Are You a Growth or Value Investor?

Apple's Price to Earnings Ratio

The distinction between value and growth stocks dates a long way back…

Benjamin Graham, known as the father of value investing, lost a bundle in the stock market crash of 1929. To prevent a repeat episode, he made it a personal rule to buy only stocks that were dirt cheap relative to their fundamentals.

He focused on companies trading at low valuations relative to their net asset value, earnings and cash flow. Graham didn’t try to buy great companies – he tried to buy stocks valued so cheaply that they couldn’t go any lower.

His approach worked well…

He bought at cheap valuations and then sold when his stocks reached fair ones. Rinse and repeat, over and over and over again.

Graham didn’t buy and hold forever. He bought cheap and sold at fair value.

Philip Fisher, meanwhile, had a very different approach. In his 1950s classic, Common Stocks and Uncommon Profits, he laid the foundation for growth stock investing.

Fisher believed that the key to stock market success was finding great companies that could drive earnings growth for decades to come. He wanted one-decision stocks where you could buy and then hold forever.

There aren’t that many truly great companies, so Fisher’s opportunity set was smaller. But since he seldom had to sell, managing his portfolio was easier.

Like Graham, Fisher made out very well with his approach.

Which Is Better: Value or Growth?

It took a while even for Warren Buffett to decide whether he was a value or growth man.

In his early days as an investor, Buffett’s hero was Benjamin Graham. Buffett thought so much of Graham that he once offered to go work for Graham’s investment firm for free!

Buffett rang up astounding returns using a Graham-style approach while managing his investment fund in the 1950s.

As he progressed through his career, though, Buffett moved more toward a Philip Fisher style of investing.

You can see that with some of his most well-known investments, like Coca-Cola (NYSE: KO), American Express (NYSE: AXP) and, more recently, Apple (Nasdaq: AAPL).

Buffett bought those stocks and held on for the long term.

Famously, Buffett described his investment approach as being 15% Phil Fisher and 85% Ben Graham.

But the reality is that he is neither a value nor a growth investor…

He is both. As we all should be.

Whether you should focus on value or growth depends on the opportunities that the market presents at any given time.

The Best Opportunity Today

Over the past decade, stocks have had an incredible run. We can see that in the share prices of big tech companies like Apple, Netflix (Nasdaq: NFLX), Facebook (Nasdaq: FB) and Amazon (Nasdaq: AMZN).

As the stock prices of these companies have soared, so have their valuations.

I’ve been using the chart below a lot. It shows Apple’s valuation relative to its earnings.

Today, Apple trades at twice the price-to-earnings (P/E) multiple that it has averaged for the …read more

Are You a Growth or Value Investor?

Apple's Price to Earnings Ratio

The distinction between value and growth stocks dates a long way back…

Benjamin Graham, known as the father of value investing, lost a bundle in the stock market crash of 1929. To prevent a repeat episode, he made it a personal rule to buy only stocks that were dirt cheap relative to their fundamentals.

He focused on companies trading at low valuations relative to their net asset value, earnings and cash flow. Graham didn’t try to buy great companies – he tried to buy stocks valued so cheaply that they couldn’t go any lower.

His approach worked well…

He bought at cheap valuations and then sold when his stocks reached fair ones. Rinse and repeat, over and over and over again.

Graham didn’t buy and hold forever. He bought cheap and sold at fair value.

Philip Fisher, meanwhile, had a very different approach. In his 1950s classic, Common Stocks and Uncommon Profits, he laid the foundation for growth stock investing.

Fisher believed that the key to stock market success was finding great companies that could drive earnings growth for decades to come. He wanted one-decision stocks where you could buy and then hold forever.

There aren’t that many truly great companies, so Fisher’s opportunity set was smaller. But since he seldom had to sell, managing his portfolio was easier.

Like Graham, Fisher made out very well with his approach.

Which Is Better: Value or Growth?

It took a while even for Warren Buffett to decide whether he was a value or growth man.

