Posted by Martin July 06, 2016
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TRADING RULES – RULE #2 – Trade often

Trade often means that you are trading as often as possible. You want to be soaked into the market and feel its pulse. You want to be always focused.

But how do you do that to trade often and not to break the rule #1 “Stay small?

This can be a tricky part. First you use the rule #1 to determine what you can afford to trade without over trading or opening too large positions. For example, according to the rule #1 you can risk (or commit) a certain cash amount in your account (maybe representing 20% of all your available cash).

Then, when you choose a few stocks you want to trade options against and find out that you can trade for example total of 20 contracts per each selected stock and you plan on trading options against 3 stocks.

Instead of opening one trade of 20 options contracts, you split the number and open one week (or day, or month) one trade with 3 contracts, next week another trade with 3 contracts, next week another trade with 3 contracts, and so on. And you do it again and again as long as you decide to choose a different stock or add more contracts or run out of money.

Wait, did I just say “run out of money”?

Well, yes, sometimes you may experience a situation that your position gets in the money, you will have to roll, and such rolling trade would continue blocking your money so you won’t be able to open a new trade. You ran out of money.

And then you repeat this process like a Merry-go-round. When the old contracts expire or get closed (bought back) you commit that cash in the next trade. And you rotate the trades forever.

Do not compound your trades. Maybe you want to stay at the same level for the entire year although in November you will be able to trade 30 contracts in lieu of 20 as of January, for example.

Why? Why do you want to keep the exact amount of contracts for the entire year or longer (the period depends on you)?

It is psychological. As your account continues growing it may be very tempting to start compounding your trades by adding new contracts because now you can afford it. It will be very easy to over trade and ruin your confidence. One unfortunate blow and you would ruin months of hard work. With the original size of the contracts, the pain will not be as big and you still would survive.


 · Why do you want to trade often?


It’s like practicing trading. You want to be exposed all the time (or as much as possible as I understand that if you trade a small account it will be difficult to be exposed all the time).

It is like if you tell me, a lazy, couch potato person, to go out and run 5 mile marathon. I would die after 100 yards of a heart attack. Before I would be able to run 5 mile run I would have to practice. I would have to run a few yards every day, do it regularly, and slowly increasing the load and run more and more. But you also do not increase the load on a daily basis. First few months you run 50 yards, then after 6 months you start running 100 yards, then 500 yards and so on until you get to 1760 yards (1 mile).
Same goes with trading. If you want to be a successful trader and have consistent winning results, you have to be like me the practicing runner or you can die of a heart attack.
Start small, small trades, even one contract per trade, but trade as often as possible. Increase the load (number of contracts) only after you master the smaller trades and have enough cushion in your account to do that.


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Posted by Martin July 04, 2016
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TRADING RULES – RULE #1 – Stay small

It is easy said than done. What is it “stay small”?

Stay small refers to opening only as many trades and as big so you stay comfortable with it even when the trade turns against you.

You may say that it is obvious but it can be very tempting to break this rule. Let’s say you open a trade which is withing this rule and everything goes great, the market goes up, your trade performs well and you are in euphoria. So you open another trade. What can go wrong here. You will be out of both trades in a no time for a big win.

But the very next day the market crashes and both trades go against you. Your buying power shrinks by 70% and your net-liq by 50% in a day!

How would you feel? Terrible, mad, angry, frustrated, scared? You will feel pain and fear because you know that at some point if the market doesn’t reverse, you will be forced to close your losing positions upon a margin call and you will be helpless. That’s how losses come.

Believe me, I have my own experience and I still fight with my own temptations breaking this rule and then being mad at myself. Don’t repeat my mistakes!

To avoid pain, open only one contract, if you have to, to stay in your comfort zone and wait until its end before you open a new one. That’s the rule #1.


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NASCAR Track Owner Earnings On Tap; Declining Attendance Remains a Headwind

NASCAR Track Owner Earnings On Tap; Declining Attendance Remains a Headwind

The world got the chance to see NASCAR’s Sprint Cup drivers race at Daytona this July 4th weekend. On tomorrow, investors get to see how well the company that operates the renowned Daytona track performed financially over the last quarter.

The Daytona track is owned by International Speedway Corp. (NASDAQ: ISCA). It reports its second quarter earnings for 2016 on Tuesday before the opening bell.

While investing in a race track may seem odd to some, track operators like International Speedway benefit from a wide array of revenue growth opportunities that contribute to their top and bottom lines. Furthermore, they pay dividends, which can be attractive in low yield environments like we are currently in.

