This Driller Is on Sale, Making Now the Time to Buy

Timor Invest

Intermediate upstream oil explorer and producer Parex Resources (TSX:PXT) has plunged sharply in recent days because of crude’s latest weakness and fears of a global economic slowdown, which will apply greater pressure to prices. Since the start of 2020, Parex has followed Brent lower, losing 11% compared to the international benchmark’s 16% decline. While there are considerable headwinds ahead for crude, it shouldn’t stop investors from acquiring market-beating Parex, which was one of the best-performing Canadian oil stocks of 2019, gaining 44%, or more than double the S&P/TSX Composite Index’s 19%.

Positive outlook

The driller, which is focused on oil exploration and production in the South American nation of Colombia, is trading at a deep 53% discount to its after-tax net asset value (NAV). The value of Parex’s oil reserves will grow once oil discoveries made during 2019 are incorporated. This highlights that Parex is very attractively valued and that there is considerable upside available to investors, making now the time to buy.

Parex’s appeal as an investment is further enhanced by its rock-solid balance sheet, which is a rarity for an upstream oil producer. The company finished the third quarter 2019 with no long-term debt and cash of US$350 million.

Parex also generated US$94 million of free cash flow for the quarter, despite Brent only averaging US$62 per barrel, highlighting the considerable profitability of Parex’s oil assets. This is further illustrated by the driller’s netback — a key measure of operational profitability for an upstream oil company — which, for the first nine months of 2019, was US$37.90 per barrel of oil pumped.

That is one of the highest netbacks in the industry and significantly greater than Parex’s peers operating solely in North America. Intermediate upstream oil producer Whitecap, which produces light and medium oil in Saskatchewan as well as Alberta, reported a netback of US$22.44 per barrel produced, while for Crescent Point it was US$26.12. Even Surge Energy, which is focused on conventional light and medium oil production in Alberta as well as Saskatchewan and is one of the lowest-cost operators in Canada, reported a netback of a mere US$21.47 per barrel.

A key reason for the considerable profitability of Parex’s operations are its low-decline rate conventional oil assets, meaning less capital is required to be invested to sustain production. That coupled with low operating costs in Colombia saw Parex report low production costs of US$5.80 per barrel pumped, which is almost half of its peers operating in Canada.

Then there is Parex’s ability to access premium Brent pricing. The international benchmark price trades at a US$5 per barrel premium to the North American West Texas Intermediate price, giving Parex a handy financial advantage over drillers operating Canada. Parex is also not subject to the discounts applied to Canadian crude, which, for the Edmonton light oil benchmark price, is around US$7.65 per barrel, further impacting the operational profitability of Canadian oil producers.

Parex expects its 2020 oil production to expand by 5% year over year to an average of 55,375 barrels daily. After securing three new blocks in the Colombian hydrocarbon regulator’s December 2019 bidding round, Parex’s exploration upside has expanded considerably, even more so when it is considered that it plans to drill 59 wells in 2020 compared to 43 in 2019.

Foolish takeaway

Even in a difficult operating environment where oil prices are under pressure because of declining demand growth and growing supply, Parex appears undervalued. The company is trading at a deep discount to its NAV, the value of which will expand once 2019 drilling results and oil discoveries are included. Parex’s low operating costs and rising production will ensure that its earnings expand during 2020, which, along with growing oil reserves, will give its stock a solid boost, making now the time to buy.

Fool contributor Matt Smith has no position in any of the stocks mentioned.

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Should Barrick Gold (TSX:ABX) Stock Be on Your Buy List Today?

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The gold sector is finally showing signs of life after a multi-year slide that put most of the gold miners off the radar of Canadian investors.

Gold resurgence

The price of gold currently trades at US$1,590 per ounce compared to its 12-month low around US$1,270. Gold briefly topped US$1,600 earlier this month and could potentially break through that level again and take a run at new six-year highs in the coming weeks.

Pundits are even speculating the 2011 highs above US$1,900 could be within reach in 2020, given the numerous financial and geopolitical risks that are driving gold demand.

Recent support is fuelled by fears connected to the coronavirus outbreak in China. This is along with tensions in the Middle East, the China-U.S. trade war, Brexit, and a global trend toward negative rates on government debt.

Global financial markets are reacting to the potential impact of the coronavirus on economic activity. The longer the virus disrupts trade and consumer and business spending, the more likely countries will begin to reduce economic growth targets. As a result, investors are starting to move funds out of higher-risk positions and into safe-haven assets.

The oil market is already pricing in reduced demand. For example, WTI oil is trading at US$51.50 per barrel compared to more than $63 earlier in January and is approaching a 12-month low.

Cash is also flowing into government bonds and driving down yields. The U.S. 10-year treasury yield is at 1.53% compared to $1.91 a month ago. It too is approaching its lowest point in the past year.

In this environment, it isn’t a surprise to see gold catching a bid. The yellow metal is widely viewed as a safe place to protect wealth. This is particularly true for investors who hold the bulk of their money in currencies other than the U.S. dollar.

Gold is priced in the American currency, and there is a risk that central banks around the world will ramp up interest rate cuts to try to boost their domestic economies. This can lead to a global race to devalue currencies, which can erode wealth and undermine purchasing power in the international markets. Holding gold is one way to protect against a devaluation of a currency against the dollar.

Should you buy Barrick Gold?

The medium-term outlook for gold is positive, given the basket of concerns hitting markets. The gold miners tend to move more than the price of gold, so it would make sense for investors who are bullish on gold to consider adding gold stocks to their portfolios.

Barrick Gold (TSX:ABX)(NYSE:GOLD) is up about 50% since the end of May last year, but more gains should be on the way. The company’s CEO recently said that Barrick could effectively wipe out its net debt by the end of 2020 if gold holds its gains. That would be a huge milestone for a company that was on the brink just a few years ago with debt of US$13 billion.

Barrick raised its dividend late last year and the elimination of the debt burden would free up cash to boost the payout. The company currently owns five of the top 10 mines on the planet and had 2019 gold production of 5.5 million ounces. Barrick is also a major copper producer and copper could see a sharp price rise in the coming years, as the trend to renewable energy picks up pace. Wind turbines and solar panels use significant amounts of copper.

Barrick Gold trades at just $24.50 per share. It wouldn’t be a surprise to see the stock top $30 by the end of the year.

Fool contributor Andrew Walker owns shares of Barrick Gold.

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USDT Moves Every Eight Days on Average, Data Shows

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Recent data from crypto data site Coin Metrics shows USDT tokens change locations every eight days on average. 

“The trailing 12 month velocity of @Tether_to on Omni, Ethereum and Tron has rapidly and consistently increased since September and currently sits at ATHs, where on average each $USDT turns over 46 times per year,” Coin Metrics posted on its Twitter account on Jan. 31. 

Moving on three blockchains

Tether, one of the crypto industry’s oldest stablecoin operations, originally built its USD-pegged token on Bitcoin’s Omni token layer. Tether also operates on Ethereum’s blockchain as an ERC-20 token.  

Several years after its inception, Tether issued USDT on Tron’s blockchain in 2019 as an added market option.

Based on Coin Metrics’ tweet, all three blockchains currently host all-time high USDT transaction numbers, in terms of how often each USDT token moves from any given location. 

Crunching the numbers

According to the numbers Coin Metrics listed, each USDT on the market moves approximately 46 times per year on average. 

Taking into account a 365-day year, this would mean an average USDT moves approximately every eight days. 

Such movement shows that the market still uses USDT regularly, even after years of insolvency doubts, lawsuits and questions.

Authorities subpoenaed Tether and allegedly related exchange Bitfinex near the end of 2017 on questions of solvency. 

In 2018, a law firm came forward, stating sufficient backing for USDT. As of recently, Bitfinex sits in the spotlight, facing four lawsuits for alleged market manipulation in 2017. 

Cointelegraph reached out to Coin Metrics for additional comment but received no response as of press time. This article will be updated accordingly should a response come in.

