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| | Monday, November 10, 2008 | Volume 2, Issue #41 | |  Published weekly, the TopStockAnalysts Digest is loaded with stock picks, trading ideas, market commentary, and educational guidance designed to help you become a better investor. To ensure uninterrupted delivery of this newsletter, please follow these simple instructions.
| | | | Today's Top Stock Picks | |  The Tales Get Taller
Guest Editor Peter Schiff discusses why the U.S. dollar may be the biggest victim of our current financial predicament. Read More. . .  A 7.6% Yield in a Recession-Resistant Market Leader
More often than not, you have to choose between a safe business model and a tempting yield. But with Pfizer (PFE), you can have both. Read More. . . | | | . | | Market Update | | Election coverage is finally dying down, and investors have begun settling into the realization that President-elect Obama has a tall order in straightening out a foundering economy.
On Monday, traders were greeted with news that activity in the manufacturing sector contracted far deeper last month than economists were expecting -- with one key gauge sinking to its lowest reading in over a quarter-century. At the same time, the auto industry also suffered through one of its bleakest months in decades, led by a troubling -45% drop in sales at General Motors (NYSE: GM).
In the retail world, October's same-store sales were simply abysmal. Though Wal-Mart (NYSE: WMT) has benefited from an influx of budget-conscious shoppers looking to cut corners and pick up essentials, other leading retailers reported a steep decline of -4.6% -- the worst slump since 1969.
Everyone from mall-based apparel chains to upscale department stores is having trouble attracting customers, even with heavy markdowns and promotions. Barring an unexpected turnaround, we could be headed for a slow kickoff to the pivotal holiday shopping season in a few weeks.
The grim retail data, along with a sharp uptick in unemployment claims, sent the Dow plunging more than 400 points in back-to-back sessions in a massive post-election sell-off. The two-day decline was the worst for the Dow since the crash of October 1987, wiping out a staggering $1.2 trillion in market capitalization.
At any other time, a loss of 930 points in two days would have set off alarm bells, but in this turbulent market it barely seemed out of place. However, it did erase nearly all of last week's powerful 960-point rally.
Fortunately, the week ended on a positive note as bargain hunters stepped in on Friday to pick through the carnage. However, any enthusiasm was tempered by the latest labor market snapshot showing the economy shed another 240,000 jobs last month -- a stark reminder that it could be well into 2009 before we start to see a real recovery.
Believe it or not, the good old U.S. greenback has been one of the world's stronger currencies lately, and investors have been flocking into dollar-denominated debt. But the folks at Euro Pacific Capital explain why it can be dangerous to get lulled into a false sense of security -- as years of spendthrift ways could finally be coming home to roost.
After that, High-Yield Investing editor Carla Pasternak prescribes a few shares of Pfizer (NYSE: PFE, $16.86). This pharmaceutical giant could be the perfect tonic for ailing portfolios in need of some stable income. The company is only paying out a conservative 54% of its earnings, but that still adds up to a healthy yield of nearly 8% for shareholders.
Good Investing! 
-- Nathan Slaughter
Co-Editor
TopStockAnalysts Digest
| | | 3 Stocks That Win With Obama Are you worried what will happen to your portfolio when Obama takes office in January? Find out which stocks you should buy now that Obama has won in The Motley Fool's brand new FREE report.
Inside you'll be handed an investing game plan for profiting under an Obama administration, PLUS 3 stocks that will benefit most from his policies. Click here for instant access to this FREE report | | . | | | | When inexplicable events perplexed our early forbears, village wise men concocted elaborate and colorful explanations to soothe the populace. Earthquakes, hailstorms, and solar eclipses were all ascribed to root causes that made sense to the villagers and increased the esteem of the story tellers. The recent, unexpected surge of the U.S. dollar has led many Wall Street witch doctors to conjure a series of logic-defying tales to give reason to what is surely the random scramble of a confused herd. Wall Street spun similar yarns during the dot.com and real estate bubbles as investors groped for reasons to justify sky high prices.
The recent surge, which has pushed the dollar up more than 30% against some currencies in recent months, is purely a short-term technical phenomenon. The move is caused by global investment deleveraging, in which major financial players are reversing (unwinding) risky trades and piling into what is erroneously perceived as the safest haven they can find. Increasingly, foreign assets, many of which had appreciated more than American assets, have been sold, and the proceeds stashed into U.S. Treasury bonds, which these investors believe to be the Fort Knox of finance. The cascade has caused momentum trades, margin calls, redemptions, and other factors having nothing to do with the underlying fundamentals of the dollar or the U.S. economy. In fact, all that has happened to the U.S. economy, and all that the government has done, and is likely to do, in their misguided attempts to contain the damage, is extremely bearish for the U.S. dollar.
