Personally, I’m a big fan of the restaurant and currently own stock in Chipotle (CMG). However, we’ve sold about 80% of our holdings in the fast growing restaurant recently at Elite Inside Trader. About two months ago, we put a “reduce” rating on the stock citing an environment where growth stocks can be punished for even a slight miss in earnings. Look no further than to fellow outperformer Netflix (NFLX) which saw its stock price fall about 70% when it disappointed. Since we’ve more than doubled our money on our Chipotle investment, it makes sense to take some profits at the current levels.
The business itself is wonderful. The reason we bought the stock in the first place is that we liked the simple, profitable, trendy, expandable, and priced-right-for-the-consumer business model. The stock has performed very well for us, but we’re starting to ask if there are better opportunities elsewhere given Chipotle’s soaring stock price.
So far it’s just our hunch, but our opinion is that the major money has already been made in this stock. The stock is still expected to grow 20% for the next 5 years and most of that is reflected in the current price.
Chipotle still has room to expand internationally, which we like, but we don’t expect it to be as easy for the company as it was in the US. On that note, success in the US is sure to breed copy cats. Baja Fresh, Poquito Mas, and many others are jumping on the burrito/more natural food band wagon. Chipotle had a great head start with the help of McDonald’s (MCD), who had a majority interest in Chipotle a while back, in that they were able to expand quickly with support from one of the most successful chains on the planet. As competitors catch up, and the “fresher” fast food restaurants gain more popularity in general, we would expect Chipotle may have a tougher time growing and keeping up with the stock’s future valuation expectations.
As an alternative in the restaurant business to Chipotle we’ve had our eye on Panera Bread (PNRA). We believe Panera Bread is trading at a more reasonable valuation, offers a more diverse product range, and has more room to boost same store sales with different products and more offerings.
While we’ll still look forward to our burrito from Chipotle, we’re digesting whether these shares have run their course in our portfolio.
Disclosure: Author, Kevin D. Monaghan, Senior Partner at Elite Investment Group, is currently long CMG.]]>
In the last few weeks, many markets around the world have been testing major support levels. For example, 4 weeks ago the S&P 500 was trading at levels that suggested the markets could to break to the downside. Just as it looked like a recession was imminent; they wound up surging over the last few weeks and are now testing a break to the upside.
However, one global market is still right at a major support level and grabbing the attention of many analysts out there.
For most of the last two and a half years, China was given credit with leading the world out of recession and fueling global growth. You wouldn’t know that by looking at a 2 year chart of the Shanghai Stock Exchange Composite Index, which has lagged many global markets in performance. Today, the Shanghai Index has its back against the wall as it is approaching its own technical support level as seen in the chart below.
Do the technical charts even mean anything in China? Not as much as it means in other markets around the world because this index tends to trade to the tune of its own drum. The exchange itself is seen by the locals as more of a casino rather than a financial institution. Many investors can’t rely on accurate data, management honesty, and accounting.
However, the Shanghai Market is a more important indicator than it has been in the past. In today’s global world, you have to keep an eye out for what’s happening in China. The bearish rumors of a hard landing, US currency pressures, slowing exports, closing factories, less commodity orders, property bubble, and more, will affect the global market place. Commodities have gotten hammered on this lately, but keeping an eye on the Shanghai market might give you a forward indication of confidence levels from one of the largest consumers.
Author, Kevin D. Monaghan, Senior Partner at Elite Investment Group, is long CHL]]>
Ending on Friday, the third quarter was BRUTAL to say the least. Most major averages are down nearly 14% over the last three months, all while volatility has spiked and remains at a very high level.
The S&P 500 saw a beautifully executed head and shoulders pattern in July which sent shares lower and has since been stuck in a trading range.
In the meantime, the markets are trying to determine if there is a bright future for the world markets amid debt issues. (SEE CHART BELOW).
The markets themselves have priced in a pretty serious drop in earnings amidst calls for a global slowdown. There hasn’t been much macro news to make anyone believe otherwise, but when you dig into the micro economy, we’re not seeing such pessimism from companies overall. Many companies remain in great shape and have the balance sheets to continue doing so. As earnings season starts, it’s important to make sure you read through corporate reports to see how your stocks are doing.
Not the news you’d expect to hear from companies given the pessimism in the news lately. While the “risk-off” trade has been “on”, there are still company stocks that will give you more cash flow than treasuries, bank accounts, real estate, or bonds. Investors are going to have to be in equities if they’re seeking any decent returns.