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Stocks vs. Gold: How Conventional Investing Wisdom Is Being Stood on Its Head

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Conventional investing wisdom for the past several decades has posited that stocks are the best asset to invest in if you want to make the most investment gains; bonds are the best asset to diversify your portfolio, while still allowing for gains; and gold is the best asset for protecting wealth while avoiding losses and minimizing gains. But what if that conventional wisdom is wrong?

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The mainstream attitude towards investing is perhaps typified by Warren Buffett, who has long been a fan of stocks and not a fan of gold. Buffett likes to trot out statistics about how investing in stocks in 1945 would have netted investors far more gains than gold would have. He conveniently neglects to point out that in 1945, trying to own gold would have gained an investor prison time, not an investment gain.

In more recent investing time horizons, gold has often outperformed stocks, and it looks set to continue that trend into the future. We’re entering an era in which governments continue to add to their already massive levels of debt, central banks aid and abet that spending through enormous purchases of securities and massive monetary expansion, and the outlook for global growth as a result of all that debt looks quite pessimistic.

Just as the 1980s and 1990s were a tremendous bull market for stocks, the 2000s and 2010s were not. While everyone in the investing world keeps hoping for a return to the glory days of Wall Street’s past, those days haven’t been seen in decades, and they likely won’t return. Investors who want to make gains in the future could do better investing in gold than investing in stocks.

How the ‘80s Stock Market Boom Influenced Conventional Wisdom

The 1980s and 1990s were a boom time for Wall Street and for stock markets. Economic growth seemed to be so great that stock markets took off and didn’t look back. It’s hard to believe it now, but the Dow Jones in August 1982 was only at 776 points. That’s a little more than double the high of 381 points that had been reached in 1929, which means about a 1.35% annualized gain from 1929 to 1982. Doesn’t sound too great, right?

But from 1982 onward, stock markets took off. By 1990 the Dow was close to 2,900 points, and by January 2000 it peaked at nearly 11,723 points. That’s about a 17% annualized gain throughout that time period. You almost would have had to try not to make huge gains. It’s no wonder that anyone who invested in stocks during that time period thought that stock markets were a guaranteed way to make money.

The performance of stock markets during the ‘80s and ‘90s also raised the long-term average gains of stock markets, which is why you now hear so many financial commentators talking about the average 7-8% gains of stocks over the long run. But strip out that 18-year bull market and gains become much lower.

Investors need to face the facts: the stock market boom of the ‘80s and ‘90s were an anomaly. In fact, after the 1929 stock market crash, there have really only been a handful of booms that have resulted in stock market’s rise in value: the early 1950s to 1966 boom, the 1982-2000 boom, the pre-financial crisis stock market bubble, and the current stock market bubble. Outside those times, stock markets gains haven’t always been a sure thing. That’s why investors who are looking to make gains in the future need to look outside the box and look skeptically at conventional thinking.

Gold vs. Stock Markets: Do You Know Which Performs Better?

The conventional wisdom states that stock markets always outperform gold. Stocks are vibrant and growing, always making great gains. Gold is static and fixed, doesn’t pay dividends, and just sits there like a rock. Conventional thinking says that you won’t lose money investing in gold, but you’ll lose out on great gains. Is that true?

On August 15, 1971 President Nixon closed the gold window, severing the last official link between the dollar and gold. From then on, world governments would no longer attempt to fix the dollar price of gold. Gold would be allowed to float freely, traded like any other asset. And yet, for much of the time since then, gold has been denigrated as an investment asset. Is that because of its performance?

The Dow Jones closed on August 15, 1971 at 888.95 points, while the S&P 500 closed at 98.76 points. At current market prices, which are near all-time highs, that means that the Dow Jones has seen annualized gains of 7.44% since then, while the S&P 500 has seen annualized gains of 7.49%. And gold? Its annualized gains since then have been 7.75%, and gold is still well off its all-time highs. So much for gold not helping investors make great gains.

The results over the past two decades have been even more stark. The Dow Jones closed the first trading day of 2001 at 10,646.15 points, while the S&P 500 closed at 1,335.63 points. Gold was trading for $268 an ounce. Since then, the annualized gains for the Dow and the S&P 500 have been 5.00% and 4.32% respectively, while gold’s annualized gains have been 9.4%. That means gold has more than doubled the performance of the S&P 500, and nearly doubled the performance of the Dow Jones. That’s pretty impressive.

As every investor knows, past performance is no guarantee of future performance. But many investors only pay lip service to that rule, preferring to ignore it when it comes to stocks. That’s why so many investors have seen poor returns over the past 20 years. They assumed that stocks would repeat their performance of the ‘80s and ‘90s, making huge gains, and they assumed that gold would just stagnate. My, how the tables have turned.

If you have 5, 10, or 20 years until you expect to draw on your retirement savings, how do you expect your investments to perform in that time? Do you expect a return to the bull market of the ‘80s and ‘90s? Or are you concerned that the massive increase in debt throughout the economy will weigh on stock market gains and allow gold to continue outperforming stock markets?

Investors who chose gold 20 years ago look back thankfully now at the foresight they had. And many are probably wishing that they had invested even more in gold. The prospects for gold continue to look bright, while the outlook for stocks looks set to diminish even further. With a looming stock market correction around the corner, stocks are set to plummet, while gold is set to make a big run.

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Do you want to look back 5 or 10 years from now and wish that you had invested in gold? Don’t let that happen to you. Protect your assets and give yourself the opportunity to make good investment gains too by investing in gold today.

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No Fear Here: 4 Stocks to Beat the Wuhan Virus

Timor Invest

Friday Four Play: The “Fear Inoculum” Edition

(Did a friend forward you this email? If so, you owe them big-time! Seriously, this is Great Stuff. We don’t take that title lightly. After you’ve thanked your friend profusely, why not sign up for yourself today? It’s mostly painless. I promise.)

The Wuhan coronavirus is officially a global health emergency. The World Health Organization (WHO) says so, so it must be true.

I know what you’re thinking: “I’m so sick and tired of hearing about ‘the coronavirus this’ and ‘the coronavirus that.’”

If you really want to read about Amazon.com Inc.’s (Nasdaq: AMZN) impressive earnings (click here) or Caterpillar Inc.’s (NYSE: CAT) weak guidance (click here), I provided links to useful commentary.

Honestly, dear readers, I wanted to avoid talking about the outbreak today too. But we’ve reached a level of market fear that I can’t, in good conscience, just ignore.

With the global number of infections soaring toward 10,000 and more than 200 dead, I’d be doing you a disservice if I didn’t address the coronavirus issue.

But this won’t be a doom-and-gloom commentary, no sir. I’m just as tired of the fearmongering as you are. Today, we take the power back!

Today, we leave fear behind. We say to the doom-and-gloom financial media: “Get behind me, Satan!” (Or something like that. I’m not sure they really care, but you get the point.)

Today, I give you not one, not two or three … but four actionable trading ideas to profit from the financial media’s viral obsession.

So, without further ado (there’s just too much “ado” sometimes, isn’t there?), here are four companies that could inoculate your portfolio against the Wuhan coronavirus outbreak.

No. 1: Momma’s Got the Magic of Clorox

Prevention. Prevention. Prevention.

It’s the single best way to not catch the coronavirus. (Well, aside from not traveling to China right now, that is.) Your momma always told you to wash your hands and clean up, right? Momma’s got the magic, after all.

But you don’t want just any old cleaner or spray — you want something that kills literally everything it touches. Enter Clorox Co. (NYSE: CLX).

From bleach to wipes to disinfectant spray, Clorox has all your viral prevention needs covered. What’s more, Clorox wipes and spray even say right on the packaging that they kill human coronaviruses.

Surely it can’t be this easy? It is … and don’t call me Shirley!

During the H1N1 (swine flu) virus outbreak in 2009, Clorox stock rallied more than 10% as consumers snapped up the company’s wipes and sprays to help keep themselves safe. With the Wuhan coronavirus even more of a threat than H1N1, it’s time to stock up on Clorox.