In his early days as an investor, Buffett’s hero was Benjamin Graham. Buffett thought so much of Graham that he once offered to go work for Graham’s investment firm for free!

Buffett rang up astounding returns using a Graham-style approach while managing his investment fund in the 1950s.

As he progressed through his career, though, Buffett moved more toward a Philip Fisher style of investing.

You can see that with some of his most well-known investments, like Coca-Cola (NYSE: KO), American Express (NYSE: AXP) and, more recently, Apple (Nasdaq: AAPL).

Buffett bought those stocks and held on for the long term.

Famously, Buffett described his investment approach as being 15% Phil Fisher and 85% Ben Graham.

But the reality is that he is neither a value nor a growth investor…

He is both. As we all should be.

Whether you should focus on value or growth depends on the opportunities that the market presents at any given time.

The Best Opportunity Today

Over the past decade, stocks have had an incredible run. We can see that in the share prices of big tech companies like Apple, Netflix (Nasdaq: NFLX), Facebook (Nasdaq: FB) and Amazon (Nasdaq: AMZN).

As the stock prices of these companies have soared, so have their valuations.

I’ve been using the chart below a lot. It shows Apple’s valuation relative to its earnings.

Today, Apple trades at twice the price-to-earnings (P/E) multiple that it has averaged for the …read more

Three Penny Stocks To Pick Up Now

Penny Stocks To Grow Your Wealth

Penny stocks produce a visceral reaction in most investors. Some love ‘em. Others avoid them at all cost. But there’s no denying their upside potential.

Penny stocks – as their name implies – are cheap. This makes them a perfect starting point for new investors that can’t afford expensive blue chip stocks. The only problem is that they don’t come with the same level of safety as their more expensive counterparts. But with the added risk, comes the possibility of greater reward.

Part of the risk comes from the fact that many penny stocks aren’t traded on major exchanges like the NYSE. Instead, they’re offered on over-the-counter (OTC) exchanges. However, because these are less regulated, it’s harder to qualify the financial health of a company trading OTC.

For instance, penny stocks traded on OTC markets aren’t required to make accounting statements and credit reports public. This makes it very difficult for an investor to make an informed investment in an OTC penny stock. To complicate matters even further, companies can withdraw from OTC markets at any time… Burning investors and sending any investment they made in the company up in smoke.

That’s why for our purposes, we’ll be sticking to penny stocks traded on the major exchanges. Being able to analyze the financial statements is the big difference between a straight gamble and an informed investment.

Three Perfect Penny Stocks to Buy Now

Regardless of whether a company’s financial information is available or not, it’s worth noting that trading in penny stocks still comes with risk. There’s inherent uncertainty when a company is trading for less than $5.

The trick to investing in penny stocks is figuring out if they’re trading at a discount… or are floundering on their way to being delisted. And despite the fact that most of the markets are trading at or near all-time highs, there are still plenty of good deals out there.

Here are three penny stocks with lots of upside potential and strong enough financials to last until their time to shine comes.

Ambev (NYSE: ABEV)
OncoSec Medical (Nasdaq: ONCS)
Conduent (Nasdaq: CNDT)

Ambev

First on the list is the Brazilian brewer Ambev. With a market cap of more than $38 billion and more cash than debt, Ambev has steadily reported profits despite the pandemic. Drinking is on the rise in Brazil. And alcohol consumption has a good track record of holding up – even during a recession.

Nonetheless, U.S. investors have shied away from this Latin American heavyweight. And that’s pushed its stock to rock-bottom prices. In the short-run, it does make sense. Most beer – especially in South America where its products dominate – is drank in bars and restaurants. And that end of sales activity has stalled and will probably continue to do so for a while longer. But in the long-term, Ambev is poised for a strong comeback. It controls an estimated 55% of the beer market in Brazil. …read more

Want to Retire at 50? It’s Possible. Here’s How

Man spending more time with his grandson after learning how to retire at 50 years old

Do you think it’s possible to retire at 50? Most people dismiss it as a dream—something that’s possible, but not probable. You might be surprised to learn that it’s more realistic than you think to retire by 50. In fact, if you’re in your 20s or even your early 30s, it’s downright probable. You just need to point yourself at the right trajectory for success. 

