Ultimate Wealth Report

Ultimate Wealth
Report
A Publication of Newsmax and Moneynews
Edited by Sean Hyman
Vol. 3, No. 6 / June 2014
H
9 Ways to Outsmart the
Average Stock Investor
ave you ever been in a long line of traffic,
just sitting, and think to yourself, “What is
going on up there?” You keep scanning the road
ahead for clues, but find nothing but parked
vehicles and exasperated drivers.
Finally, you inch your way forward enough
to find out what’s going on — a fender bender
between two cars, both pulled over to the side of
the road and trading insurance information, no
one hurt. Turns out it was no big deal at all, except
for everyone stuck in the slow
traffic that resulted.
It’s human nature to stop
and look at accidents, so much
so that a term was coined to
describe the phenomenon:
“gapers delay.” In other words,
a traffic jam was caused by
nothing more than drivers
getting unnecessarily
distracted!
What we all need to do
instead in such situations, of course, is keep our
focus on the road. If we do that, there will be a lot
fewer congestion problems in major cities. Instead,
everyone’s attention is on the sideshow, which
makes everyone’s commute unnecessarily longer.
Guess what? Investors do the same thing, in a
manner of speaking.
They lose sight of what’s important, with their
eyes attracted to the “fender benders” along the
road toward investing success. They may even take
a wrong turn or a detour, or worse yet, end up in
“
an accident themselves — one that may not leave
them physically hurt, but sure puts a dent in their
nest egg.
This month, before I get to our latest stock pick
(a well-positioned industry leader in a country with
fantastic growth prospects), I thought it would be
good for all of us to review the nine most common
mistakes made by people allocating their capital
in the stock market. Avoid these — which I’ve
presented in no particular order — and you’ll be
well on your way to a better
financial future.
Investors can often lose
sight of what’s important,
with their attention
diverted toward the ‘fender
benders’ along the road to
investing success.
1. Watching the financial
news channels for your
investing advice.
I freely admit, this one
may sound hypocritical,
since I often appear as a guest
on CNBC, Fox Business,
Bloomberg TV, and other
outlets to give my opinions
on the economy and markets. I appreciate the
ability to reach so many new people, and I will
continue to do so, despite what I’m about to say
next.
It’s not that watching financial news is bad
in and of itself. It’s all about controlling your
emotional reactions to what you see.
The thing with news channels is that they need
to fill a lot of hours of programming — and they’re
competing for eyeballs, which improves advertising
revenue. So, you’ll see a lot of conflicting advice
”
presented to fill those hours, and you’ll see a lot of
scary headlines, because that’s part of what keeps
people tuning in.
In addition, those channels tend to focus
on very short-term advice. They watch what’s
happening right now in markets, with no real view
toward the longer term. They also fixate on the
most popular stocks, the ones most widely held or
those with a juicy, interesting story. (I call these the
“cool kid” stocks, because it’s trendy or “cool” to
own them, in many cases.)
The problem with that is, for the most part,
once a stock is popular and there’s media attention
turned to it, it’s already seen the bulk of its run-up
and the risk-to-reward is no longer favorable for
value investors like us. If you’re making your stock
selections by what you see covered on the financial
news, you’re probably already too late.
(Now, this outsized attention can lead to
bargains too. That’s exactly what happened to
Apple (AAPL). Major positive attention from
the media drove the stock to all-time highs, then
a brutal media backlash helped push it way back
down to the undervalued state where we scooped
it up. But an opportunity like that is an exception
more than the norm.)
So how should you use the financial news
channels? I’d suggest turning to them for factual
data, and not so much the opinions. In other
words, what a company reports as its earnings is
Sean Hyman’s extensive background in
the financial markets goes back more
than 20 years, including as a broker at
Charles Schwab and as an instructor for
Forex Capital Markets. He has held five
financial licenses and has been a stockbroker, manager of a team of stockbrokers, a trading course instructor in the
currency markets, a financial writer, and a key speaker at
conferences both nationally and internationally. His investing philosophy is based on choosing the assets that will get
“inflated” in the future — commodities — and investing in
fundamentally superior currencies that will benefit from
the U.S. dollar’s decline. He does it in a way that’s simple
and, via the use of exchange-traded funds, can be done
through a standard brokerage account.
2
fact. But an expert who says, “I rate this stock a
hold,” is expressing an opinion.
You can also use the financial media to gauge
overall sentiment, which is one of our three prongs
of analysis in Ultimate Wealth Report.
When the financial media beat a drum to stay
away from a sector, industry, or country for quite
a while, that’s a prompt for me to start digging
deeper. Are there values to be had there?
On the flip side, when the media are hyping a
particular stock or sector, that’s when you need to
be aware.
Such hype can quickly push a stock to
overvalued territory (Tesla, anyone?) — and if
they happen to be gaga over a stock you own,
you may start to consider selling it while they’re
still heaping on the sticky-sweet praise, before the
backlash occurs.