Now, there’s a caveat to diving into CLX right now. Clorox is slated to report earnings next Tuesday. Analysts expect earnings to fall 6.4% to $1.31 per share on revenue of $1.43 billion.

If you’re worried about the earnings reaction, waiting until after the report is OK. You’ve got time. The current outbreak isn’t going away anytime soon, unfortunately. What’s more, you might even get a better price on CLX shares if Wall Street overreacts.

No. 2: Alpha Investing

If an ounce of prevention is good, then a whole wardrobe of prevention is even better.

Alpha Pro Tech Ltd. (NYSE: APT) specializes in disposable protective apparel and infection control. Those products include shoe covers, bouffant caps, gowns, coveralls, lab coats, hoods, frocks, face masks and eye shields.

Wait, wait … protective frocks? Those are a thing?

Yes, even protective frocks. Gotta protect your clergy, after all.

As you can see, Alpha Pro Tech is literally designed to profit from outbreaks like the coronavirus — and the prevention of its spread. (Though it’s a bit like cramming toothpaste back in the tube at this point.)

APT shares have seen little action in the past year. But they spiked following the Ebola outbreak in 2014, and they rallied again during the H1N1 outbreak in 2009, soaring more than 600%!

Those incidents proved to be short-lived gains for Alpha Pro … but so too were the respective outbreaks. The coronavirus pandemic will be around quite a bit longer, so the company should bring in more revenue than before … and APT shares will have more time to gain.

Alpha Pro shares are already up nearly 50% since the Wuhan outbreak, but given how the stock surged during the H1N1 situation, there should be plenty of upside left.

No. 3: Ask Abby

Now that we have prevention out of the way, it’s time to start working on containment … and AbbVie Inc. (NYSE: ABBV) already has a head start.

The biotechnology giant’s HIV treatment, Aluvia, is key to that containment. AbbVie has already donated more than $1 million worth of Aluvia to China to help stop the coronavirus from spreading. Aluvia works by limiting key proteins in the human body, which coronaviruses need to replicate and spread.

It appears to be working. Reports state that a man named Wang Guangfa — a respiratory expert at Peking University First Hospital in Beijing — was given Aluvia to fight the virus after he contracted it while helping patients in Wuhan. Wang told China News Week that the treatment worked for him.

As Aluvia is increasingly used to help stop the spread of the Wuhan virus, AbbVie should benefit.

Taking a closer look at the company in general, ABBV stock has struggled this year, following news that the company is buying Allergan PLC (NYSE: AGN) for $63 billion. That’s not chump change, but AbbVie sees opportunity in the massive Botox market (Allergan’s cash cow).

Once Wall Street comes around on the buyout, ABBV should be a solid investment choice even when the coronavirus hysteria passes.

No. 4: Investors Don’t Cry

Prevention? Check. Containment? Check.

All that’s left is finding the cure. No, not The Cure. A cure … never mind.

That honor could fall to Inovio Pharmaceuticals Inc. (Nasdaq: INO).

Last week, the Coalition for Epidemic Preparedness Innovations (CEPI) awarded Inovio with a $9 million grant to develop a Wuhan virus vaccine. This is the second time CEPI has doled out cash to Inovio.

The company was awarded $56 million to develop vaccines for Lassa fever and Middle East respiratory syndrome (MERS), which is also a coronavirus. Inovio has also developed a vaccine candidate for Zika.

Now, I’ll be straight with you. Investing in Inovio might appear to be only a short-term prospect. Outside of virus outbreaks, Inovio shares don’t move a whole lot. That said, the company has become the go-to biotech firm to develop coronavirus vaccines — as shown by its work with MERS.

The continued resurgence of coronaviruses has to be addressed at some point by the global health community. That’s where Inovio will step in. It’s got experience working with these viruses and  the cash to push forward with that experience. And we all know the big pharmaceutical companies aren’t going to step in every time there’s a specialized outbreak.

Looking at INO stock, the shares received a healthy boost following the CEPI news but have since retraced most of those gains. But Wall Street is rather shortsighted on Inovio. This will play out in your favor, as the recent weakness offers an excellent entry point.

Great Stuff: No Fear, in the Clear

Boom!

That’s four ways you’re better prepared for market troubles than your Corona-clinking friends. As Great Stuff always says, forget the panic fest when there’s a chance to invest.

Mr. Great Stuff, I’ve never heard you say that before…

Technically, you’ve never heard me say anything in this text-based venture! But what I do always tell you is to find your guide — someone to travel these investing waters with you.

Now, most of you know Paul Mampilly for his cutting-edge tech trends … but there’s more to the man than that! What many readers don’t know about is Paul’s incredible experience in biotech.

From medical technology to blockbuster drugmakers, Paul has spotted it all. And Paul’s readers have made thousands, even hundreds of thousands of dollars, by following his recommendations.

And today, Paul’s revealing the trading strategy that helped grow his personal account 305% in one year.

You can watch the full video by clicking HERE. Or, if you’re not one for videos, you can read all about it by clicking HERE.

That’s all for this week. But don’t fret, you can get more meme-y market goodness by following us on Facebook, Twitter and Instagram!

Until next time, good trading!

Regards,

Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing

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Crude Oil Bulls May Need To Take Cover If This Support Breaks

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Coronavirus Doesn’t Matter: We Have The Federal Reserve

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Millennials: Beat the CRA With This Space Race Stock

Timor Invest

Canadian investors interested in finding a good stock to buy for their portfolios in 2020 should look at the modern space race for inspiration. Elon Musk’s SpaceX may not be listed on the public stock exchanges yet, but there are still great options to choose from on the Toronto Stock Exchange.

You can find undervalued options to boost your Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). In 20 years, you can use the capital gains to retire early or supplement your Canada Pension Plan payments during retirement.

High-growth potential safe from the Canada Revenue Agency 

The annual dividend yield on Maxar Technologies (TSX:MAXR)(NYSE:MAXR) is stellar at 6.58% of the current share price. Even better, the price of this stock began rebounding last year, setting up savvy investors for nice capital gains if they buy the stock today to hold for at least the next three to five years.

Maxar Technologies stock began following the S&P/TSX Composite Index level percentage change throughout 2019. Then, in the last quarter of the year, the stock price soared, ending the year up 207.8%. Maxar Technologies essentially left the index in the dust, which only boasted a level percentage change of 12.93%.

You have two fantastic options to invest in this stock easily. You can protect the capital gains from taxation by the Canada Revenue Agency by buying this stock for your TFSA. Alternatively, you can purchase the asset for your RRSP, choosing to pay income taxes on it later when you retire. Whatever you choose, this is a great 2020 space race stock to buy and hold.

Government money will boost the stock price in 2020

Overall, the stock price of Maxar Technologies is still down from where it began 10 years ago. Keep in mind that the stock price was largely inflated before the downward correction. Directly before it began falling, the stock reached a high of nearly $100 in May 2015.

Down almost 40% from its price at the start of 2010, Maxar Technologies still has room to outperform the index in the next year. The trailing 12-month (TTM) price-to-sales ratio is only $0.69 for every dollar of sales per share. A price-to-sales ratio of under $1 means that trading activity has left the stock undervalued on the exchange.

Government funds will pour into Maxar Technologies over the next decade in the form of grants, contracts, and important business deals. The space race holds significant implications for national security interests, globally. Maxar will be a top performer on the TSX in 2020 due to its strong relationships with the Canada Space Agency and NASA in the United States.

Firms with negative EPS surprise investors    

Companies during heavy investment periods are bound to report negative earnings per share (EPS). Thus, large, negative earnings are not necessarily anything to worry about. In the case of Maxar Technologies, the TTM diluted EPS is negative $14.92.

Stocks reporting negative EPS can sometimes surprise analysts. Shopify and Tesla are two examples of firms whose stock prices soar, even as they report mounting losses. The TTM diluted EPS on Shopify and Tesla are negative $1.15 and negative US$4.77, respectively. Yet, the enterprise values of both firms are outrageous at a respective $68.77 billion and US$112.92 billion.

