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Undervalued: Finding Stocks In The Upcoming Recession




Sometimes finding good stocks is a difficult task to accomplish. With thousands of companies out there how do you sift through the financial data and pro-forma’s to know which stocks are good and which are bad?

To start, multiple sources are vital. It’s not only that they will confirm for certain what you think you know. Second and third takes will show you new little layers you hadn’t thought to search out.

For another thing, only you can decide the attitude you want to take toward the market.

Should you be bullish or bearish?

There are a few things to consider in the global outlook of the economy when deciding to be bullish or bearish

The US Dollar

Typically, the US Dollar has an inverse relationship to gold and oil. So if you believe the value of US Dollar will decrease than oil and gold should rise.  Gold stocks and gold futures are great to buy when there is a sinking dollar.

Just check out this chart:

gold oil dollar

This chart points out the last ten years of relationship of the three, US Dollar Oil and Gold.

As the dollar rose from 2011 to 2015 gold and oil started to go sideways and then we’re at their lows. You can see from the chart it’s a bit of a lagging indicator but as the big money moves from one asset class to the other, you see major moves. 

As a matter of fast hedge funds are more bearish than ever right now on the US Dollar.

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[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”” link_target=”_blank” link_text=”Click Here To Find Out What It Is…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]This one stock is quietly earning 100s of percent in the gold bull market. It’s already up 294% [/ms_featurebox]

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When comparing the US Dollar to the S and P 500 they have had a correlation of .38 on a scale of -1 to 1.

So over the last 20 years as the value of the US Dollar increases typically stocks increase as well.

So keep an eye on the US Dollar and where economic policies have it going.

The Federal Reserve and Interest Rates

It’s no secret that the Federal Reserve has stimulated our economy since the recession of 2008-2011.

They pumped trillions into the markets and we saw the markets run into all time highs.

Now that they’ve stopped the stimulus, the market has been going sideways as the growth in the stock market wasn’t based on growth and savings. It was based on manipulation.

They believed with the injection of trillions, the market would correct itself and they could gradually increase interest rates. But we’ve seen the Fed hold steady on all time low interest rates.

quantitative easing

Take a look at the picture above. You can see the period where the federal reserve announces quantitative easing and when they end it.

It’s obvious QE worked. But has it run it’s course and what are the effects on the market?

What to look for in stocks

The company must be growing

We look at two things when determining when a company is growing or not:

  1. Net Equity – Net equity is the measure of a companies liabilities minus it’s assets. If we can see a company growing i’s net equity the company is adding value while decreasing capital outlay. We see this as a positive.
    1. Something we always keep in mind is that not all assets are on the balance sheet. For instance, don’t you think Apple Computers, the technology behemoth has some intangible assets they cannot put on the balance sheet. Apple users are typically “cultish” about their products (more on that later)
  2. Gross Sales – We look at the last 5 years of revenue and need to see growth in at least 4 out of the last 5 years of the company. If we do have any negative year, it cannot see a 10% decline or more
    1. The sales of the company need to have a minimum $250,000,000. If the company does not have $250,000,000 it’s unlikely to fit the remaining requirements.

The company must be an industry dominator

When you think of giant industry behemoths, companies that continually out perform their competition, whatever the economic environment, this is what we’re talking about.

Think of Coca Cola for example. Year after year Coca Cola expands it’s brand and dominates the soft drink space.

The company must be recession proof

The economy goes through ups and downs and twists and turns through every cycle. When you think of a falling market you want to think of companies and stocks that have products that you cannot live without, or that it would be rather difficult to live without.

The first company that comes to mind her is Proctor and Gamble. Proctor and Gamble produces and sells beauty, hair, and personal care products worldwide. Toilette paper, razors, deodorants.

Regardless of the economic environment, you’re going to need your TP.

The company must gush cash and return it to shareholders

This is probably the most important factor in this entire list.

Companies can provide value to their shareholders in the form of dividends or buybacks. Dividends because the shareholder receives an “interest” payment from the company or buybacks when the value of their stock instantly increases by decreasing the supply in the market.

We love companies that raise dividends and buy back shares. This is indicative of rewarding shareholders.

The easiest way to find this is to go to Yahoo Finance, click on the Cash Flow Statements, and read the “Dividends Paid and Sale Purchase of Stock” in the lower third of the statement.

If we we’re going to use Proctor and Gamble for example, It will look something like this:

proctor and gamble

We like seeing increasing dividends year over year and a steady purchase of stock buyback.

But to measure relativity of dividend payout and sale purchase of stock, we’ll compare it to gross profit, which is the money left over after the cost of the revenue is deducted from the cost to generate it. This is the available capital left over to provide shareholders with the “bonus”:

You can find that in the income statement.

income statement

We see for the year 2015 P&G had 37,403,000 in gross profit and returned 7,287,000 in dividends and 1,778,000 n share buy backs.