What that means is you want to be a contrarian
thinker. If you simply go along with the crowd and
do what’s popular, you’re likely overpaying for the
privilege, catching stocks on the tail end of their
rise. That places you in a high-risk investment with
lots of downside potential. You won’t beat the
market’s overall return over time doing that.
For those of you subscribed to this newsletter,
you don’t have to worry so much about all of this.
If you follow the “buy” and “sell” recommendations
I outline, and don’t get scared out of positions
later by what you hear on TV, you’re avoiding the
dangers. But if you are also making some stock
investing decisions on your own outside of the
scope of the Ultimate Wealth Report, I’d suggest
you just be wary and always keep your contrarian
viewpoint in order to make unbiased, emotion-free
judgments.
2. Focusing on a stock price or how many shares
you can buy.
As I’ve explained before in Ultimate Wealth
Report, a $500 stock may actually be a bargain,
while a $5 stock may be completely overpriced.
That’s because, when it comes to stocks, there are
many interrelated and objective factors that make
prices difficult to compare to one another. Stock
prices are based on the underlying earnings of a
company and how many total shares have been
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June 2014
issued, among other things.
When you buy a stock, you need to remember
you’re buying a company, one that makes a product
or service that the world needs or wants. You want
to purchase companies that you believe do the best
job in this regard and are in excellent financial
condition.
As for how much each share costs, don’t worry
about that aspect. If you can only buy five or 10
shares of a great company that happens to be
hundreds of dollars, that’s way better than 100
shares of a poorly-run firm
with a “more affordable” $10
stock.
It brings me back to
the aforementioned Apple,
which was $419.45 when we
bought it originally. We ended
up selling it at $572.29 for
a 37 percent gain in a little
less than six month’s time.
Anyone scared off by that
high initial stock price would have missed out!
(Hey, even if you only had $500 and you were only
able to buy one single share of Apple, your gain
was still that same 37 percent.)
Contrast that with CEMIG (CIG), also in our
portfolio. That stock is $7.36 as of this writing,
and you may have a lot of shares of it right now
because of that cheap price. But so far for us, it’s
only up about 5 percent including dividends.
That’s not bad, but the “expensive” Apple stock did
a lot better for us.
Keep in mind, I’m not sour on CEMIG by
any means. I still see the signs that it will give us
a phenomenal return over time, and it’s worth
owning. But I point it out to illustrate that stock
price in and of itself is only a minor part of the
story, and should not factor into your decision as
to whether to buy a stock or not. It has to be taken
into account with earnings, dividend yield, and a
host of other considerations.
“
expectations. The pros know that nine times out of
10, they are not going to catch the exact bottom in
the stock when they buy, nor do they set up their
expectations in their mind that way.
They know that when they buy, they’ve
captured value because the numbers say so (i.e.,
the price is low compared to a company’s earnings,
financials, and prospects), but they have likely not
grabbed it at the lowest possible price. The market is
never perfectly predictable like that — wait too
long on a stock, and you may very well miss the
opportunity altogether.
So instead, the most
prudent course of action
is to set a price target that
represents a very good value,
and get in when it falls
to that level. (Hence, our
recommended “buy” prices
in our portfolios, which are
determined with a lot of
factors in mind.)
If you instead set yourself up with unrealistic
expectations to buy at the very bottom of a stock’s
drop and sell it at the very tippy top of a run-up,
you’ll usually end up extremely frustrated. You’ll
also tend to make rash decisions on both ends of
the spectrum that cost you.
Consider the actions of guys like Warren
Buffett, Sir John Templeton, and Peter Lynch,
among others. They never got discouraged if
they bought a stock that fell further in the near
term. They knew better — they had done their
homework, and fully understood the true value of
what they were holding.
They also don’t beat themselves up for selling
a stock that continued to rise afterward. Their goal
was to make money, and overwhelmingly, they did
so with patience, and most importantly, without
having to call the exact bottom and top. They
bought into a position, waited for the market to
catch up to them, and then sold when they had an
appreciable profit.
From the value investor’s perspective, the
biggest factor in your overall gain comes more
from the buy price — assessing and capturing
value while the stock was priced cheap relative to
Anyone scared off by
Apple’s $419 share price
would have missed out on
a 37 percent gain in a little
less than six months.
3. Expecting to “call the bottom” when you buy
or “call the top” when you sell.
One of the biggest differences between a
professional investor and the novice are their
June 2014
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”
3
its earnings and net assets. Get the buy right and
the sell isn’t so hard. Picking up stocks at a lower
point of valuation than the average investor means
you have a great shot at ending up with a much
better overall return — with less risk to boot, since
you paid less on the front end for a stock’s earnings
and assets.
4. Focusing too much on the level of the Dow
Jones Industrial average or S&P 500 Index and
not enough on the valuation at which you
bought your individual stocks.
Think Buffett sweats the Dow every day? Not a
chance.
Buffett and others of his breed are not buying
the overall market, they’re buying companies. The
only price that matters to them is the price they are
paying for those companies, no matter what the
Dow or S&P as a whole may be doing.
