your wealth as well as your current investment opportunities. Not just information, but information you can use. Until next Thursday...

Association of Investor Awareness - Week of 06/25/2009

Research & Editorial Staff — Thu, 25 Jun 2009 14:32:00 GMT

In This Issue:

Mixed Economic Signals Worry Investors
Another Kind Of Bailout Is Also A Concern
A New Economic Reality Is Emerging
For Efficient Companies, Slow Growth Can Be Profitable
Your Best Strategy Now
Three Analysts And A Fool Have Recommended This Stock
The Bottom Line This Week

In our last issue we remarked that "the rally may be getting short of breath." Shortly thereafter, the huffing and puffing began in earnest. On Monday of this week, definite wheezing sounds were heard as the bull dropped to its knees just short of pushing the market into positive territory for the year. Perhaps the old boy was out of shape after letting the bear take over for six months.

In any event, since May 28 the Dow dropped 0.8% while the Nasdaq managed to squeak ahead a miniscule 0.8%. More importantly, both measures slipped 3.0% and 1.7% last week – and they are even lower now.

Mixed Economic Signals Worry Investors

It is not possible at this early juncture to know if the bear has returned. However, we can say that many of the economic "green shoots" that have attracted so much attention of late are beginning to look a bit wilted.

Sales of existing homes are typical of the economic signals that are making investors nervous. Sales increased 2.4% in May, which suggests that the housing market is finally turning around. At the same time, however, home prices dropped again and are now 16.8% lower than they were a year ago. Economists can't decide if the increasing sales offset the negative consequences of declining prices. Until the matter is settled, many investors are taking a time out.

There are also mixed signals about inflation and interest rates. On the one hand, rising oil and commodity prices are clearly inflationary. Ditto for the money supply that is shooting up due to all the king-sized bailouts from Uncle Sugar.

But at the same time, wages are dropping, layoffs are increasing, household wealth is plummeting, and several states are on the edge of bankruptcy – all of which point to continued deflation. Since the tug of war between inflationary and deflationary forces could go either way, many investors are sitting on their money.

Lastly, investors were counting on a solid global turnaround in the coming months. Those hopes were put in question when the World Bank reported that growth would contract 2.9% this year instead of expanding 1.7% as previously predicted. Oops! Even if the numbers are not spot on, the reversal in the outlook is disconcerting.

Another Kind Of Bailout Is Also A Concern

It's not just investors who are nervous about the economy. The grand poobahs at America's largest companies are also moving their chairs closer to the door. In fact, many company officers are leaving the party altogether.

According to TrimTabs, a respected group of investment analysts, in June insiders at S&P 500 companies unloaded $2.6 billion worth of shares, vs a paltry $120 million purchases – and the month isn't even over yet. That lopsided ratio indicates that many executives believe the business outlook is not very good. Although company insiders are not always right, their track records are much better than from Wall Street number crunchers who aren't on the front lines.

A New Economic Reality Is Emerging

Of course, the disappointing green shoots news is no surprise to our readers. We have been arguing for months that "a recovery will probably be more modest" than most analysts and investors expect. Instead, the economy is probably just settling into a lower pace of activity where it may remain for years.

The biggest impediment to a strong rebound is this recession isn't just another contraction in the business cycle. Instead, the economy is adjusting to major structural changes in banking, credit, trade, manufacturing, consumer credit, and many other conditions – all of which are scaling down.

For example, many homeowners and realtors think that rising home sales indicate that the housing market will soon be moving up again. That may be true in many markets. However, rebounds to anywhere near pre-collapse levels are almost certainly out of the question for several years.

Likewise, manufacturers will probably need to rehire some workers to replace inventories that have been drawn down over the past year or so. But another all-out production boom is very unlikely. The outlooks are similar for the other engines of growth.

The biggest change is occurring on the social front. The madcap spending binge of a few years ago is being replaced by the desire to be frugal and put money away for the future. Even people with good incomes are changing their spending habits. The old phrase "He who dies with the most toys wins," is being replaced with "A penny saved is a penny earned." Since consumer spending is two thirds of the economy, the new thrift indicates that growth will be very modest for some time to come.

For Efficient Companies, Slow Growth Can Be Profitable

Some readers may wonder how any companies can possibly prosper given the big economic problems that dominate the news.

The answer is that the front pages don't tell the whole story of what is happening in America. The economy has a lot more going for it than banking, housing, and auto making. Although earnings are down in nearly every industry, most companies are still in the black.

That's especially true for multinational firms that do a substantial amount of business in countries with stronger growth rates than in the U.S.

Your Best Strategy Now

Thanks to the rally, we have seen excellent gains in our blue chip stocks. Although the upturn may have a second wind and continue for another few weeks, we think the possible rewards are not worth the risk. Accordingly, this would appear to be a good time to take some profits off the table.

Stocks that you intend to keep for the long haul you should protect with stop loss orders. If you are a conservative investor, using a tight stop of 10% might be in order, although choosing 15% would give prices more wiggle room.

More aggressive investors should consider using a 20% or a 25% stop to protect against a large loss in case the market is blindsided by an unforeseen event.

All investors who use stop loss orders should make them trailing stops that will follow any additional price rises every step of the way. The most effective trailing stops are based upon a percent of the price, but you can also choose fixed prices if they suit your needs better.

We also think you should make use of a correction to buy high quality stocks that fall significantly in price. All the high quality stocks that we have been recommending of late should be on your list including: ConAgra Foods (CAG) http://finance.yahoo.com/q/bc?s=CAG, ExxonMobil (XOM), http://finance.yahoo.com/q/bc?s=XOM, Hormel Foods (HRL) http://finance.yahoo.com/q/bc?s=HRL, Colgate Palmolive (CL) http://finance.yahoo.com/q/bc?s=CL, and Procter & Gamble (PG) http://finance.yahoo.com/q/bc?s=PG. We think the blue chip group is as close to being a sure long term bet as Wall Street ever offers.

A bit more aggressive, but with prospects to match, are Alcoa (AA) http://finance.yahoo.com/q/bc?s=AA, Deere (DE) http://finance.yahoo.com/q/bc?s=DE, General Electric (GE) http://finance.yahoo.com/q/bc?s=GE, and Caterpillar (CAT http://finance.yahoo.com/q/bc?s=CAT. All the companies are tied to the global economy, they are very efficient, and they can prosper even in a slow growth environment.

A new investment that we believe has excellent prospects is the iShares MSCI Emerging Markets Index ETF (EEM) http://finance.yahoo.com/q/bc?s=EEM. Emerging nations are growing much more strongly than in the U.S., and they should continue to do so. The BRIC countries in particular (Brazil, Russia, India, and China), are developing their large internal markets and are becoming less dependent upon exports to Europe and the U.S. The BRIC countries are also signing currency exchange agreements with each other to reduce their dependence on the U.S. dollar – but that's a story and an opportunity we must leave for next time.

THREE ANALYSTS AND A FOOL HAVE RECOMMENDED THIS STOCK

Last month we reported on a significantly undervalued China stock we had been following for quite some time. Those of you who took a position in Universal Travel Group (NYSE Amex: UTA) http://finance.yahoo.com/q?s=UTA have been rewarded with a very nice upward move of 44%, with Wednesday's close at $10.10.

Since moving to the American Stock Exchange, UTA has been showing up on more radar screens than a 757. The Company was profiled by "The Motley Fool CAPS" on June 23, 2009. One comment that caught our attention was..."Universal Travel has outpaced the other 11 stocks in the CAPS Travel Services sector by orders of magnitude. Shares of the growing travel company are up nearly 50% over the past month (and up more than 223% year to date),compared to the 6% increase across the sector since late May."

You may recall that Universal Travel specializes in online and customer representative services. The Company offers packaged tours, air ticketing, hotel reservation and agency services. They racked up some great numbers from 2005 through 2008: 202% Compound Annual Growth Rate (CAGR) ... they have no long-term debt ... $16.2 million in cash ... $30.2 million in working capital... and earnings of $14.5 million for the full year ending 12/31/08.

By our calculations, they have earned $1.20 ttm, and at a closing price of $10.10 on 6/23/09, they are still trading at less than a 8.5 P/E multiple. Comparable industry multiples range from 25 to 43 times earnings...even with its recent share price increase, Universal Travel has a lot of upward potential.

Three independent analysts have issued recommendations on UTA in the past eight months...the latest indicating a price target in the $16 to $18 range. We think that could be conservative, given the average P/E multiple of 34 might suggest a price approaching $40 per share. Given the Company's YOY growth of top and bottom lines, that's certainly possible in the next 12 to 18 months.

Go to http://cnutg.ir.stockpr.com/ for more details.

The Bottom Line This Week

The green shoots that most investors have been expecting are here, but they are developing more slowly than expected. We think the reason is the U.S. economy is adjusting to a lower level of growth instead of making a traditional post recession rebound.

Fortunately, well-established companies are adept at squeezing profits from slack markets. At the top of that list are our top-rated blue chip companies. All of them may be purchased if a correction makes their prices attractive again.

Investors who will accept extra risk in return for the prospect of higher profits should look to emerging markets where growth rates remain high. Among them, the BRIC countries appear to offer the greatest long-term potential, with China leading the pack.

Association of Investor Awareness - Week of 05/28/2009

Research & Editorial Staff — Thu, 28 May 2009 14:08:00 GMT

Is The Economy Finally Turning Around?
Companies With Cheap Eats Are Doing Well
China's Economy Is Still Hot (Compared With Everybody Else)
Energy Investments Are Looking Good Again
The Bottom Line This Week

The stock market rally that started on March 9 is proving to have longer legs than even the most optimistic investors dared hope. Through the end of May, the S&P 500 was up 30 percent even though the economy was continuing to decline.

Over the past month, however, the market's performance suggests that the rally may be getting short of breath. Since our last newsletter, the Dow gained an unremarkable 1.1% and the Nasdaq barely rose 0.7%. It remains to be seen if stocks will get a second wind and run for another few laps, of if a correction is on the way.

If history is any guide, the market's next move is more likely to be down than up. Not only is a 30% gain without a break unusual, summers are often slow on Wall Street. To be sure, rallies sometimes come along during the three month period but large surges don't usually arrive until after Labor Day. Shrinks think it has something to do with humans having an innate urge to stock up (pun intended) when cooler days remind them that winter is on the way.

Is The Economy Finally Turning Around?

The biggest stock market engine of all, of course, is the economy which has not been winning any medals of late. In fact, nearly all the leading indicators are still slipping. Housing prices, for example, dropped 19% in the first quarter, and jobs are continuing to disappear. There is a long and dismal list of negatives.

On the other hand, most indices are sliding less quickly than they did a few weeks ago. Optimists see the not-so-bad numbers as proof that the recession is finally coming to an end.

We are inclined to agree with the optimists, but we think a recovery will probably be more modest than they expect. A few problems are headed our way that will probably keep the rebound party from getting too lively.

