This Week’s Reports

Stock market advice: Just one of these three investor mentalities is a plus

Tech stocks: Google’s push into social networking adds to its search engine dominance

Investor Toolkit: The best way to buy a home as a real estate investment

Stock trading advice: When to sell a weak stock

Commodity stocks: Two juniors with big expansion plans

Related Posts

Stock research: 9 keys to investment success in all markets

Technology stocks: Cisco Systems strives to maintain its leadership in cutting-edge technology

The pros and cons of investing in real estate

Buying penny stocks: This miner is looking to tap into rising tungsten demand

If you like what we do at TSI Network, we’d encourage you to share this Week in Review with a friend by forwarding this email to them. That way, more investors can benefit from our free, lower-risk investment advice.

Pat McKeough responds to many personal questions on specific stocks and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

This week, two junior commodity stocks were the subject of a question from one of our Inner Circle members: one is a drilling company with interests in North America, Panama and Albania; and the other is involved in oil exploration in Africa.

Q: Hi Pat: Because of you and your team’s advice, my portfolio has actually shown a gain in the three years of this turbulent market. In some cases I’m up 600%!

I would like your opinion on Africa Oil and Cabo Drilling. As always, your pearls of wisdom are very insightful and greatly appreciated. You are the standard by which the competition is judged! Cheers and thank you.

A: Africa Oil, (symbol AOI on Toronto; www.africaoilcorp.com), is a Canadian oil and gas exploration company with interests in properties in Kenya, Ethiopia, Somalia and Mali.

Africa Oil’s east African properties are in the same geological formation as the Albertine Graben, where two U.K.-based firms, Heritage Oil and Tullow Oil, made major discoveries in neighbouring Uganda.

In addition, Tullow Oil has a joint venture with Africa Oil to develop some of its properties in Kenya and Ethiopia. Tullow Oil is the leading independent oil producer in Africa, with two major projects in Ghana and Uganda. The company also has assets in Europe, southern Asia and South America.

Africa Oil’s partnership with Tullow Oil and its high cash balance give it speculative appeal, but it operates in countries with very high political risk. As well, it is in the very early stages of exploration.

Commodity stocks: Cabo drills for major clients like Teck and Goldcorp

Cabo Drilling, (symbol CBE on Toronto www.cabo.ca), is a B.C.-based company that provides mining and specialty drilling services through divisions in Canada, the U.S., Panama and Albania.

Right now, Cabo has 100 drilling rigs in operation. Clients include Teck Resources and Goldcorp.

In the three months ended September 30, 2011, Cabo’s revenue rose 64.5%, to $16.9 million from $10.3 million a year earlier. It earned $0.02 a share, compared to nil per share in the year-ago quarter.

Cabo Drilling continues to win new contracts, particularly a deal with Goldcorp, but its high debt adds a lot of risk.

In the latest Inner Circle Q&A, Pat looks at the prospects—and risks—of both Cabo Drilling and Africa Oil as investments. He then sums up with his clear buy-hold-sell advice on both stocks.

Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

Our investing strategy is a conservative one. We consistently recommend taking the long, rather than the short, view. But clearly not all stocks can be held indefinitely. A good portfolio is never a completely static one.

Bringing in good stocks will obviously invigorate your portfolio. It is equally true that some stocks that fail to perform just aren’t worth holding on to. That leads many investors to ask us just when they should let go of a weak stock and replace it with something new.

Our stock trading advice begins with one important tip. Look beyond the share price when you’re deciding whether or not to sell.

You will never sell at the top or the bottom

There is no simple formula for deciding when to sell a weak performer, regardless of whether your investing strategy is conservative or more aggressive. But there are some guidelines that will help you make the decision.

First, you are never going to sell at the top or buy at the bottom. This is why we are so selective about the stocks we recommend in our newsletters. The better the quality of the investments you buy, the less you have to lose if you decide to avoid selling. The chances of a rebound are much higher with a quality stock.