Certainly, overall market corrections may take a
great stock down with it temporarily, but that isn’t
a reason to panic — if you’ve chosen wisely, that’s
a chance to buy more of it. Investors like Buffett
use corrections to their advantage, but only if they
focus on the valuation of the company and what
it’s really worth.
The key is to seek out undervalued industries,
sectors and/or countries, and then identify the best
undervalued stocks within them.
Even in an overvalued market, there will almost
always be a few pockets of value. You just have to
be pickier in scrutinizing companies when the
overall market is overvalued. It gets easier in a
huge sell-off, where many areas of value appear . . .
except that, in such situations, many people let fear
scare them away from making a move. (Remember
my advice: Be a contrarian.)
5. Using stop-loss orders.
Short-term traders — those holding a stock for
minutes, hours, days, or just a matter of weeks —
may benefit from the use of stop-loss orders, which
trigger a “sell” if a stock hits a predetermined price.
But at least in my opinion, the true investor doesn’t
really need them to manage his or her risks.
If anything, automatic triggers to sell a stock
can become the enemy of the true investor as the
4
market whipsaws on a very short-term basis and
thus unnecessarily stops them out. When that
happens, you may have simply locked in losses on a
company that may still be way undervalued and set
to eventually climb — it forces you out too soon,
before the trade can run its due course.
So, if you don’t use stop-loss orders, how can
you manage risk?
Well, by knowing what you’ve purchased. You
want to know the answers to such questions as:
• Is it a sizable company with significant
market share?
• Does it have lots of cash on its books and low
debt levels?
• How are its profit margins?
• Are the price-to-earnings and price-to-book
ratios low enough to represent a good value?
These are among the questions I ask for each
investment that I consider, in order to assess the
risks in owning a particular stock.
We also manage risk through targeted
diversification. In time, if you’ve built up a
portfolio of anywhere from 10 to 30 stocks that
are huge companies with billions of dollars of cash
on the books, with low debt levels relative to their
size and P/E and P/B ratios that are historically
cheap, then you have managed your risks very well,
I’d say. This is how the true investor manages risk,
not with stop-losses that generally do nothing
more than lock in losses and generate unnecessary
commissions for your broker.
6. Chasing the “popular” stocks.
Facebook. Twitter. LinkedIn. Chipotle. Amazon.
Netflix. Priceline.
These stocks have been market darlings at
some point, leading to a surge in their popularity
that was, at times, well beyond the fundamental
numbers. People are buying such stocks on
nothing more than hope, in part fueled by the
positive noise from financial news outlets.
Are they bad companies, per se? Not necessarily
— but no matter how good a company may be,
there’s definitely such a thing as paying too high a
price.
It’s like paying $1 million for a beautiful
$300,000 home. Sure, it’s a nice house, but you’ve
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June 2014
spent too much for it, excessively so, and it may be
years, if ever, that you see it reach the value you’ve
paid. (Twitter investors recently learned this hard
lesson, as the stock shed nearly half of its value this
spring.)
Novice investors crave the emotional comfort
of being in stocks that others are in too. They also
love the fact that the companies usually seem to
deal in something exciting, cutting edge, and new.
The problem with new things is that most of the
stocks won’t survive even though the technology
does.
Sometimes, it’s better just to buy the product
or use the service but not buy
the stock.
For instance, I’ll use
Facebook, Twitter, and
LinkedIn and get the benefits
of what they have to offer.
But making an investment
in them would be a dire
mistake. These stocks will
routinely be overvalued and
are in industries that are
very unpredictable. Think about how quickly a
social media stock becomes a “has been” as a new
competitor takes its place. (The cautionary tale of
MySpace forever stands as an example of what can
happen to this type of website, and how quickly
the whole success story can collapse.)
Is that the sort of gamble you want to take with
your money? I know I don’t want to take those
kinds of risks with my money, so I’m certainly not
going to suggest you doing it with yours in this
newsletter.
“
value even after huge declines.
Investing in IPOs is only suitable for wellestablished savvy investors with a high net worth.
The people in those lofty tax brackets are in a
much better position to obtain such stock at
a better price, and they can take bigger risks.
They’ll invest in not just one IPO, but 10 or more,
knowing that seven or eight might not pan out,
but the two or three that do will make it worth
their while.
The average investor should not take such risks,
since losses can affect their lifestyles and delay their
retirement date in worst-case scenarios. You need
your investments to win seven
to eight times out of 10, and
not settle for the long-shot
risks inherent in an IPO.
I don’t care if you’ve
got $10,000 or $1 million
in investable assets — my
advice would be the same.
Stay away from IPOs. They’re
appropriate only for those
who understand the huge
risks and have a net worth in the tens of millions of
dollars at least.
They may sound
exciting, but IPOs are
nothing more than a trap,
especially for individual
investors.
7. Investing in initial public offerings (IPOs).
They may sound exciting, but IPOs are nothing
more than a trap, especially for individual investors.
For starters, many IPOs won’t even be in
existence a few years from now. That’s just a reality
of the business environment.
Second, many of them will depreciate 30 to
60 percent from the price at which they go public
over the following three to nine months.