There is another alternative: Emerging market currencies like Brazil, China (RMB), and India are offering good returns on cash. For example, you can get 8-12% return at the bank in these currencies with 3 year term-deposits, but if a global slowdown happens, these currencies can lose more than your return in currency risk or force you to surrender interest if you need to exit before 3 years is up.
Disclosure; Author, Kevin D. Monaghan of Elite Investment Group, is long DFS.]]>
Shares of Priceline.com (PCLN) have taken off in the last 8 years. Shares were trading under $10.00 in 2003, and are now flying high at over $500.00 today. The company continues to report great revenues at home and abroad, but can they keep growing at the feverish pace they have been… … … Eh, maybe?
First let’s look at the chart and what it’s saying. The uptrend has lost its gusto and now the stock is struggling to hit new highs. The 50 day and the 200 day moving averages are narrowing, with the stock price even crossing the 200 day moving average briefly. Now the shares seem to range bound until they find a new direction.
As a trader, I remember seeing Travelzoo.com (TZOO) have wild swings where traders and investors made a fortune, and then quickly lost it. Travelzoo, and the airline business in general, kept me out of stocks like Priceline.com, and I regrettably never pulled the trigger on it even though it caught my attention many times. Hindsight is a missed opportunities way of mocking traders, especially me for missing Priceline’s massive move.
If you read through Priceline’s earnings reports and you’ll see why the stock has been able to push higher. They keep hitting incredible earnings growth in a competitive and challenging environment. Some of the challenges threatening Priceline’s growth have been the airlines have trying to launch their own booking sites, airlines trying to lower the revenues paid to booking sites, and now Google (GOOG) has entered the business with its own booking site. The first two haven’t turned out to be much of a threat, but watch out for the GOOG. At the current price levels we’re not going to get excited about Priceline’s stock, especially given Google’s ability and history of stealing market share from others.
How would we trade Priceline?
What we would watch for with this stock is if it can move to new highs (above the line we’ve drawn on the chart above), where we’d look to pick up shares for a technical trade higher. On that same note, if the shares move below the 200 day moving average or the 50 day crosses the 200 day, we’d look to short the stock with puts.
An investor will have a ton of “I almost bought that stock,” “I wish I bought,” or “I would have bought if” statements in your investing life. It’s just part of investing… but man; this is one I wish I bought.
Disclosure; Author, Kevin D. Monaghan of Elite Investment Group, is long GOOG.]]>
Shares of life insurance and annuity companies are having a rough year. Many insurers are trading at about half their book value and less than 10 times next year’s earnings. One of the reasons investors have been shunning Life Insurance companies is that these companies are regulated to keep most of their reserve accounts invested in safe asset classes, like US treasuries, which we all know are returning NOTHING in today’s environment. That means fewer profits. Ben Bernanke, a few weeks ago, told us to expect low rates to continue into 2013, not a positive signal that things are going to get better for insurers.
But don’t count out the insurance companies just yet. Insurers have plenty of tricks up their sleeves to gain profits outside of interest rate returns including; higher mortality charges, higher premium expense charges, higher monthly expense charge, and higher individual reserve requirements. While this is good for the strength of the company, it doesn’t bode well for many Universal Life or Variable Universal Life policy holders, who may need to increase their premiums to continue to fund healthy policies. Even Whole Life insurance policy holders may find themselves closer to the guaranteed illustrated numbers, rather than the projected. Regardless of projections made in the past, life insurance companies have to adjust, at the expense of the consumer, to adapt to the current environment. And they have been.
Prudential Financial (PRU) is one company that we like going forward. Currently, we think investors have unfairly punished the stock based on its future potential. Trading at about 7 times this year’s earnings, and 6 times next year’s, Prudential Financial offers value investors an opportunity to buy in at cheap prices compared to earnings. We expect the company to boost its dividend and announce a large share repurchase program at the end of the year that will further increase shareholder value.
These normally boring companies have been trading with high volatility lately and have been seeing big swings in price, mostly to the downside, but we think that’s the perfect environment to take a position for a value investor.
Disclosure: Author, Kevin D. Monaghan Senior Partner at Elite Investment Group, is long PRU.]]>
Let’s begin this commentary by asking exactly what specific “Lehman Bros” type crisis recently occurred or will occur which justifies this nasty global equities decline and its continuation, which would then be called the 2011-2012 crisis? We can quickly dismiss the idea that it was S&P’s credit downgrade of the U.S. I mean come on folks, it has been beyond obvious that global credit markets are awash in debt and therefore higher risk. Things were known bad before the downgrade and the same known bad after the downgrade. The credit downgrade was a message to Washington, in that respect long overdue, but has probably done more to soil S&P’s reputation than anything else as we remember them for infamously rating junk sub-prime as AAA a few years back. So let’s move on to more substantive issues to identify what is terribly wrong with world economics right now.