Mesmerized by technical moves and oblivious as always to the fundamentals, the Wall Street brain trust has offered flimsy explanations. One popular rationale is that as bad as things are in the United States, they are even worse every place else. Still another is that since the U.S. was the first country into the crisis that we will be the first nation to come out. Still another is that since our government is acting more boldly than most to tackle the problems, our economy will not suffer as badly as others where governments have been slower to react and more timid in their responses. In addition, many still perceive the United States as the citadel of stability in a world of second-rate economies.
However, if we look beyond these "explanations," the fundamentals loom simple and irrefutable: American borrowers of all stripes cannot afford to repay the trillions of dollars we owe. Over the past decade, the vast majority of lending has come from abroad, and as Americans don't pay, the losses show up on foreign balance sheets. Since we blew most of the money we borrowed on consumption, we simply lack the industrial capacity to repay our debts without resorting to a printing press.
In bankruptcy, both the debtor and creditors are affected. However, while creditors take a financial hit, ramifications for debtors are typically more severe. Creditors are generally better prepared to absorb their losses. However, for bankrupt debtors usually much more substantial changes ensue.
Since America is the world's biggest debtor, with our IOUs broadly held by every creditor nation, the effects of our bankruptcy are being felt worldwide. However, while our creditors are suffering now, their pain will be temporary and relatively mild compared to what awaits Americans.
So while it may appear to some that things are worse abroad, that is only because the full extent of our problems has yet to be reckoned with. The main lesson our creditors will learn from this crisis is not to lend American consumers any more money. Once the lending stops, our "cart before the horse" borrow to spend economy will crumble. While the rest of the world absorbs their losses and moves on, we will be digging our way out of the rubble for years to come.
Earthquakes are caused by the fundamental shifts of tectonic plates beneath the Earth's surface. A similar move is underway in the global economy. Describing either event without a basic understanding of either geology or economics will simply result in a tale being told by an idiot.
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse." You are also invited to read Euro Pacific's free research report, "The Collapsing Dollar: The Powerful Case for Investing in Foreign Equities." | | Generate a 27.1% Yield ... No Matter What Happens on Wall Street
The Dow has just given up five years of gains. How long will it take for stocks to recover in our sick economy? Months ... years ... a decade? You have to ask yourself, are you going to sit on your hands, waiting for stocks to climb back to break even?
Or are you going to put your money in the best investment left standing -- one that pays up to 27.1% right now -- no matter what happens on Wall Street? Go here to learn about this investment now | | . | | | A 7.6% Yield in a Recession-Resistant Market Leader
by Carla Pasternak, Editor -- High-Yield Investing | | | With sales of almost $50 billion, Pfizer (NYSE: PFE, $16.86) is the world's biggest drug maker in the $670 billon global pharmaceutical market.
Because of the recent steep sell-off, the firm's share price has retreated to levels last seen in the late 1990s and brought the stock's yield to a very attractive range.
In recent years, Pfizer has consistently raised its dividend. It paid $0.76 a year in 2005, $0.96 in 2006 and $1.16 in 2007. So far this year, it has paid out $0.32 a quarter and is on track to distribute $1.28 for the full year. At current prices, the company is yielding 7.6% ($1.28/$16.86). That is very attractive for a firm of Pfizer's stature.
The company is perhaps best known for its erectile dysfunction drug Viagra, but it has numerous other blockbusters as well. Celebrex is its well-known treatment for arthritis and Lipitor, the world's best selling drug, lowers cholesterol.
Sutent, a treatment for cancer, and Chantix for stopping smoking are two relatively new pharmaceuticals the company has high hopes for. The cash cow, however, is Lipitor. The drug racked up $12.7 billion in sales in 2007 and accounts for nearly 25% of revenues. However, it loses its patent protection in late 2011.