On the other hand, if you are going to sell, do so because you no longer believe in the quality of the stock, not just because the share price has declined.

Regardless of whether your approach to investing is conservative or aggressive, the quality of your investments matters much more than your skill at selling.

However, you should be quicker to sell aggressive stocks than conservative ones. With stocks we rate as “Speculative” or “Start-up,” it pays to apply our sell-half rule. That’s when you sell half of a stock that doubles in price.

Missing 200% gains through short-term trading

Many investors mistakenly assume that frequent profit-taking is the key to long-term success. Few brokers will disagree with this assumption, since they make money every time you buy or sell. But in the long run, taking profits simply because profits are available is going to cost you money. That’s because of the way the stock market works.

Stock prices rise 10% to 12% a year over long periods, on average, but individual cases and years vary widely. Even good stocks sometimes go sideways for decades, while others turn out to be “ten-baggers,” with gains of 1,000%.

To make serious profits, you need to hang on to your best performers for years. If you are too quick to sell stocks that have gone up, you may avoid some 20% setbacks, but you’ll also miss out on some 200% gains.

You can get Canadian Wealth Advisor, with our advice on leading conservative investments and my #1 Safety-Conscious Pick for 2012 when you subscribe now. And as a new subscriber you can save $50.00 on an introductory subscription. Click here to get started right away.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing, including real estate investments. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.

Tip of the week: “Buy a house that suits your needs, and let the potential real estate investment profits take care of themselves.”

For most of us, a house is the biggest investment and consumer purchase we will ever make. The house itself is the consumer purchase; the land underneath is the investment. Your house depreciates as surely as your car, but more slowly. Eventually, a house reaches the end of its economic life. But the land it sits on is as functional as ever.

As real estate investments, homes can have many advantages.

• Growth in nearby job and leisure opportunities raises land demand. That pushes up land values. But land supply can increase too, from rezoning of industrial or agricultural land to residential use, or from cuts in minimum lot sizes.
• Tax pluses. Home owners get a tax-free, rent-free benefit of having a place to live. Profits on home sales are also tax-free.

You want to protect your "safe money" -- the part of your portfolio you're counting on for the future -- yet you want to earn more than you're getting from the bank. That's where my Canadian Wealth Advisor newsletter comes in. I'll show you several proven ways to protect and grow your safe money. Click here to learn how you can get started right away.

• For maximum capital gain, it’s best to buy a small house on a big lot in an improving area. You may be able to get it for little more than land value. Years later, you may be able to demolish the house and divide the land into several building lots.
• Another thing to consider is the quality of nearby schools, even if you don’t have children. Properties near good schools tend to have higher values, and attract a wider range of buyers when it’s time to sell.
• For maximum investment safety, buy the most common house in your area—a two-story four-bedroom, say, or a three-bedroom bungalow. Usually, it will be easier to sell.
• For maximum enjoyment, buy a home that’s a little bigger and nicer than your family will need in the next, say, 10 years. Chances are you won’t regret it.

Our investment advice: You should be wary of buying (or holding on to) bargain-priced homes. They can turn out like stocks that seem too good to be true. Well-informed homeowners may be eager to sell due to subtle changes going on nearby. Before you buy a house, walk through the neighbourhood and take a critical look at your potential neighbours.

If you’d like me to personally apply my time-tested approach to your investments, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

Tech stocks continue to make headlines. Often, this is due to the competitive race to get new products on the market. Sometimes, it is due to the spectacular rise—or spectacular fall—of a tech stock’s share price. But successful investors look beyond the headlines, to a company’s measurable strengths and weaknesses, to judge its long-term prospects, as we do today with one of the best-known names in the industry.

GOOGLE INC. (Nasdaq symbol GOOG; investor.google.com) is the world’s leading Internet search engine. The search service is free, but it provides a platform for Google to sell ads on its websites. Ads account for 96% of its total revenue.

Google continues to hire new employees as it builds up its non-search operations, including its Google+ social-networking site. Google+ now has 90 million users, up from 40 million in October 2011.