Thirdly, they’re typically so overpriced from the
very beginning that they’re still usually not a great
June 2014
”
8. Having too short of a time horizon.
Hey, who wouldn’t want to earn 30 percent in
30 days rather than 12 or 18 months? But for the
most part, it just doesn’t work that way.
Still, novice investors start off with a get-richquick mentality.
You may wonder why you can’t be successful
chasing quick returns. You have to remember, in
purchasing a stock, you’re getting the company
behind it. Those businesses make products or
deliver services, and the stock can sustain a higher
stock price only because the company is truly
worth more.
What makes it worth more? Part of it is due to
the assets it owns, but most of the worth comes
from the earnings it produces. The more money it
earns annually, the more the company is justifiably
worth. Increasing that takes time. You don’t double
profits overnight; it’s a slow and steady climb that
ultimately wins the race.
Moneynews.com
5
Same goes for investing in that company. You
purchase it in an undervalued state, then hold on
as (a) the market catches up to what you’re seeing
valuation-wise, and (b) the company builds its sales
and earnings to justify an even higher stock price.
There are no reliable shortcuts. If you’re
impatient, you’ll never make it as a good investor.
Not only will you rack up trading costs by
excessively buying and selling, you’ll never give your
investments the proper time to grow.
You’ll find that it’s easier to make $1,000 by
buying once and selling once than it is to make,
say, 10 trades and capture $100 each time. You’ll
find that you have 10 times the costs to overcome
than in the first scenario, so you’d need to be that
much better than the investor who just bought a
good company and was patient.
It doesn’t mean your investing system is broken —
it actually indicates it’s working, if your winners
are, in sum, outpacing your losers over time.
Putting Our Knowledge to Work
I’d like to point out that most of the mistakes
I’ve covered in this issue revolve around thinking.
The astute investor maintains a certain mindset
that those who lose money over time do not.
The Ultimate Wealth Report keeps you in
the former camp. In the weekly updates, I let you
know the fundamental and technical state of our
holdings, so you can avoid negative reactions that
cause bad decision-making in buying or selling.
For a low annual price, I’m offering an
education in real-life investing, with coaching each
week and this monthly newsletter. My hope is that
my subscribers can use this to set a prosperous
future for this and coming generations of their
own families.
This month, we have our latest opportunity to
grow our nest eggs. Putting to action my advice
about finding value, we are venturing beyond
the U.S. borders — since U.S. markets are still
overvalued in technical terms as of this writing —
Chart 1
9. Thinking that every investment must pan out.
Even with the best system and best analysis,
there are going to be times when an investment or
two won’t return a profit, and should be sold at a
loss.
No one has a 100 percent winning track record
— and if they do, they’ve probably passed up too
many opportunities along the way out of
CNOOC Limited (CEO) Weekly Price, 2007-2014
over-caution, and dinged their overall
90
RSI
potential return in the process.
50
As I pointed out earlier, diversification
10
is the key in this regard. Say you have a
$240
Stock Price
portfolio of 20 stocks and you’ve spread
220
your money evenly between each of
200
them. You’ve got five percent of your
180
160
money in each stock. If one or two of them
140
were to drop, you can recover from that.
120
But if you own one company and it falls,
100
200-Week Moving
you’re in trouble.
80
Average
60
Remember, I scrutinize each potential
7M
Volume
investment very thoroughly. The chance
5M
of even one of our companies going
3M
1M
completely under is highly unlikely
Jul ’07 Jul ’08 Jul ’09 Jul ’10 Jul ’11 Jul ’12 Jul ’13 Jul ’14
because they’re so cash rich.
This eight-year price chart of CNOOC reveals the upward-sloping 200But no matter if you’re investing along
week moving average and the current range-bound state of the stock.
with my recommendations in the Ultimate
These sideways ranges tend to break out strongly, and I think in this
Wealth Report or finding stocks on your
case to the upside based on a number of bullish fundamental factors.
own, set your expectations: If one or two
SOURCE: StockCharts.com
stocks out of 15 or 20 falters, you’ll be okay.
6
UltimateWealthReport.com
June 2014
Chart 2
and exploring a part of the world where
CNOOC Limited Stock Price, One Year
there’s still value to be found: Asia.
RSI
90
Asian stocks as a whole are cheap, in
50
part fueled by the fact that the United
10
States has been on a bull run for the
$210
Stock Price
200-Day Moving
last few years, grabbing the attention of
Average
200
the investing public. China especially is
190
suffering from an overly pessimistic view of
180
its economy, and that’s pulling down many
other countries in that nation’s orbit.
170
50-Day Moving
The pessimists have been out in force,
160
Average
overreacting to reports that China’s
150
economy slowed from 7.8 percent to 7.4
Volume
500K
percent annual GDP growth. You’d think it
300K
had dropped to 4 percent based on investor
100K
reaction. They’ve overplayed it, leaving a
May Jun Jul
Aug Sep Oct Nov Dec 2014 Feb Mar Apr May
number of incredible values in the wake.