If you want to retire a full decade earlier than most people, you need to achieve financial freedom. Here’s a look at what, exactly, that means and the steps you need to take to retire by 50, ready to enjoy the best years of your life. 

Master Financial Independence

The definition of financial independence is having enough income from passive investments to cover your living expenses, without relying on a paycheck. To be financially independent, you need to build your wealth. To retire early at 50, you need to build that wealth in a way that’ll last you for the rest of your life. For most people, their primary drivers of wealth (and financial independence) will be the following:

Retirement accounts like a 401k or a Roth IRA
Independent investments, such as stocks or ETFs
Property investments, such as rentals or REITs
Dividend-yielding investments, such as stocks or ownership stakes

To retire by 50, you need as many of these sources of wealth as possible. Retirement withdrawals will fund your lifestyle. Dividends will pay your bills. Property investments will fund your vacation. All these things add up to financial independence and the path to retirement. 

Investing Early and Often is the Key

The earlier you start building your wealth, the more realistic retirement at 50 becomes. Compound interest and asset appreciation are big parts of security in early retirement. For example, consider an investment of $50,000 at an annualized return of 11%. Over the course of 20 years, with no additional contributions, that $50,000 becomes $403,000. Over 25 years, it becomes $679,000!

Compound interest becomes more powerful with each passing year. And to see this powerful concept as work, try out our free investment calculator.

The beauty of starting early is that every year you can contribute to an investment, the more your principal contributions will grow. If you start with $50,000 and add another $5,000 every year at an 11% growth rate, you’ll have $723,600 in 20 years and $1.2 million in 25! 

How Much Money Do I Need to Retire at 50?

All of this adds up to one question: how much money do you need to retire at 50? It comes down to lifestyle. What do you want your annual income to be when you retire? Take that and multiply it by the number of years you think you’ll live. Here’s an example:

Tamir wants to retire at 50 on an annual income of $50,000. He thinks 85 is a reasonable age to plan for. To retire comfortably, Tamir will need $1.75 million to get him through the next 35 years of retirement. 

Keep in mind, …read more

Canada’s Pension Fund Math Doesn’t Add Up

Canada, oh Canada.

The land up north is in the news and in our mailbag this week – both with ideas that make us smile.

We’ll start with the latest word from Canada’s famed pension fund.

It has a big charge. It must turn a lot of money into a whole lot more. And it must do it without going broke in the process.

It’s that last part that apparently has its bosses tossing and turning at night.

This whole zero interest rate thing is really messing with their plans.

The latest worry is what to do with all those oh-so-safe government bonds. Back in the day, they used to pull their weight. Given enough time, they were a reliable way to make some scratch.

A bond with a 4% payout would double its owner’s money in 18 years. Not great, but for a pension fund with $400 billion under its mattress and a timeline that stretches to perpetuity and beyond… that’s a lot of income each year.

Not now though.

The Zero Problem

At today’s rates, it would take 110 years to reach a double. That’s assuming 1) the payer is still around in a century and 2) their cash is worth anything.

Canada, like a lot of sound-minded folks, is wondering whether the risk is worth the reward.

Should it change its long-standing risk-reducing model?

“The fact interest rates are now zero-bound – does that change the diversification benefit of bonds in the long term?” asked Mark Machin, the poor fella in charge of the fund. “I think we, like a lot of long-term asset owners, are looking at reviewing that.”

We hope he’s a Manward Letter reader. Despite our mug on the masthead, it’s a popular thing these days.

Perhaps that’s because we’ve stayed well ahead of this mess. We’ve warned of the acrid fallout from the death of interest rates for years.

Better yet, in the next issue, we’re debuting a brand-new diversification model that flat-out eliminates many of the worries that keep folks like Machin (and probably you) up at night.