Can we say it was the recent “realization” that Washington bankers and politicians have been pillaging the financial system greedily? No, the reality of those issues has been baked in ever since. We are far beyond any hope that those in power, I easily hesitate to call them leaders, in Washington or on Wall Street will do the right thing of the people, by the people or for the people; be they bankers or politicians they will never shoot themselves in the foot for the good of the country. Rich people just don’t do that sort of thing, reminding us why a wise biblical figure named Jesus quipped one day about it being easier for a camel to pass through the eye of a needle…indeed. They will instead follow the values of any otherwise worthy seafaring captain and go down with the ship.
Moving to the withdrawal of Bernanke’s QE, should that cause a fresh crisis of sorts and why? Because corporate publicly held companies are doing so poorly in terms of profits and income that the stock market is now wildly overvalued? Hmm, that’s a tough sell, no? How about the fact that interest rates are at and going to remain near zero? Doesn’t that support flow into the risk assets like stocks? In fact doesn’t a stock portfolio of reasonably priced, financially sound dividend paying companies, MLP’s, REITs, and other such vehicles sound like a superbly good idea right about now? Isn’t it true that global companies like P&G, Yums and hundreds of others will by the nature of their economic position across the globe have their shares priced in balance with any currency fluctuations and inflation?
If not any of the above issues, then it must be those few trillions of USD being pumped into the system, right? Nonsense I say, what’s a few trillions amongst crooks and the citizens of the world; more money supply means inflation of goods and services. It does not necessarily mean hyperinflation. The sharply reduced purchasing power of the USD and other currencies across the past four decades is nothing new under the sun as so many intelligent analysts have well pointed out and we have confirmation that it will continue along with global expansion. Now let’s rise up and argue that “we” can’t afford such higher prices. But we must stop and ask who is “we” who can’t afford it.
Then let’s turn to the U.S. real estate debacle. Yes, this is really horrible; the 100 million lower and middle income families of America are ruined, including being upside down in their homes and now moving toward a rental society. BUT, this group of people is NOT the world economy! This group of people is ruined, but there are another 150 million Americans living out there whose lives are more stable and good and wealthier than ever. They have jobs, high-paying jobs, their kids are in college, the companies they work for are not going out of business anytime soon. Am I wrong?
It’s easy to understand why Americans and Europeans living in America and Europe narrowly see doomsday with all of its related horrors. After all, the closer you are to the pain of others, the worse it seems and the more you feel it However, shall we be reminded that the world is not composed only of the declining United States lower and middle class sector. I think this pain, this very real pain, has caused a terrible distortion in the American view of the state of global affairs.
I am forced, sitting here embracing the view from my Shanghai perch, to remind all of us that the lives of 150 million Americans are better than ever, that stock valuations are not outrageous, that the rise of Asia led by China and the rise of BRIC countries is a long-term multi-decade reality as was the rise of post WW America, that the global tech and net driven shifts transforming the world we live in, are each and all together powerful trends which we all should pray may have the power and influence to more than offset the shameful shenanigans of the Washington and Wall Street elites who have disgraced the meaning of the word leaders. Make no mistake that America’s biggest problem is its leadership across the government, financial, defense, insurance, lobby and legal sectors. There is your identified cross section of the core problem.
America’s second biggest problem is that it is confused about its identity. It doesn’t know that it simply isn’t America anymore. This is where the true and sad delusion lies. (read Give Me Liberty by Naomi Wolf for an insightful understanding, meaning and ideology of the word America) Even adding in Europe’s similar sovereign debt excesses, that still doesn’t spell out an over-generalized doomsday siren across the world. Because the American economy, financial and political system has broken down to varying degrees, this will definitely put a drag on other emerging growth across the globe, but it does not spell out an over-generalized doomsday siren. Those billions who are poor have always struggled and so there is not so much change for them while the increasing ranks of declining middle class Americans is more than offset by the increasing ranks of rising middle class Chinese and Indians and others. That does not make any struggling, angry American feel better though, nor should it. But what it should do is revive the true, original American spirit to act, to fight, to move forward, to move on in the name of liberty and happiness.