CNOOC stock suffered a sharp decline from a September 2013 high
Thanks to the emotional, mostly
to a March 2014 low. But the stock has since found some footing,
irrational overreaction, Chinese stocks have
climbing above its 50-day moving average. The Relative Strength
fallen. Last month, we jumped on board
Index (RSI, represented at the top of the chart) continues to gain
this phenomenon, taking advantage by
steam as well.
buying China Mobile (CHL).
SOURCE: StockCharts.com
And this month, I’ve pinpointed
another strong stock for our Global Value
an operating margin of 26.78 percent. In addition,
Portfolio: CNOOC Limited (CEO), a subsidiary of
we know that the management team is doing a
China National Offshore Oil Corporation.
good job of running the company and allocating
CNOOC explores for, develops, produces and
its capital by its return on equity (ROE) of 17.34
sells crude oil, natural gas, and other petroleum
percent, outpacing the benchmark of 15 that
products. It produces offshore crude oil and natural
Buffett looks for.
gas primarily in Bohai, the Western South China
This company made $21 billion last year in
Sea, Eastern South China Sea, and East China Sea.
earnings (EBITDA) and has $14.62 billion in cash
It owns oil and gas assets in Asia, Africa, North
on its books, which helps support a solid dividend
America, South America, Oceania, and Europe.
of 4.5 percent.
There’s a lot to love with this huge $73 billion
On the other side of the ledger, CNOOC’s
company right now. It has a trailing and forward
debt levels are low and manageable. The debt
P/E of 8 — so it trades at eight times its earnings,
is $21 billion, which isn’t too much for a $73
versus the S&P 500 Index average of 18 times.
billion company. (Debt levels need to be below 50
The price-to-book ratio is 1.36, meaning it
percent in my opinion, but ideally no more than
trades at a great price relative to its net assets. (P/B
33 percent of the worth of the company. CNOOC
ratio is the stock price divided by the company’s
comes in at just under 29 percent.)
book value per share from the most recent quarter
All in all, the fundamentals are screaming “buy.”
of data). In fact, just its assets alone (not counting
I think we should listen, knowing CNOOC is
any of its earnings) are worth $122 per share,
priced right relative to its earnings and net assets.
which is impressive considering its current stock
Of course, before making such a decision, I also
price around $160.
always make sure the technical indicators line up.
Margins are another area where CNOOC
(For those of you who are new to Ultimate Wealth
shines, with a profit margin of 19.75 percent and
Report, those are all the various tools I use to
June 2014
Moneynews.com
7
pick at a glance
CNOOC LIMITED (CEO)
price: $163.33 (as of May 7, 2014)
52-week range: $147.24-$211.49
market cap: $73 billion
p/e ratio: 8
dividend yield: 4.50%
profile: CNOOC Limited is an investment holding
company in the business of exploring, developing,
producing, and selling crude oil, natural gas, and other
petroleum products. CNOOC produces offshore crude
oil and natural gas primarily in Bohai, the Western South
China Sea, the Eastern South China Sea, and East China
Sea in offshore China. In addition, the company owns
oil and gas assets in Asia, Africa, North America, South
America, Oceania, and Europe.
analyze the stock price movements over the short-,
medium- and long-term.
So what do those technical indicators say?
I’ll start with an eight-year chart showing
the weekly prices, which smooths out daily
fluctuations and gives a nice longer-term picture.
(See Chart 1 on Page 6.)
First of all, notice that the overall trend is
upward, as shown by the 200-week moving average.
Yet, there has been a sideways consolidation of the
price for about two and a half years and counting.
If you’ve been a reader for a while, you know —
these sideways ranges can explosively break out
into long, strong trends.
The key is to pick up these types of stocks
toward the latter part of their range-bound trading
period, as near to the range’s low as you can get.
Generally, ranges going on for two to three years
are near their end. On the chart, you can see the
sideways range low tends to hold in the $145 to
$150 area. But with the trend up overall, and the
P/E so low at this point, I think now represents a
good time to jump into this stock.
From here, if the stock only goes up to the top
of its range, it would still be a 33 percent increase
from the current price. Not only do I foresee that
as likely, I think it’s capable of returning to its
all-time highs of $240 per share. (Remember, its
forward P/E is only 8, so it has a lot of room to run
before we could consider it overvalued.)
8
Delving into the realm of Elliott Wave for a
moment, going all the way back to where the stock
first started trading in 2001 shows the stock price
is currently in a wave 4, meaning we should see a
wave 5 advance higher in the months to come.
You may not be overly familiar with Elliott
Wave — and you don’t have to be to understand
and follow Ultimate Wealth Report — but just
know that wave 5’s typically at least reach the
level of the wave 3 peak, which in the case of
CNOOC Limited was $240 per share; often they’ll
even exceed that peak. Based on my past success
with Elliott Wave, that pattern gives me great
confidence in the potential for CNOOC’s rise
going forward.
To get an even better idea as to why I think it’s
smart to buy CNOOC right now as opposed to
waiting any longer, we can swoop in for a closer
look at the price patterns with the daily-price oneyear chart (See Chart 2 on Page 7), which reflects
daily closing prices versus the weekly prices.