Instead of relying on math that may have added up 50 years ago (when interest was high, quantitative easing wasn’t a thing and the dollar was still tied to gold), it’s clearly time to do something new.

Something, dare we say it, a bit more modern.
[mw-adbox]

The View From Canada

There will be plenty of time for those details later. For now, let’s turn to the Canucks in our mailbag.

We can add Canada to the growing list of countries that are mad at us (move over, France!)…

Andy, I thought that you were a pretty good guy until I read the last sentence of today’s email.

Let me be perfectly frank, “Please keep your American rejects at home!” Canada does not want them nor do we need them.

You Americans wonder why the people of the world hate you. I ask you, “Is this any way to treat your neighbour?” Canada has been nothing but good to the United States and its people.

If nothing else please treat us with dignity and respect. We deserve nothing less! …read more

Two of the Best Trading Strategies Revealed

Editor’s Note: Join us on Instagram!

We just launched an Instagram page – and all Trade of the Day members are invited to join. It’s totally free! Just go here and click “Follow.” (If you don’t already have an account, you’ll need to make one.) That’s it! You’re in! On this page, we plan to post charts, videos and even some entertaining memes every once in a while. It’ll be a great experience and will keep us all plugged in together – even on the go. So take a quick second and follow us now!

– Ryan Fitzwater, Associate Publisher

Just like you…

Whenever I trade…

I like to win.

And many times, winning means eliminating any guesswork.

That’s where strangles and straddles come into play.

These strategies are tailored to benefit from any event that causes a significant move in the price of a stock.

If the stock soars, I win.

If the stock drops, I still win.

This may seem impossible, but I’ll give you a full breakdown on how you can make these trades for yourself in the video below…

P.S. These strategies make The War Room something unique and profitable. We’ve handed members an insane 76.77% win rate since we launched! Over that time frame, we’ve had a 10.04% average gain with an average holding period of seven days. And this year alone, on average, we’re hitting two winning trades every day the markets are open. So what are you waiting for? Join me now and get in on the hottest action in the market!

P.P.S. Do you want to get our top pick every single week? Better yet, do you want this pick to come to you in an engaging video? If so, then we have good news! Our brand-new Trade of the Day Plus service is coming this month. Keep a lookout!

The post Two of the Best Trading Strategies Revealed appeared first on Investment U.

…read more

Tenet Is Not the Hero AMC Stock Needed

A movie goer walks by posters from Tenet, which has seemingly failed to save AMC stock in the short term.

Christopher Nolan may be the best superhero movie director ever (my opinion only). But, when it comes to saving movie theaters during a global pandemic, he may not quite be the hero we need. And AMC Entertainment Holdings Inc (NYSE: AMC) may pay the price for that.

Nolan’s new film, Tenet, may be the blockbuster of the year, but when the blockbuster of the year has only grossed $29 million domestically to date, that’s, well… not great.

Meanwhile, AMC stock has been declining over the past week. While shareholders were hoping for a blockbuster boost from Tenet, it seems that movie season continues to unspool with a whimper, not an airplane-explosion-level bang.

The Movies Are In Trouble… What Hero Can Save Them?

AMC stock isn’t suffering because people hate movies. It’s suffering because people are still trapped in the clutches of a global viral pandemic. Nevertheless, Tenet was the blockbuster investors were hoping would propel the movie theater chain through the end of the year.

Well, that hope kind of fizzled out.

Warner Brothers, which is owned by AT&T Inc (NYSE: T) is the ultimate Christopher Nolan fanboy. Unfortunately, it seems evident that they were not pleased with the results of Tenet to date. This is borne out by the fact that they are pushing its next giant blockbuster release, Wonder Woman 1984, back from October to Christmas.

But can you blame audiences for staying away? Is two hours seeing a flick and munching on some popcorn really worth the risk of catching a disease that has now sickened six million people in the U.S. alone? It hardly seems worth it. And that means movie theaters continue to be in trouble.