The enterprise value of Maxar Technologies is only $4.81 billion. Between these three stocks, I’d be more likely to recommend the undervalued Maxar Technologies over Shopify or Tesla (especially since Maxar is the only one out of the three that pays a dividend!).

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There’s nothing better to an income investor than the sight of dividends rolling into your account. But the old saying goes there are two things certain in life – death and taxes… and the latter can result in some of those precious dividends slipping through your fingers and into the taxman’s pocket!

But did you know that dividends from Canadian-based companies are eligible for special tax credits? For further details on this – and to find out the name of the single most tax-efficient account to hold your US stocks in! – simply click the link below to grab your free copy of our new report…

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Fool contributor Debra Ray has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Shopify and Tesla. The Motley Fool owns shares of and recommends Shopify, Shopify, and Tesla. The Motley Fool recommends MAXAR TECHNOLOGIES LTD.

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TFSA Investors: 3 Pointers From Legendary Warren Buffett

Timor Invest

When it comes to the investing world, very few people have the aptitude of Warren Buffett. Based on a principle known as value investing, Warren Buffett’s strategy is to find undervalued companies in industries he understands that he intends on buying and holding indefinitely.

At the centre of Warren Buffett’s approach are three main philosophies that I will share with you.

Understand the businesses you invest in

Warren Buffett has been quoted saying, “Never invest in a business you cannot understand.” The crux of this argument lies in the fact that investors are able to make better decisions in industries they know well.

Warren Buffett himself practices what he preaches with his company, Berkshire Hathaway, owning companies such as Dairy Queen and Fruit of the Loom. Dairy Queen is a fast-food restaurant that specializes in hamburgers and ice cream. Fruit of the Loom is an American company that manufactures clothing, with a focus on underwear and sports equipment.

In terms of Canadian stocks, Warren Buffett would be interested in the likes of Sleep Country, which engages in the retail and online sales of mattresses. Sleep Country owns Endy, an online mattress-in-a-box company. Based on my calculations using a discounted cash flow model, I determined Sleep Country has an intrinsic value of $24.23 per share, which is a premium to the $20.49 at the time of writing.

Plan to buy and hold stocks forever

When it comes to the time horizon for investing, Warren Buffett makes a good point. “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”

The main point of this argument centres on discipline. The best investors are usually the most patient and can invest without emotion. I remember reading an article on Warren Buffett whereby he mentioned the best way to approach investing is to analyze a company as if you were to buy it. If the company is not attractive enough to buy, then it is not attractive enough to invest.

Using this approach, I am bullish on Fire & Flower. The company engages in the retail sale of marijuana and marijuana related products. It is backed by an investment from Couche-Tard of $26 million for a 9.9% stake in the company. This gives it an implicit value of $2.16 per share.

Price and value are not the same

This is arguably the most important distinction to make when it comes to investing. Warren Buffett makes a very good point about price and value. “Price is what you pay. Value is what you get.”

I couldn’t have said it better myself. This is one of the key philosophies behind intrinsic value for value investors. By using valuation methods such as discounted cash flow, comparable company analysis, and precedent company analysis, investors can determine the present value of a business.

I am a proponent of value investing, and through this method, I calculated that Recipe Unlimited is currently undervalued. With an intrinsic value of $97.83 compared to the price at writing of $18.83, Recipe Unlimited has the potential to deliver significant returns to its investors. The company was formerly called Cara Operations, and its brands include The Keg, Milestones, and Bier Markt to list but a few.

Special ‘Tax Credit’ Stocks Revealed in FREE New Report

There’s nothing better to an income investor than the sight of dividends rolling into your account. But the old saying goes there are two things certain in life – death and taxes… and the latter can result in some of those precious dividends slipping through your fingers and into the taxman’s pocket!

But did you know that dividends from Canadian-based companies are eligible for special tax credits? For further details on this – and to find out the name of the single most tax-efficient account to hold your US stocks in! – simply click the link below to grab your free copy of our new report…

Claim your free report now!

Fool contributor Chen Liu owns shares of FAF. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends ALIMENTATION COUCHE-TARD INC and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares).

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The 7 Secret Warning Signs Of A Recession

Timor Invest

These Key Indicators Will Help You Stay Ahead Of The Game

Stocks have been riding high and the Federal Reserve has hit the pause button on rate cuts.  Even after some big recession scares in 2019, everything seems peachy again now, right? Not so fast.

There are the obvious signs of a recession that everyone knows about.  Falling GDP, high unemployment, a plummeting stock market. Those metrics seem fine, so what’s to worry about?

The savvy investor looks deeper though, and consequently, they’re ready and prepared for trouble before the average person.

Those indicators we just mentioned?  Usually, by the time they appear, the damage has already been done to your portfolio.  Not much use moving your retirement assets out of the stock market AFTER it tanks, is there?

At Regal Assets, we’ve been helping our clients successfully manage their wealth for over a decade now, through both the good and the bad.  With our guidance, you can prepare yourself and protect your assets, before it’s too late. By digging deeper and familiarizing yourself with some of the lesser-known signs of a recession, you’ll be able to stay out in front of the trouble.

Chinese Debt

China’s economy, even more than our own, has been in full gear since the 2008 financial crisis.  Most casual investors aren’t aware of the debt crisis that is taking place within, however.

Both consumers and state industries have borrowed heavily in recent times, and Chinese banks are feeling the pain of a huge number of outstanding loans that now have little chance of being repaid.  They are in a vicious circle. The government has repeatedly attempted to get a grip on out of control lending, but each time the global economy has stuttered, thus forcing Beijing to loosen credit yet again.

To add the mounting list of worries, the growth of industrial production is at a 30-year low.  China ultimately wants its economy to move away from manufacturing to become more service-focused, but that is a long road that will have some painful bumps in it sooner than later.  It’s going to get worse before it gets better, and the global reach of the issue means that it will no doubt impact America’s next recession.

The Yield Curve

One of the most closely watched recession indicators that insiders keep an eye on is the yield curve.  “Yield” is merely the interest rate on a bond. They have different durations as well (more commonly known as “maturity”), ranging from a month to 30 years.  The yield curve basically compares how the rates on these different bond lengths change over time.

Usually, the interest rate on bonds with longer maturity is higher than those with shorter maturity.  This makes sense, as you’re being rewarded to holding onto it longer. “If you’re an investor, and you’re given the choice for investing for a month or investing for 10 years, you would say, ‘Listen, a lot more can go wrong in 10 years than it can in a month. I’m going to demand a higher interest rate, a higher yield,’” says Dan North, lead economist at Euler Hermes. “The yield curve is positive sloping – most of the time.”

In contrast, an inverted (downward sloping) yield curve is a big red flag to analysts.  It essentially means that investors think it’s riskier to hold their bond over the short term.  What would cause that sort of behavior? Simply put, factors that would ultimately contribute to a recession.

We’ve already seen the yield curve invert multiple times in 2019, with the Federal Reserve lowering interest rates in an effort to combat it.  It is only a matter of time until they can’t control it anymore, though.

Consumer Confidence Indexes

It’s smart to pay attention to the general population’s frame of mind when it comes to the economy.  Peter Donisanu, an investment analyst at Wells Fargo, says how “sometimes a recession could be self-fulfilling. You build up so much pessimism about the economy that activity stops.”

Consumers are what really drive the economy in the end.  In fact, consumer spending as a percentage of GDP has been gradually increasing.  It was 61% in 1980 and has risen to 68% today. That’s a huge amount.

Consumer confidence is also currently historically elevated.  It dropped in early 2019 as a result of the government shutdown but has since recovered.  Regardless, short-term fluctuations like that aren’t something to worry about. Long term downtrends though are a surefire sign of impending recession.

