If you like gambling, buy this gaming giant

I was a bit bullish about the Chinese stock markets and thought it would have bottomed a few weeks ago. Too early a call. As I said, if the Shanghai Composite Index could not hold the 2000 level, then more decline was ahead. The Shanghai index is around 1980, a clear bearish sign for the Chinese markets. But this may not be bad if you are looking for bargain stocks related to China. Wynn Resorts (WYNN) is one of them.  

While Wynn is an American giant gaming company, it derives nearly 75% of its revenue from Macau (the Las Vegas of China). Well, it is facing a lot of headwinds lately due to concerns over an economic slowdown in China. Its share price has been slammed & declined over 15% in the past few weeks. Well, not everyone is so bearish about Wynn. JPMorgan, the investment bank, has just issued an analysis report, which sounds quite bullish on Wynn. Here is the excerpt from JP's report published in Barron's:

At current levels for each stock, what is implied in Wynn 's (ticker: WYNN) market cap, once backing out its interest in Wynn Macau, is a negative value (though, admittedly, it's a modest negative value). Wynn's stake in Wynn Macau is $10.957 billion, while its (Wynn's) market cap is $10.923 billion, giving no value for its Macau royalty stream and Las Vegas Strip earnings before interest, taxes, depreciation and amortization (Ebitda), and certainly not a ton of value for its Cotai project [in Macau].

In other words, the intrinsic value of Wynn has been largely underestimated. If people start to realize that, then Wynn's share price will go up accordingly. Per JP, Wynn should have a price of $133 instead of $112 (the current share price).

Get ready for a year end rally

Following the market sharp plunge on Nov 7, I advised to get out of short positions. I guess this was a good call as the market has jumped quite significantly back in the past two weeks or so. The market is a bit overbought at the moment in a very short term and I won't be surprised to see it drop 10-20 points (S&P) in the next few days. But then the year end rally should finally kick in. I expect the market may go up 5-10% towards the year-end and the bullishness may well go into the first quarter of 2013. So if you also believe this trend, take the market decline in the next day or two as the buying opportunity. If you are aggressive enough, you may even play with this upward trend by buying some leverage ETFs, e.g. SSO or TNA. Of course, for any speculative plays as such, please also mindful of the risk involved.

Be the landlord of the US government

　

I don't know you but I'd like to have others pay me, as much as possible and also with as little risk as possible. To be a landlord is definitely one option many people can consider in the rental business but I personally don't like the headache to manage tenants. It would be a dream to have someone manage this for me and pay me well without much risk to be worried about. I think I have found one.
Government Properties Income Trust (GOV) is a REIT (Real Estate Income Trust). To be qualified as a REIT, the company must pay 90% of its earning to the shareholders so that it can avoid paying the corporate tax. The shareholders will have to pay their income tax for the dividend they received. So this actually avoids the double taxation, which is generally the case for all other companies. That's why REITs usually pay a much higher dividend yield. GOV is currently paying 7.5% dividend for your money invested. You cannot get anything even close for your money in the bank. There are tons of REITs out there. What makes GOV outstanding among them is the nature of its core business: 94% of its annualized rental income is paid by the U.S. Government, 10 state governments and the United Nations. In other words, if you buy GOV, you are virtually the landlord of the US government. GOV has dozens of federal or local governments renting its properties. The top 5 renters are:US Customs & Immigration Service (10%), Internal Revenue Service (9%), Federal Bureau of Investigation (5%), Department of Justice (5%), and Department of Agriculture (4%). Will you be worried that the US governments such as IRS will lack of money to pay your rents? Not a chance. That's why I think this is a super safe deal to become the landlord of the US government. I have definitely added GOV into my retirement portfolio for long-term investment!

 

Catch the shopping fever now

What is the best shopping season in the US? I guess it is a no-brainer question: the 4th quarter of a year. The Black Friday after the Thanksgiving Day, followed by the Cyber Monday that is the online shopping day after the Black Friday, and then followed by the X'mas seasonal shopping craziness, becomes the most euphorigenic period for the retailer business. People don't care if they have job, have money, or have debt, they just want to spend. They have credit cards anyway, right? Of course, this is not the topic I'm interested in. As an investor, what I want to know is which company may be best positioned to catch this seasonal shopping frenzy. I think I have found one for your consideration.

For sure you can consider Google or Yahoo since they are the overlords in the online advertising business. But I don't think this kind of seasonality will have too much impact on their stock price given their scale. I'm more interested in a much smaller company, for which a good season could mean a lot for its earnings. I think ValueClick (VCLK) is such a stock. By name, I guess you can easily understand that VCLK is an online advertiser. I'm not interested in its long term performance as it is a tough business in competing with Google or Yahoo. However, if you simply buy the stock for this special season, you may be rewarded handsomely. Look at its chart from 2001 up to now. Do you notice that VCLK tends to go up around the year end and drop in the first quarter? I think we can play with this seasonality game by buying VCLK now (before Thanksgiving) and hold it through the 1Q and then sell it in early Apr 2013 before its earning report. There is a good chance that we may see something like 20-30% appreciation of the stock price. If you know how to play with call options, the risk can be much lower with a much greater profit margin.