Where AMC Stock Has Been

As anticipations built for a Labor Day Weekend movie theater relaunch, we did temporarily see the price of AMC stock rise from $5.19 to $7.02. But that hopeful gain was not to last. Since that peak, the stock has dropped back down to $5.52 yesterday.

Year-to-date, the stock is down over 23%, and over the past one year, it’s down over half its value. That’s not all that shocking, as the pandemic has caused AMC’s quarterly net income to plummet from $49.4 million to a negative $561.2 billion. Similarly, fully diluted earnings per share (EPS) has dropped from $0.36 to -$5.38.

This is a decline in the stock price that nobody could have seen coming unless they had predicted this global pandemic in the first place. Nevertheless, it’s here, and AMC has suffered greatly.

Where Is AMC Stock Going?

Of course, to that, nobody knows for sure. There are too many factors at play. Will we get new COVID-19 treatments that can help prevent hospitalizations and deaths? When will a vaccine actually arise and how effective will it be?

The problem is, it seems that until we have some powerful coronavirus treatments or a vaccine, people aren’t too interested in returning to the box office. No matter what blockbuster is currently showing.

On the one hand, if AMC stock can survive …read more

This 9% Yield Will Get Cut – and That’s Okay

AllianceBernstein's Variable Distribution

AllianceBernstein (NYSE: AB) is an investment management firm with $643 billion in assets under management. It offers mutual funds, closed-end funds, managed accounts, sell-side research, institutional trading and other services.

Based on the current quarter’s distribution, it yields a robust 9%. But can this respected finance firm maintain its distribution?

The simple answer is “probably not.” But not because it’s experiencing financial difficulty.

AllianceBernstein has a variable distribution policy. The company is set up as a partnership, so it pays a distribution, not a dividend.

As you can see, over the last 10 years, the quarterly distribution has ranged from a low of $0.12 to a high of $0.85.

So investors shouldn’t expect the same payout every quarter. Additionally, the February distribution tends to be the highest of the year, so the one paid in May is likely to be lower.

As a partnership, AllianceBernstein pays out all or nearly all of its profits in distributions.

Normally, when examining a company’s payout ratio, I use cash flow or a version of cash flow specific for the industry to calculate dividend safety.

In AllianceBernstein’s case, I’m using net income because that is the main metric that it reports.

Last year, the company made $242 million, which was less than the $258 million from the prior year. It paid out 91% of its profits in distributions.

This year, net income is expected to rise, which is positive for income investors.

I wouldn’t be surprised to see investors get paid more in the next 12 months than they did in the previous year. Although, with a variable distribution policy, that is hardly a sure thing.

You can almost definitely count on a lower distribution next May than what will be paid next February.

The company appears healthy, and I don’t expect a significant slash to the distribution. But investors should be aware that the quarterly payout is not consistent and will be lower in some quarters and years.

Dividend Safety Rating: D

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

Good investing,

Marc

The post This 9% Yield Will Get Cut – and That’s Okay appeared first on Investment U.

…read more

Where to Invest During the Renewable Energy Transition

Solar Pannels

Today, the world is in the midst of an incredible energy transition. I call it the “Energy Disruption Triangle.”

I’ve been so fascinated by it that I wrote a book by the same name. I saw this coming a decade ago.

This transition is obeying my Three Laws of Technology.

The first is “Technology marches on.” No matter what is happening around us – recessions, depressions or even pandemics – technological change is inevitable and continues to happen.

My second law is “When it comes to technology, change happens much faster than anyone expects it will.” Just look how fast smartphones went from an idea to indispensable and a part of our everyday life.

The third law is perhaps the most telling: “New technology is almost always disruptive and transformative.” For example, the automobile changed America and the world.

The renewable energy transition, like most other transitions, is disruptive.

Dirty, polluting coal plants are closing left and right. They are being replaced by zero-pollution alternatives.

The Gods Are Smiling on Solar, Wind and Storage

Continual improvements in technology have led to modern solar panels with 22% efficiencies. And in another decade, panel efficiencies will likely increase by 50% or more.