Brand McMillan, chief investment officer at Commonwealth Financial Network, says how actually “confidence can be quite high and we can still have a recession.  What’s a much better indicator is year-on-year change. When it drops 20 points year on year, that’s trouble. Two months ago, the year-on-year change was 7.9. [Now] it’s -10.2. It’s dropped 18 points in two months.”

Basically, if the current pace continues, then be ready for a recession.

Employment Data

Now there’s the blatantly obvious sign of a recession, high unemployment numbers.  Usually by that point, however, the economy is already knee-deep in recession, with mass job loss the result and not the indicator.

Savvy investors will look to other employment data.  Instead of looking for an increased number of jobless, you want to keep an eye out for when unemployment actually bottoms out.  In 2018, U.S. unemployment reached 3.7%. That’s the lowest rate since 1969. It’s been great news for workers but is bad news for the future of investors.

Traditionally, the U.S economy has gone into recession roughly nine months after the bottoming of the unemployment rate.  The catch though is that it’s hard to actually recognize the bottom when you’re in it. Hindsight is 20/20 and it’s easy to look back on a chart and pinpoint it.  Still, it’s good to regularly monitor weekly and monthly job data to see if any trends stand out. Analysts love to obsess over the numbers, so you’ll have no shortage of opinions to consider.

Inflation & Wage Growth

Both of these things are good in moderation.  Their presence generally indicates unemployment is low, workers are being paid fairly, and consumers feel free to spend their money.  Demand for consumer goods increases, retail prices rise accordingly, and inflation increases.

When inflation climbs too rapidly, however, the Federal Reserve raises interest rates, which makes borrowing more expensive.  If businesses are already concerned about a recession, then they’ll be even less likely to borrow for capital expenditures if interest rates are high.

Inflation isn’t currently a problem, in fact, it’s the opposite at the moment.  Instead of raising rates, the Fed has been cutting them to try and stimulate inflation, with 2 percent being the target.

U.S. Manufacturing Growth (Or Lack Thereof)

It’s no secret that U.S. manufacturing output has massively dropped off in the past few decades, but the state of the country’s manufacturers remains a solid indicator of overall economic health.

One key metric is released by the Institute for Supply Management every month, and surveys manufacturers to determine their output.  Basically, how busy are they? The bad news is that this signal is flashing red.

When the index is above 50, manufacturing is growing.  When it’s below 50, factory output is shrinking. It fell below 50 this past fall, hitting 47, the worst level in 10 years.  Anything below 45 means recession, and we are slowly inching towards that point.

Freight

We live in an increasingly digital world.  You can be in the middle of nowhere and still be able to order something online.  You can even have it show up at your door the very next day, clear across the country.

Think of how much really goes into it all.  That one package from your favorite online merchant will travel on several different vehicles, be processed at various locations, and involve multiple workers over the course of several days.

But how is all of that actually achieved?  The answer is freight. Commerce still requires the movement of goods from one location to the other.  Trains and trucks still move massive amounts of goods. Dejan Ilijevski, president at Sabela Capital Markets, notes that “Changes in rail [and truck] traffic data can be a leading indicator for changes in economic activity.”

2019 lagged in overall freight loads compared to the previous three years.  Not a good sign.

We’ve been in a state of economic uncertainty for a while now, however, and witnessed several of these predictors manifest themselves in 2019.  While the instability isn’t likely to go away any time soon, it’s also important to remember not to panic. The main thing is to not be a passive investor in times like these.

None of these single indicators by themselves are a sign of impending doom.  If several of them begin to flash red, however, then it could indeed be a bad sign of things to come.  By being smart, keeping an eye out, and knowing the recipe for a recession, you’ll be better prepared than most and ready to take action when necessary.

At Regal Assets, we believe in providing you with trusted and proven investment options.  We take pride in the way we do business and have enjoyed helping our clients make the most of their money for over a decade.  Our expert team members will work side-by-side with you every step of the way, so you can be sure that your assets are both protected and in a position to grow.

See for yourself what we can offer with our FREE Investor’s Kit. It explains Regal’s IRS-approved investment options and how they work. We’ll help you choose a strategy that’s right for you, so you can achieve your goals.

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Ledger Wallet Co-Opts Controversial Pro-Brexit Slogan for Cryptocurrencies

Timor Invest

As the United Kingdom exits the European Union, a new ad campaign by French crypto hardware wallet firm Ledger is reviving one of the most divisive pro-Brexit slogans, “Take Back Control,” to ambiguous effect.

An email shared with Cointelegraph on Jan. 30 revealed Ledger’s mock-up of a planned billboard for an installation in London’s Canary Wharf, one of the capital’s prime financial districts.

Ledger’s plans for a digital billboard in London’s Canary Wharf. Shared with Cointelegraph via email

The billboard reads ”Let’s Take Back Control For Real” — a modified version of the 2016 pro-Brexit campaign’s notorious “Take Back Control” slogan, which became an anti-EU rallying cry for a restoration of the nation state’s sovereign control over its policies, borders, and economic policy.

“For Real”?

As Ledger presents its campaign, the phrase “take back control for real” implies that the “individual can be empowered with complete financial freedom, where borders are bridged and you are fully in charge of your own funds in a network that everyone can join.”

Yet the original tagline has a particular, charged history in the context of the U.K. referendum and Brexit vote. At the time, it was viewed as a call for the sovereign state’s increased intervention in restricting immigration into the country.

U.K. politician and Brexit Party founder Nigel Farage mobilized the slogan for a racialized anti-immigration agenda during the 2016 campaign, as with his notorious “Breaking Point” poster, portraying a deluge of migrants and the tagline “We must break free of the EU and take back control of our borders.”

Nigel Farage photographed in front of Leave EU’s “Breaking Point” poster. Source: New Statesman archive via Google Images. 

The photograph for the poster depicted migrants crossing the Croatia-Slovenia border in 2015, a scene of mostly young males of color. It was later reported to the police on the grounds that it incited racial hatred and breached U.K. race laws. 

Cointelegraph reached out to Ledger to clarify its use of the polarizing slogan. In response, a representative for the firm wrote that:

“Regardless of one’s political stance, the campaign itself is quite powerful and well-executed. We particularly like its slogan – though we saw how crypto really [gives] control back to the people.”

Ledger also argued that there are “quite a few similar themes” between Brexit and Crypto, although it conceded areas in which they are “at times opposing each other”:

“For example, crypto is all about borderless financial freedom, whereas the Brexit focuses on closing its borders with financial freedom from the EU in mind.”

As to the future of a post-Brexit U.K., Amandine Doat, associate general counsel and head of public policy at Ledger said, “We should hope for convergence and not fragmentation with the U.K. leaving the EU. Alignment of regulation between EU and the U.K. even after the U.K. leaves is crucial to the development of strong Europe presence at global level.”
In contrast to these hopes, yesterday, the eve of Brexit day, Prime Minister Johnson clarified to the public that:

“The manifesto on which the government was elected was very clear that there will be no alignment. We have always been very clear that we are leaving the EU’s customs union and single market and that means that businesses will have to prepare for life outside of these.”

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Does The Coronavirus Leave Anywhere To Hide? Sugar Provides Shield And Gains

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Silver Prepares For Next Leg Higher

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Is February a Good Month to Buy Toronto-Dominion Bank (TSX:TD) Stock?

Timor Invest

It’s been quite a bumpy ride for investors in Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock. Canada’s second-largest lender has been unable to hold its gains in many rallies during the year, showing the uncertain environment in which stocks tied to economic growth are trading.

Is this going to be a trading pattern in 2020? Indications are that Canada’s largest banks will continue to face pressure, as the Canadian economy shows signs of weakness. The Bank of Canada, in its recent outlook, said the door is open to cut interest rates if the current economic slowdown persists.

The more negative outlook shows the downturn in domestic data since the end of last year will keep bond yields low, depriving banks to improve their margins on products such as mortgages and credit card loans. 

