wall street
Commodities like gold and copper provide a hedge against inflation. But even if inflation stays low, commodity prices are likely to keep rising as rapid economic growth in Asia and South America spurs new construction and car sales. That will help BHP, Newmont and Alcoa. All three are high-quality, well-established resource stocks that have jumped lately. Still, we see only two as buys right now. BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. Regulators in Australia and Canada have recently forced the company to cancel two big deals....
FedEx Corp. (New York symbol FDX) delivers packages and documents in the U.S. and over 220 other countries. The Memphis-based courier company reported earnings that fell short of consensus estimates on Thursday. However, it noted that shipments for the holiday season are much stronger than 2009 and 2008. (FedEx is one of the stocks we analyze in our Wall Street Stock Forecaster newsletter.) In its 2011 second quarter, which ended November 30, 2010, the company earned $283 million, or $0.89 a share. That’s down 18.0% from $345 million, or $1.10 a share, a year earlier....
Many investors think drug stocks are can’t-miss investments. That’s because the baby boomers are reaching an age when they will need drugs for a number of medical conditions, and are willing to pay for them. We agree that the aging of the boomers will create drug demand. But there are several drawbacks to drug stocks that you should keep in mind if you are thinking of investing in them. Here are three major hurdles most drug stocks face:
- High research costs: Drug firms need to spend heavily to create new drugs. Even then, they only get to profit for a limited time before patents run out and generic products appear. Then too, their research spending may lead to dead ends, rather than new drugs that fill a need.
- Regulatory risk: Drug stocks whose success depends on drugs that are currently in clinical trials expose you to huge risk. Not only are the chances of success in trials remote, the U.S. Food and Drug Administration (FDA) has become more cautious in approving new drugs following Merck’s 2004 voluntary withdrawal of heart drug Vioxx due to side effects; the FDA approved Vioxx in 1999. This heightened FDA caution adds further risk to new drug investments.
Investors often ask how we have managed to recommend so many value stock picks that get taken over for big profits. In fact, some readers of our newsletters and investment services tell us that they never had a stock taken over at a profit until they began following our advice. More on the strategy that helps us routinely spot takeover candidates in a moment. But first, here are just a few recent takeover targets we’ve recommended. All have rewarded our readers with big gains:
- In the October 2010 issue of Wall Street Stock Forecaster, we recommended Del Monte Foods (symbol DLM on New York) at $13 a share. In November, the company accepted a $19.00-a-share takeover offer from a private equity group led by KKR & Co. (symbol KKR on New York). Del Monte is now trading at $18.80. That’s a 45% gain!
- In an October 8, 2010, Stock Pickers Digest Hotline, we issued a “buy” recommendation on DundeeWealth Inc. (symbol DW on Toronto), at $15.11. On November 22, Scotiabank (symbol BNS on Toronto), announced that it will buy the 82% of DundeeWealth that it doesn’t already own. The news caused DundeeWealth’s shares to shoot up to their current $21.22 — for a 40.4% gain!
- And these weren’t our only October recommendations that gained sharply on a takeover. We recommended Verigy Ltd. (symbol VRGY on Nasdaq) in the October issue of Stock Pickers Digest at $8.28. Just last week, Japan-based Advantest, another maker of computer-chip testing equipment, offered to buy Verigy for $12.15 a share. That sent the stock up to its current $13.43, for a gain of 62.2%.
We hardly ever recommend buying new issues when they are first sold to the public, and often stay away from them for months, if not years, afterward. That’s because new issues often come to market when it’s a good time for the company and/or its insiders to sell, but that’s not necessarily a good time for you to buy. Spinoffs are in many ways the opposite of new issues. Companies often do spinoffs when they feel it isn’t a good time to sell. Instead, they choose to hand out shares of the new firm to their shareholders. That often results in buying opportunities. (In a just-published issue of Wall Street Stock Forecaster, our newsletter for investing in the U.S. markets, we update our buy/sell/hold advice on a spinoff whose shares have risen over 21% since September. See below for further details on this tech stock’s outlook.)...
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 a specific advice on successful investing, including tips on portfolio management. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away....
THE BOEING CO., $63.09, New York symbol BA, fell 10% this week after an electrical fire forced one of its new 787 Dreamliner passenger jet planes to make an emergency landing. In response, the company has suspended test flights until it can determine the cause of the problem. The Federal Aviation Administration is also investigating this incident. The new plane is already over two years behind schedule due to parts shortages and structural problems where the wings connect to the plane’s body. Recent problems with the parts in the tail section have also delayed production. This latest setback prompted one customer to cancel its order for eight 787s. However, another airline decided to buy these planes....
Last week, the Canadian government said it would block BHP Billiton’s (New York symbol BHP) hostile, $38.6-billion U.S. takeover bid for Potash Corp. of Saskatchewan (New York and Toronto symbol POT). However, under the Investment Canada Act, which governs foreign takeovers of Canadian companies, BHP now has 30 days to modify its offer so that it is a “net benefit” to Canada. In light of the federal government’s decision, we updated our buy/sell/hold advice in last week’s Successful Investor and Wall Street Stock Forecaster hotlines. We cover Potash Corp. in The Successful Investor and BHP in Wall Street Stock Forecaster....
A key part of our three-part investment approach is to stick with well-established, dividend-paying companies. (The other two parts are to spread your money out across the five main economic sectors, and downplay stocks in the broker/public-relations limelight.) Most well-established companies have built up strong reputations that can help them overcome the inevitable downturns. Their trusted brands also make it easier for them to launch new products, or expand into new markets.
Wall Street stocks: Heinz’s strong brands give it a solid foundation
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The improving U.S. economy is helping more consumers repay their loans on time. That’s pushing down loan losses at a number of U.S. banks, and improving their profits. However, the outlook for the U.S. banking sector remains uncertain. High unemployment continues to hurt demand for new loans, and the industry faces greater regulations under the Obama administration’s new financial reforms.