Even with these extra expenses, Google’s earnings in the three months ended December 31, 2011 rose 9.7%, to $3.1 billion from $2.85 billion a year earlier. Earnings per share rose 8.6%, to $9.50 from $8.75, on more shares outstanding. These figures exclude unusual items, mainly stock options paid to employees.

Tech stocks: Advertisers get more clicks on Google ads, but pay less

Revenue in the quarter rose 25.4%, to $10.6 billion from $8.4 billion. Google charges advertisers every time a user clicks on one of their ads. In the latest quarter, paid clicks rose 34%. However, the average cost advertisers pay per click fell 8%.

The company spends 13% of its revenue on research, so it’s more profitable than it seems. Moreover, Google holds cash and investments of $44.6 billion, or $137.78 a share.

In the latest edition of Wall Street Stock Forecaster, we examine Google’s ability to sustain its leading position in the ever-changing Internet search engine industry. We also look at the recent surge from Apple (symbol AAPL on New York), another stock we cover in Wall Street Stock Forecaster. We conclude with our clear buy-hold-sell advice on both stocks.

You can get Wall Street Stock Forecaster, with our advice on leading U.S. stocks written especially for Canadian investors, along with “My #1 U.S. Stock Pick for 2012” as well as FREE access to our weekly Email/Telephone Hotlines when you subscribe now. And as a new subscriber you can save $50.00 on an introductory subscription. Click here to get started right away.

Investing is not an exact science. That’s why experience and judgment are just as essential as fundamental analysis in successful investing.

That’s also why a balanced temperament is so important. It can keep you on a steady course and help you avoid losses.

Here’s a piece of stock market advice that can help you judge your own temperament for investing.

Consider these three common investor mentalities. Do any sound familiar?

• Statistical bears. These overly cautious pessimists lack imagination. When doing their own investing, they zero in on a handful of statistical measures — earnings, dividends, the length of time the market has been rising and how much it has gained. If they see any sort of resemblance between today’s figures and those of past market peaks, they assume stock prices are headed for collapse.
  
  It’s a mistake to narrow your field of vision when stock investing. Statistical bears take it to extremes. They’re a little like the 19th-century engineers who studied bumblebee anatomy and concluded that bees simply could not fly, according to known laws of physics. The laws of physics never change, but our understanding of them continually expands. That’s also true of our knowledge of stock investing.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

• Starry-eyed bulls. These optimists have too much imagination and too little caution. They accept or develop overblown ideas of the potential of each new stock they invest in, or indeed of the market as a whole. But they neglect to consider what can go wrong. Having invested too heavily themselves, they try to get friends and relatives involved, as well.
• Skeptical optimists. Experience tells these investors that it pays to take an optimistic view, but to temper it with hard-edged skepticism.
  
  These investors study market indicators and statistics, but see them in light of changing accounting rules, as well as trends in interest rates and the economy. They do sometimes get excited about junior stocks, but they recognize that new or unproven companies involve extra risk. After all, mineral finds are valuable because they’re rare, and technological innovations face heavy competition.
  
  Above all, skeptical optimists recognize that they are investing in a company, rather than an economy, a mineral find or a product. We think you should follow their example. Focus your stock investing on companies that make money, pay dividends and serve customers well. In the end, these are your surest signs of a successful investment.

What’s more, if you recognize yourself in the third of these mentalities, it’s likely you have the kind of balanced temperament that will help you succeed in investing.

Our report on bargain stocks is the most recent in a series of reports I’ve written as free downloads on TSI Network. Previously, I wrote “Dividend Stocks: How High Dividend Stocks Can Supercharge Your Income Investing,” which showed investors how to zero in on the best Canadian dividend stocks for your portfolio.

To get started, click here to download your copy of Bargain Stocks: Your Guide to Finding the Best Undervalued Stocks. I’d also encourage you to share the report with a friend.