The first hurdle is a commercial real estate crunch that seems likely to hit later this year. In several cities, a few skyscrapers that were once humming with activity have lost so many tenants their owners can't make the payments. As is true when Ma and Pa Kettle get behind a few months, the former high rollers are also getting the boot. There is so much vacant commercial space available, this market won't turn around anytime soon.

Many once bustling shopping malls are also in trouble. When Joe and Sally MidAmerica got their pink slips, they had a revelation: spend less money. What a concept. The result is lean times for retailers – especially those that sell overpriced glitter goods instead of affordable necessities. One bright spot is consumer confidence is rising.

Manufacturing is in no better shape than retailing. There is a connection between the two that people learn in economics classes at Harvard: if nobody buys stuff, nobody needs to replace it.

However, manufacturing should begin to pick up a bit this fall. The dollar has been dropping in value over the past few weeks which will make U.S. products more competitive overseas. The technology sector is already seeing an increase in foreign orders.

Speaking of Joe and Sally, many recent homebuyers who have been keeping their lenders happy may not be able to do so much longer. The people who are in trouble took out option mortgages that allowed them to pay whatever their incomes could afford for the first few years. The flexible terms were like winning a lottery for home buyers of modest means who realized they could live in a McMansion on a single-wide income.

Now the mortgage grace periods are running out and the option mortgage crowd will need to pay full freight each month. Many of them won't be able to do it, which will put more pressure on the housing industry.

All in all, there don't appear to be any big engines of growth that will do much more than lift the economy off the floor this year. Nevertheless, even modest growth will beat the sinking numbers we have now.

The bottom line is, there is reason for cautious optimism, but celebrate with domestic bubbly.

Companies With Cheap Eats Are Doing Well

Every problem creates opportunities for companies that happen to be in the right business. In the current situation, companies that supply necessities for the least amount of money are in the catbird's seat. Since the economy is likely to remain slow for quite some time, the winning suppliers should continue to prosper.

Leading the list of companies with the right stuff are those that provide inexpensive foods to the countless people who need to watch their pennies.

The fortunate suppliers are led by ConAgra Foods (CAG) that supplies a cornucopia of packaged foods throughout the U.S. http://finance.yahoo.com/q/bc?s=CAG The company's brands include Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National (great hot dogs), Hunts, Peter Pan, Rosarita, Van Camps, Marie Callenders, Parkay, Wesson, and a host of others. ConAgra also produces many private label foods for large retailers.

ConAgra's stock is beginning to move up as investors see how well it is doing in today's difficult economy. However, the yield is still an attractive 4.1% which indicates the stock is still attractive.

One step down the price ladder – which is an advantage now - is Hormel Foods (HRL). http://finance.yahoo.com/q/bc?s=HRL The company is profiting from booming sales of Spam, Hormel Chili, Dinty Moore Beef Stew, and several shelf-stable microwave foods. To capitalize on its good fortune, the company just converted a new processing plant to turn out the low-cost foods that are in highest demand. Profits rose 4% in the first quarter, which is remarkable in a weak economy with high unemployment.

Our old favorites, Colgate Palmolive (CL) http://finance.yahoo.com/q/bc?s=CL and Procter & Gamble (PG) http://finance.yahoo.com/q/bc?s=PG are also doing well. Both companies provide health, beauty, and homecare products worldwide. The companies are benefiting from the stronger economies that exist in many of its markets.

Colgate Palmolive and Procter & Gamble make a good pair for investors. Although their product lines overlap, Colgate has more low-priced basics that are ideally suited for current economic conditions. Procter & Gamble leans a bit towards higher end products that should have greater appeal as the economic siege lifts later this year.

The five investments we recommended last month are continuing to March forward. Their prices may drop back a bit before they resume course, but long term investors should hold on to them. Here's the scorecard:

China's Economy Is Still Hot (Compared With Everybody Else)

One country that is bucking the global economic recession is China. Although growth has fallen from its recent double digit highs, the country is still chugging along at a respectable 6.1% rate. That's higher than many experts expected since China's export business is linked to the economic health of its customers.

It turns out that the experts were so focused on exports, they underestimated the rapid growth of China's internal market. With at least 1.2 billion people, China can consume much of what it produces itself. That's especially true since the Chinese people have more money to spend than ever before, and they want to live large.

We are particularly bullish on the long-term prospects for China Mobile (CHL). http://finance.yahoo.com/q/pr?s=CHL Cellular service may seem like a luxury that people will drop during an economic slowdown. But that's not the case in China where mobile services are more important than in most countries. In much of China, landline telecom links are frequently of poor quality, and are often not available at all. Consequently, much of the population relies on cellular-based communication and Internet services.

China Mobile now has a staggering 457 million subscribers. That's about 150 million more people than the entire population of the U.S. Nevertheless, the company has yet to capture as much as half of its potential market share.

There's another indication of the continuing economic boom in China...and we're talking about the boom in domestic Chinese travel and tourism that we have observed.

As China transitions from poverty to affluence, an increasing number of the Chinese population are actively looking to enjoy their new-found middle-class status.

And one of the ways they are spending their money is on travel – taking vacations and seeing more of their vast country as well as traveling more on business.

The Great Wall of China remains one of the most popular tourist destinations in the world. Meanwhile, the number of people visiting Taiwan from mainland China has nearly doubled during the past 24 months ... and China's domestic tourism industry has grown 22.6% annually for the past 5 years.

We're certainly bullish on the Chinese travel and tourism market ... and in particular, on one of China's fastest-growing travel services companies... Universal Travel Group.

Universal Travel Group has been trading on the Bulletin Board, but starting Thursday, May 28, it will be trading on the NYSE Amex under the symbol "UTA."

Universal Travel specializes in online and customer representative services. The Company offers packaged tours, air ticketing, hotel reservation and air cargo agency services. They racked up some great numbers from 2005 through 2008: 202% Compound Annual Growth Rate (CAGR) ... they have no long-term debt ... $16.2 million in cash ... $30.2 million in working capital... and earnings of $14.5 million for the full year ending 12/31/08.

By our calculations, they have earned $1.20 ttm, and at a closing price of $7.00 on 5/27/09, they are trading under a 6 P/E multiple. Comparable industry multiples range from 22 to 28...so Universal Travel has a lot of upward potential. Go to http://cnutg.ir.stockpr.com/ for more details.

Energy Investments Are Looking Good Again

The last time we filled up our gas tanks we noticed that our local service station didn't get the word that a recession is in progress. Instead of lowering prices, they went up about 25%. Most energy insiders think the uptrend will continue, especially if the economy improves.

We think the best way to profit from the rebound is with ExxonMobil (XOM), the world's largest energy supplier. http://finance.yahoo.com/q/bc?s=XOM The company produces both oil and natural gas, much of which it turns into petrochemicals, fertilizers, plastics, and other products. ExxonMobil also has interests in electrical plants that are fueled with XOM's energy.

Despite ExxonMobil's leading position in its industry, the stock still carries a low P/E of 9.5. That looks very attractive to us.

The Bottom Line This Week

The economic outlook continues to improve fractionally, which has been fueling the stock market rally. At this point, however, stocks may have gotten ahead of themselves since the economic rebound is unlikely to be strong. As a result, a correction is probably on the way.

Nevertheless, many stocks should do well longer term because they can squeeze profits from a slow economy. Among the fortunate few are ConAgra Foods, Hormel Foods, Colgate Palmolive, and Procter & Gamble. Due to their unique market niches, China Mobile, Universal Travel Group and ExxonMobil should also have prosperous futures.

Association of Investor Awareness - Week of 04/30/2009

Research & Editorial Staff — Thu, 30 Apr 2009 14:20:00 GMT

In This Issue:

Signs Of A Better Economy? (Or At Least Not As Bad?)
Stocks For A Weak Recovery
The Bottom Line This Week

Last month investors received another booster shot from Wall Street as the Dow and the Nasdaq rose an additional 1.2% and 5.5% respectively. The gains left stocks up 26% from the rally's jumping off point. With any luck, and a few encouraging numbers from the economy, the rally could continue for another few weeks.

Lest anyone think the bear is finished, however, we must remind you that the market never moves in a straight line very long. Even if this is the start of a new bull market, we must expect to get some nasty shocks along the way. After such a strong rally, the first correction may be close at hand.

Signs Of A Better Economy? (Or At Least Not As Bad?)

Analysts are all over the map when it comes to predicting the future of the economy. Some see improvements, others think the most we have is a slower decline. A few super bears believe the worst hits are still to come, and they are fastening their safety belts.

Because the economic outlook is the most important issue that investors must deal with right now, we will review the three main arguments for each outlook. Of course, we will finish up by giving you our own sterling opinion.

1) The Economy Is Improving:

The strongest indication that economic relief is on the way is the rising stock market. Although many investors are not particularly well informed about economic matters, it's just the opposite with big spenders – and they are buying stocks. Since the market tends to look ahead from six to nine months, economic relief is probably about that far away.

Consumers are also showing greater confidence in the future by traipsing off to the mall a little more often than they did a few months ago. Since consumers are two thirds of the economy, their improving outlook can be a self-fulfilling prophesy. Spending is still very low, but at least the trend appears to be changing.

Business spending is also on the floor, and it will probably remain there for several months. But with consumers beginning to buy goods again, businesses will need to replace them. Inventories are already low for many products. As with consumers, however, a business turnaround is likely to be modest.

Housing remains weak in most markets, but there are signs of life in others. That's not surprising since home affordability, an established measure of housing trends, is higher than it has been in over five years. Many hopeful homebuyers know that prices could go lower, but they also know they might start to go back up again. As a result, many people who can afford to buy at today's prices are deciding to take the plunge. Lower interest rates are another incentive to buy.

Credit for every type of loan is still tight but the situation isn't as bad as the news stories might have you believe. Throughout America, hundreds of regional banks that didn't follow the subprime path to ruin have money for worthy clients. Lending standards are higher than they were during the boom, but that's a good thing. Only an idiot would want to go back to the loosey goosey standards that brought ruin to our country. The bottom line is, people with good credit histories and a respectable down payment can get mortgages. The same is true for business loans, new car financing, and so on.

Oil prices are remaining low, which is probably doing more for the economy than Washington's bailout program. The drop from almost $150 a barrel to under $50 had the same impact as a huge tax cut. Natural gas prices are also on the floor.

Lastly, the bailouts are helping to stimulate several industries, not just banking. Although we are very concerned about the colossal size of the federal debt, the money is a plus right now.

2) No It Isn't:

Naysayers believe the economy is not improving at all, it is just not dropping as quickly. Although the slowdown may be a technical victory, the bears say there is no way to make "less bad" look like "good."

Pessimists also say that the downward trend could continue and take the economy to the same low place it would have reached at the faster pace. This is known as the "we're dead either way" argument.

Other analysts say that even if the economy stops dropping, that doesn't mean a rebound is anywhere in sight. They point to the Great Depression when growth remained at very low levels for several years. During that time the unemployment rate hit 24% and businesses continued to fail.