 · What makes International Speedway attractive

Like all tracks, International Speedway’s tracks benefit from many revenue growth opportunities. Attendance at the NASCAR races may be the crown jewel, but the tracks’ revenues benefit from many other opportunities as well.

With a market cap of roughly $1.6 billion, International Speedway is the largest among its peers, which include Dover Motor Sports (NYSE: DVD) and Speedway Motorsports (NYSE: TRK). Their market caps are $79 million and $737 million, respectively.

Dover Motor Sports and Speedway Motorsports report Q2 2016 earnings by Aug. 1.
International Speedway boasts being the owner and operator of some of the most popular tracks in the NASCAR circuit, including the flagship Sprint Cup series. The tracks include Daytona International Speedway, Talladega Superspeedway, Darlington Raceway in South Carolina, and Watkins Glen International in New York. Also, it promotes more than 100 racing events a year.

Owning and operating these popular tracks contributes to International Speedway’s strong financials. For example, in addition to the revenue generated through admission sales, track owners and operators like International Speedway also derive revenue from hospitality rentals, souvenir and food concession services, royalties from trademark licensing, and sponsorship fees.

International Speedway also reaps the financial benefits of owning and operating 13 motorsports entertainment facilities, International Speedway also owns and operates Motor Racing Network, which it notes as being the nation’s largest independent sports radio network. It also owns Americrown Service Corporation, a subsidiary that provides catering services, and food and beverage concessions.

 · Financial performance

Analyst estimates show International Speedway’s reporting earnings per share of $.37 on $163 million of revenue for Q2 2016 on tomorrow. The reported EPS for the same quarter last year was $0.35.

The company has seen its revenues grow quarterly and annually over the last several years. Total revenues for Q1 2016 were roughly $143 million compared to revenues of about $137 million in Q1 2015.

Operating income was approximately $31 million during that period compared to approximately $22 million in Q1 2015.

During the first quarter of the year, International Speedway boosted its dividend. It pays $.41 a share, yielding 1.2%. For fiscal 2016, it plans to buy back $50 million of shares.

International Speedway is maintaining its market share. According to Capital Cube, the company’s revenue change during Q1 2016 is in line with the earnings reported for Q1 2015. Also, it is about average among its peer group.

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 38.96% to 40.93% as well as better cost controls, notes Capital Cube. This resulted in an increase in its operating margins, which rose to just over 40% from 35% compared toQ1 2015 the same period last year. Gross margins increased to 39.59% from 36%.

 · Sponsorships

Crucial to the operators of these race tracks are their marketing partnerships, or event entitlement platforms. Examples include Coca Cola, which was the sponsor of the Daytona 400 over the weekend.

Race track operators tout these platforms as delivering solid returns on investments for the event partners by allowing them to extend their brands.

For fiscal 2016, International Speedway has agreements in place for approximately 92% of its gross marketing partnership revenue target, which is projected to increase approximately 11% compared to 2015.

 · Trickle down effects from NASCAR

After this 2016 season ends in December, Sprint will no longer be NASCAR’s flagship title sponsor. About eight to 10 companies are reportedly being considered. An announcement is expected in the fall.

For its secondary series, NASCAR signed on Comcast Xfinity to replace Nationwide. It signed a 10-year contract with the high-speed Internet provider in 2014.

According to Sports Business Journal, NASCAR is seeking a sponsor for its top-tier series for as much as $1 billion. That would cover 10 years, in which the sponsor would pay $45 million to $50 million annually in rights fees. That would be 33% more than the deal inked with Sprint (formerly Nationwide).

 · Elephant in the room

Trip Wheeler, president of Speedway Benefits, acknowledged the “elephant in the room” for NASCAR. He told Sports Business Journal that NASCAR needs to take a long-term view when weighing money versus what would be the right fit. He noted the conglomerate should worry more about getting ratings up and should even consider many of the changes it has made that has limited fan attendance growth.

This will indeed be key considering sponsorships have declined over the years. Not only has attendance at races been in decline, but so have television ratings as fans are tuning out. NASCAR has several initiatives under way to curb this trend, including those aimed at diversity to widen the fan base.

Companies are naturally unwilling to part with millions of dollars for sponsorships in the face of declining audiences.

 · Moving forward

As NASCAR works through these issues, tracks like International Speedway must be diligent in making sure there tracks remain profitable from other revenue sources.

I have little reason to think that the company’s momentum slowed over the last quarter. However, NASCAR’s attendance challenges are headwinds that cannot be ignored.


