Tag - Db

As you know, it's Newsletter Advisors Wednesday.  This week we sit down with Carla Pasternak of High-Yield Investing and High-Yield International. Carla's a long time expert on dividend and income investing and today brings us keen insights on opportunities for short-term gains and longer term holdings. 

Ian: Are the markets safe now for dividend investors? 

Carla: Things appear to be calming, but some question marks remain. Standard & Poor's recently said that they expect 2009 to be an awful year for dividends. That said, there are still good values out there, especially in exchange traded debt and telecoms with predictable cash flow.  

Ian: What do you do to distinguish between safe and unsafe dividends? 

Carla: For funds, I look at the sources of the distributions. I examine the balance sheet, the tax records, the annual report, and notes to the financial statements. I want to see how much of the distribution comes from investment income and earnings, and what comes from currency gains -- which are less predictable. I also want to know how much comes from capital gains, like selling stock or options. Most importantly, I look to see how much comes from return of capital, which is the lowest-quality distribution because it grinds down the asset value. A couple that have pretty high-quality dividends right now are the PowerShares Emerging Markets Sovereign Debt (NYSE:PCY) ETF and the Templeton Global Income Fund (NYSE:GIM).

Ian: Where are you seeing the best values right now? 

Carla: I recently found some great values in exchange traded bonds that are either on the low end of investment grade or the high end of sub-investment grade. I featured AAG Holdings' 7.5% Senior Debenture (NYSE: GFW) in January when it was trading at $12.89. Today it's above $18, and it still pays a 10% yield. I also like exchange traded bonds from US Cellular (NYSE: UZV), Deutsche Bank (NYSE: DKT), and General Electric (NYSE: GEA).  

Ian: What do you think about Canadian trusts? Many are offering great yields right now.

Carla: They are, but you have to be careful. I know Canadian trusts very, very well. I live in Calgary -- its income-trust land right here. I've written their annual reports and know the CEOs well. Many Canadian trusts are gas plays, and gas prices aren't in good shape right now. You need to look at the oil/gas production mix and the reserves mix.  

Beyond that, you need to look at the quality of the oil--pure light crude is where you get the best money. You also need to look at the trust's hedging--how far out it is and what rate they've hedged at. Some trusts are smarter than others. Some hedged oil prices at $60, and some hedged it at $120. You have to look at all these issues, and you can't just go for the highest yield.

I've never just gone for yield. I look at the stability and the security of the yield. I end up in some remote corners of the income universe that most people, including institutions, don't bother with. For example, exchange traded bonds provide unusually high yields, but they don't have enough units outstanding to be liquid enough for a large institutional investor to move in and out of without affecting the price. 

Ian: Are there any strategies you use that can help investors gauge dividend safety?
Carla: Most of the safeguards involve taking a good, hard look at the financial statements and usually the notes to the financial statements as well. For example, I look at the balance sheet to see what kind of long-term obligations the company has and what kind of cash is available to pay these off. I also take a good look at the notes to the financial statements to find out when a company's debt is coming due. Then I can assess if it has ample cash flow and cash reserves to cover this debt plus continue paying out shareholders at the current rate.
I don't expect my readers to do that--that's what I'm here for. Before I present any investment idea, I scour through the financial statements to ferret out the details of the company's financial performance and liquidity. I then use my findings to size up how safe the dividend appears to be in the months and years ahead. 

(Put Carla's extensive research to work for you -- take a look at High-Yield Investing today)

Ian: What's your No. 1 focus when picking income investments?
Carla: I would have to say risk/reward is my main measuring stick. Generally, the more risk you are willing to take, the more potential reward you can expect.
Investors have to decide for themselves how much risk they can tolerate in return for the potential reward. Readers of High-Yield Investing are spread across the risk tolerance spectrum. That's why I like to present a range of opportunities, though I myself tend to be somewhat conservative. 
In fact, I'll reveal a little secret of how I write High-Yield Investing. In my spare time, I also teach writing. I always tell my students to imagine their audience sitting in front of them as they write. Well, one member of my audience is my mother. In fact, she's right in the first row. She lives off the income from her investments, which I manage. I ask myself, "Is this security suitable for my mother?" If so, I rate it as a conservative or reasonably safe investment idea. If not, I consider it suitable for more aggressive investors.
I conduct a lot of research to help me gauge the risk/reward potential of a security. The Securities and Exchange Commission's free website (http://www.sec.gov) is one of our favorite hunting grounds. It allows me to dig through current and historical financial statements and pore through the notes to the statements to get a good reading on the company's performance and liquidity.
Even so, the financial statements just show a point in time. That picture can change rapidly as management responds business conditions. The bottom line is that every investment carries some risk, even Treasury bills, money-market funds or even a bank or credit union CD. Investors must weigh how much risk they are willing to stomach in return for the potential reward. I see my job as helping them to see clearly the risk and the reward potential. In the months ahead, I look forward to providing my fellow investors with income strategies that offer exceptional value in a market that has become deeply oversold.