3) A Disaster Is On The Way:

The toughest crowd are analysts who are certain that a full-blown depression is coming. They call the new calamity the "Greater Depression" to distinguish it from the not-so-bad Great Depression. Arsenic anyone?

The Armageddon crowd believes that the bailout program won't save the banks because they have been too badly damaged to recover. Instead, the depressionists say, the stimulus money will just put off the inevitable for a few months, and make the collapse all the worse.

The super bears also say the huge federal giveaways are putting so much money into the economy that a period of high inflation –and perhaps hyperinflation- is unavoidable. Therefore, the argument goes, even if the economy starts to pick itself up off the floor, inflation will slam it back down again. The result would be super stagflation, a situation where unemployment remains high at the same time prices soar. It's not a pleasant prospect.

As long-time readers know, we place much more faith on what we actually see happening in the world than what statistics and ivory tower number crunchers say. It's a practice that has kept us in the chips on many occasions when most investors were selling.

For example, we remained bullish on energy efficient industries when oil prices were soaring and most analysts thought modern life was ending. We were of the opinion that railroads, inland shipping companies and other fuel misers would actually benefit from more expensive energy because it would hurt the competition. It turned out that we were right, and our recommendations did well.

Of course, past performance does not guarantee future results, and all that. But for what it is worth, we think the first economic outlook is correct, and the economy is more likely to continue to claw its way out of the hole than it is to begin sinking again. Although a typical recovery seems unlikely, growth should be above the zero mark by the end of the year or by early 2010. If we are correct, many top-quality stocks remain oversold.

Stocks For A Weak Recovery

We hate to repeat ourselves in this newsletter, but on the other hand we never get tired of making money. As a result, we are continuing to recommend the boring multinational stocks that have been doing so well of late. We think their biggest moves are yet to come.

If you only want to make a single blue chip investment, an excellent choice would be the iShares Dow Jones Select Dividend Index (DVY), one of our favorite EFTs. http://finance.yahoo.com/q/bc?s=DVY The index has been performing very well of late. On March 9, DVY closed at $25.91. By April 28, the fund was up to $34.98, a 35% gain. We take back what we said about boring stocks.

We think investors who prefer to buy individual issues should look at three growth companies that should be headed higher.

The first of the three is Alcoa (AA), the giant aluminum producer. http://finance.yahoo.com/q/bc?s=AA Demand for the lightweight metal dropped sharply when the economy fell out of bed and industrial production hit the floor. But even with a small increase in the economy, demand for aluminum should jump smartly.

Deere Company (DE) is another probable winner in an improving economy. http://finance.yahoo.com/q/bc?s=DE The biggest potential for Deere isn't its farm machinery, although sales should improve this year. Instead, demand for the company's construction equipment should begin to rebound as President Obama's infrastructure programs ramp up.

General Electric (GE) http://finance.yahoo.com/q?s=ge should do well as the company continues to get its troubled financial unit back on track. GE's worldwide sales of everything from locomotives to jet engines should also increase. We think this global powerhouse will be a very big long-term winner. A few years from now many investors will wonder how they could have ever thought that GE might not make it through the recession.

Last month we wrote that Ford http://finance.yahoo.com/q?s=F has an excellent "chance for a profitable recovery" and "a small position appears to make sense at today's low price."

That proved to be something of an understatement. When that issue was sent out on March 26, Ford was $2.94. Today Ford closed at $5.45, an 85.4% gain. The worse things get for GM and Chrysler, the better the outlook will be for Ford, the only one of the formerly "big three" automakers that didn't need a bailout. Henry would be pleased.

The Bottom Line This Week

The outlook is improving by inches, but we are a long way from being out of danger. It would not take a very big shock to send the economy and the stock market down again. As a result, we think the best strategy for investors is to use the positive trend we have now and buy blue chip stocks with good outlooks – but protect all your positions with stop-loss orders.

Association of Investor Awareness - Week of 03/26/2009

Research & Editorial Staff — Thu, 26 Mar 2009 13:45:00 GMT

In This Issue:

Banks And Auto Stocks Led The Way Down, And Now Up
Yes, The Rebound Could Be Another Bear Trap
If There Ever Was A Time To Use Stops, It’s Now!
In Many Cities, Real Estate May Be Set To Rise
The Bottom Line

Over the past month, the stock market staged a strong reversal as the Dow and the Nasdaq rose 6.9% and 9.1% respectively. As often happens when investment optimism begins to replace a long period of pessimism, small stocks did better than their larger cousins.

However, many blue chips also performed very well. For example, our first three picks from last month, JP Morgan Chase (JPM), Archer Daniels Midland (ADM), and Ford (F) jumped 21.5%, 5.3%, and 42.3% respectively. Our fourth pick, SPDR Gold Trust (GLD), dropped 2.4%.

Banks And Auto Stocks Led The Way Down, And Now Up

The sharp jump made by JP Morgan Chase was not an isolated event in the battered banking sector. Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) saw equally impressive gains of 19.4%, 40.2%, and 15.3%.

The best return of all was made by American International Group (AIG), a company we didn’t recommend because it carries too much risk. Over the past 30 days, however, many big investors unexpectedly reversed their outlooks for AIG and the stock jumped from $0.46 to $1.22 - a 165.2% leap.

We think the banks are still greatly undervalued and are likely to rebound more from their horrific plunges. The road back will be volatile because progress will depend largely on the success of the government’s bailout programs.

Nevertheless, at today’s ultra-low stock prices the risk/reward ratio appears to justify taking small positions in Citigroup, Bank of America and Wells Fargo. Fortunately, a small investment is all anyone needs to get positions in what could be the biggest rebound story of our time.

Of the three additional banks that could become top performers, Citigroup is in the worst shape. http://finance.yahoo.com/q/bc?s=C Bank of America is in somewhat better condition. http://finance.yahoo.com/q/bc?s=BAC One or both of them may fail. However, there are strong political as well as economic reasons for the government not to let that happen. But, if the bailouts don’t work and Washington ends up nationalizing the banks, the shareholders will be wiped out.

Wells Fargo is a better prospect. The bank will benefit from the possible demise of Citigroup and/or Bank of America because it would pick up much of their business. http://finance.yahoo.com/q/bc?s=WFC Even without that boost, Wells Fargo should survive the recession and the housing plunge, and begin to recover once conditions improve.

AIG must be considered a rank speculation, which we would normally never mention. http://finance.yahoo.com/q/bc?s=AIG But at $1.20 or so, we believe AIG’s potential to jump on good news is very good. If you want to add a little spice to your life, 100 shares of AIG should do the trick.

In the automotive industry, we continue to think that Ford has the best chance for a profitable recovery. As with the banks, a small position appears to make sense at today’s low price.

SPDR Gold Trust (GLD) continues to look good because it is a hedge against rising inflation and a declining dollar. Both conditions seem more likely to occur than they did last month because the Fed just decided to create $300 billion out of thin air to buy Treasury bonds. We think the make believe money will come back to haunt us within a few months.

Yes, The Rebound Could Be Another Bear Trap

Over the past year we warned that the many rebounds that came along looked like bear traps. In every case we were right. After a few days or weeks of moving up, the market suddenly reversed direction and tumbled to new lows. The same thing could happen again this time.

But even if this rally isn’t the lasting rebound we have all been hoping for, there are some solid reasons to think it could last longer than its predecessors. If so, the rally could be profitable even if it ultimately falls apart.

The first reason for optimism is the market had already fallen 54% when the current upturn began. That’s about as bad as bear markets get. Even if the bear returns for one more raid on stocks, he probably won’t have much further to go.

Secondly, fundamentals are also beginning to reach bear market lows. Many top-quality blue chip stocks now have P/E ratios under 10, which has often been a turning point in the past. Since interest rates are on the floor, low P/E stocks that pay good dividends are especially attractive this time around.

If There Ever Was A Time To Use Stops, It’s Now!

Because there is no way to know if the current stock market rebound is another bear trap or the beginning of a new bull cycle, you may be tempted to stay on the sidelines until the matter is settled.

But if you take the safest position and this rally turns out to be the real deal, you will miss out on its biggest gains. That’s because anywhere from 30% to 50% of a bull market’s returns often occur before most investors realize the turn has finally come.

Fortunately, you can buy stocks with reasonable safety if you place stop loss orders on everything you pick. If the stocks go up as expected, you can raise your stops as you go along. That way if the bear comes back, you will be taken out before much damage can be done.

Remember, stops are very easy to place. To use TD Ameritrade as an example, right after you buy a stock you would enter a sell order at the price you would want to be taken out. When you see “Order Type”, simply click “Stop Market” and enter the appropriate number. Since stops cost nothing until they are executed (which might never happen), they are the cheapest insurance you can buy.

There are only two downsides with stop loss orders that you should know about. First, if the market makes a big down move and then bounces back, you may be sold out when you would have been better off hanging on. Secondly, if the market drops very rapidly and hits your stop, by the time the order is executed the price may have dropped below your sell point. Alas, not much on Wall Street carries a 100% guarantee.

In Many Cities, Real Estate May Be Set To Rise

All the activity in the stock market of late is masking some improving numbers in the housing market. Although the real estate outlook overall is still poor, in some areas prices for rental residential properties have fallen so far that for the first time in nearly 20 years they can “pencil out.” That is to say, the rents they generate can cover the mortgage payments, taxes and maintenance costs – plus provide a positive cash flow to the buyer.

The tax breaks that go with real estate investments —and the potential for long-term appreciation from today’s depressed levels— make real estate even more attractive. In addition, the collapse of the late great housing boom is pushing many new people into the rental market.

As with the stock market, it may be a decade or more before residential real estate gets back to where it was during the boom. But you won’t need a full recovery to make excellent profits. Thanks to the leverage in most real estate investments, only a partial rebound could still double your money.

For example, if you buy a $300,000 duplex with a 20% down payment, the deal will cost you $60,000. Your duplex would only need to appreciate to $360,000 for you to double your money. Meanwhile, the renters will pay the bills.

One way to enter the rental residential real estate market is with experienced partners. In most communities there are groups of people who have been buying properties together for many years. With more attractive deals becoming available, and with credit now very tight, many partnerships should be happy to accept new members. Your attorney, or a seasoned real estate broker, should be able to make the necessary introductions.

The Bottom Line

Investors have been through the mill during the past year. However, we think the disheartening losses paved the way for a dramatic rebound. The upturn may be starting now, or it may not come until later – but it’s on the way. To make the most of it, you will need to put money in the market while most investors are too nervous to leave the sidelines.

Your safest bets are the blue chip stocks we have been recommending for months. More aggressive investors should also consider some of the oversold banking stocks that have been performing well of late. Although the risks are high with the banks, we think the potential rewards are even higher. You can stack the odds further in your favor by using stop loss orders religiously.

Residential rental real estate is also starting to look good in many markets. Ignore the naysayers who suggest that there is no money to be made because it may be ten or fifteen years before prices return to their 2006/2007 highs. As we explained in our discussion, you don’t need a big rebound to make a good real estate investment pay off handsomely.