On the earnings, some lenders are also pressured as they increase provisions for bad loans. In the latest quarter, TD Bank was affected by a $154 million charge. Earnings at TD Bank fell 3.5% to $2.86 billion, with adjusted earnings of $1.59 a share missing the $1.73 average estimate of analysts.

Successful bet

But despite this temporary uncertainty about the Canadian economy and its impact on lenders who thrive on lending money to consumers, investing in bank stocks over the long run has been a successful bet for investors. TD has a long history of rewarding investors, and the lender has made its intentions public about future dividend hikes.

Among the top five Canadian banks, TD has a very attractive dividend policy, supported by strong growth momentum, and a significant retail banking operation in the United States. You may be surprised to know that TD has more retail branches in the U.S. than in Canada, with a network that stretches from Maine to Florida. 

Overall, TD roughly generates about 30% of its net income from U.S. retail operations. The bank also has a 42% ownership stake in TD Ameritrade with a fast-expanding credit card portfolio.

After a 10.4% increase in its payout in February, income investors in TD stock now earn a $0.74-a-share quarterly dividend, which translates into a 4% yield on yearly basis.

The bank is forecast to grow its dividend payout between 7% and 10% each year going forward — an impressive growth rate at a time when the 10-year government note is yielding less than 2%.

Trading at $74.02, TD stock has delivered about 140% in total returns during the past decade, despite all the negative developments related to global trade, Canada’s energy downturn, and the financial crisis of 2008.  

Bottom line

No matter which direction the economy goes, Canadian banks have rarely stopped sending dividend cheques to investors. Investing in top-quality dividend-growth stocks is a proven way to create wealth. The companies that reward their investors with higher payouts each year offer you a means to multiply your wealth without taking too much risk. This investing strategy is particularly good for long-term investors looking to build their retirement income.

Fool contributor Haris Anwar has no position in stocks mentioned in this article.

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TFSA Income Investors: 1 Ultra-High-Yield Canadian REIT to Check Out Today

Timor Invest

For some time, the market has been anticipating that management could do the usual thing and cut the monthly distribution when American Hotel Income Properties REIT’s (TSX:HOT.UN) (AHIP) units took a heavy beating between mid-2017 until December 2019 and the annualized distribution yield soared beyond the 13% level.

But nothing was done to the distribution, and insiders were actually net buyers into the real estate investment trust’s (REIT) units during the period, meaning they probably strongly believed in their cooking, even if it would take longer to turn around and reconstitute AHIP’s poorly performing portfolio, which faced a drag from economy hotels that targeted railroad personnel.

The REIT’s untouched U.S. dollar-denominated monthly distribution yields a staggering 11.8% at the time of writing, and there are strong signs that it could be sustained well into the future.

Should we Buy AHIP’s nearly 12% yield today?

Significant changes have taken place at AHIP over the past two to three years.

The REIT recently concluded the sale of its underperforming railroad assets, and the proceeds were used to acquire a very young portfolio of premium-branded hotels built within the past five years. Its portfolio is now comprised of 79 premium-branded hotel assets strewn across the United States’s secondary metropolitan markets that benefit from stable demand.

Operated under the brands affiliated with Marriott, Hilton, InterContinental Hotels Group, Wyndham, and Choice Hotels through licence agreements, the trust is likely to fare better against its competition in the premium hotels space with its recently renovated assets and younger and more modern furnishings, fittings, and amenities.

Management has done away with the performance drag from the economy hotel assets, and we could see improving financial performance from the completely transformed portfolio going forward.

Property renovations are largely complete on several individual hotel buildings, meaning that the negative cash flow impact of the “down times” is gone now. Actually, the new and refreshed looks and feel of the renovated rooms could actually attract more bookings than before.

Analysts expect the REIT to see a return to better cash flow generation in the near future, even as competition within the industry remains intense and high labour costs maintain pressure on margins.

Excluding those properties that were under renovations during the first nine months of 2019, same-property net operating income on premium-branded hotels was up 2.7% during the second quarter and 5.1% higher during the third quarter of last year. We could witness a better 2020 after the recent complete disposal of underperforming assets.

Further, as renovation expenditures decline going forward, more funds from operations could be freed up to cover the distribution while management’s recently amended agreement with the trust’s third-party hotel manager could result in some near-term cost savings and free up more cash flow this year.

Although the payout rate on adjusted funds from operations (AFFO) had surged beyond ideal levels for 2019, management has been guiding for it to fall close to 90% by 2021.

Maybe the distribution could survive a chop, and if so, we may have a juicy yield booster ripe for harvesting in a TFSA today. This is especially so if the external environment plays nice with the trust going forward.

Foolish bottom line

AHIP’s distribution yield is an enticing but aggressive pick today. It’s not as safe as this recent recommendation, and there’s still some significant risk of a cut if the turnaround plan faces external environment headwinds, but the trust’s portfolio is much better after a strong transformation.

Investors should closely watch the general health of the United States economy, labour costs, and a new hotel supply growth within the trust’s target markets, as these will strongly influence portfolio performance going forward.

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But did you know that dividends from Canadian-based companies are eligible for special tax credits? For further details on this – and to find out the name of the single most tax-efficient account to hold your US stocks in! – simply click the link below to grab your free copy of our new report…

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Virgil Griffith Pleads Not Guilty to Evading U.S. Sanctions in North Korea Jaunt

Timor Invest

Ethereum developer Virgil Griffith entered a plea of not guilty Thursday afternoon in a Southern District of New York courthouse. Griffith is charged with conspiring to violate the International Emergency Economic Powers Act after traveling to North Korea (DRPK) in April 2019 to attend a cryptocurrency conference. 

If convicted, Griffth, who once called himself a “disruptive technologist” whose aim was to “make the Internet a better and more interesting place,” could face up to 20 years in prison. He traveled up from Alabama to attend the arraignment and appeared composed throughout, answering with a firm “Innocent” when Judge Castel asked how he would plea.

According to the government’s criminal complaint in United States of America v. Virgil Griffith, filed Nov. 21, 2019, the U.S. State Department denied Griffith permission to go to the DPRK to attend the conference because of U.S. sanctions against North Korea. But Griffith traveled to the DPRK anyway, via China, and “provided the DPRK with valuable information on blockchain and cryptocurrency technologies, and participated in discussions regarding using cryptocurrency technologies to evade sanctions and launder money,” charged the government. 

During the arraignment in lower Manhattan, defense attorney Brian Klein asked if the government had interviewed other people who attended the April 2019 conference as part of its discovery process, adding, “We think [testimony from] other attendees will help exonerate our client.” 

Klein responded “No comment” when asked by Cointelegraph about the latest developments.

Griffith, a U.S. citizen living in Singapore, was arrested on Nov. 28 as he landed at Los Angeles Airport. The government’s charges came “after the Trump administration raised concerns over the summer about the national security threat cryptocurrencies pose because of their potential to be used to finance illicit activities,” according to the New York Times. The government’s complaint referenced another individual who helped Griffith to enter the DPRK and may face charges as well, but the government’s attorneys declined to comment further on that point. 

The crypto community is divided in its support of Griffith, Cointelegraph reported on Jan. 9 after Griffith was indicted and released on bail — he remains free, though somewhat exiled to Alabama. “I don’t think what Virgil did gave DRPK any kind of real help in doing anything bad. He *delivered a presentation based on publicly available info about open-source software,*” declared Ethereum founder Vitalik Buterin in early December.    

North Korea may be in the early stages of building its own cryptocurrency, in what appears to be an effort to evade U.S.-imposed sanctions, Cointelegraph reported in September 2019.  More recently, the United Nations warned that attending a North Korean cryptocurrency conference in February 2020 would most likely constitute a sanctions violation. 

Judge Castel granted the government a continuance until March 17 to assemble more discovery evidence, the defense to review it and the parties to advise as to further motions.

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Even a Dovish Fed Can’t Buoy Markets Right Now

Timor Invest

The Federal Open Market Committee (FOMC) held its first meeting of the year this week, and it was slightly more dovish than many people expected. Still, it wasn’t enough to keep stock markets from plummeting, as renewed fears of the Chinese coronavirus are weighing heavily on world markets. While markets had looked earlier in the week like they had gotten over their fears of the virus, increasing death tolls and the likelihood of a Chinese economic slowdown as a result have markets wary.