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Lawsuit Over MasterCard, Visa Fee Settlement Creates Uncertainty

What was thought to be a win for MasterCard (NYSE: MA) and Visa (NYSE: V) over the fees they charge merchants who accept debit and credit cards, is backfiring. An appeals court last week found fault in an antitrust class action settlement reached by the credit card networks, which upends the agreement that had pretty much let the credit card networks off of the hook easily.

When investors got wind of the court’s finding, the share prices of these credit card networks fell. Investors were naturally concerned that the nearly decade long effort that led to the settlement to appease merchants, and keep that revenue source flowing, could lead to the fees charged being up in the air again.

 · Interchange fees

Credit card networks typically charge what are called interchange fees to handle plastic transactions, which are those from credit cards and debit cards. The problem stemmed from them charging considerably more to merchants to process credit card transactions than they did for debit card transactions. This practice led merchants to cry foul, ranting that the networks were the benefactors of the higher fees for the credit card transactions, while they were the losers.

Eventually, the federal government got involved, and capped the fees back in 2011.
In 2013, MasterCard and Visa went a step further, and reached a $7.25 billion settlement agreement with thousands of merchants over the fee amounts they had previously charged them.

However, the problem with the settlement, according to the 2nd U.S. Circuit Court of Appeals in Manhattan, was that the merchants covered in the lawsuit had inadequate attorney representation. The law firms involved were accused by the appeals court of not allowing some merchants to opt out of the settlement agreement when the odds of them benefiting from it were minimal.

 · Impact on Visa and MasterCard

These credit card networks had already been complaining about the caps that were put in place on the amount of the fees they assessed. These caps were the result of the Durbin Amendment, which took effect in 2011. It gave some relief to merchants by allowing them to set minimum purchase amounts for credit cards.

Consumers who became accustomed to using their credit cards for small purchases, such as for a $4 cup of coffee, were barred from doing so at some merchants.

However, if they used their debit cards, which cost less for the merchant to process, there was no minimum purchase amount.

Feeling the sting of this, the credit card networks have been vocal. For example, when MasterCard and Visa released its first quarter earnings report for 2016 in April, they noted that whether or not it will be able to achieve its financial objectives is being affected by the legal and regulatory challenges associated with interchange fees.

 · What’s next?

Some observers see MasterCard and Visa appealing the 2nd circuit court’s decision.

I don’t. In fact, I would be surprised if MasterCard and Visa decided to take the battle over the settlement back to court because the odds of them being successful seem to not be in their favor. I see them renegotiating the settlement, and taking into account the concerns that the lawyers made out better than the merchants.

When solely based on this ruling against the settlement, I see no reason to change long positions in MasterCard or Visa.


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June 2016 trading, investing, and dividends results

June trading exceeded my expectations in generating income. It didn’t seem like I would make as much money as I did. Also Brexit shook with my account in a scary way, but it remained just that – a scary hysteria. The markets recovered all losses in two days.

I learned a good lesson though. In the past I tried to predict and analyze the movement of the market as well as stocks I am about to be trading. It showed to be a useless effort. Every trade, every day is unique and every outcome will be different. No one knows future and no one can predict it. Even if all patterns known to the entire world point to a certain outcome, it doesn’t guarantee that the trade will do exactly what the pattern says it should do.

Predicting future in trading is basically setting you up for a big disappointment.

That’s why I am learning not to predict anything but rather be prepared for everything. If I am ready for any outcome and any outcome makes me happy, then I am able to trade without fear and carelessly (not recklessly). If a stock goes against my trade, I am perfectly OK with that because that presents a new possibility for a profit.

In May 2016 I made $1,262.00 in collected option premiums which was a great result exceeding my monthly goal making $1,000 per month. This month I made even more and finished with $2,331.00 in options premiums!

Hopefully, I will be able to repeat this success next month too!

June dividend income was higher than in May, but still lower than all higher months. The dividend income was $81.68 vs. $57.75 last month.

Options Income = $2,331.00 (account value = $5,589.18 +120.07%)
Dividend Income = $81.68 (account value = $20,143.39 +33.05%)

If you wish to see details about each account, continue reading below.


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Less to Stress About Over Big Banks’ Financials

Bank stress tests for 2016 have been completed, with the Federal Reserve Board finding that the nation’s largest banks have capital planning processes and adequate capital in place to survive a financial crisis like that of 2008 that caused the Great Recession.

The approvals opened the door for those that passed to be able to raise their dividends and increase the size of their share buyback programs. They didn’t waste any time announcing these plans either, as many of them announced their plan increases within hours of learning of their approvals, and they stated their increases would take effect beginning today.