Association of Investor Awareness - Week of 02/26/2009

Research & Editorial Staff — Thu, 26 Feb 2009 14:43:00 GMT

In This Issue:

The Federal Bailout Is A Mixed Bag
Capitulation May Have Been Reached
Some Blue Chip Stocks Will Win Blue Ribbons
A Speculation Is Also Attractive
Gold Regains Its Appeal, But There Are Problems
An Economic Indicator That We Can Love
The Bottom Line This Week

Since our last newsletter on January 29, the stock market took a sharp turn for the worse. In fact, calling it a "turn" is an understatement. "Plunge" would better describe the 9.6% and 4.4% declines in the Dow and the Nasdaq. The slide left the market at a 12 year low.

Curiously, the plunge isn't due to another panic. At this point in the long bear market, most investors are too tired to sprint for the exits. Instead, many of them are dropping their gear and are simply walking off the field.

The Federal Bailout Is A Mixed Bag

Although we wish it were otherwise, we think the market will continue to drop until values become so attractive that they can no longer be ignored. Last month we thought that point had been reached, but the combination of poor economic news and a poorly executed federal bank rescue program sent another wave of discouraged investors to the sidelines. Most people now think the feds are "just winging it" and they won't be able to save the banks or the economy after all.

Overlooked during all the worries about the bank bailouts are other parts of the $787 billion federal package. Many of the individual programs have proven to be effective economic boosters during past downturns. About $315 billion will go towards education and job training. Nearly $190 billion will be spent on direct aid to states. Another $236 billion will go to tax breaks for families, renewable energy credits, and a temporary fix for the dreaded AMT. Most of that money will flow into the economy within a year.

Nevertheless, it now looks as if the economy may not begin to dig itself out of its hole until early 2010. That's not a huge setback from the late 2009 prediction that was becoming common. However, there is a big psychological difference between 2009 and 2010 that is having an outsized impact on investors. As we said earlier, many people don't want to stick around the stock market much longer.

Capitulation May Have Been Reached

The dark mood that is rapidly spreading on Wall Street may have a positive ending. As we said in a previous newsletter, bear markets rarely end until most investors are thoroughly discouraged, and they pull out of the market. Once the capitulation stage is reached, stocks typically start to move up again. Moreover, the final recovery doesn't turn into another bear trap. Instead, it just keeps going.

No one can know if the latest stock plunge marks the bottom of the severe bear market. However, with stocks down nearly 50% from their highs, we are almost certainly closer to the bottom than we are to the top.

Some Blue Chip Stocks Will Win Blue Ribbons

As a result, we continue to urge investors to use this opportunity to buy the bluest of the world's blue chip stocks for prices we have not seen in nearly two decades. Dozens of top-quality companies with very bright futures are in the bargain basement. If you don't make use of this unprecedented Wall Street sale, we think you will kick yourself within a few years.

JP Morgan Chase (JPM) is a case in point. http://finance.yahoo.com/q/bc?s=JPM Unlike most of its rivals, the company is solidly profitable. Not only did the bank stay in the black last year, it is making money now in the toughest economy we've had in recent memory. That's an enormous achievement that shows the underlying strength of this multinational powerhouse.

Nevertheless, JPM is down 54% from the high it reached during the boom. Investors are so afraid of the banking industry, they don't even want to own the best of the group. That shortsightedness is creating an opportunity for more reasoned investors to pad their long term portfolios with this world-class bank at a very low price.

Archer Daniels Midland (ADM) is another multinational blue chip that is ridiculously cheap. http://finance.yahoo.com/q/bc?s=ADM The company is in Wall Street's dog house for two reasons, neither of which will last more than a year or so. First, the slow economy is starting to hit food sales. Secondly, the company's ethanol business has been put in mothballs because oil prices collapsed from $149 a barrel to just $39.

However, food sales are projected to increase worldwide as governments make giant-sized purchases later this year to satisfy their hungry populations. Moreover, most of the money will go for bulk foods, which is the core of ADM's business.

Energy prices will also rebound once the global economy begins to recover. Because oil reserves were drawn down quite a bit during the recent economic boom, when demand picks up again prices should rise even faster, and probably go higher, than they did last time. When it happens, Archer Daniels Midland will be able to put its ethanol business back on line.

A Speculation Is Also Attractive

Even some stocks that are under a cloud are worth your consideration. It's all a matter of the risk/reward balance they offer. If prices are so low that the downside is very small, and the upside could be huge, it can make sense to make small purchases.

Ford (F) is one such stock. http://finance.yahoo.com/q/bc?s=F Unlike Chrysler and General Motors, Ford has not asked for a handout. In addition, critics are all agog about the new 2010 Ford Fusion hybrid family sedan. USA Today called it "the best gasoline-electric hybrid yet." And it has "the industry's smoothest, best-integrated gas-electric power system." Car and Driver put the Fusion up against the Camry Hybrid, the Chevy Malibu Hybrid, and the Altima Hybrid and said "it topped the others…."

Lastly, Ford would obviously be helped if its rivals need to pare back production to stay afloat. GM already plans to dump its Saturn, Saab, and Hummer brands, and Chrysler may not survive at all.

Gold Regains Its Appeal, But There Are Problems

The sinking stock market, poor fixed income returns, possible bank failures, and weak currencies, are prompting countless investors to buy gold as a last refuge. On February 20, the price of the metal came within $25 of reaching its all time high of $1,030 set in March 2008.

Many bulls are convinced that gold will continue to rise in the coming months. They correctly point out that in inflation adjusted dollars, the metal would need to reach $2,200 just to match the price it briefly hit in 1980. Of course, just because gold soared 28 years ago is no guarantee that it will do so again.

In fact, many gold critics say if the metal isn't blasting through the ceiling now, it probably never will. They argue that the economy is in much worse shape than it was in 1980, and so is the outlook for many financial institutions. So they ask, what is gold waiting for? One of our group quipped that if conditions must get twice as bad as they are now to make gold twice as expensive, we will all be back in the stoneage.

Gold's biggest liability is it doesn't do anything. It doesn't make products, grow crops, or otherwise add to the world's real wealth. That's why it almost always sinks when the economy is strong enough to support productive activities.

We think gold makes sense for part of an investor's portfolio, but don't plan on a long hold. For most people, the best way to buy the metal is with the SPDR Gold Trust (GLD) that holds over 1,000 tons of the stuff. http://finance.yahoo.com/q/bc?s=GLD The ETF is easy to buy and sell, there are no storage or theft issues to deal with, and it mirrors the price of gold almost to the penny.

An Economic Indicator That We Can Love

According to the Bespoke Investment Group, http://bespokeinvest.typepad.com/bespoke/ one of the most accurate of the non-traditional stock market indicators is the annual Sports Illustrated Swimsuit Issue. Over the past 30 years, an American has been on the cover of the issue 16 times. In 13 of those years the gain in the S&P 500 was a whopping 81.3%. Overall, the average was a still-healthy 10.6%.

We've decided that the indicator's sterling track record shows that we should pay more attention to the Swimsuit Issue. Accordingly, we have ordered several copies for our analysts that we will examine closely for clues to the economy. We never tire of working for your welfare.

The Bottom Line This Week

The stock market declined sharply last month when investors lost faith in the government's ability to save the banks and turn the economy around. The sour mood feels very much like a classic bear market washout that is typically followed by a rebound.

Although there is no guarantee that the same happy event will happen this time, we think many stock values have become too attractive to ignore. Looking particularly good to us are JP Morgan Chase and Archer Daniels Midland. More aggressive investors should consider Ford, a stock that might deliver extraordinary gains as America's only surviving automaker.

Association of Investor Awareness - Week of 01/29/2009

Research & Editorial Staff — Thu, 29 Jan 2009 13:59:00 GMT

In This Issue:

Reasons For Cautious Optimism Continue To Appear
Many Promising Stocks Attract Long-Term Investors
The Bottom Line This Week

The stock market continued to lose ground last week as the Dow and the Nasdaq declined an additional 2.5% and 3.4% respectively.

A growing number of analysts believe the stock slide will continue until the market tests (reaches) the low point it made on November 20. If so, it will be a classic correction to a bear market rally.

A much bigger issue is what will come next if the November lows are reached. Pessimists believe the market will continue to decline until blue chip P/E ratios get closer to 10. If so, the S&P 500 would drop from today's 832 to 750, or so. Super bears think the index might fall another hundred points.

On the other hand, optimists believe the market will bounce back in a classic stage two bear market rebound. If history repeats, the second time should be the charm as a new rally would typically test its former highs – and then continue up. The 298 point jump the market took during the first three days of this week suggests that the optimists may be right.

Reasons For Cautious Optimism Continue To Appear

We are of the opinion that if another big economic shock doesn't occur, the market will follow the second scenario and begin to move up again.

Our more optimistic outlook isn't based upon wishful thinking. Instead, we see additional indications that the economy may begin to claw its way out of the hole starting late this year. Here are some of the most important changes that suggest this tough recession may not last as long as most people expect:

First, as we reported last week house sales are continuing to pick up as buyers decide to make use of the lower prices that are now available in many markets. Since home prices are continuing to weaken throughout America, we think sales will increase further in the coming months.

Second, cash levels are now at record levels. At the same time, interest rates are at near-record lows. Not surprisingly, cash levels dropped last week and, for the first time since August 2007, volume picked up on Wall Street. We think the numbers indicate that investors are moving some of their cash from fixed income accounts into better-paying stocks.

In our opinion, dividend yields are more important to investors now than P/E ratios. Solid companies with payouts above 3.25% seem unlikely to decline much further even if their multiples are still a bit high for a severe bear market.

Third, oil prices are beginning to tick up again. Part of the rise is due to a reduction in supply by oil producers. But analysts also think higher prices reflect small increases in global economic activity. In the past, oil has been a good barometer of early changes in growth that didn't show up on economists' radar screens for several months.

A similar case can be made for the recent uptick in gold prices. Critics may say the change only indicates that investors are expecting inflation to come back. However, the only way inflation can return is if deflation is on the way out. We can think of few changes that would be more bullish for the economy than a slowdown in the destruction of assets.

Fourth, there are old adages on Wall Street that say, "don't fight the Treasury" and "don't fight the Fed." That means don't bet against the Treasury's ability to rejuvenate the economy by pumping money into it, or the Fed's ability to boost growth by lowering interest rates.

For all the problems that the bailout programs will create, they should also have a positive impact on the economy. However, it will probably take from six to nine months before the beneficial effects begin to show up.

Fifth, consumer confidence is at record lows. As Dr. Steve Sjuggerud at Daily Wealth (www.dailywealth.com) pointed out recently, the lows typically occur just before a recession runs out of steam and growth starts to inch back up. The tougher the recession --as in 1973-74 and 1981-82-- the more reliable the indicator becomes.