This Week’s Reports

Stock investing: Buybacks and dividends give shareholders a double reward

Growth stocks: Fast-food chain thrives on higher quality and natural foods

Investor Toolkit: How our ratings system finds the best stocks: Part 2

There’s a better way to diversify than asset allocation funds

Tech stocks: Leadership pedigree could give this tech stock an edge

Related Posts

Investor Toolkit: How our ratings system finds the best stocks: Part 1

Canadian dividend stocks: BCE continues to reward conservative investors

This ETF is a better choice than bond funds

Technology stocks: Cisco Systems strives to maintain its leadership in cutting-edge technology

If you like what we do at TSI Network, we’d encourage you to share this Week in Review with a friend by forwarding this email to them. That way, more investors can benefit from our free, lower-risk investment advice.

Pat McKeough responds to many personal questions on specific stocks and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

This week, the subject of tech stocks came up as one Inner Circle member asked about a company that makes software that is vitally important for computers and mobile devices, but also faces a highly competitive market.

Q: Hi Pat: Pat: What do you think of tech stock CounterPath Corp. Thanks.

A: CounterPath Corp., (symbol CCV on Toronto; www.counterpath.com), makes voice-over-internet-protocol (VoIP) software for computers and mobile devices.

VoIP technology converts analog signals, mainly voices, to a digital format. This makes it possible for users to make low-cost phone calls over the Internet, as well as share video and instant messaging at the same time.

CounterPath has over 250 customers in more than 50 countries. The company’s clients include major telecommunications companies, such as AT&T, Verizon, BT (British Telecommunications plc) and Mobilkom Austria.

CounterPath also sells its technology to network equipment makers, such as Avaya, BroadSoft, Cisco Systems, GENBAND, Metaswitch Networks and Mitel.

Tech stocks: Chairman’s history of success gives CounterPath sound pedigree

In the three months ended October 31, 2011. CounterPath’s revenue rose 35.3%, to a record $3.5 million from $2.6 million a year earlier (all figures expect share price and market cap in U.S. dollars). Revenue from software sales (61% of total revenue) rose 21.5%, to $2.1 million from $1.8 million. Service revenue (39% of total revenue) rose 64.9%, to $1.3 million from $816,346.

The company earned $112,049, or nil per share, in the latest quarter. A year earlier, it lost $845,999, or $0.03 a share. CounterPath holds cash of $7.2 million, or $0.18 a share, and has no debt.

The shares come with something of a pedigree, because of the involvement of Terrence Matthews as chairman and director. Matthews has founded or funded over 80 companies in the high tech communications field. Several, including Mitel and Newbridge Networks, have gone on to great success. Of course, many companies that Matthews launched failed to thrive, as you’d expect.

In the Inner Circle Q&A, Pat looks at whether the company can continue to benefit from accelerating trends that are making VoIP technology more accessible to everyday users of smartphones, tablet computers and other mobile devices. He also analyzes whether its research spending is enough to keep pace with competitors. He sums up with his clear buy-hold-sell advice.

Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

Many people in the investment industry promote asset allocation funds as a simple and profitable way to assemble a diversified portfolio of stocks, bonds and cash equivalents.

But as is so often the case, the product rarely lives up to the hype.

How asset allocation funds actually work

Asset allocation funds are mutual funds that can shift their portfolio allocations between stocks, bonds and cash in order to capitalize on perceived investment opportunities in any one of those classes.

For example, if the managers are convinced the bond market is depressed and due for an upswing, they may invest heavily in fixed-income investments for a few months to take advantage of the change.

Some managers make their own judgments when choosing between stocks, bonds and cash. Others use what insiders call a “black box” — a computer program that makes trading decisions based on a preselected set of rules for interpreting financial statistics.

Computer modelling makes this investment approach sound scientific and relatively foolproof. Yet it is just as likely to detract from a portfolio’s long-term return as it is to add to it.

Low interest rates make now an unpromising time to hold bonds

Bond performance is inversely related to the rise and fall of interest rates; when rates fall, bond prices go up.