Though these broader global socio-economic trends will be playing out over many future years across the globe, the situation is reasonably described as a period of unprecedented societal, economic and technology-driven shifts and transformations. I easily acknowledge that this more positive, broader picture which I present is being threatened by one of the most disgraceful periods in American political and financial history.]]>
Throughout your investing career there is a very good possibility that you may make a few investing mistakes. However, there are big mistakes that you absolutely must avoid if you are to become a successful investor. For instance, the biggest investing mistake that you could ever make is to not invest at all, or to completely put off investing “until later”. You work hard for your money and it’s time that you make your money work hard for you – even if all you can spare is $20 a week! The amount you invest is neither here or there as long as you start disciplining yourself to put away money each month.
While not investing at all or putting off investing until later are big mistakes, investing before you are in the financial position to do so is another big mistake. It is extremely important that you get your current financial situation in order first before you begin investing. Try and get get your credit(s) cleaned up, pay off any high interest loans you may have, and put at least three months of living expenses away in savings. Investing can be a full time job on its own and it’s important that you don’t overwhelm yourself with the prospect of trying to make money in the markets along side the stress of paying down your outstanding loans or debts.
Don’t invest to get rich quick. That is the riskiest type of investing that there is, and you will more than likely lose most if not all of your money. If it was easy, everyone would be doing it! Instead of trying to “get rich quick”, start investing for the long term. This way you are giving yourself enough time to weather the storms and volatility along the way in order to let your money grow. Only invest for the short term when you know you will need the money in a short amount of time. BUT this means that your investment strategy must be different in the sense that you will need to stick with less risky investments such as certificates of deposit (CD’s), money market accounts, term deposits, etc…
NEVER put all of your eggs into one basket. Diversify your portfolio into various types of investments for the best returns. Also, don’t move your money around too much. Let it ride. Pick your investments carefully, stick with your investment strategy, and give your portfolio the time it needs to grow. Don’t panic if the stock drops a few dollars. If you invest in a strong stable company, the stock will go back up. Remember, that’s the nature of the game!
A common mistake that many people make is thinking that investing in collectibles will really pay off. Again, if this were true, everyone would do it. Don’t count on your coin collection or your book collection to pay your way through retirement!]]>
If you’ve been contemplating whether or not you should join the “global sell off band wagon” and start offloading investments in your portfolio, let me reassure you that now is NOT the time to do that. Quite often when investors try timing the markets or begin panic selling, it’s too late and they end up selling for a massive loss just before the markets rebound. Take what has happened over the last week. The markets plunged due the S&P downgrading the United States from AAA to AA+. All three major indices (DJI, Nasdaq, S&P500) fell by nearly 14-18 percent. Now before you freak out and head to your trading account for relief, let’s put this into perspective. The markets crashed because of news we already knew was coming. The US is in serious financial trouble (surprise, surprise). Like we didn’t already know that. Big deal! It’ll blow over as it did in 2008, 2001, 1987, and the list of economic disasters that sent the markets spiraling down just before they rallied on to new highs goes on. Oh and stop believing them when they say “this time is different”. We’ve heard that every single market correction, and guess what? It wasn’t really that different.
This is what the markets do. They have rallies and then they have corrections, and they will continue to do this for as long as investors are buying and selling stocks. Now the important thing to keep in mind here is that if you hold equity in solid blue chip companies with strong balance sheets and a sound business model, quite often their stock price will return to normal levels rather quickly. As a matter of fact, they will be some of the first company’s to rebound. Why? Because there is nothing fundamentally wrong with the company itself. They are simply victims of a global sell off. Think about this for a minute. People will still stop at McDonalds on their lunch break for a big mac, they will still need to put gas in their car (Exxon Mobil), they will still need to talk to their friends and family (cell phone carriers), they will still buy groceries (Whole Foods, Supervalue), and they will still stop by Starbucks on their way to work for their favorite Vente Latte. The point is that life goes on even during a recession, and as consumers continue to go about their daily routine, company’s will benefit and stock prices will return to normal levels.
Warren Buffet said it best: “Be fearful when others are greedy, and be greedy when others are fearful”. We couldn’t agree more with Mr. Buffet. Now is the the PERFECT time to buy into the markets. Stocks are extremely cheap and present great investment opportunities. How do you think the financial institutions made their millions all of these years? They bought in when the entire world was on sale. They’re not stupid. They buy when the rest of the world panics knowing well that the markets will absolutely return to normal levels at some point in time. And when this happens, they will have a front row ticket to the moon as the markets once again slingshot ahead.