Sixth, the more we look at what's happening in America the more it looks like the financial crisis is much worse than the economic crisis. In other words, most of the red ink is pouring out of banks. Nearly all blue chip industries are seeing their profits slashed, but most of them are still in the black. Some companies such as Apple, IBM, Heinz and Google are doing very well – to name only a few.

Any company that is weathering today's storm is a lot stronger than its stock price would suggest. In addition, most companies are rapidly adjusting to the tougher conditions.

Seven, as we discussed last week, credit is continuing to come back. To the great surprise of many investors, the pharmaceutical giant Pfizer was able to raise $22.5 billion to buy Wyeth. To be sure, the lenders took precautions against a default, but that should always be the case. If lenders had been running their businesses responsibly in recent years, there would be no credit crisis.

Although the Pfizer/Wyeth case is attracting a great deal of publicity, thousands of much smaller deals financed by regional banks are doing the most to help turn the economy around.

Eight, people in every walk of life are absolutely certain that the economy is circling the drain. However, what everybody "knows" is often wrong. In this case, the expectations of more pain may be accurate near term, but they are almost certainly off the mark for the longer-term.

Lastly, the Conference Board just announced that the Leading Economic Index rose 0.3% in December. That wasn't a very big increase. However, almost all analysts were expecting another decline. The news didn't attract much attention because one month does not make a trend. But if the index moves up again in January, we think Wall Street will take notice.

Many Promising Stocks Attract Long-Term Investors

Since we are long-term investors, we continue to urge our readers to use the bear market to pick up high quality stocks at bargain prices. Many of the world's finest multinational blue chips are affordable for the first time in over a decade. If you don't buy them now, you may not get another chance to do so for another ten years or so.

Readers who have been with us awhile undoubtedly remember the names of the blue chip value stocks that we have been recommending. We keep waving their flags because we think they are the stocks that most investors should buy.

This week we will discuss two recommendations that we have not featured recently, plus one new one for your consideration.

H.J. Heinz (HNZ) is back in the news, and for good reason. http://finance.yahoo.com/q/bc?s=HNZ Heinz is one of the many companies that managed to increase its earnings in fiscal 2008. Nevertheless, the stock price is still very low, and the dividend yield is a very attractive 4.6%. In addition, this solid blue chip raised its dividends in 40 of the past 41 years.

Heinz is also very unlikely to lose its leadership standing in its industry anytime soon. Nearly all of its products are rated either first or second in their markets. And since most of the company's products (such as ketchup, mayo, pickles, etc.) are inexpensive, shoppers are not under any great pressure to switch to cheaper brands.

IBM (IBM) is at the other end of the technology spectrum from Heinz, but it is doing no less well. http://finance.yahoo.com/q/bc?s=IBM The company just released its fourth-quarter numbers, and they are impressive. Profits rose 12% during a time when most banks were having staggering losses. Moreover, IBM issued a rosy outlook for 2009. The company is expecting to earn from $10 to $11 a share vs $8.75 predicted by analysts.

IBM is a good example of a giant company that is nevertheless able to think and act quickly as business conditions change. A year ago management noticed that the hardware side of its business was losing ground to an explosion of rivals that were finding it easier to enter the server market. As a result, IBM started to place more emphasis on software and services that are harder for competitors to match.

Home Depot (HD) is a new recommendation that popped up on our value screens this month. http://finance.yahoo.com/q/bc?s=HD The company needs little introduction since its home improvement stores can be found in nearly every city.

After soaring in price during the real estate mania, the stock dropped sharply when the bubble ended. However, Home Depot is still profitable. That's not surprising since many people who hoped to purchase new homes have decided to fix up their old places instead. Home Depot has expansion debts, but it has the income to cover them. Meanwhile, the dividend is an attractive 4.1%.

The Bottom Line This Week

The economy is not out of the woods. Far from it. Growth should continue to sink for another few months. However, there are some early signs that the situation will change for the better late this year. Since prices for many blue chip companies are currently very low, and most yields are high, we think investors should take positions for what should be better days ahead. Among the companies that look especially good are Heinz, IBM, and Home Depot.

Association of Investor Awareness - Week of 01/22/2009

Research & Editorial Staff — Thu, 22 Jan 2009 16:29:00 GMT

In This Issue:

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

As the inauguration of the new American president approached, many analysts expected the market would have an "Obama bounce." Alas, that happy event did not occur. On the contrary, as further economic and banking industry worries continued to mount last week, the Dow and the Nasdaq dropped another 3.7% and 2.7% respectively.

The market fell another 332 points on Tuesday, when our new president took office. (Nothing personal, Mr. Obama. As the Godfather used to say, "it's just business.")

On Wednesday, however, the mood brightened and the market rebounded 279 points.

Credit Rebound Coming From Unexpected Sources

It isn't working out the way most economists expected, but the slow credit recovery is not coming from the big banks that have been receiving billions of dollars in bailout money. Those funds are simply replacing money that was lost during the period of fiscal madness.

Instead, smaller banks that didn't play subprime roulette, and don't need taxpayer's money, are starting to write checks to their more credit-worthy customers. Lending standards are stricter than they were during the go-go years that recently ended, but that's as it should be.

Banks are also reviewing business proposals with greater scrutiny. Lenders must be convinced that each idea has a good chance of being successful, which is also a return to sanity.

The bottom line is, if you have been holding fire on a business venture that would seem to fit the new criteria, this should be a good time to start contacting banks again.

Signs Of Life Are Returning To Some Real Estate Markets

Slowly rebounding credit couldn't be coming at a more opportune time. Some real estate markets are slowly starting to turn around. As we have been predicting for months, prices have fallen so far in many areas that many people who need a home are making their moves. Mortgage rates that are well below 5% are also attracting buyers.

Some of the biggest sales increases are occurring in our largest cities. In New York, for example, many condos that cost $1 million or so a year ago are now in the $500k to $600k range. For many people with good jobs, the bargains are proving to be too good to pass up.

Although it will probably be a year or more before the broader real estate market starts to recover, there are new signs of life in many of them as well. In Las Vegas, for example, home prices from last year are down 28%, but home sales are up 15%. In many other parts of the country, bidding wars are starting to take place for foreclosed homes that are being dumped by unhappy banks.

In some markets, real estate prices will probably continue to fall. In others, however, the most likely change will be on the upside. If you have been thinking about making a real estate investment, this might be a good time to start looking. This may be a sweet spot where price, interest rates, credit availability, and market potential all come together.

A Home Town Advantage With Stocks

It isn't only with real estate investments where locals are in a unique position to find top values. The same is also true with stocks. No Wall Street analyst can know as much about how a company is really doing than a local person who keeps his eyes and ears open.

Wal-Mart and Microsoft are two classic cases in point. In 1970 when Wall Street was cool about Wal-Mart's prospects, many people in Bentonville, AR noticed that the company was hiring. Passersby could also see that Wal-Mart's loading docks were bustling with activity. Local investors who trusted what they heard and saw above what the analysts were saying, ended up making a great deal of money.

Similarly in the 1980's, Bellevue, WA restaurants were buzzing with jabber by Microsoft employees who were excited about all the software they were writing and selling. Employees also said that their young boss, Bill Gates, was the smartest man they'd ever met. It would be an understatement to say that Bellevue investors who acted on what they heard are very glad they did.

It can be just as useful to be close by if a local company gets into trouble. A few years ago in Junction City, OR people noticed that employees at Country Coach Motor Homes were becoming worried about their jobs long before anyone on Wall Street knew anything was wrong. Alert investors who bailed out of the parent company, National RV, saved a great deal of money.

Forget The Bottom, Focus On Value

With both stocks and real estate, we urge readers to avoid trying to call the bottom of the markets. Instead, focus on investments that are attractively priced. If it becomes an even better bargain in a few weeks or months, it won't have any effect on your ability to make a profit at the price you paid.

Dan Ferris, editor of Extreme Value said it best: "Value isn't about hoping share prices go up, and it certainly isn't about attempting to predict the lowest share price. It's about knowing what a business is worth and paying a substantially lower amount than that." http://www.stansberryresearch.com/pub/evi/?gclid=CPT45NGVnpgCFQwxawodXxWLlQ

Of the many successful stock and real estate investors we know, only one claims to have gotten into his best performers at the absolute bottom. The other clients made their money by simply making good investments whenever they could be found.

Two Leading Stocks Look Especially Good Right Now

Speaking of Microsoft (MSFT), the economy and stock market turned two of the company's disappointments into an asset last year. http://finance.yahoo.com/q/bc?s=MSFT

As you may recall, in 2008 Microsoft made expensive bids for Yahoo and Facebook, but both deals fell through. Not only did that fortunate "failure" save Microsoft from suffering big losses when the stock market plunged, it also left the company with over $19 billion in cash.

Microsoft, of course, may use the market weakness to make another try for its two targets, which are now priced much lower than before. Alternately, Microsoft might make another one-time dividend boost to its shareholders, just as it did in 2004. If so, the true yield of the stock will be much higher than the 2.6% that it carries today.

Besides the cash hoard, Microsoft's ability to make strategic acquisitions, and its yield potential, the company's price looks very attractive. Microsoft was selling for $35 at this time last year. It is now just $18.50. That looks like a bargain to us.

If reliable dividend growth is one of your goals this year, (and it should be) we recommend an old favorite of ours, Procter & Gamble (PG). http://finance.yahoo.com/q/bc?s=PG The stock "only" yields 2.8% at present, but that's more than many of Uncle Sam's bonds are paying.

However, the real appeal of the company's dividends is that they have been increased for 52 consecutive years. That's a rock solid track record that the company is unlikely to change.

In addition, Procter & Gamble just announced that it is about to begin its most ambitious manufacturing expansion. The company is making the move to further capture business in emerging markets that are already delivering double digit growth. We think the decision will lead to much higher profits within a few years.

If you look at Procter & Gamble's low stock price, its dividend outlook, and the company's new global initiative, we think you get a very strong case for buying the stock.

The Bottom Line This Week

Inch by inch and flicker by flicker, the economic outlook is giving investors reasons to be hopeful. Although we are sticking with our prediction that the recession will continue to rage for several months, we also believe we will begin to see some relief late this year.

That's not to say that Joe and Sally MidAmerica will be out of the woods anytime soon. Life will probably remain tough for quite some time. However, many businesses are continuing to adjust to the new conditions and should start to rebuild their profits by the 4^th quarter.

Meanwhile, many of the most promising stocks –and some real estate deals- look very attractive. Among the former, Microsoft and Procter & Gamble look especially promising. In some real estate markets, homes and apartment buildings are also starting to pencil out.

Association of Investor Awareness - Week of 01/15/2009

Research & Editorial Staff — Thu, 15 Jan 2009 16:55:00 GMT

In This Issue:

Sometimes Good News Can Be Bad News
Treasury Bonds May Be A Bubble
It’s Time To Choose Shorter Bond Maturities
Three Ways To Win If Treasuries Decline
Investing In Times Of Extremes
Staying Healthy During Impossible Times
The Bottom Line This Week

The optimistic mood that lifted the stock market two weeks ago didn’t last very long. In fact it might have been the smallest January bounce on record. After the 2^nd, prices started to move back down again.