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With interest rates continuing to remain at low levels, bonds can’t go a lot higher than they are. In fact, bond prices will likely fall over the next few years as interest rates inevitably rise again. That means asset allocation funds would only earn interest income on their bonds; in place of capital gains, their bond holdings could produce capital losses.

Our long-term strategy can generate more lower-risk profits

Instead of asset allocation funds, we continue to recommend that you invest in well-established, high-quality dividend-paying stocks, like those we recommend in our newsletters.

Moreover, you can reduce risk considerably by spreading your money out across most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). This way, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or changes in investor opinion.

You also increase your chances of finding a stock that could surge and rise above the market average.

A better way to hold fixed income investments

If you are reluctant to hold a 100%-stocks portfolio then one alternative to consider is to keep a portion of your investment funds in relatively short-term fixed-return investments, with maturity dates of a few months to no more than two to three years in the future.

These fixed-return investments will lose value when interest rates rise, but not enough to make a serious dent in their value. You can hold them till maturity, then get your money back and reinvest.

Our newsletter for conservative investing, Canadian Wealth Advisor, shows you how to protect your money and keep it safe—without sacrificing the potential for strong returns.

You can get a special risk-free introductory subscription to Canadian Wealth Advisor at a savings of $50.00 off the regular rate. Best of all, your FREE trial contains 5 in-depth Special Reports, and much more. Don’t wait! Click here to get started right away.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific advice, in this case showing you how we judge winning stock picks. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “Use our TSI Network ratings system to pick the right stocks: Part 2”

Last week in the Investor Toolkit, we looked at 4 of the 9 factors that we use to establish our TSI Network ratings: Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up. (View the post: How our ratings system finds the best stocks: Part 1.) These ratings appear next to every stock we recommend in our investment newsletters.

We use a point system to award our ratings, as I mentioned last week. This week, we’ll look at the 5 remaining factors we use to assess risk and build a profile of winning stock picks.

5. One point for a long-term record of profit. A company that makes money just about every year will survive a lot longer than one that makes money sporadically, if at all.

For a limited time only, sign up to get Pat McKeough's specific answers to your personal investment questions. Pat's proven expertise is available to guide the investment decisions of only a few new Inner Circle members. Click here to learn more about how you can benefit from membership in Pat McKeough's Inner Circle.

6. One point for a long-term record of dividends. A steady or rising dividend provides a sign of safety. Dividends, after all, are impossible to fake — either the company has the cash to pay dividends, or it doesn’t. Failing or fraudulent companies hardly ever pay dividends.
   
   Two examples of companies with a long history of raising their dividends are Fortis Inc. (symbol FTS on Toronto), a stock we analyze in our flagship advisory, The Successful Investor, and McGraw-Hill (symbol MHP on New York), which we analyze in our newsletter on U.S. stocks for Canadian investors, Wall Street Stock Forecaster.
   
   Fortis is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also operates power plants in the U.S., Belize and the Cayman Islands, and has other businesses across Canada.
   
   McGraw-Hill announced in September 2011 it will split into two separate companies: McGraw-Hill Markets, which will sell a variety of financial-information products and McGraw-Hill Education, which will publish textbooks for schools and colleges.
   
   Both companies have raised their dividends for 39 consecutive years. Fortis’ annual rate of $1.20 a share yields 3.6%. McGraw-Hill’s annual rate of $1.02 yields 2.2%.
7. One point for an attractive balance sheet, with adequate equity and manageable debt. When bad times hit, debt-heavy companies go broke first.
8. One point for being able to serve all shareholders. The best stocks in this area are free of heavy-handed government regulation, free of too much dependence on a single supplier and free from abuse by insiders.
9. One point for Canada-wide operations, or two points for multinational operations. Companies that are confined to one geographical area are inherently more speculative than those whose operations are more spread out.

If you’d like me to personally apply my time-tested investment advice to your portfolio, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.