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The Fed in its statement remarked that inflation remains under its 2% annual target. That’s an indicator that the Fed will continue to keep the monetary spigot open. Purchases of Treasury securities will continue at least through the second quarter, and ongoing funding of the repo market will continue at least through April. That means several more months of expansionary monetary policy. Assuming the coronavirus outbreak comes to an end with the onset of warmer weather, these moves should prime stock markets to move higher, at least in theory.

One concerning movement in bond markets is the flight to safety. Whether it’s fears of coronavirus or fears of a stock market crash, the yield curve is re-inverting. Remember that an inverted yield curve is a surefire indicator that recession is on the way. Various points of the yield curve have inverted in the past, with the 3-month/10-year and 2-year/10-year bond yield spreads being those most looked at by markets.

The 3M/10Y and 2Y/10Y both inverted last August, in a sign that recession was only months away. But now due to the rush to the safety of Treasury securities, those relationships are getting ready to invert again. The 3M/10Y spread moved yesterday to only 4 basis points, down from 34 basis points at the beginning of the year. In intraday trading Thursday, the yield flipped, with the 3-month T-Bill’s yield exceeding that of the 10-year Treasury note. If that isn’t an indicator that the economy is in for some trouble in the coming months, what is?

Investors need to realize that economic conditions are deteriorating. While many people may hope for the Dow to continue its upward rise to reach 30,000, that’s unlikely. And even if the Dow does reach that milestone, that would be an indicator to sell stocks, not an indicator to continue piling money into stock markets.

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With a weakening economy, deteriorating conditions in China due to coronavirus, and ever rising debt levels, it’s no surprise that gold and silver prices have begun to rise. And as the world economy continues to weaken, gold and silver will only strengthen. Investors who want to protect their wealth in the coming months would do well to remember the lessons of 2008 and starting thinking about investing in gold today.

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Tesla’s Cash Flows; Verizon’s Crossroads; Facebook Erodes

Timor Invest

Tesla to Bears: Eat My Shorts

Do we have any Tesla Inc. (Nasdaq: TSLA) bears reading today?

I know you’re out there. You write in to Great Stuff every time I say something positive about the company. Well, get your emails ready. Today, Tesla’s taking a victory lap … and I’m saying: “I told you so!”

Let’s get right to the heart of the matter, shall we?

Tesla reported blockbuster quarterly results last night. They were good … really good. As in, “Tesla turned in another profitable quarter” good.

Yes, Virginia. Tesla is profitable, earning $2.14 per share in the fourth quarter and beating expectations by more than 20%. Revenue came in at $7.38 billion, besting Wall Street’s target of $7 billion.

Now, we’ve seen Tesla put up profitable quarters before. What makes this one so much better?

Two factors really stood out this time. First, Tesla reported free cash flow of $1 billion for the quarter. That’s impressive just for the sheer fact that the company’s capital spending grew 27% in the same quarter.

Remember the Gigafactory in Shanghai? That cost the company $412 million to push through. Despite the added spending, overall capital expenditures were lower than 2018.

You’re starting to lose me here, Mr. Great Stuff. Just tell me what’s going on, please!

OK, so that’s a lot to take in. In layman’s terms, Tesla is spending less, spending smarter and bringing in more revenue. This is what every company dreams of doing. It’s how things are supposed to work.

What’s more, things will get even better for Tesla this year. The company projected 2020 sales of more than 500,000 vehicles.

Not bad for a company that many people believed would never be profitable.

The Takeaway: 

Wall Street’s Tesla bears are eating a lot of crow today.

Here are two of my favorites:

• Ben Kallo, an analyst at Baird, said: “A lot of retail investors actually have a deeper and more accurate insights than many of the big institutional investors and certainly a better insight than many of the analysts.”
• Joseph Spak of RBC Capital Markets wrote: “We fully admit things are better than we expected and there is a lot of positive news flow and data points going Tesla’s way.”

While the bears admitted defeat, the Tesla bulls celebrated. “It’s becoming clear, in our view, that Tesla is on a path toward becoming the world’s only relevant publicly listed auto maker,” wrote Alexander Potter of Piper Sandler.

Now, I like Tesla, but I don’t know if I’m willing to follow Potter’s lead and call it the “only relevant publicly listed auto maker.” I think we’re still way too early in the game for that.

However, if Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) don’t get their act together soon, Tesla could soon be the only relevant publicly traded American automaker.

Finally, you might be wondering if it’s finally time for you to bite the bullet and buy into Tesla. That answer is a firm “NO.”

Tesla is overbought and needs to consolidate or pull back more than a little. For the best long-term returns, you’d ideally want to target the $550 to $600 region. It may take a little while to fall back to those levels, but everything driving the shares higher right now is hype.

We don’t buy hype … and neither does Banyan Hill expert Jeff Yastine.

Jeff’s eye for spotting hidden value comes from his 15-plus years of financial news coverage. And now, he has his sights locked on a $5 stock that’s set to make waves.

With its life-saving innovation, this one company is set to revolutionize health care. There’s little hype surrounding this stock today, but Jeff predicts its value could triple in the next few years.

Click here to see why Jeff believes this pioneer is set to soar.

The Good: Am I Blue?

Why, wouldn’t you be too? (Couldn’t resist breaking out a little Billie Holiday.)

Microsoft Corp. (Nasdaq: MSFT) is most certainly not blue. It’s a nice, happy shade of green today … thanks to Azure, Microsoft’s cloud services.

The software giant once again beat Wall Street’s earnings forecasts, riding a 27% spike in intelligent-cloud revenue to $11.15 billion. Azure-specific revenue surged 62%.

Overall, total revenue jumped 14% to $36.9 billion, and earnings topped expectations by $0.29 per share.

Microsoft projected Azure revenue to reach between $11.85 and $12.05 billion for the current quarter, touting its market dominance even in the face of stiff competition from Amazon.com Inc.’s (Nasdaq: AMZN) Amazon Web Services.

“Azure is the only cloud that offers consistency across operating models, development environments, and infrastructure stack, enabling customers to bring cloud compute and intelligence to any connected or disconnected environment,” CEO Satya Nadella said.

The Bad: Door No. 1, Please

Verizon Communications Inc. (NYSE: VZ) gazed longingly into the horizon today, shedding a few percentage points after a mixed bag of earnings.

America’s largest mobile carrier added 790,000 phone connections. When you consider rival AT&T Inc. (NYSE: T) added only 229,000 … so far, so good.

The problem here is Verizon’s media division, on which the company just wrote down a roughly $200 million charge. Who would’ve thought buying AOL and Yahoo was a bad idea? (I think we all thought that, actually.)

It’s like when my wife sends me to Walmart for groceries … and I come back with a Duck Dynasty Chia Pet and a gallon jug of Tabasco. After Tumblr’s fire sale last year, Verizon is 0 for 3 on the acquisition front.

VZ shares have gone practically nowhere since November … of 2018. Personally, I see two paths the company can take.

Mr. Great Stuff, what’s behind door No. 1 for Verizon today?

The company could take the “L” and leave its media unit behind in the noughties (that’s what we’re calling the 2000s now, apparently … or so my daughter tells me).

And door No. 2?

Verizon could pull an AT&T: buy some more content and roll out a streaming service. Yet Verizon’s AOL and Yahoo deals (worth $4.4 billion and $4.48 billion, respectively) were mere pennies compared to the nearly $109 billion AT&T spent for Time Warner.

But honestly, there’s not that much content out there left to buy. There’s what … MGM and Lionsgate? Those are about the only two worth mentioning. And Verizon would probably have to fight both Netflix Inc. (Nasdaq: NFLX) and Apple Inc. (Nasdaq: AAPL) for either of them, pushing the price tag even higher.