There is some solace in noting that the market is still up some 20% from where the zigzag rally started on November 21. Despite all the turmoil, it may turn out that the bear market reached bottom at that time. We shall know soon enough.

In any event, by the time last Friday afternoon rolled around, the Dow and the Nasdaq were down 4.8% and 3.7% respectively. During the first three days of this week, the market continued to decline sharply as more disturbing economic numbers were announced.

Sometimes Good News Can Be Bad News

Ironically, one of the biggest worries investors have right now is falling oil prices. A few months ago when oil was approaching $150 a barrel, each decline was met with jubilation. But with oil selling below $38, as it is today, every decline indicates that the economy is continuing to weaken.

In addition, President-elect Obama’s request for an additional $350 billion in bailout money would have been welcomed when the program was new. At the time, the monetary booster shot was seen as a way to get America going again. Now, the need for more funds is seen as a sign that the economy may be in worse shape than investors thought.

Lastly, Citigroup’s (C) apparent decision to sell 51% of its Smith Barney division to Morgan Stanley (MS) would have been welcomed as an acceptable way to prevent Citi from failing. Now the sale looks like the financial services industry is continuing to implode.

Treasury Bonds May Be A Bubble

U.S. Treasury bonds have been a popular refuge from the financial carnage of the past few months. Although Helicopter Ben drove interest rates down, investors can at least be confident that Treasuries won’t default. When the bonds mature, Uncle Sam will pay them at their full face value.

However, investors may be in for a nasty shock if they wish to sell their bonds rather than keep them. The bonds could be worth a lot less than they were when they were purchased.

The problem is that bonds are subject to the same market pressures as any other security. In today’s frightened world, Treasuries are in great demand. But that may not be true tomorrow. When the economic outlook improves, investors will find better-paying places to put their money, and the Treasury bond market will go hisssssss.

Bonds will also take a hit if interest rates start to move up. In that case, older bonds will drop in value because they will pay less interest than new bonds.

In fact, for every 1% increase in the yield of 10 year bonds, investors can expect to see lower-paying bonds drop 7% in price. When the declines begin, bond holders will need to choose between two undesirable options: they can either hold the lower-paying bonds until they mature, or they can sell them at a loss.

Letter to the bank - Dear Sirs, In light of recent developments, when you returned my check marked "insufficient funds," were you referring to my funds or yours? -- Ellen Brown

It’s Time To Choose Shorter Bond Maturities

Unfortunately, Treasury bond declines are likely since all the bailout money that is being poured into the economy will almost certainly lead to higher inflation and interest rates within a year or so. Unprepared bond holders will be caught in the lurch.

The best way to prevent bond losses due to rising interest rates is to roll them over to securities with shorter maturities. Not only will you avoid the declines, you will capture the higher rates that come along. When rates start to level off at some point in the future, it will be time to lock them in by purchasing bonds with longer maturities.

Three Ways To Win If Treasuries Decline

Even better than avoiding Treasury bond losses is to profit from rising rates.

One way is to short a bond ETF such as iShares Lehman 7-10 Year Treasury Bond Fund (IEF). However, we don’t recommend this method because losses can mount up quickly with a short sale that doesn’t work out.

A much better strategy is to invest in an inverse Treasury mutual fund such as ProFunds Rising Rates Opportunity 10 (RTPIX). http://finance.yahoo.com/q/pr?s=RTPIX This no-load fund is structured to move in the opposite direction to the daily price changes in the 10 year Treasury Bond.

More aggressive investors can buy an exchange traded fund that will rise twice as much as price changes in Uncle Sam’s bonds. The most popular of the inverse Treasury ETF’s is ProShares Ultrashort Lehman 7 – 10 Year Treasury ETF (PST). http://finance.yahoo.com/q/pr?s=PST Just remember, the lever can swing both ways.

Staying Healthy During Impossible Times

Speaking of levers that swing both ways, the same is true of the public’s outlook about the future. As we’ve seen during previous downturns, fear can turn to greed far faster than anyone at the time would believe possible. Moreover, the turns often occur when the way ahead looks especially bleak.

We think the foundations have already been laid for some turnarounds later this year. Prices for fine art, jewelry, rare cars, yachts, stocks, and (in some regions) real estate have fallen to ridiculous levels. More importantly, knowledgeable people in each of those markets realize that many items are screaming bargains.

However, few people are reaching for their wallets as yet because they think prices might go even lower in the future. One man we know who deals in expensive watches says many affluent customers come in every week to check prices. If they notice that a watch has been marked down from the week before, they won’t spend a dime. Our client believes the fear of paying too much, and feeling foolish, is a stronger emotion than the desire to get something they want at a good price.

However, when customers see that prices are starting to move up, they will usually make their purchases quickly. Often a buying frenzy begins that can be breathtaking.

We don’t know when the tide will turn for stocks and other valuables that are currently priced very cheaply. We do know, however, that the turn is coming. If you want to make the most of it, you should be in position before the race begins.

When Nothing Works, Quit Worrying About It

We had a client call last week who was beside himself with worry about what to do with his small company. He couldn’t see any way to stay in business. The harder he tried to keep everything going, the more damage he was doing to his health.

Our client’s plight reminded us of a famous psychological experiment that was done sixty years ago. Two sets of monkeys were put in cages that were wired to give them harmless but unpleasant shocks on a random basis.

Both cages contained electrical switches that the monkeys could manipulate. In one cage the switch did nothing. In the other cage, the switch would prevent the next shock from coming – but only if it was used at just the right time.

After a few weeks, medical exams were done on both groups of monkeys. The group that had inoperative switches were fine. But the “executive monkeys” that had to decide how to stop the shocks, were nervous wrecks. Several of them even developed ulcers.

We think the conclusion to be made from the experiment is clear. If you are in a no-win situation that you can’t control, don’t ruin your health attempting to do the impossible. Do what needs to be done to survive the crisis, and live to fight another day.

The Bottom Line This Week

The worldwide economic decline sent a flood of buyers to the safety of U.S. Treasury bonds. As a result, their prices went up and yields declined.

We think the Treasury bubble will begin to deflate sometime in the coming months. To avoid being caught in the trap, readers should roll their maturing bonds into those having shorter maturities. Aggressive investors can profit from declining bond prices by using inverse funds.

Many markets appear to be oversold, and an increasing number of knowledgeable investors know it. The situation is ripe for a rebound that could begin later this year. To participate, investors should take positions early, or be prepared to act very quickly when the turnaround begins.

Association of Investor Awareness - Week of 01/08/2009

Research & Editorial Staff — Thu, 08 Jan 2009 18:52:00 GMT

In This Issue:

It's Time To Start Looking Beyond Current Woes
A Big Cash Horde Is Always Bullish
When It Comes To Rebounds, Too Early Beats Too Late
Eight Blue Chips Many Pros Are Buying
The Bottom Line This Week

There's nothing like the start of a new year to shake investors out of a funk. It happened again a few days ago when the market rallied as the first of January approached. The week the calendar turned over, the Dow and the Nasdaq went up an impressive 6.1% and 6.7% respectively. It was an encouraging end to a dismal year that saw the two indices plunge 33.8% and 40.5% - the third worst performance in recent memory.

Alas, it is far too early to declare an end to the bear market. With manufacturing and home sales dropping to very low levels, it is clear that the economy is still sinking. But as we will discuss later, that doesn't mean that a recovery is off the table for late 2009.

Meanwhile, stocks stumbled during the first three days of this week. By Wednesday afternoon, the market had given up 265 of its hard-won points from the short bout of New Year enthusiasm.

It's Time To Start Looking Beyond Current Woes

Although the market is continuing to be volatile, the uptrend may have longer legs than events this week would suggest. As we reported in a recent issue, investors seem to be losing some of their sensitivity to bad news. Either everyone is so numb that nothing registers anymore, or investors believe the economy is bottoming out and some cautious buying is in order.

We suspect that the latter is the case. The investment press is starting to report that many Wall Street pros with noses for value are starting to launch bottom fishing expeditions. Although nobody is putting everything they have into the market, the amounts being invested are growing steadily.

One of the intrepid investors is Steve Leuthold of the Leuthold Group, a respected institutional research firm in Minneapolis. www.leutholdgroup.com Mr. Leuthold has been a bear for quite some time because he was one of the first analysts to realize the economy was heading for trouble. Recently, however, Mr. Leuthold said, "The stock market is presenting you with one of the great buying opportunities of your lifetime – perhaps the greatest. Stop trying to pick the bottom."

Another good analyst who is starting to pick up bargains is Jim Powell of the Global Changes & Opportunities Report. (www.powellreport.com) In his January newsletter, Mr. Powell wrote, "The CEO's of America's better companies are not jetting around the country in their Gulfstreams asking taxpayers to bail them out. Instead, they are adapting to today's tougher business conditions. Workforces are being slashed, wages are being rolled back, expansion plans are being put on hold, pensions are being cut, and businesses are otherwise becoming lean and mean. Those changes are causing a lot of pain in America, but they are also allowing many companies to earn profits in this damaged economy." Looking particularly good to Mr. Powell are oversold blue chip stocks with global operations.

Not every investment professional is taking long-term positions. Laszlo Birinyi of Birinyi Associates, a money management and research firm in Westport, Conn. is batting for yards rather than touchdown passes. In an interview in the January 5 Barron's, Mr. Birinyi said "We are willing to set up for 10% or 15% gains, especially in a short time period because we've seen the markets reverse so often and so swiftly."

A Big Cash Horde Is Always Bullish

When stocks started to plunge last year, billions of dollars were taken out of the market and were placed in cash accounts. The American Association of Individual Investors estimates that cash now represents 42% of portfolios, an unprecedented amount.

Unfortunately, cash isn't earning good returns anymore – as you are probably painfully aware. The interest rate on 90-day T-Bills is essentially zero. Even 10 year Treasuries are paying only 2.50%. As one retiree said recently, "I went from a comfortable meat and potatoes income to barely getting enough money to buy dog food."

Not surprisingly, investors are more than a little anxious to find a better home for their dollars. When the stock market starts to look attractive again, the flood of money back to Wall Street could give us one of the greatest bull markets in history.

When It Comes To Rebounds, Too Early Beats Too Late

We don't know when the economic tide will turn back up. As we said in recent issues, there is a good chance that we could see some relief towards the end of the year. But even if the market as a whole takes longer to rebound, many individual stocks should start to recover some of the ground they lost during the plunge. In fact, some have already started to rise – as many price charts quickly reveal.

As to the broader market, prices typically begin to recover from a steep downturn from six to nine months before economic growth resumes. That means investors must have the fortitude to buy what they want while the economy is still on the ropes.

