Tag - Warren Buffet

I really, really don’t want to talk about the euro today. And I think I’ve made myself quite clear about oil prices. (In fact, I just recommended another top-notch Bakken oil producer to Energy World Profits readers last Thursday that should be good for a quick 30% gain as well as outstanding long-term growth. You can learn more HERE.)   

Today, there’s something else on my mind.   

As usual, there’s a wide range of debate over whether stocks are overpriced or not. The Wall Street Journal says that the price-to-earnings ratio for the S&P 500 is currently 19. Based on forward earnings estimates, it’s 14. Clearly, a p/e of 19 is above the historical average of approximately 16. And the forward p/e of 14 is below the historic average. It’s likely that the truth lies somewhere in the middle. I have no problem stating that stocks appear more or less fairly valued at the moment.   

I also see the risks to global economic growth as fairly evenly balanced. Certainly we’ve become quite familiar with the threat to growth over the past couple of weeks, as the currency-that-shall-remain-nameless has dropped precipitously.   

But the trajectory of U.S. corporate profit growth seems intact, and there is still upside for hiring.   

Two weeks ago, one of the bluest of America’s blue chip companies made one of the boldest predictions I’ve seen in a while. The company said, quite confidently, that it would double earnings-pre-share in 4 years.  

Now, even though this company has been incredibly resilient during recent market weakness, it continues to trade with a current p/e of 12, and a forward p/e of 10.   

This company has beaten earnings estimates in each of the last 3 quarters. And analysts routinely agree that it has made all the right moves lately. In fact, just today it announced an acquisition that will boost its profit margins and give it more exposure in the electronic transaction space. Often called e-commerce, processing these transactions is a $5 billion a year business that’s growing 10% a year.   

I thought this stock was one of the cheapest on the market when I recommended it to my Top Stock Insights readers at $118 a share in August of 2009.   

Today, at $125 a share, I’m convinced it’s one of the surest bets to double your money in 5 years available.   

The company? The bluest of the blue chips, Big Blue, otherwise known as IBM (NYSE:IBM).     

I sincerely wish I knew why investors have responded to a full year of good news from IBM with a collective yawn. But I’m now taking a “Warren Buffett” stance on the stock: I may never sell it.   

When IBM came out on May 12 and said it would earn $20 a share in 2015, up from $11.27 this year, the stock popped a little. But after the recent declines, it’s right back to where it was – around $125 a share.   

Even though we’ve achieved only minimal gains on IBM shares in Top Stock Insights, I’m not worried about the stock in the least. Because as Warren Buffett said, “Price is what you pay, value is what you get”.   

I’m very confident in the value that IBM represents. At some point, investors will wake up to this reality. And that’s fine. I can wait for IBM to trade with the higher multiple it deserves. And even if it doesn’t ever achieve a higher multiple, it’s 12% annual earnings growth rate suggests it will double in value in 5 years.   

I think I can wait that long. Can you?   

OK, I said wasn’t going to mention the euro today. But I have to remind you of the special video investment conference I’ve scheduled for Thursday June 4, at 6 pm. It’s called Profiting from Crisis in Europe .  

Investors must be ready to act when volatility dominates the stock market. During this special Internet event, Profiting from Crisis in Europe, we’ll discuss how you can use the volatility we’re seeing right now to position yourself for market-beating gains in the years to come.   

Profiting from Crisis in Europe is free to attend, and you can sign up for this critical event HERE. 

You've heard me call out big-name investors who are "talking their book" in the past. An investors is "talking his or her book" when he/she states an opinion as fact for the sole purpose of helping a particular trade.

We've seen Warren Buffett do this. Last year, it was widely known that he was massively short the U.S. dollar. And he continued to say he thought the dollar was collapsing, even as it hit important support. Then we learned later that Buffett was covering his dollar short, all the while extolling its weakness.

Obviously, Buffett, in true P.T. Barnum fashion, was attempting to use his influence to talk the dollar down while he covered. He only needed to fool people for a short time as he exited the trade.

Last month at the Davos conference in Switzerland, George Soros did his version of talking his book. He made headlines when he said "The ultimate asset bubble is gold."

I always view statements like these with skepticism. And sure, recent SEC filings reveal that at the same time Soros was saying gold was a bubble, his Soros Fund Management was buying 6.2 million shares of the SPDR Gold Trust ETF (NYSE: GLD) for $663 million.

Looking at this 6 month chart of GLD, it's a reasonable guess that Soros was buying between $105 and $110 in December (you may need to zoom in on the chart in order to see all the information). Gold is on the verge of breaking above that range now.

It would be easy to think that Soros was simply pulling a fast one on unsuspecting investors. But this is a case where it pays to know a little more about the man and his methods. Here is a Soros quote from the early '90s:

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited."

I love that quote, even though it's a bit cynical and perhaps depressing. But what he is saying should be a revelation to any investor, because it requires the investor to maintain a sense of skepticism.

I also want to emphasize that companies do make money, they grow, and their stock prices will reflect this. In other words, there are fundamental reasons for stocks to move. But Soros is talking about making the big money.

As late as 2007, Soros was calling the housing boom a bubble. I also think we can assume he made a lot of money during the housing bubble in the sectors that were supporting the housing bubble, like commodities. And there's no doubt he was well-positioned when the bubble burst.

The Cheapest Gold Stock?

So what do we do with the information that he's now buying gold explicitly because gold is bubble fodder? We assume that he sees the potential for a big move in gold. Gold moves for two reasons: a weak U.S. dollar and inflation fears.

Given the Fed's desire to keep interest rates low, we can imagine that inflation could become an issue. And U.S. dollar weakness is also not outside the realm of possibility.

Soros isn't the only one moving into gold. Hedge fund manager Henry Paulson and even China have been buying gold. It may be a good time to take a position.

SmallCapInvestor PRO members are holding a $3.50 gold mining stock that's so cheap it's like buying gold at $120 an ounce. For more on this stock, click HERE.

20% in Two Days

On Tuesday morning, TradeMaster Daily Stock Alerts' Jason Cimpl told his readers to buy Netlist (Nasdaq: NLST) at $3.58 share. They sold it yesterday at $4.29 for a sweet 20% gain in less than 2 days.

For today, Jason is looking for two things from the stock market:

First, I want to see late day buying. This means that pull-backs are being bought and prices are likely to move higher.

Second (and more important) selling volume has to be low. Heavy volume selling is not a strong signal that the market is preparing to make higher highs, the opposite is then true for selling with low volume. If we do not get a pull-back today, then I'm looking for technology to show leadership on increasing volume - this will show me that this week's rally has legs.

And I'm sure that will mean more trading gains for his readers.