Door No. 2 is clearly a bad idea for Verizon. After all, Great Stuff readers know how well the Time Warner ordeal is working out for AT&T…

The Ugly: Overhyped

By most measures, Facebook Inc. (Nasdaq: FB) just turned in a solid quarter. The social media giant beat earnings guidance by $0.04 per share and topped revenue expectations by $21 million.

But it wasn’t the actual numbers that scared investors today. It was the growth of those numbers. Facebook’s revenue rose 25% to $21.08 billion — its slowest pace in more than four years. Earnings rose 8% to $2.56 per share, slowing from 20% growth in the prior quarter. This also marks the smallest earnings beat Facebook has ever recorded.

Those are still impressive numbers. Are Facebook’s investors just spoiled?

The answer here is “yes” … with a caveat. Yes, Facebook investors will likely have to get used to lower growth rates for both revenue and earnings. It’s only natural since the company is near market saturation (a problem that Netflix is running into in U.S. subscriber growth).

But the real problem comes with government regulation. Antitrust lawsuits and investigations abound. Defending against those isn’t cheap, and that’ll be an increasingly heavy burden on Facebook’s bottom line. And if the government decides to drop the hammer? That’s even worse.

The ugly truth is that Facebook’s glory days are now behind it. You can expect more “disappointing” reports like this in the future.

You know the drill. You Marco. I Polo.

It’s Reader Feedback time!

Judging from your emails this week, there are two things on your minds: the overhyped coronavirus and internet browsers. Seriously, I didn’t know that browsers were still such a hot-button issue. It’s like I’m back in the days of Netscape and Internet Explorer.

Before we get to those topics, we have some praise from Beth R., who wrote:

I get so much in my inbox from Banyan that I can’t keep up, but I kept yours because of the humor. Love your style of writing. Love the rundown you put in on Roku, because seeing it listed out like that was helpful.

What I like about your email is that it isn’t all about “Something no one else wants you to know” or “Push here to read all about what the Wall Street bigwigs don’t want you to know.” You get the drift. And thank God I don’t have to sit and watch a video I don’t have time for.

Keep up the good work.

Thank you, Beth! We try our hardest to “keep it real” here at Great Stuff. And if we make you laugh while doing it, all the better! Some days, you just need a spot of humor to help the market go down. Also, no one wants to watch my ugly mug for half an hour on video. So, text is what you get!

On to the browser wars!

I switched to Firefox years ago, mostly for privacy, as Google tends to mine too much information from your history. — Gary S.

I’ve never used Chrome because I’ve never trusted Alphabet! — Tim P.

I’ve recently quit using Chrome and switched to Brave, which is based on the Chrome code base, as is Microsoft’s latest version of Edge. Brave looks and acts very much like Google Chrome without the privacy issues. Well worth checking out. — John S.

There are two themes when it comes to browsers: Great Stuff readers hate Chrome and Google, and love Firefox … and Brave? I have to admit — I’ve never heard of Brave before, but after quite a few of you recommended it, I’ll check it out this weekend. Thanks for teaching this old dog new tricks!

Time to get infectious. Mary S. wrote:

My friends are cutting up limes and clicking their Coronas. I am sure you have seen the meme? 

We have scary-virus exhaustion. 

Mary, I also have scary-virus exhaustion. It’s why I haven’t mentioned it today … except for right now, of course. So, my plan to avoid the coronavirus today failed, and it’s all your fault. I sentence you to a weekend of Coronas and limes.

As for the market, I still maintain that it won’t be that big of a deal until it starts spreading in Western countries. Thanks for writing in, Mary!

If you wrote in and I didn’t get to you, it might be because you cursed too $%*?@#! much. I still really appreciate the feedback, even if they won’t let me publish it.

And if you haven’t written in yet … what’s stopping you? Drop me a line at GreatStuffToday@banyanhill.com and let me know how you’re doing out there in this crazy bull market.

That’s a wrap for today. But if you’re still craving more Great Stuff, you can check us out on social media: Facebook, Twitter and Instagram.

Until next time, good trading!

Regards,

Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing

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You Gained 26% in 2 Days — Here’s What’s Next

Timor Invest

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Investor Insights:

• Fears of the coronavirus outbreak in China have dominated headlines in recent days.
• One name I recommended last week was nearly 26% higher by Monday because of the worries.
• But we’re not out of the woods yet. Here’s why my recommendations could go even higher.

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Last week, I told you the S&P 500 Index was in a rare setup … and ready for a fall.

It closed 355 points above its 200-day moving average. And it’s only closed that far above its average one other time in history.

When that happened, the market fell 10.2% over the next two weeks.

So far, the market has dropped almost 2% this time.

That’s why I gave you four ways to hedge your bets last week. And each trade made gains over that period (despite a recent rebound).

Exchange-Traded Product	Ticker	Return, 1/23/20 – 1/29/20
ProShares Ultra VIX Short-Term Futures ETF	UVXY	15.2%
Direxion Daily China Bear 3x Shares ETF	YANG	11.9%
ProShares VIX Short-Term Futures ETF	VIXY	10.2%
iPath Series B S&P 500 VIX Short-Term Futures ETN	VXX	10.1%

(Source: Bloomberg)

In fact, the ProShares Ultra VIX Short-Term Futures ETF (NYSE: UVXY) was nearly 26% higher as of Monday’s close as fears of the coronavirus outbreak in China dominated headlines.

If you took advantage of these trades, congratulations! You hedged yourself against larger losses when the market fell.

But we’re not out of the woods yet.

The coronavirus is not yet under control, and markets hate uncertainty. So today, I want to lay out what to expect next — and how you can prepare.

The Market Fears Disruptions to Everyday Life

The SARS virus in the early 2000s killed 800 people globally. The U.S. stock market fell 12% in the four months after SARS broke out in China.

To put that in perspective, flu season in the U.S. kills 12,000 to 60,000 people each year.

But the market doesn’t react to things it considers common … normal. Instead, markets worry about Black Swan events … unexpected incidents.

In the case of sudden outbreaks, the market worries about disruptions to travel, business activity and everyday life. These risks — and the uncertainty around them — is reflected in stock prices.

The longer people stay away from work … the longer airlines shut down travel … the longer resorts and casinos are closed…

The longer uncertainty remains. But as we saw over the last week, there are ways to prepare your portfolio.

We Can Learn From the SARS Outbreak

We can’t know how long it will take to bring the effects of this virus under control. China now has more cases of this coronavirus than it did of SARS.

The first reported case of SARS in China was November 16, 2002. Just less than four months later, the U.S. stock market bottomed on March 11, 2003. (To be clear, it took more months to get the virus under control.)

I’m optimistic there will be a faster resolution this time. With SARS, China didn’t advise the World Health Organization of the outbreak for 86 days. This time, only 23 days passed.

But understand that the stock market isn’t in the clear just because it bounced back after its drop. Markets hate uncertainty.

So it’s a smart move to protect yourself in the near term.

If you missed my article from last week, there’s still time to get into the four trades I listed earlier.

All you need to do is buy shares as soon as possible, and then make an alert to reassess the position one
week later. So if you invest on Friday, January 31, you’d revisit it on Friday, February 7.

If the trade is moving in the right direction, continue to hold. Sell the day it closes lower.

And there’s one more thing you can do…

A Special Announcement

My colleague Jeff Yastine is going to tell you about an incredible investment strategy next week during a special live presentation.

This previously-unreleased investment strategy can boost your profits by 5 times, 10 times or even 27 times better than your normal return. And that’s without trading options.

Jeff will reveal all the details next week. Check back later for more info on how you can watch his special presentation for free.

I believe you’ll be happy with what you learn.

This method has made me lots of money over the course of my life. And it can do the same for you.

Good investing,

Brian Christopher

Editor, Profit Line

P.S. Jeff and I just put the finishing touches on our brand-new trading strategy. We call it the Profit Line. It often flashes right before stocks soar. To learn more about our exclusive new strategy, click here.

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