It is also typical for new bull markets to deliver most of their gains within a few months –or sometimes weeks- after getting underway. That's another reason that investors should be positioned before a rebound begins.

Eight Blue Chips Many Pros Are Buying

We are not inclined to report what stocks other analysts are recommending, no matter how well known they may be. However, we make exceptions when the luminaries share our foresight, clarity of thinking, and brilliant analysis. Here then –in no particular order- are eight stocks that many pros have been buying, and a few reasons why they are attractive.

Johnson & Johnson (JNJ), an old favorite of ours, is up a bit in price but it still looks attractive with a 13.8% P/E and a 3% yield. http://finance.yahoo.com/q/pr?s=JNJ Earnings will be lower than usual this year but this global supplier of healthcare products has great long-term prospects. JNJ is a Dividend Aristocrat that has increased its payout in each of the past 25 years.

Kinder Morgan Energy Partners (KMP), another of our selections, is an energy storage and pipeline master limited partnership (MLP) that yields a whopping 8.6%. http://finance.yahoo.com/q/pr?s=KMP The issue is down with energy prices, but that appears to be a mistake. The volume of fuels being transported is remaining high.

Consolidated Edison (ED) is a major utility that operates in New York, New Jersey, and eastern Pennsylvania. http://finance.yahoo.com/q/pr?s=ED Since the company's customers have a good history of paying their bills in good times and bad, the yield seems secure. The company's location in normally high-growth areas means it should see more business when the economy begins to recover. This Dividend Aristocrat currently yields 6%.

Deere< (DE) is a well-known maker of farm equipment that does business worldwide. http://finance.yahoo.com/q/pr?s=DE What is less known about Deere is it also makes construction equipment that should be in demand as President-elect Obama's infrastructure projects go into gear. The yield is a modest 2.7% but the prospect for excellent capital gains makes Deere very attractive.

Transocean (RIG) is a world-class deep ocean drilling company whose shares dropped steeply as energy prices tumbled. http://finance.yahoo.com/q/pr?s=RIG However, energy prices are only down because global economic growth has declined. When it recovers, energy will shoot back up again. In fact, oil is already starting to rise. As with Deere, Transocean is primarily a capital gains play.

VF Corporation (VFC) is an anomaly in the clothing industry because its higher end outdoor products held up well as the recession set in. http://finance.yahoo.com/q/pr?s=VFC Although investors are starting to notice that they oversold this stock, the P/E is still just 9.9. The yield is 4.1%. The company also has a top management team that has accumulated $600 million in cash, some of which it may spend on acquisitions this year.

United Parcel Service (UPS) also saw its business hold up well when the recession set in. That's partly because Internet sales remained healthy and UPS is the web's biggest product delivery company. http://finance.yahoo.com/q/pr?s=UPS Of course, UPS is also a good play on the broad economy which is probably why Warren Buffett took a position in the stock. Meanwhile, the yield is a competitive 3.2%.

General Electric (GE) is a somewhat more aggressive play than the previous stocks because the company is suffering both from the economic slowdown and the credit crunch. http://finance.yahoo.com/q/pr?s=GE Still, most value analysts think the stock is oversold for its long-term growth potential. GE is selling for just 8.3 times earnings. The stock yields 7.3%

The Bottom Line This Week

We continue to think the economy will remain weak for the first two or three quarters of the year and then slowly start to move back up. Once there are tangible signs that the outlook is improving, the stock market should start to recover from today's abysmal levels. To catch the move, you must take positions while the recession is still in place and most investors remain glued to the bench.

Some noted investors are already starting to take positions in high quality companies that should benefit greatly from an economic recovery. This week we listed eight such stocks that seem particularly likely to increase in value over the next several years.

Association of Investor Awareness - Week of 01/01/2009

Research & Editorial Staff — Thu, 01 Jan 2009 16:18:00 GMT

In This Issue:

The New Year Should Bring Investors Some Relief
Consumers Have More Money Than Holiday Sales Suggest
Most Corporations Are In Good Financial Shape
Economy Gains From Cheaper Dollars, Oil, And Interest Rates
The Faster The Pain, The Quicker The Gain?
If You Don’t Play, You Can’t Win
The Bottom Line This Week

Investors who hoped that Santa might bring them some cheer over Christmas were sorely disappointed. The usually-jolly old gentlemen dropped off a rather large bag of coal. Even that gift was worth a lot less than would have been true a few months ago.

In any event, when the stock market closed on Christmas week, the Dow and the Nasdaq were down another 0.7% and 2.2% respectively. The mood brightened over the weekend when unemployment claims dropped unexpectedly. During the last three trading days of 2008, the market went up 260 points. We suspect that the occasion will be celebrated with a little extra bubbly on New Years Eve.

Of course, Wall Street’s revelers will need to overlook the fact that the S&P 500 went down a dismal 41% during 2008. It wasn’t the worst annual performance in history, but it was the worst in the memory of most investors living now.

The New Year Should Bring Investors Some Relief

On the brighter side, we continue to think that 2009 will be a better year than 2008. Although we can expect to see many stock prices drop to new lows, and many venerable companies go bankrupt, many analysts think the worst of the crisis is probably behind us.

There are even some indications that the economy will begin a partial recovery in 2009. The downward momentum will almost certainly continue during the first quarter when growth is likely to shrink by 4% or so. However, by the third quarter growth should start to slowly improve, although it is likely to remain below water. But by the fourth quarter, the GDP may tiptoe into the black – but not by much.

Consumers Have More Money Than Holiday Sales Suggest

The biggest positive for the economy is consumers are in better shape than the recent retail sales figures would indicate. In the December 26 issue of the Wall Street Journal, Zachary Karabell, president of River Twice Research, www.rivertwice.com pointed out that the U.S. credit system didn’t allow consumers to take on the ruinous leverage that the lenders themselves used. As a result, household wealth is still about $45 trillion. (That’s trillion with a "T".) In addition, a third of U.S. households have no mortgage, much less a sub-prime mortgage.

Consumers also seem to be determined to get out of debt. During the holiday season, most Americans used their credit cards less than in previous years. Their restraint hurt merchants, but the savings will allow the public to spend more in the future. When fears subside, there will be money available to jump start the economy.

Lastly, by the end of 2009 consumers will need to replace many items that will be nearing the end of their useful lives. Everything from clothes to cars will be on the list. Delayed spending led the economy back from many past recessions, and it’s likely to do it again.

Most Corporations Are In Good Financial Shape

Contrary to popular belief, most companies didn’t participate in the debt binge that triggered the credit crisis. Unlike the downturns of the 1980’s and in 2002, corporate debt is low and cash reserves are high. When consumers decide to open their pocketbooks a bit wider, companies will be able to respond quickly to meet the increasing demand.

Companies are also beginning to adjust to the new financial reality. As we have seen during other tough economic periods, businesses are trimming fat as fast as they can. The new "lean and mean" measures are hurting the economy now, but they will lead to improved profits later.

Economy Gains From Cheaper Dollars, Oil, And Interest Rates

As you probably recall, the declining value of the U.S. dollar contributed significantly to the late boom by making U.S products less expensive overseas. But when the economy finally started to fall apart, the dollar jumped back up as millions of investors around the world flocked to safe U.S. Treasuries.

Now the dollar is moving back down again. Although the decline is unlikely to trigger anything like the recent period of growth, it will help many U.S. exporters. That will be welcome news for investors who have been increasing their positions in the blue chip multinational companies that we have been recommending for many months.

Lower oil prices are providing another stimulus for growth. The Energy Information Administration is estimating that regular gasoline will average $2.03 a gallon in 2009. That’s a 38% decrease from the $3.27 we endured in 2008. Richard DeKaser, chief economist at National City Corporation, believes the reduction will add 1% to whatever growth rate the 2009 economy creates on its own.

The Fed’s ultra-low interest rates will also stimulate growth, particularly in the housing market. Wells Fargo is already offering some 30-year loans at 4.9%. Mortgage rates may sink to 4.5% within a few months. If so, home sales in many oversold markets may recover much faster than most investors expect.

The Faster The Pain, The Quicker The Gain?

When the credit crisis got underway there was a heated debate about what, if anything, the government should do about it. Many economists thought that Washington should stay out of the mess. They argued that the country would be better off having a terrible –but short- downturn that would clear out the bad debts, kill off the weak companies, and quickly lead to a recovery.

The recession isn’t the problem. The boom is the problem, the recession is the cure.

Peter Schiff, President of Euro Pacific Capital www.europac.net

That option appeared to have been taken off the table when the federal rescue funds began to flow. However, the pace of the downturn remained very high. As a result, more analysts are beginning to think that an equally surprising rebound may be on the way.

We have been saying the same thing about oversold stocks. Our analysis indicates that a rebound in many blue chips will occur even if the economy remains weak. If the economy does better than expected, the same should be true of America’s strongest companies.

If You Don’t Play, You Can’t Win

Investors are understandably nervous about venturing into the stock market after suffering big losses in 2008. But for people who stay on the bench, those losses will be locked in. Only by taking advantage of today’s low stock prices will it be possible to turn the gut wrenching declines of the past year into attractive gains.

In truth, investors who stay on the sidelines will probably do worse than we just indicated. That’s because returns from fixed income investments are so low, investors who stick with them won’t even keep up with inflation. On the other hand, stocks of successful companies typically stay ahead of inflation and deliver real wealth to their investors.

A look back at the Crash of 1929, the Crash of 1987, and several mini-crashes tells the tale. After each collapse, most investors retired to the sidelines to lick their wounds. When the emergencies ended, the sideliners were still in the hole.

Wiser investors looked at the high quality companies that were selling for half or less of their former values - and they bought them. When America started to move forward again, these investors made huge gains.

Now we have another once-in-a-lifetime opportunity to buy the cream of America's companies at prices nobody ever expected to see again. We are convinced that if you stand aside from the fear that grips the markets, and you buy the best-of-the-best companies, you will be handsomely rewarded.

The Bottom Line This Week

The year that just ended will go down in history as one of the toughest the U.S. economy and stock market ever had. Although there is a chance that 2009 will be even worse, we think a partial recovery is far more likely.

As a result, we are confident that our advice to invest in high-quality blue chip stocks will result in excellent long-term profits. The best stocks to buy are from companies that provide products and services that meet the basic needs of people all over the world.

Companies with good dividends are the most attractive of all because they will pay investors to wait for the bigger gains that are expected. Please review recent issues of the AIA Advocate for our recommendations.

We wish everyone a Healthy, Happy, and Prosperous New Year!

Association of Investor Awareness - Week of 12/18/2008

Research & Editorial Staff — Thu, 18 Dec 2008 16:51:00 GMT

In This Issue:

The Economy Is Bad, But Stocks Are Priced For Worse
Stocks Outshine Their Competition
Behold The Halo Effect
A January Bounce Seems Likely
Energy And Foreign Growth Are Positives
We May Be Halfway Through The Economic Downturn
What Everybody Knows...
The Bottom Line This Week

Last week we received additional signals that a bear rally is probably in the works. During the five day period, investors were treated to a smorgasbord of bad news. Congress turned thumbs down on bailing out the Big Three automakers. Unemployment surged to a 26 year high. T-Bill returns dropped to essentially zero. Many bellwether companies issued earnings warnings. Several firms cut their dividends, and investors were shocked by a $50 billion hedge fund collapse.