That is a total investor return of gross profit of

9,065,000/ 37,403,000 = 24%

Anything above 20% is fantastic.

In Conclusion

We here at The Capitalist believe that the US Dollar and the Federal Reserve drive the stock market. By following these two things, in a macro basis, you should be able to decide whether being bearing or being bullish is the best stance.

By Following the fundamentals of stocks as stated above, you’ll be “head and shoulders” above the rest.




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It’s Not ‘Unreasonable’ To See Gold Prices Soar To $4000 During Bull Market




It’s Not ‘Unreasonable’ To See Gold Soar To $4000 During Bull Market

Despite gaining 35% this year, gold prices have plenty of room to run, says Michael Cuggino, the CEO of the Permanent Portfolio Family of Funds.

Cuggino says that since gold formed a triple bottom from the end of 2015 through November of 2018, it has consistently climbed higher and has really soared this year.

“Ever since then, it has been a gradual move up, then some down. It moves sometimes in big chunks, gives some back, sits around and does nothing, reacts to stimulus, inflation, the value of dollar and euro … but it has had an aggressive move this year,” Cuggino said.

Possible Setbacks Along the Way?

With gold climbing so quickly in a relatively short period of time, Cuggino warns there could be sharp pullbacks along the way. But he says the overall trend is for higher gold prices.

Cuggino says the recipe of continued money printing by the government, the dollar steadily declining and growing inflationary fears mean it would “not be an unreasonable move” to see gold prices soaring to $4,000 an ounce.

He points to a metric that compares gold prices to the closing levels for the S&P 500 index. Gold is currently trading at 0.6 times the level of the S&P 500 and it hasn’t climbed above 0.7 since 2014. But when you go back to August 2011, gold traded as high as 1.7 times the S&P 500, so there’s plenty of upside for gold prices.

Gold Still Has a Long Way to Go

Just adjusting for inflation, gold would need to climb above $2,800 per ounce to equal 1980 levels, which means this gold rally has a long way to go.

Mike Shedlock, the Mish Talk blogger and investment adviser at SitkaPacific Capital Management, thinks the fuel that could push gold to $2,800 per ounce could come from all the hedge funds that are currently on the sidelines and missed the early innings of the gold rally.

“There is ample room for Fear of Missing Out to kick in as the managed money and big spec hedge funds sat out much of the recent rally,” he writes. “And with 105,025 short contracts there is plenty of fuel for a short squeeze too.”

E.B. Tucker, director of Metalla Royalty and Streaming, believes that the current rally will continue, and he thinks gold prices could hit $2,500 by the end of the year.

“Normally I would say [the bull run is overheated] but what I’m seeing in the daily action is that gold is rising in a very measured way and is not meeting much resistance, so when that’s happening you just step out of the way and let it go, that’s what you do,” Tucker said.

Like Cuggino, Tucker says there could be pullbacks in price along the way, but he says we’re in a secular bull market like we may never see again.

“This is a secular bull market. This is a bull market in gold that you’re probably never going to see in the course of your life again.”

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Nasdaq Sets A New Record, Dow Forms A ‘Golden Cross’




Nasdaq Sets A New Record, Dow Forms A ‘Golden Cross’

Since bottoming in late March, the stock market continues to set records in what seems like an almost invincible climb higher.

Nevermind that Jim Cramer said the rally is being driven by the “power of enthusiastic buyers who do not know what they’re doing” and that he can’t fathom “how stupidly bullish this market can be,” the fact is that stocks are climbing higher.

The latest evidence for a runaway stock market is that the Nasdaq Composite Index just gained 1,000 points. It happened in the shortest amount of time in the last 20 years.

1000-Point Climb

It took 114 days for the index to climb from the 9,000 level to the 10,000 level. That milestone was hit on June 10 of this year.

In just 40 days since, the Nasdaq has tacked on another 1,000 points, climbing above the 11,000 level.

That is the fastest 1000-point gain for the index since it took a blistering 38 days in 1999. Back then, it climbed from the 3,000 level to the 4,000 level.

You might recall that period, it was during the dot-com bubble. We know how that ended.

Today’s 1000-point climb is only a 10% overall gain (from 10,000 to 11,000) compared to the 33% overall gain during the ‘99 surge (from 3,000 to 4,000). However, it’s still a blistering pace that investors pay attention to.

“Although 11,000 by itself doesn’t mean much, these big round numbers are a nice reminder of just how strong this rally has been since the March lows,” said Ryan Detrick, the chief investment strategist at LPL Financial.

A ‘Golden Cross’

Not wanting to miss the fun, the Dow Jones Industrial Average just flashed its own bullish signal to investors.