Sixteen analysts follow the stock. They estimate the company will earn $2.37 per share in 2008, with that figure rising to $2.50 in 2009. If their 2008 estimate is correct, the company's dividend payout ratio is a sustainable 54% ($1.28/$2.37)
Trading at less than seven times projected 2009 earnings, the stock is attractively valued. It is also changing hands at well under two times its book value. As of the most recent quarter, Pfizer had more than $26 billion dollars in cash on its balance sheet, or $3.88 a share, meaning that it will not need to tap the financial markets anytime soon. The company's global reach -- about half its sales come outside of the United States -- is an added advantage that shelters the firm from domestic weakness.
There are potential risks to Pfizer's story. The value of U.S. prescriptions fell by about -2% in the second quarter of 2008. That figure could accelerate in a severe downturn, although health care is an essential service that should remain relatively recession-proof.
Second, when cholesterol fighter Lipitor goes off patent, Pfizer's sales and earnings could fall precipitously. There is no guarantee they can replace 25% of their sales. Still, the firm has approximately 100 drug projects in a fairly advanced state and spends approximately $8 billion each year on research and development. During the third quarter, for example, Lipitor sales were off -13% in the U.S. but sales of Pfizer's new pain killer Lyrica surged +45% from a year ago.
Finally, the drug giant is consistently facing litigation over the side effects of its products. Protracted lawsuits can be both distracting and expensive.
It's encouraging, though, that the company recently settled most of the lawsuits over its two pain relievers, Celebrex and Bextra. The settlement triggered a pretax charge of $894 million to third-quarter earnings, but the company still managed to make $0.34 per share (including extraordinary items), tripling earnings of $0.11 a share from a year ago. Excluding special items, Pfizer earned $0.62 per share, +7% more than the year-earlier period, as the drug maker controlled costs and benefited from the weaker dollar.
The stock is presently attractively valued. It offers moderately conservative investors a rich yield of nearly 8%, which appears safe at least through 2011 when Lipitor goes off patent. | | | . | | Additional Investing Ideas | | | | | . | | Investor Trivia -- Vanishing Discounts | | Everybody loves a good sale. But you have to know what you're looking for and you have to act fast. Sales don't last forever. For example, on October 10, 2008, over 300 closed-end funds were trading at discounts of -30% or greater. But by October 22, 2008, how many were trading at discounts of -30% or more?
A.) 200
B.) 177
C.) 104
D.) 58
E.) 11 (Please click on one the links above. After you make your choice, we'll show you the correct answer on our web site.) | | | . | | Featured Topic -- An Undervalued Market Sporting 17.3% Yields | You think the U.S. stock market is on sale? U.S. stocks are a bargain compared to what you would have paid just a year ago. But valuations of U.S. companies are still two times higher than Taiwanese companies. Not only are Taiwanese stocks a better bargain, but the market in Taiwan doles out more than twice the average yield of the S&P -- and some stocks, like the one we discuss below, have yields as high as 17.3%.
The stock market in Taiwan has fallen -46% over the last year, making it one of the hardest-hit developed markets in the world. Investors are panicking since this nation relies heavily on exports -- a slowing global economy obviously isn't a plus for the country of 23 million strong.
But with a performance like this, you might think this country was about to go bankrupt...
You couldn't be further from the truth.
Taiwan actually grew its economy by +4.3% last quarter, has a per-capita GDP of roughly $30,000, and is known the world over as a major exporter of technology products.
And there are some other details that make this country paradise for value investors and Shangri-La for income seekers right now.
The Most Undervalued Market in the World
We've brought you stories about Taiwan before, but it's hard to imagine a country as attractive to new investment as it is today. Not even one year ago, the country's average P/E ratio soared above 20 -- today it has fallen all the way to 10. Compare that to the United States where stocks still trade around 21 times earnings. See the chart below to get a feeling for just how historic these valuations are.
Important Note: Because this article is fairly extensive, we could not include it in its entirety in today's newsletter. You can find the remainder of this article on our website. Please visit this link to continue reading this article. | | | . | | Free Investing Resources |  | 2008 Emergency Bailout Trade of the Year! Don't miss out on this Emergency Bailout Trade of the year offered to you by our Billionaire Trader. For the first time in the history of his career, it's yours absolutely free. Act now! | |  | Free FX Options Trade Alerts. Get Free Trading ideas based on technical analysis that identifies patterns in the foreign currency market. Subscribers receive timely options trading ideas, complete with in-depth analysis for each trade. Sign up here. |
Good investing in the coming weeks! TopStockAnalysts
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The conservative company that has paid dividends for 68 straight years ...
