Investment Contrarians

large-cap stocks

A Safe Way to Profit from China’s 700 IPOs to List in 2014

By for Investment Contrarians | Dec 5, 2013

China’s 700 IPOs to List in 2014I pushed the “go” button on China a long time ago now, and I’m certainly not set to press “stop” yet, as I continue to feel the country is one of the top growth areas for investors worldwide. My contentions are contrary to those of many other analysts in the stock market, but I’m holding onto my bullish views.

The Goldman Sachs Group, Inc. (NYSE/GS) is now telling the market that next year (2014) will not only be the “Year of the Horse” in the Chinese Zodiac, but it will also be a buying opportunity in Chinese stocks. Goldman Sachs is predicting that the Hong Kong-based Hang Seng China Enterprises Index, which is available for investment by foreign investors, will surge 19% in 2014. (Source: He, L., “Goldman Sachs sees 19% gain for Chinese stocks in Hong Kong during 2014,” MarketWatch, December 3, 2013.) The index tracks the performance of Hong Kong-listed Chinese companies.

Goldman Sachs also predicts that the Chinese economy will advance by 7.8% in 2014, while the Organization for Economic Co-operation and Development (OECD) is even more optimistic, estimating 8.2% growth next year. (Source: Organization for Economic Co-operation and Development web site, last accessed December 3, 2013.) The OECD’s optimism is based on the rise in domestic consumer spending in China, which remains a clear focus in the mandate of the Chinese government.

Of course, there will continue to be some hesitancy due to the numerous frauds found in Chinese reporting in U.S.-listed companies a few years back. However, many of these issues have already been, or are currently being, dealt with by the U.S. Securities Exchange … Read More

Small-Caps Sizzling, but the Rapid Advance Won’t Hold

By for Investment Contrarians | Feb 20, 2013

Small-Caps SizzlingAt the beginning of January, I said “small-cap stocks will be a key driver of the broader market should the U.S. and global economy continue to improve” in 2013.

Small-cap stocks have been impressive early on in 2013, as the Russell 2000 is up 8.7% this year, increasing 2.3% in February alone, with the index trading at record highs above the 900 level. Small-cap stocks are easily outperforming the broader market in 2013.

In my view, continued economic renewal will drive small-cap stocks higher, as these companies tend to be able to react quicker to a changing economy.

The strong start to 2013 is also a bullish sign, as was the case in 2012, when stocks flew out of the gate. We are seeing a similar situation this year, so expect some gains.

But what I’m concerned about is the rate of the advance; in my view, unless you believe the Russell 2000 will gain 65% this year based on an annualized rate, the index’s rate of advance is clearly not sustainable. And you know this is highly unlikely, so you should expect to see ebbs and flows going forward. The last big year for the Russell 2000 was a 25.3% gain in 2010.

The chart of the Russell 2000 below shows the break at the horizontal resistance line that had been in place since 2011. While the relative strength and moving average convergence/divergence (MACD) indicators are both flashing “buy” signals, the angle of the recent breakout, marked by the blue oval, clearly indicates an unsustainable advance, so be careful.

Russell Small Cap Chart

Chart courtesy of

I favor small-cap stocks for long-term … Read More

Why You Should Have Money in Aerospace

By for Investment Contrarians | Feb 4, 2013

Money in AerospaceThe “Boeing 787 Dreamliner” may be grounded for the time being, but the aerospace sector as a whole is delivering some excellent results.

We all know how significant the Chinese aerospace market is, given the superlative rise in air travel and tourism in and out of the country. I expect this to increase going forward.

The Boeing Company (NYSE/BA) estimates that China will require 5,000 aircrafts, valued at approximately $600 billion, over the next 20 years. The estimate may be conservative, especially if China can grow its income levels at a much higher pace. Boeing is looking at its new 787 Dreamliner as its big play on wide-body jet travel in spite of current issues.

Chief rival Embraer S.A. (NYSE/ERJ) estimates that the global demand will be around 28,000 new planes over the next two decades. According to Embraer, there will be over 32,550 planes in the sky by 2031, up from the current 15,500; the company also estimates that the Asia-Pacific region will account for 35% of all plane purchases. According to Embraer, the major airlines will operate in the U.S., China, intra-Western Europe, and India; and China will be the world’s largest domestic plane market in 20 years.

The findings by Embraer are not a surprise, as they will be driven by higher average disposable incomes in the emerging global markets and by the more popular desire for travel. My feeling is that strong wealth generation in the world’s largest emerging markets, including China and India, will help to drive the demand for commercial and defense planes along with stocks in the equities market.

Air traffic in China … Read More

Why You Need Small-Cap Stocks to Boost Your Profits

By for Investment Contrarians | Jan 4, 2013

Small-Cap Stocks to Boost Your ProfitsSmall-cap stocks will be a key driver of the broader market should the U.S. and global economies continue to improve. In 2012, small-cap stocks trailed only the technology sector as far as performance. The Russell 2000 has been advancing since the end of the first quarter, with its greatest advancement in December. If 2013 is a strong year for the economy, small-cap stocks will deliver.

My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.

I favor small-cap stocks for long-term growth, as the valuations are more attractive and may be worth a look for aggressive long-term investors.

And while I view the holding of large-cap stocks as an integral part of a portfolio, for added overall portfolio returns, I like small-cap stocks. These stocks add to the risk component of your portfolio, but you are compensated by a higher overall expected return from your investments. You can increase the expected return of a portfolio by simply adding more risk. This is the advantage of adding small-cap stocks.

A standard and simple measure of stock risk versus the market is called beta—a quantitative measure of systematic or market risk that cannot be diversified away and is generally in relation to the S&P 500 or another market/benchmark stock.

A beta less than one implies that a stock … Read More

How Dividend Paying Companies Are Helping Ahead of the Fiscal Cliff

By for Investment Contrarians | Dec 4, 2012

Dividend Paying Companies Are Helping Ahead  of the Fiscal CliffThe fiscal cliff is currently dictating the trading action in the equities market as we near December and the year-end. With 28 days left until the Bush-era tax cuts are allowed to dissipate, there is widespread fear and concern of a significant jump in taxes, including those on dividends, especially for those who invest heavily in dividend paying stocks.

The prevailing dividends tax of 15% is extremely accommodative to income-seekers, but under the fiscal cliff, we could see the tax on dividends surge to 39.6% for earners in the highest tax bracket. For dividend investors, this means a massive jump in taxes in 2013.

With the uncertainty of whether the fiscal cliff will be resolved prior to January 1, we are seeing numerous U.S. companies paying out special dividend payments to their shareholders now to avoid a potential massive tax hit for investors in the future years under the fiscal cliff.

These companies, whether or not they have historically been big dividend payers, are doing what they can to help shareholders by paying big dividend payments now under the lower taxes.

Just take a look at the numbers. In the period from the end of September to mid-November, Bloomberg says that 59 companies belonging to the Russell 3000 index announced special cash dividend payments, versus 15 companies in the same timeframe in 2011. (Source: “Special Dividends Surge Fourfold as U.S. Tax Increase Looms,” Bloomberg Businessweek, November 19, 2012.) The move to initiate special dividend payments is not a surprise, and I expect the dividend payments to continue over the next few weeks, unless a deal is struck.

Assuming the fiscal … Read More