From September 2013 to March 2014, we
can see that CEO shed nearly 30 percent of its
stock price. We can also see that investors finally
panicked and threw in the towel en masse back in
January of this year, based on the spike in trading
volume (bottom bar chart).
Then in February, the downtrend line was
broken, which indicates the “smart money” (large
institutions) were likely returning. Sure enough,
the stock bottomed in March and climbed back
above its 50-day moving average in April.
Now that moving average has turned up and
the Relative Strength Index continues to trend
higher, it seems the bottom has been set already.
Even if it hasn’t, however, the technical indicators
show the bottom is likely near. The two most likely
scenarios in my view are either a drop followed
by a spike higher, or simply a push mostly higher
from here.
I expect that this stock could hit its former
52-week high around $210 per share and even its
all-time high above $240 within the upcoming 12
to 18 months. Thus, my recommendation is to
buy CNOOC Limited (CEO) at or under $180
per share for the Global Value Portfolio.
UltimateWealthReport.com
June 2014
Best Buys of the Month
This new “Best Buy” section will be an ongoing
addition to the newsletter. I have decided to add
it based on some of the feedback I’ve received
from our subscribers, many of whom are new to
the service and wondering, “What should I buy
first?” After all, I realize most
of us have limited capital, and
the thought of buying a ton of
stocks at once can be daunting.
These stocks are my favorite
picks to buy right now, and
represent what’s best among all
of our holdings as far as pricing
versus value at the time we go
to press.
So, if you’re new to the
Ultimate Wealth Report, or you have recently
amassed some new investing capital to deploy,
I’d suggest you start with the following three
picks first, along with this month’s new addition,
CNOOC (CEO).
“
and wait for a pullback. I’m not saying it’s not
a good stock above $48, but I choose my buy-in
prices based on optimizing the value as best we
can. Be patient and let the price come back to you
at or under $48.
If you do purchase China Mobile, definitely
take the time to go back to the
May 2014 issue and re-read the
original write-up. You’ll see all
the reasons to hang on, even
if the stock happens to gyrate
over the coming months. China
Mobile may indeed ride up and
down with any tumult in the
Chinese market at large, but in
the end, its fundamentals will
carry the day.
And if it doesn’t fall below $48, allowing you to
buy in? Don’t worry . . . a key for this or any of my
recommendations is to adhere to my suggested buy
at or under prices. Don’t chase a stock that’s out
of reach. Instead, just turn to the others in our list
that are in my range. It’s better to stay disciplined
in your quest for a market-beating return, and
never overpay.
Last month, I
recommended China
Mobile at or under
$48, and I’m just as
excited about its
prospects now.
JUNE BEST BUYS
Price*
52-Week Range
Yield
China Mobile (CHL)
Security
$47.31
$41.35-$57.42
4.77%
iShares FTSE China 25 Index Fund (FXI)
$34.61
$31.35-$40.32
2.93%
Petrobras (PBR)
$15.66
$10.20-$19.17
N/A
* As of May 7, 2014
China Mobile (CHL)
In last month’s issue, I recommended China
Mobile at or under $48 per share, and I’m just
as excited about its prospects now as I was then.
This $183 billion company, with $38.06 billion
in earnings (EBITDA) last year, a profit margin of
around 20 percent, and a return on equity of more
than 16 percent, is solid fundamentally, with bright
growth prospects to come in a technologically
hungry Chinese marketplace.
In addition, China Mobile is cheap, with a P/E
just under 10 and a P/B of 1.42. For that, you’re
getting an enormous, dominant company in a
growing industry that pays a dividend of over 4
percent.
I want to add, be aware that when you get this
newsletter in hand, the stock may have popped
above $48. If so, don’t buy it — put it on your radar
June 2014
”
iShares FTSE China 25 Index Fund (FXI)
I realize I have talked extensively about China in
these past two issues. But there’s a reason.
China, as far as investors are concerned, is a
hated country right now. Sentiment on its economic
prospects is lousy. Sounds bad, right? Not if you’re
a value investor. It’s at these points where value
investors should get very interested and start poking
around.
That’s where the iShares FTSE China 25 Index
Fund (FXI) comes into focus, as a way to play the
broader Chinese market at a low entry price. This
ETF has a P/E of 7, while the S&P 500 has a P/E of
18. Investors are overpaying for the S&P 500 right
now and most don’t realize it.
Meanwhile, they despise what’s undervalued,
which is China. If you ever wondered why the
masses can’t beat the market, there’s why. It’s
flawed investor psychology at work. Consider FXI
at or below $44 per share.
Moneynews.com
9
Petrobras (PBR)
Brazil has been another market that has been
hammered with bad sentiment. Investors are still
shying away from Brazil and they shouldn’t — but
that’s typical, judging on what has been instead of
looking forward.
Brazilian stocks took a licking for the last
three years. But the valuations are compelling at
this point, and it’s one of the few pockets of value
available in the world right now.