Buy Intel for your retirement

If you have bought Yahoo as I suggested when it was traded at around $15 only 2 months ago, you should be happy now. At $17 at the moment, Yahoo has appreciated by 13% in 2 month, in a market which has declined by about 10%. More importantly, Yahoo has broken out its long trading upper range for over a year around $16. This is very important, which technically often means a much big advance is lying ahead for Yahoo. I won't be surprised to see it go over $25 within a year.

If you were convinced and bought Yahoo when I talked about it, then I think you should also consider to buy Intel (INTC) for the similar reason, that is, its great valuation. I know Intel for many people is a very boring stock, especially those who are looking for a quick win. I agree that Intel will likely not go up 100% in a short period of time. People are also thinking Intel is a dying company, given that it dominates the PC chip market with a 80% market share but the PC industry seems in a descending trend. While PC is not an exciting industry anymore, it won't go away for a long long time. We are still heavily relying on our PC for our work and daily life. You can safely bet that Intel will continue to earn a huge amount of money from the PC chip sector for years. The strategic problem Intel has is that it did not foresee the mega new trend of the mobile industry early enough and it has been greatly lagging behind in the game. But Intel has realized that now and is catching up. I think it is just a matter of time. In addition, Intel is also the main player in the severe sector. So I'm still very much interested in Intel, primarily due to its enormous intrinsic value at this very depressed price around $20. Its P/E ratio is only 8.8, a ridiculously cheap value for such a great company gushing out a huge pile of cash. I'm more interested in its 4.5% dividend yield, which you can bet will continue and increase. I definitely agree that you should not buy Intel for a quick money but I strongly recommend that you should consider Intel for your retirement portfolio with dividend reinvestment. Overtime, you will be very happy that you make this decision today. This is what I'm doing now and I simply add more if Intel continues to go down, although I don't believe it will go down too much further from here.

Home depot is too much ahead of itself

I thought Home Depot (HD) was a good buy a year ago when it was trading around $40. I called it a diamond in the rough. Since that call, HD has advanced 50% up with its current price at around $60. This is a great gain by any standard. If you indeed bought HD, you may consider to sell it now by taking your good profit. Why? Because I think HD has gone way too much ahead of itself. People have got too excited about it by ignoring its valuation. When you buy something, you don't want to pay too much, regardless how good that thing is, do you? Look at two charts of HD below.

The first one is a historical price chart for HD. You may notice that the current HD price has reached the same level as it was in early 2000, the highest in its whole history. You must know that this was the time of the peak of the whole stock market in its huge bubble before bursting and crashing. This chart also presents an important technical warning sign: the double top. Unless HD can further go up, which I highly doubt, the double top often signals the downward turning point for a stock. I think this will likely happen for HD.

The following chart shows the momentum indicator (MACD) (the bottom part). While the stock price is moving up, MACD is showing a downward trend, a divergent trend often indicating that the current trend is weak and will likely turn to the opposite direction. In addition, HD's P/E ratio is 21, way too expensive for it. It is also too high away from its 200 day moving average (the green line).  Taken all the signals together, I'm hearing a loud warning siren. Not only will I get out of HD as soon as possible, I will also be willing to short it via put options, if you know how to do it.

Buy mortgage REITs when there is panic selling

No doubt so called "investors" are running away from mortgage REIT stocks these days such as Annaly (NLY) or the like. I smell blood on the street now with panic selling. I have been really waiting for such a day to come and my little patience has paid off, in a big way!

I talked about NLY several times and latest one was in Feb this year (see here). A similar panic selling was also ongoing at that time and I advised people to buy. My advice stays the same this time that this is a great opportunity to buy NLY, which is yielding over 13%, or even better,  American Capital Agency Corp (AGNC), which is yielding a salivating rate of over 16%. So what has caused such a panic for NLY and AGNC to have dropped over 15% in the past 2 weeks? Nothing  extraordinary actually. The reason is QE3. Since the main effect of QE3 is to suppress the mortgage rate, this has caused a reduction of the interest rate spread, the key factor for mortgage REIT companies to earn money. This in turn has led such companies to miss earning estimates and reduce the dividend payout. It is understandable that such a poor earning and reduced dividends should lead to lower stock prices but when there is panic selling and their prices have been over corrected, then it becomes a great opportunity. At the current price around $15 for NLY and $30 for AGNC, they are trading hands below their book values (90% discount for NLY and 95% for AGNC). Over years, whenever they were below their book values, brave investors got a great deal by locking in their high dividend yield as well as a potential of substantial capital gains. A win win situation I don't want to miss.

Of course, always mind your position size, as it could be volatile and may stay in this depressed level for some time.