If you take advantage of the dip instead of freaking out with the rest of the world, guess what’s going to happen when the markets finally start to rally again? Yes, that’s right, your portfolio will skyrocket pushed up by other investors who got in too late or who tried to time the market (shame on them)! This is why it is important to ALWAYS keep a portion of your portfolio in cash. This way, when great opportunities come along like the ones we are experiencing today, you have money on the sidelines ready to put in play.
The markets have a 100% success record of returning to new highs after a major correction, most of which occur within 3-5 years. And as history tends to repeat itself, we can pretty much assume the same thing will happen here]]>
We took a look at the charts for Gold and Silver to see what we thought the future holds for these precious metals. Since Gold and Silver currently have no problem with demand, we turned to the technical charts to see where 2012 prices would land.
GOLD 2012: $1,925
We give Gold a $1,925 price target for next year. Gold’s recent run may see a pullback in the shorter term, but we think the long term trend remains intact. We also place a 10-15% chance that Gold sees a parabolic upswing towards $2,245.
China has just passed India in terms of demand for Gold. In the first quarter, 25% of demand came from China as compared to 23% from India according to the World Gold Council. Higher prices don’t seem to bother buyers either, as a European’s wish to buy it to protect against defaults, American’s against a falling dollar, and China/India against rising inflation in items like food. Property used to be the preferred asset in China, but now that the government has put the brakes on property prices, Gold is seeing increasing demand. In addition, in China, Gold is very easy to buy as most consumers can buy Gold and Silver directly at their bank or even while banking online.
The only real threat to Gold prices moving higher is rising interest rates in the West. That most likely won’t happen. First, rising interest rates would make mortgages more expensive most likely resulting in lower housing prices which wouldn’t sit well with Ben Bernanke. Second, credit isn’t really in high demand from consumers and higher rates would only be discouraging for borrowers. Finally, after last week’s economic numbers, growth doesn’t seem to be coming anytime soon.
Silver is a little bit tougher to make a prediction with. Refer the chart below to see the narrowing trading range. We’re bullish on Silver as well and would think that Silver will test $50 again; however the volatile nature of Silver makes it tougher to call. The first step we would look for is for Silver to break above or below the Support/Resistance line drawn below. A bullish move above the top line would be a confirmation Silver was ready to move higher. A move below the bottom line and we’d look to short silver. Silver therefore makes a better trading vehicle at the present time until more clarity in direction is reached.
Keep in mind that last time Silver pushed higher, regulators came in and changed trading requirements for Silver. That sent Silver prices tumbling by about $16.00 as investors were forced to sell to meet the new margin requirements designed to slow speculation. Investors have found Gold’s slow and steady rise a bit more attractive, as a slow and steady rise seems less likely to trigger an unexpected change in margin requirements.
Owning both Gold and Silver, I am bullish that both will continue to see higher prices given the current environment. Unfortunately, political events can have such an impact on these metals that it is tough to forecast prices going forward. At the current moment, exposure to both metals has helped portfolios as sovereign debts and government downgrades dominate the news.
Disclosure: Author Kevin D. Monaghan, Senior Partner at Elite Investment Group, is long Gold and Silver]]>
During the Great Recession we were bullish on credit card companies due to the fact that we expected people would walk away from undervalued homes with their credit cards intact. They did. Credit Card companies, like Discover Financial Services (DFS), fell over 80% during the credit crisis and provided a great buying opportunity for investors. Since then, credit card companies have bounced back thanks to consumers paying their bills allowing card issuers the opportunity to able to release loan reserves. However, as we look for value in the markets at the current moment, one sector stands out: Insurance companies.
Others, such as Manulife (MFC) and Sun Life (SLF) are trading right around book value as well. Sun Life (SLF) and MetLife (MET) just reported strong earnings and there seems to be a trending theme that much of the strong growth for life insurance companies is coming from overseas. Manulife reports this week, and we’re hoping they too play a part in the “life insurance comeback” story.
In our opinion, life insurance companies appear to be the best play amongst the the financial sector right now and many of them are paying healthy dividends. Hartford is trading at about 6x next year’s earnings and Prudential at about 8x next year’s earnings. Dividends and strong valuations give a little bit of protection if the market downturn continues. However, many of these stocks are trading with high beta so they are subject to volatile price swings.
We favor life insurance companies over the Property and Casualty businesses as we see annuity sales thriving moving forward. Investors looking for attractive yields need ways to build income and annuities offer the largest payout. Baby boomers and retirees will be forced to use these products to try and squeeze their savings (or lack thereof) for income.
Disclosure: Author Kevin D. Monaghan, Senior Partner at Elite Investment Group, is long: TRV, PRU, MFC.]]>