Recall that I said an industry, sector, or country
that has been beaten down for two to three years
warrants a close look. The
P/E ratios and Elliott Wave
counts on long-term weekly
price charts can tell that tale.
In short, if the P/E’s are
10 or under and the Elliott
Wave counts are a wave
C through a wave 2, then
it’s worthy of investment.
Drilling down from
there, you can look at the
fundamentals of individual companies that may
warrant investment, choosing among large, wellcapitalized companies.
That brings us to Petrobras, a $90 billion
oil company with a trailing P/E in the 7s and a
forward P/E in the 6s. It trades under its book value
with a price-to-book ratio of 0.54, which puts the
book value per share at $26.20. As I’m writing this,
PBR is trading around $15, meaning you can get
the stock for less than the value of its total assets!
Petrobras generated $32 billion in earnings
(EBITDA) last year and has almost $23 billion in
cash on its books.
Additionally, we can look at what the large
institutional investors are doing to find that a lot
of buying took place in March, when the stock was
in the $11 to $12 range. The big players see a lot of
value there.
On top of that, the Brazilian stock market
as a whole is about to end a wave 2 and PBR is
ending its wave C correction. These are points of
maximum pessimism, which represent the times of
greatest opportunity. I recommend Petrobras at or
under $16, bumping that up from $15 previously.
“
Market Update: Commodities Surging
Something is happening that isn’t getting its
fair share of attention in the financial media: The
CRB Commodity Index, a basket of 19 widely used
commodities, hit a fresh 52-week high, while the
U.S. dollar index sunk to a new 52-week low.
Oh, the media was all over the story when
commodities were struggling and the dollar was
bouncing higher. Experts were calling the “end of
the commodity super cycle” and throwing around
the term “king dollar” for two and a half years. But
now that the realities have changed, those same
experts have gone silent.
Huge technical milestones
have been overcome in the
commodities market. A threeyear downtrend has been
solidly broken to the upside.
The CRB Index has climbed
above its 50-week moving
average and its 200-week
moving average, in addition to
setting that 52-week high.
Additionally, the U.S. dollar is not just setting
a new 52-week low, it’ll soon be at a two-year low.
It may see a bounce higher near-term, but overall
the trend in the buck has been downward since it
reached a top last summer.
Why aren’t they talking about it? Well, market
cheerleaders realize it’s not good when inflation
is rising and the dollar is falling. The politicians
in D.C. know that, and they’ve worked hard to
convince us that there is no inflation happening.
If you tell people something for long enough, they
tend to take it as fact, whether it’s true or not. But
thankfully, charts don’t lie — throughout 2014,
commodities have been on a tear!
At least Ultimate Wealth readers are aware of
it. And better yet, our portfolio is poised to benefit
from inflation’s rise and this dollar devaluation.
Our stocks with a global reach will earn tons of
money in foreign currencies, which will be good
with the U.S. dollar ailing. The remainder of our
portfolio benefits from the rise in the cost of living
— as oil, gasoline, natural gas, steel, and coal go up
in price, so do the profits of the companies that we
own.
Brazil’s stock market
valuations are compelling
after three difficult years;
it’s one of the few pockets
of value in the world.
10
UltimateWealthReport.com
”
June 2014
CORE VALUE PORTFOLIO
RECOMMENDATION
Entry
Date
Symbol
Devon Energy
DVN
Entry
Price
Recent
Price
Buy at or
Under
Current
Yield
Effective
Yield
Total
Return†
27-Sep-12
$59.31 $73.06 $62.00
1.20%
1.48%
25.88%
Peabody Energy
BTU
7-Nov-12
$26.00 $18.41 $26.00
1.85%
1.31%
-21.03%
PowerShares Agriculture DBA
19-Apr-13
$25.94 $29.03 $30.00
N/A
N/A
11.91%
Newmont Mining NEM
21-May-13
$31.74 $24.01 $38.00
3.33%
2.52%
-21.84%
iShares Silver Trust
SLV
22-Jul-13
$19.60 $18.57 $21.00
N/A
N/A
-5.26%
HollyFrontier HFC
23-Oct-13
$45.39 $51.91 $47.00
6.16%
7.05%
17.04%
Apple
AAPL
26-Feb-14
$518.15 $592.33 $520.00
2.06%
2.35%
14.31%
GLOBAL VALUE PORTFOLIO
RECOMMENDATION
Entry
Date
Symbol
Entry
Price
Recent
Price
Buy at or
Under
Current
Yield
Effective
Yield
Total
Return†
Petrobras
PBR
30-May-12
$19.12 $15.66 $16.00
N/A
N/A
-15.45%
Vale S.A.