Ian: You recently took over StreetAuthority's High-Yield International. Are there any international regions or sectors that you like right now? 

Carla: I'm looking at Europe, especially European Banks, because no one likes them. Credit Suisse (NYSE: CS), HSBC (NYSE: HBC), Banco Santander (NYSE: STD), Deutsche Bank (NYSE: DB), and National Bank of Greece (NYSE: NBG) are really turning around. With Citigroup (NYSE: C) crippled and Lehman Brothers and Bear Stearns gone, banks that have fixed their balance sheets quickly are set to gain market share. There will be a new banking elite group, and some of these European banks will be part of it. 

A big "thanks" to Carla for sharing her knowledge of high-yield investing and giving us some great investment ideas. I'll be sure to follow up some of them myself.  

You know I'm mostly a growth-story kind of guy, but I firmly believe that high-yield investments should also be an integral part of any investor's portfolio-and that's why I asked Carla to share her insights with us today. I truly hope you can take away some great investment ideas and give serious consideration to Carla's services. 

Carla's in-depth research on European banks appears in her August issue of High-Yield International. (Click here to find out more about it.) Carla also covers an Asian ETF yielding 11.9%. This fund is up +48% this year and is poised to keep going. Get the name of it in Carla's latest issue of High-Yield International. Go here to get your copy now.

Stocks continued Thursday's rally as investors reacted to news about the second quarter GDP number with the Nasdaq the exception.

The Dow closed up 16.93 to finish the week at 9,171.39; the Nasdaq finished down at 1,978.50, losing 5.80 points after showing gains for most of the day; and the S&P 500 close up 0.72 points to finish at 987.47.

Stocks in the Russell 2000 closed down 0.09 points to end at 557.71. 
 

Leading small-cap gainers include VirnetX Holding (AMEX:VHC) up 112%; Anadys Pharmaceuticals (Nasdaq:ANDS) up 44%; Inovio Biomedical (AMEX:INO) up 38%; and Integra Bank (Nasdaq:IBNK) up 34%.

Small-cap decliners were lead by notebook computer parts maker Synaptics (Nasdaq:SYNA) down 33% on news that the firm had disclosed fiscal 2010 growth will be slower than expected. Analysts immediately downgraded the stock driving prices down immediately at the open.

Other small-cap decliners include iStar Financial (NYSE:SFI) down 19%; Ariad Pharmaceuticals (Nasdaq:ARIA) down 18%; and YRC Worldwide (Nasdaq:YRCW) down 17%.

*****Today was the big one. Say what you want about yesterday's rally, the reaction to this morning's 2Q GDP number should be expected to influence trading going forward.  

Now, I'm going to let TradeMaster Jason Cimpl's morning commentary to his traders provide the in-depth analysis to the GDP number:  

Second quarter annualized rate GDP was reported at -1.0%, compared to the consensus of -1.5%.  

First quarter GDP was revised lower to a 6.4% decline from the previous reading of a decline of 5.5%. Personal consumption fell 1.2% (the consensus had been 0.5%). 
This market might be crazy enough to ignore the downward revision from the previous quarter, but how can they possibly brush off that personal consumption reading? 
Personal consumption is the largest portion of GDP. This number should have investors concerned. 

Volume numbers today will be a big tell if the street really likes the GDP figures. At the end of the day, GDP is a lagging indicator, so don't expect that today is the game changer. 

Thanks, Jason. 

He's got his Friday video online where he'll do a quick recap of the market for the week and more importantly, provide guidance on market direction and action for the coming week. Click here to watch Jason's video analysis.

*****Deutsche Bank (NYSE:DB) CEO Josef Ackerman says "The crisis is not over." He told Bloomberg that "[b]ad loans are the next wave. Banks that have fared relatively well so far will also be affected by this." 