So what did the market do? It barely budged. The Dow eased down less than 0.1%. The Nasdaq actually rose 2.1%. The market was also strong during the first three days of the current week. In our opinion, such resilience in the face of disturbing economic events indicates that investors are probably getting ready to do some buying.

The Economy Is Bad, But Stocks Are Priced For Worse

We are not surprised that investors are starting to ignore what would otherwise be solid reasons to sell more stocks. Although the news is troubling, the market appears to be priced for much worse. Since investors always get around to matching values to reality, a partial rebound is likely.

An adjustment also seems to be warranted because more economists are beginning to predict that growth will ease back into positive territory late next year. If the contrary economists are right, the stocks of many high-quality companies are oversold.

Stocks Outshine Their Competition

Stocks don't just look better from a fundamental standpoint. They are also becoming more attractive when compared to other investments. For example, real estate in most regions is likely to decline much further before it turns around. As we said above, T-Bill interest rates are on the floor. And after the Fed's unprecedented rate cut on Tuesday, it won't be long before CD yields also come down.

Some Good Yields Are Still Available

To beat what could be a sharp loss of income we think you should act quickly to lock in the higher rates that are currently available at some banks. At EverBank, for example, rates will be adjusted downwards at the first of the year. However, Domestic Money Market accounts that are opened before December 31 will be "grandfathered" through all of 2009. New accounts start with a 4.01% return for 90 days after which the rate will be 3.42%.

The outlook for commodities is equally grim. One exception is gold. It should do well as inflation begins to replace deflation in a year or two.

That leaves stocks, especially from companies that are well established in global markets, have little debt, and have a good dividend yield. Such stocks are rapidly becoming the only game in town, which is why they are starting to attract more investors.

Behold The Halo Effect

Within the stock market, competition for investment dollars is also keen. Since most sectors don't look very appealing right now, new money coming into the market is likely to pour onto the minority of stocks that do look good. As a result, a rally may have a big impact on favored sectors, and nearly ignore others.

In addition to the multinational blue chips we have been recommending for several weeks, we also think the financial service sector is due for a pop. We've seen it happen on several occasions as the credit crunch set in. Every time it looked as if the sector might someday pull out of its tailspin, investors leaped aboard. For example, Citigroup (C) was just $3.05 in mid November. Now it is $8.23, 170% jump.

For the lowest risks, however, stick with companies that provide needed goods and services to consumers throughout the world.

A January Bounce Seems Likely

As to the timing of a rally, the last week or so of the year is likely to see it start. If so, prices could move up rather quickly because no portfolio manager can afford to miss any gains.

In addition, millions of Americans think that President-elect Obama is putting good teams together to deal with our problems. On Tuesday of this week, even Vice President Dick Cheney expressed his admiration for many of the heavyweights who are being recruited to the new administration. All in all, there appears to be an improving climate for stocks.

Energy And Foreign Growth Are Positives

One of the biggest stimulants at work in the economy isn't coming from Washington. Instead, the return to cheap energy and lower commodity prices is acting like a super tax break throughout the world.

Right now, most of the saved money is being squired away by nervous businesses and consumers. However, at least part of the savings will filter back into the economy as the new year progresses. Cars wear out, refrigerators quit, kids need braces, stores run out of products to sell, and so on. If the funds to fix the problems exist, they will be used.

Another reason the outlook may be better than the headlines today would suggest, is people in most developing countries are still spending money. The BRIC countries (Brazil, Russia, India and China) have over three billion consumers who are determined to maintain their improving lifestyles. The U.S. swims in that sea, and benefits from it.

We May Be Halfway Through The Economic Downturn

There is no doubt that the economic downturn is accelerating. However, even the optimistic economists acknowledge that conditions over the next few months are likely to be worse than they are now.

Fortunately, there is a consolation prize that goes with a severe economic correction: the faster it progresses, the quicker it can eliminate the excesses of the past. That's one of the reasons that the first part of a recovery may occur by the forth quarter of 2009.

The bottom line is, we don't expect an "Armageddon", a "Great Depression II", a "Greater Depression", or a "Very Great Depression" that many gloom and doomers are predicting.

What Everybody Knows...

Lastly on the subject of the economy, we have learned to be cautious when nearly everybody believes something is true. The more experts that climb on the bandwagon, the more likely it is that Mother Market will fool them all.

We don't need to look into the distant past to see how the cognoscenti can totally miss the boat. It was only a few months ago that nearly everyone from Harvard to Meadow Muffin Jr. College was certain that oil would soon be $200. Anyone who disagreed with that view was considered to be an utter fool.

Likewise, nearly every economist was certain that inflation was becoming a problem. Almost no one foresaw the deflationary cycle that began by mid year.

The conclusion to be drawn is not to assume anything is true just because nearly everyone thinks it is. Experts often miss economic calls, and they may be doing it again today.

The Bottom Line This Week

Jim Grant, a knowledgeable chap who writes the biweekly Interest Rate Observer, (www.grantspub.com) recently offered investors some cheer when he talked about several Wall Street legends who stumbled badly, and then recovered.

For example, Benjamin Graham lost over 70% following the crash of 1929. He got nearly everything back by 1936, but he gave about half of it back the next year. However, within a few years he was back on top again, big time.

Graham wasn't just stubborn. He knew that winning is impossible from the sidelines. That's a good lesson for today's investors who may be tempted to stay out of the game that hurt them badly this year.

Notice To Readers

The AIA "Advocate for Absolute Returns" will not be published next week. Publication will resume with our first January 2009 issue.

AIA Advocate for Absolute Returns

Association of Investor Awareness - Week of 10/29/2009

Investors Are Deciding Which Way To Jump

Earnings Count More Than The GDP

Beat The Fixed Income Blues

A Dividend Honor Roll

If You Can't Beat Them. . .

The Bottom Line This Week

Until Next Time

Association of Investor Awareness - Week of 09/24/2009

Will The Right Fundamentals Please Stand Up?

The "Uncle Sam Effect"

Small Investors Are Coming Back To Stocks

Inflation Fears Are Increasing

First Some Bad News, Then Some Good News

Easy Index Gains May Be Over

These Four Favorites Should Stay On Top

And So Should China

The Bottom Line

Until Next Time

Association of Investor Awareness - Week of 08/27/2009

The Outlook Is Better For An Improving Economy

Profit Growth Can Be Misleading

Big Companies Still Have An Advantage

Emerging Countries Are Making A Strong Recovery

Two Long Term Dividend Payers Look Good

Fasten Your Seat Belts, Oil Prices Are Roaring Back

The Bottom Line This Week

Until Next Time

Association of Investor Awareness - Week of 07/30/2009

Stocks Got A Second Wind In July

But, How Long Will It Last?

Technology Appears To Be Turning Around

Blue Chips Top The Best Sellers Chart

The Economy Looks Better, But Not Great

Asia's Growth Is Much Stronger

A Single Stock Covers China And Its Neighbors

The Bottom Line This Week

Until Next Week

Association of Investor Awareness - Week of 06/25/2009

Mixed Economic Signals Worry Investors

Another Kind Of Bailout Is Also A Concern

A New Economic Reality Is Emerging

For Efficient Companies, Slow Growth Can Be Profitable

Your Best Strategy Now

THREE ANALYSTS AND A FOOL HAVE RECOMMENDED THIS STOCK

The Bottom Line This Week

Association of Investor Awareness - Week of 05/28/2009

Is The Economy Finally Turning Around?

Companies With Cheap Eats Are Doing Well

China's Economy Is Still Hot (Compared With Everybody Else)

Energy Investments Are Looking Good Again

The Bottom Line This Week

Association of Investor Awareness - Week of 04/30/2009

Signs Of A Better Economy? (Or At Least Not As Bad?)

Stocks For A Weak Recovery

The Bottom Line This Week

Association of Investor Awareness - Week of 03/26/2009

Banks And Auto Stocks Led The Way Down, And Now Up

Yes, The Rebound Could Be Another Bear Trap

If There Ever Was A Time To Use Stops, It’s Now!

In Many Cities, Real Estate May Be Set To Rise

The Bottom Line

Association of Investor Awareness - Week of 02/26/2009

The Federal Bailout Is A Mixed Bag Capitulation May Have Been Reached Some Blue Chip Stocks Will Win Blue Ribbons A Speculation Is Also Attractive Gold Regains Its Appeal, But There Are Problems An Economic Indicator That We Can Love The Bottom Line This Week

The Federal Bailout Is A Mixed Bag

Capitulation May Have Been Reached

Some Blue Chip Stocks Will Win Blue Ribbons

A Speculation Is Also Attractive

Gold Regains Its Appeal, But There Are Problems

An Economic Indicator That We Can Love

The Bottom Line This Week

Association of Investor Awareness - Week of 01/29/2009

Reasons For Cautious Optimism Continue To Appear Many Promising Stocks Attract Long-Term Investors The Bottom Line This Week

Reasons For Cautious Optimism Continue To Appear

Many Promising Stocks Attract Long-Term Investors

The Bottom Line This Week

Association of Investor Awareness - Week of 01/22/2009

Credit Rebound Coming From Unexpected Sources Signs Of Life Are Returning To Some Real Estate Markets A Home Town Advantage With Stocks Forget The Bottom, Focus On Value Two Leading Stocks Look Especially Good Right Now The Bottom Line This Week

Credit Rebound Coming From Unexpected Sources

The Federal Bailout Is A Mixed Bag
Capitulation May Have Been Reached
Some Blue Chip Stocks Will Win Blue Ribbons
A Speculation Is Also Attractive
Gold Regains Its Appeal, But There Are Problems
An Economic Indicator That We Can Love
The Bottom Line This Week

Reasons For Cautious Optimism Continue To Appear
Many Promising Stocks Attract Long-Term Investors
The Bottom Line This Week

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

Sometimes Good News Can Be Bad News
Treasury Bonds May Be A Bubble
It’s Time To Choose Shorter Bond Maturities
Three Ways To Win If Treasuries Decline
Investing In Times Of Extremes
Staying Healthy During Impossible Times
The Bottom Line This Week

It's Time To Start Looking Beyond Current Woes
A Big Cash Horde Is Always Bullish
When It Comes To Rebounds, Too Early Beats Too Late
Eight Blue Chips Many Pros Are Buying
The Bottom Line This Week

The Economy Is Bad, But Stocks Are Priced For Worse
Stocks Outshine Their Competition
Behold The Halo Effect
A January Bounce Seems Likely
Energy And Foreign Growth Are Positives
We May Be Halfway Through The Economic Downturn
What Everybody Knows...
The Bottom Line This Week