VALE
27-Sep-12
$18.22 $13.55 $22.00
6.45%
4.80%
-16.55%
Teck Resources
TCK
24-Oct-12
$31.34 $22.31 $33.00
3.89%
2.77%
-25.12%
Barrick Gold ABX
27-Nov-12
$35.13 $17.28 $43.00
1.16%
0.57%
-49.33%
Companhia Energetica
CIG
27-Nov-12
$8.47 $7.36 $12.00
7.84%
6.81%
5.66%
EPI
27-Nov-12
$18.00 $19.13 $21.00
1.20%
1.28%
7.38%
DCM
20-Dec-12
$14.56 $15.96 $16.50
3.63%
3.98%
13.98%
WisdomTree India Earnings NTT DOCOMO
iShares FTSE China 25
FXI
24-Jan-13
$41.57 $34.61 $44.00
2.93%
2.44%
-14.34%
Market Vectors Russia ETF
RSX
26-Feb-13
$28.86 $23.90 $35.00
3.05%
2.53%
-17.19%
Agrium
AGU
25-Nov-13
$89.01 $94.63 $92.00
3.17%
3.37%
8.03%
iShares MSCI Turkey
TUR
18-Dec-13
$52.40 $54.90 $62.50
2.03%
2.13%
4.77%
China Mobile
CHL
23-Apr-14
$45.03 5.02%
5.06%
$47.31 $48.00
4.77%
COPEL#
ELP
$15.33 $12.60
2.90%
CNOOC Limited#
CEO
$163.33 $180.00
4.50%
BUY BUY SOLD POSITIONS
RECOMMENDATION
Symbol
Entry
Date
Entry
Price
Exit
Date
Exit
Price
Total
Return†
YPF YPF
21-May-13
$13.84 12-Sep-13
$18.18 32.52%
iShares MSCI Italy Index EWI
24-Jul-12
$9.33 12-Sep-13
$13.78 51.46%
iPath DJ-UBS Cocoa
NIB
24-Aug-12
$32.55 16-Oct-13
$36.69 12.72%
Apple
AAPL
20-Jun-13
$419.45 5-Dec-13
$572.29 37.58%
Corning
GLW
20-Mar-13
$12.90 5-Dec-13
$16.73 32.26%
ArcelorMittal
MT
26-Jun-12
$14.26 30-Dec-13
$17.72 27.74%
Total SA
TOT
20-Dec-12
$51.90 30-Dec-13
$61.04 22.72%
BP
BP
24-Jan-13
$44.14 2-Jan-14
$47.96 12.92%
Freeport-McMoRan Copper & Gold
FCX
26-Feb-13
$31.87 2-Jan-14
$37.65 28.99%
Encana
ECA
20-Apr-12
$18.39 2-Apr-14
$21.42 25.07%
Royal Dutch Shell plc
RDS-B
29-Jan-14
$73.00 30-Apr-14
$84.67 17.34%
# Recommendation not bought yet.
All as of close May 7, 2014
† Notes on all portfolios: “The “Total Return” column includes all reinvested dividends at concurrent recommended buy prices. Returns calculated based on a purchase of $1,000 of the security
on the listed entry date and price. The “Effective Yield” column reflects the yield investors receive assuming they bought at the entry price and followed all subsequent recommendations.
June 2014
Moneynews.com
11
Ultimate Wealth Report
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is obtained from public sources believed to
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guarantee of any kind is implied or possible
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12
Closing Thoughts
Investing in stocks is not easy. It’s not because it’s hard to open a
brokerage account and make trades — these days, it’s actually fairly
simple for nearly anyone to access the stock market, which wasn’t the
case at all years ago.
The problem is this: We’re all human. That’s a wonderful gift, of
course, but it also brings with it the imperfections of the human brain
and how it operates. It’s difficult to think clearly and logically, and
make decisions without an emotional component.
When the stock market drops, those with investments worry. When
your own particular investments drop, you might tend to panic. It’s
been proven that the fear of losing money is stronger than the hope of
gaining it, and thus people tend to “cut their losses” too soon.
The pull of crowds, and opinions of people you see on TV, also
tends to emotionally sway people to make knee-jerk decisions. There
are a million ways to go wrong when you invest. You need the courage
of your convictions, knowing that you are doing the right thing even
when other investors are thundering toward the exits. You can’t wilt
under popular opinion, buying stocks when they are all the rage and
selling whenever yours has a setback. You’ll buy too high and sell too
low, increasing your risk along the way.
In this issue, I outlined nine common mistakes investors make.
They’re themes I’ll return to, as I lead you through any tough times to
the profits one can reap from long-term investing. That’s my mission,
one I take very seriously with each recommendation I make.
Actions to Take Now
Action No. 1: Buy CNOOC Limited (CEO) at or under $180 per
share for the Global Value Portfolio.
Action No. 2: If you’re new to Ultimate Wealth Report and are
wondering which stocks may be best to start your portfolio with,
consider China Mobile (CHL) at or under $48, the iShares FTSE China
25 Index Fund (FXI) at or under $44, and Petrobras (PBR) at or under
$16. Those represent especially good bargains in our portfolio right now.
Also, note on the Page 11 portfolio chart that I’ve also slightly bumped
up our target “buy” price on COPEL (ELP) to $12.60 from $12.00.
God bless!
Sean Hyman
To subscribe to this newsletter, please go to
www.moneynews.com/offer
UltimateWealthReport.com
June 2014
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[ CONTINUE TO NEXT PAGE
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Continued from previous page
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