As evidence, problem loans at Deutsche Bank rose 44% on the last quarter. Deutsche Banks has raised its loss reserves to $1.4 billion and also reduced its balance sheet and risk-taking.  

*****I continue to view oil as a critical leading indicator for global economic recovery. So long as oil prices remain strong, investors are clearly ignoring current demand statistics and focusing instead on future demand and slack production growth.  
For instance, Europe's third largest oil company, Total SA (NYSE:TOT) reported that production fell 7.3% in its 2nd quarter. That puts Total's production back to year 2000 levels.  

The reason is obvious: demand is down, and Total, like most oil companies, is cutting back on investment in new production because prices are down.  

Despite a slight rise in production, Chevron (NYSE:CVX) reported a 51% drop in revenues. It would seem likely that the revenue shortfall will affect Chevron's investments in new production, too.

The big question, though, is if investors will shift their focus to current demand numbers. At some point, declining profitability and continuing economic weakness should bring oil prices down.

*****It's pretty clear now that trends like weak GDP, weak demand for oil, rising unemployment we've seen emerging from the financial crisis and recovery will be with us for a long time.

Clearly, these conditions will have a profound effect on your investments in the months and years ahead.

And because many of these conditions are a direct result of government bailouts, I'm calling the condition Managed America.

We're hosting a video conference to look forward to investing strategies for the remainder of 2009 and beyond, and to explore my concept of Managed America and how you can still make profitable investments. The U.S. economy has changed and investors need to understand the changes in order to make the best investments.

The Managed America video conference will air on August 10, 2009 at 6:00 P.M. You can register for this important event when you click HERE.

Best Regards,

Ian Wyatt
Editor
Daily Profit

Acura Pharmaceuticals (Nasdaq:ACUR)
Palatine, Ill.
http://www.acurapharm.com

52-week low/high: $5.79/$27
Shares Outstanding: 42.72 million
Market Capitalization: $331 million

More than 75 million Americans suffer from pain — more than the number of people with diabetes, heart disease and cancer combined. Prescription medications exist; however, the abuse of such, especially by younger people, complicates physicians’ ability and/or willingness to treat pain. Enter Acura Pharmaceuticals (Nasdaq:ACUR), a company that specializes in prescription drug abuse deterrents. 

The company has seen broad-based institutional interest as of late. According to Nasdaq.com, seven new positions were initiated as of March 31, 2008 in Acura, while eight existing investors increased their positions. On the flip side, only one position was decreased and sold out. Those who initiated new positions as of March 31 were UBS (NYSE:UBS), Merrill Lynch (NYSE:MER), Black Rock (NYSE:BLK), Wells Fargo (NYSE:WFC) and Deutsche Bank (NYSE:DB).

The Palatine, Ill.-based firm specializes in development of opioid pain medicines using what it calls Aversion technology, which is a patented platform designed to develop pharmaceutical products that are intended to relieve moderate to severe pain and deter common methods of prescription drug abuse (injection, nasal snorting and intentional swallowing). Acura’s lead product candidate is acurox — orally administered release tablets with oxycodone to treat severe pain.

In fact, Acura in conjunction with pharmaceutical company King Pharmaceuticals (NYSE:KG) recently reported positive results for a phase III study on the acurox tablets and expects to submit a new drug application to the FDA for acurox tablets by year end.

Acura also has a license agreement with King to develop opioid analgesic products using the aversion technology (opioid is a chemical used in drugs for pain relief). The two are currently jointly developing three immediate-release opioid analgesics using the aversion technology.

The alliance with King, consummated in December 2007, has proven to be a sagacious move, as the company is already realizing revenue accretion. In 2008, Acura recognized $17.1 million in revenues, adding to a strong first quarter.

For the first three months ended March 31, 2008, the latest quarter for which results were available, the company reported net income of $7.4 million, or $0.15 per, compared with a net loss of $9.2 million, or $0.26 per share for the same quarter in 2007.

Drilling down further into the financials, the company has just closed in on profitability. Acura swung to a profit in the fourth quarter of 2007. The company began generating positive cash flows from operations in 2007 and has been steadily increasing its cash position. As of April 30, 2008, the company had cash and cash equivalents of approximately $30 million with no term indebtedness.

Gross margins are higher than the industry at 100%, while the industry sits at 69%. Operating margin was 39.17% compared with -19.84% for the industry.