The index just formed a “golden cross,” where the shorter-term 50-day moving average crosses above the long-term 200-day moving average.

Investors consider this to be a bullish signal for the index, as it shows the short term momentum is strong.

Conversely, when the 50-day moving average crosses below the 200-day it’s called a “death cross” and is a bearish indicator. The last “death cross” was on March 20. On that day, the stock market was pummeled by the economic shutdown caused by the coronavirus pandemic.

With the rally being led by technology stocks, the Nasdaq – which is more than 50% tech stocks – has gained more than 60% since the March lows. The S&P 500 is made up of about 25% tech stocks and has gained nearly 50% since March, and only 20% of the Dow is tech stocks so it’s lagged behind, gaining only 47% since March.

How reliable is the “golden cross” for stocks to move higher? According to Dow Jones Market Data, the last time a “golden cross” failed was in January 2016. That was also the last time the market slipped lower.

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Get In On The Hottest Investment Trend Today: SPACs




Get In On The Hottest Investment Trend Today: SPACs

The hottest new investment trend right now are SPACs, or special purpose acquisition company. It’s how Nikola Motor Company, which plans on making both electric and hydrogen-powered trucks, went public virtually overnight.

With the IPO market cooling, it has become an appealing alternative for private companies looking for a quicker and easier path to being publicly traded.

Now billionaires are tripping over themselves to create SPACs as quickly as possible. They need to do so if they want to get in on the gold rush.

What are SPACs?

SPACs are commonly referred to as a “blank check” company and with good reason: they are created to go around gathering a bunch of money from investors with the only goal to buy an existing business within a specific time frame, usually 18 to 24 months.

The management team essentially has a blank check to go out and buy any business it sees fit. Some are created with a specific acquisition in mind. Others are created simply to have the money in place and ready to go when the opportunity arises.

The structure is very similar to private equity deals or leveraged buyouts. Also, private equity firms, hedge funds, and other “smart money” investors sponsored the creation of many SPACs.

Many of these SPACs are publicly traded. So, if the idea of having “smart money” go around hunting for the best deals on your behalf sounds appealing, you can typically invest in them through your normal brokerage account.

Here’s a short list of SPACs that you can either buy today or can buy very shortly once they go public. Be aware, many of these SPACs are just a few weeks old. So, there isn’t much history to judge their performance by.

Pershing Square Tontine Holdings (PSTH.U)

Fresh off a billion-dollar payday in March, Pershing Square Capital Management’s Bill Ackman just launched a $4 billion SPAC, the largest in history after overwhelming interest from investors.

Ackman has the right to put in another billion, giving the company access to a total of $5 billion to hunt for what Ackman calls a “unicorn” with “significant long-term growth potential that will be likely candidates for inclusion in the S&P 500 index.”

“Our thesis is by having a $5 billion cash pile in a public company; it’s our own version of a unicorn. It’s a one-of-a-kind entity,” Ackman said during an interview with Yahoo Finance. “So, we’re looking to marry a unicorn. So we’re prettying ourselves up for the most attractive possible partner.”

Churchill Capital IV (CCIV.U)

While not publicly traded yet, this will be founder Michael Klein’s fourth SPAC. Two of them have acquired companies and one has yet to find an acquisition target. To highlight investor demand for SPACs, Klein raised $1.8 billion for his fourth SPAC. This figure stands at 80% more than what he originally planned.

With his latest SPAC, Klein is looking for a company with excellent long-term growth prospects, a strong competitive advantage, recurring revenue, attractive free cash flow. He is also looking for a company that is in an industry where consolidation opportunities exist.

Dragoneer Growth Opportunities (DGNR.U)

Like Churchill Capital, this SPAC is not yet publicly traded. The company is lead by CEO Marc Stad, who appeared multiple times on Fortune magazines “40 Under 40” list. Also, other directors include David Ossip, CEO of Ceridian HCM Holding, and Sarah Frier, CEO of neighborhood social network Nextdoor.

Stad has a strong pedigree, having backed a number of very successful companies in the past, including Spotify and Uber Technologies. Dragoneer will focus on six areas: software, internet, media, consumer/retail, healthcare IT, and financial services/fintech.

East Resources Acquisition (ERESU)

Current Buffalo Bills and Buffalo Sabres owner Terry Pegula started East Resources targeting the energy industry in North America.

It makes sense given Pegula’s history, having sold his company, East Resources, to Royal Dutch Shell for $4.7 billion in 2010.

Now Pegula is back, looking for operational control of a company that has long-lived assets with low fixed costs, that is producing oil and gas and generating free cash flow, but is operating below full capabilities.

With Pegula’s extensive knowledge of the oil and gas industry, he could find multiple opportunities in a short period of time.

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