This means we will get more power out of fewer panels.

For example, we have two 10-kilowatt (kW) solar arrays at our farm in Pennsylvania.

The one we installed eight years ago consists of 48 panels. Each is 17.5% efficient.

Our second 10-kW array was installed two months ago and consists of just 28 panels, but each is 22.5% efficient.

Our new array cost about 30% less than our old one. Technology marches on – higher efficiency, less material and lower cost.

Wind farms are increasingly moving 20 miles or more offshore. There, they are growing in size and power output.

Today’s wind generators are larger in size, are more efficient and can produce far more power than those developed just five years ago. The General Electric (NYSE: GE) Haliade-X is more than 850 feet tall.

Its fiberglass blades are more than 300 feet long, and the turbine can generate 12 megawatts (MW) of power. That’s enough to light up 16,000 homes.

Siemens‘ (OTC: SIEGY) new turbine, the SG 14-222 DD, is the current top dog in wind turbines. It can generate 14 MW.

Solar and wind have their obvious drawbacks, but energy storage systems fix those problems and more.

Storing energy allows the time-shifting of power from off-peak periods to peak usage periods. This flattens the overall demand curve, drastically reducing the need for natural gas-fired peaking plants.

Transportation: It’s Electrifying!

The sun is beginning to set on oil and natural gas too. The electrification of the transportation sector is firmly underway.

Electric buses are the only ones you can catch in Shenzhen, China. The city of 12.5 million replaced all 16,359 of its diesel buses with electric ones.

China itself has 385,000 electric buses. That’s 99% of the world’s electric bus fleet – bigger than the …read more

Stock Market Definition for New Investors

A stock market definition to live by

Are you looking for a stock market definition before you begin investing? If so, you have come to the right place. The stock market presents a variety of opportunities to build passive income. However, more than half of all Americans don’t invest in stocks at all.

According to a 2019 survey by GOBankingRates, 55% of Americans have decided against investing in the stock market. There are a number of reasons why this is happening. And, having a basic understanding of the stock market could go a long way in helping turn those numbers around.

In-Depth Stock Market Definition

The thought of investing in stocks is obviously scary for a lot of people. The data and survey results tell the story. But, it doesn’t have to be this way. It’s important to understand the market at-large and the benefits of compound interest.

So, what is the most complete stock market definition? The stock market is a collection of exchanges and markets throughout the world where shares of publicly-traded companies are actively bought, sold and issued.

It’s a place where individuals and institutional investors buy and sell shares in a public locale. However, the majority of stock trading now takes place electronically through online brokerages and marketplaces.

In general, the terms stock market and stock exchange are used interchangeably. And the leading exchanges in the United States include the New York Stock Exchange (NYSE), the Nasdaq and the Chicago Board Options Exchange (CBOE).

A company can go public through an initial public offering (IPO). Learn more about this process through our IPO guide. This step-by-step guid will enhance your stock market definition and ease your mind as a new investor.

What Are Stocks?

Stocks, also known as shares, represent ownership equity. Moreover, shareholders usually have voting rights within the company and a residual claim on corporate earnings through capital gains and dividends.

By buying stock, you now own a piece of the company and have a proportionate claim on its assets and earnings. The company’s assets include everything it owns. Its earnings are the amount of profits it generates each year.

Your percentage of ownership will depend on the amount of shares you buy in comparison to the company’s total number of outstanding shares. For example, let’s say you own 100,000 shares of a specific company that has ten million outstanding shares. In this case, you would have a 1% ownership in the company.

And you can discuss the stock market definition without including the benefits of compound interest. It’s one of your best friends as an investor. Historically, the market delivers yearly returns between 7% and 10% on average.

The compounding factor is the key to this process. If you build a steady contribution over a longer period of time, you will earn increasingly larger gains.

That may be pleasantly surprising to some, while others have been reaping the benefits for years. Visit our compound interest calculator to learn more. In comparison, a traditional savings account will usually only …read more