Sharpest stock plunging in 5 years

Well, the stock market indeed had a free fall immediately after the election. Dow Jones  plunged over 300 points and S&P 500 over 30 points, the sharpest daily drop since 2009. Although the president election did not repeat the struggling show in 2000 with prolonged uncertainty, people apparently still worried about the upcoming battle on fiscal cliff. It won't be pretty! Expect more uncertainty to come. But believe or not, the chance is high that the stock market may start to advance from this level and end up with a year end rally. However, the road won't be smooth but bumpy and volatile.

If you bought some short positions in the past few days as I suggested, pat yourself on the back to enjoy it but I'd take the profit off the table.

A potential high volatility post-election

Just a very quick note about what could happen after tomorrow's presidential election. You may remember what happened in 2000 following the voting day with the Bush/Gore election. The result could not be determined for weeks due to election "recount". And the market was very nervous with high volatility and plunging of stock markets.

With a new voting system introduced in Ohio recently, this fiasco could happen again that at least for 10 days the country will not know who wins. You can read this news here yourself. If this indeed materializes, likely the stock market will not respond well and volatility will likely shot up substantially. One way to hedge against this potential high volatility is to buy some VXX call options or simply buy SDS which will go up for a plunging S&P 500 index.

Coal has likely bottomed

I talked about coal in April, which was apparently too early. But the rationale I laid out then are still valid. I don't believe coal is dead and will not pick up again in demand. Actually the recent economic data from China start to look promising again, which will further support the increasing demand of coal. I have seen news that the coal prices in the past month have finally jumped high and there are many indicators suggesting the demand for coal is truly picking up. Looking at the chart below. You may notice the ETF for coal (KOL) has been range bounded between 22 to 26 in the past half year, a very clear bottoming range. If KOL can break through 26 and hold, I will be very confident that the new bull run for KOL has finally come. If so, I will be interested in the coal companies such as BTU or ACI.

Buy gold in the Euro term

I hope all the friends are safe and sound without problems by now. After a few days of no power and Internet, we are finally back to normal. But still it is difficult to find gas locally here.

The Apple stock got hit quite hard last few days. I guess I was too early again. But for Apple I'm not a trader; rather a long-term investor. As long as its value is good, I'm fine to be a bit earlier. I will buy more if it drops further. Actually by the way I'm buying Apple I will not lose a penny until it drops to $500. At $576 at the moment, I don't think it will get to that level but I could be wrong of course.

As I predicted, gold is indeed coming down as well. With a $37 decline yesterday to $1678, gold is very close to its 200 day moving average at around $1650-1660 area. As I said, this is a strong support level and I think is a good entry point. However, I have learned over years that I should never be too confident about what I believe in. While I believe gold is likely bounce back from this support level, there is always a chance that it may not hold up there and may further go down. Whenever possible, I want to set up a position in such a way that my loss could be minimized.  So what is the strategy to hedge against this possible short-term over correction for gold?

About 2 months ago in Sep, I said US$ was likely bottomed and would appreciate. See below that this is exactly what has happened. The US$ index has been range-bounded roughly between 79.0 -80.1 in the past 2 months. But it appears it has just broken through the upper bound. This will likely push US$ up to 81-84. I think this is one major reason why gold has declined so much lately, because a strong US$ will push down gold price at least in a short-term. Eventually though, gold will not be bounded by the US$ and will continue to go up substantially in its huge bull run, since gold has become more and more a currency, not a metal.

So when US$ goes up, what is the next obvious victim? I hope you can guess: yes, it is Euro. I think Euro has run its upward course already by now. Likely it will start to decline from the current level of $1.29. I won't be surprised to see Euro plunge to below $1.20 this time. I have talked about EUO many times in the past, which is a 2 x leverage ETF against Euro. In other words, when Euro drops 1%, EUO should go up 2%. You may notice interestingly below that EUO was also range bounded between 19-20 in the past 2 months and has just broken through the upper bound over 20 now. If indeed US$ appreciates in the next few months, Euro will decline and EUO will go up in parallel.

 

 

If you buy gold and at the same time short Euro (e.g. by buying EUO), you essentially buy your gold in the Euro term. If gold goes down due to a stronger US$, EUO will go up due to a weaker Euro to offset your loss in gold, a perfect hedge to me. But be aware, this is just a concept to let you know how to hedge your gold for a potential over correction. As we discussed before, I don't like to simply buy EUO due to the headache in tax filing for it, since EUO is structured as a partnership fund. I'd either buy EUO call options or buy FXE (a direct Euro fund) put options. For those who don't know options, maybe simply use the dollar averaging technique to buy some gold at its current level and buy more if it further drops. In the long run, I firmly believe you will be doing very well. My gut feeling tells me that this is likely the last chance to buy gold at such cheap levels for a long long time. So whatever the levels this correction will bring down gold and silver to, to me it is a great opportunity to buy more cheaper gold and silver. Don't miss it!