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Month: October 2018

Are Buybacks Keeping the Bull Market Alive?

The bull market has had a historic run. And, even as it ages and becomes more volatile, the S&P 500 has still not had the substantial correction that has been predicted by many. One factor that keeps stock prices from falling too far is stock buybacks. We are wondering, are buybacks keeping the bull market alive? And, what else are they doing? Stock Buybacks Just a couple of months ago Forbes wrote about stock buybacks by Apple and other companies. The article is informative and helps shed light on one of the reasons that the market and especially the FANG stocks have not had a significant correction. Stock buybacks were outlawed until 1982, when the SEC changed its rules to allow companies to repurchase shares on the open market, although doing so can artificially boost the stock price. CEOs and other corporate executives benefit the most from this behavior because their compensation, unlike that of rank-and-file workers, is closely tied to stock performance. Between 2015 and 2017, U.S. publicly traded companies across all industries spent three-fifths of their profits on buybacks. The low-wage restaurant, retail, and food manufacturing industries spent 137%, 79%, and 58%, respectively. The restaurant industry borrowed money or used cash on its balance sheet to exceed the amount of its bottom line. The argument that Forbes makes is that money which could have gone to higher...

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Is IBM a Good Long Term Investment?

IBM just used part of its cash hoard plus a lot of debt to buy Red Hat which is a Linux software and cloud computing company. The purchase comes on the heels of a weak quarterly report due to soft software and server sales. And, news of the purchase drove the stock a bit lower. We have ask, is IBM a good long term investment? International Business Machines IBM has been around since 1911 and took the name International Business Machines in 1924. The company has been a dominant presence in the world of computing and basic research for decades. Over that time its employees have earns five national medals of science, 10 National Medal of Technology, 6 Turing awards, and 5 Nobel prizes. Inventions from IBM include the SQL programming the language, automatic teller machines, bar codes, DRAM (dynamic random access memory), and many others. The company holds the most US patents for any business. Through the middle of the 20th century IBM dominated the marker for the large main frame computers that were necessary for large businesses and governmental organization. But, the company was caught napping by the advent of the personal computer and faster and more efficient computer chips and programming. In its attempt to catch up with Apple computer it gave Bill Gates and Microsoft a start by using its operating system for their computers....

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Should You Invest in the FANG on the Correction?

The long-running bull market is starting to correct. We, and many others, have suggested that investors may want to get out of growth stocks and switch to value stocks in preparation for a market crash or at least a painful correction. The rationale is that value stocks are companies with low debt, cash in the bank, and property unencumbered by excessive debt. However, the basis of intrinsic stock value is forward looking earnings. And, the best earnings in recent years have come from tech stocks like the FANG (Facebook, Amazon, Netflix, and Google-Alphabet). Protected from a Trade War with China One of the expected contributors to a market correction, or worse, is the evolving trade war with China. We looked at what you can invest in and not get hurt by a trade war. It turns out that Facebook, Amazon, Netflix, and Google (Alphabet) either do not do business in China or have a very limited presence. Even though these stocks have become somewhat pricey in the current market they could not be directly hurt in a trade war with China. CNBC quote Cramer of Mad Money who is saying basically the same thing as he suggests that investors buy given-up-on FANG stocks. The FANG cohort benefits from having very few ties to the Chinese market, Cramer said, with the use of Facebook, Netflix and Google’s services almost entirely...

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Defense Stocks for a New Nuclear Era

The USA is about to exit a Reagan Era nuclear weapons treaty with the Russians. This could set off another arms race in weapons of mass destruction. It could also provide profitable investments for defense stocks in a new nuclear era. Zacks suggests two defense stocks to buy if we end up in another nuclear arms race with the Russians and Chinese. President Donald Trump has decided to withdraw the United States from the landmark nuclear weapons deal signed with Russia in 1987 that banned both nations from owning, producing and test-flying nuclear missiles. While Trump’s recent decision may not be a welcome move for Russia, it could be a new chapter for domestic defense companies in terms of developing nuclear weapons. Therefore, it might be a good idea to invest in some defense stocks that stand to benefit the most. The basis of Trump’s move is that Russia appears to be violating the agreement and China is not part of it. Like the prospect of a permanent trade war, this move may have more to do with national defense than with anything else. The stocks that Zacks suggests are Northrup Grumman and Raytheon. Northrup Grumman makes advanced products and provides high tech services for intelligence, logistics, reconnaissance, cyber operations, and autonomous systems. They produce, upgrade, and maintain the country’s Minuteman III ICBM force. Their stock is likely to...

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How Long into the Selloff Should You Wait to Pick Up Bargains?

The S&P 500 is down 7% within the last month and was down 9% before recovering slightly. Many bears are now convinced that the end of the bull market is upon us and that the market is due for a more significant downturn. Our question is how long into the selloff should you wait to pick up bargains? CNBC writes that the selloff is not over. “This is the second decline of this year of 5 percent or more and two out of every time we had more than one decline in a year, the second decline was sharper than the first,” Stovall said. The S&P 500 dipped to 2,710 last week, a 7.8 percent decline from its all-time high in late September. In February, the S&P was down nearly 12 percent at its low. “There could be a test of the lows. Successful long term investors stay in the market through its ups and downs. And successful long term investors are sure to buy at the low points. The point of value investing is based largely in assessment of intrinsic stock value. And, the intrinsic value of an investment is based on its forward-looking earnings potential, not its lowest price as investors pile out of the market to avoid more losses. How Long Should You Wait? The market keeps rising and falling. This sort of volatility tells us...

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