For investors, this is naturally good news, especially those looking for higher dividends. These investors should be aware of the passing banks’ plans to increase their dividends. If that amount is suitable, investors should take note of the ex-dividend dates, which will alert them to the earliest and latest dates they can buy shares and take advantage of the dividend payout.

 · Second leg

The results of the Comprehensive Capital Analysis and Review (CCAR), which is considered the second leg of the so -called stress tests, were released Wednesday. Of the capital plans of the 33 banks reviewed by the Federal Reserve, only two banks have been sent back to the drawing board because the Federal Reserve rejected their plans. One other firm’s plan was not objected to, but the firm is being required to address certain weaknesses and resubmit its plan by the end of 2016.

The largest banks receiving approval were Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM), Wells Fargo (NYSE WFC), Bank of New York Mellon Corporation (NYSE: BK) and Citigroup (NYSE: C). The plans of Morgan Stanley (NYSE: MS) weren’t rejected, but it must submit a new capital plan by the end of the fourth quarter of 2016 to address certain weaknesses in its capital planning processes.

The Federal Reserve objected to the capital plans of Deutsche Bank Trust Corporation and Santander Holdings USA, Inc. based on qualitative concerns. The Federal Reserve did not object to any capital plans based on quantitative grounds.

 · Quantitative versus qualitative assessment

Last week, these banks learned their fates from the first leg of the stress tests. Considered to be the quantitative part of the process, the banks were found to be capitalized enough to make it through another financial crisis of the same, if not worst, magnitude from that of 2008.

The CCAR is meant to be a qualitative assessment of the feasibility of the banks’ capital plans.
Specifically, according to the Federal Reserve, quantitative factors include a firm’s projected capital ratios under a hypothetical scenario of severe economic and financial market stress.

Qualitative factors include the strength of the firm’s capital planning process, which incorporate the risk management, internal controls, and governance practices that support the process. If the Federal Reserve objects to a capital plan, the affected bank cannot make any capital distribution, such as dividends, unless expressly authorized by the Federal Reserve.

 · Banks taking advantage of passing tests

U.S. firms have substantially increased their capital since the first round of stress tests in 2009. The common equity capital ratio–which compares high-quality capital to risk-weighted assets – of the 33 bank holding companies in the 2016 CCAR has more than doubled from 5.5% in the first quarter of 2009 to 12.2% in the first quarter of 2016. This reflects an increase of more than $700 billion in common equity capital to a total of $1.2 trillion during the same period.

JP Morgan’s capital plan includes repurchasing up to $10.6 billion between July 1, 2016 and June 30, 2017. It will continue its dividend of $.48 per share for the third quarter of 2016.

Citigroup plans to increase its quarterly dividend to $.16 per share. It will increase its stock repurchase program to up to $8.6 billion during the four quarters starting in the third quarter of 2016.

Wells Fargo did not change its capital plans, but it will continue to pay its $.38 dividend.

Bank of America increased its dividend by 50%, to $.075 per share. It also authorized a $5 billion share buyback.

The Bank of New York Mellon will repurchase up to $2.14 billion of its common stock. It will increase its dividend by 12% $0.19 per share.

 · Watch for the ex-dividend date

If you want to take advantage of these banks’ capital plans to raise their dividends, you should be aware of their ex-dividend dates and record dates.

According to the U.S. Securities and Exchange Commission, when companies declare a dividend, they set a record date when investors must be on the company’s books as shareholders in order to receive the dividend.

Once the company sets the record date, the ex-dividend date is set based on stock exchange rules. The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.

 · More improvements still needed?

I wonder when, and if ever, the banks will have enough capital on hand to satisfy the Federal Reserve. The board has noted that, despite general progress, banks still need to improve internal controls around various elements of capital planning.


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Darden’s Earnings Momentum Slows for First Time in Two Years

Darden Restaurants (NYSE: DRI) reported its fiscal year 2016 and fourth quarter earnings today, and while revenues were up for its flagship brand, Olive Garden, they were up even more at some of its other brands, like Seasons 52 and Bahama Breeze.

This is interesting considering that Darden’s quarterly estimates had been up for the past six quarters. That had been touted as being largely due to the strategies implemented that focused on boosting sales at Olive Garden.


 · Earnings’ results

The fourth quarter of last year included an extra week of operations resulting in a 53-week fiscal 2015. Darden blamed that extra week of operations included in the fourth quarter of fiscal 2015, as the reason its revenue dipped 4.7% to $1.79 billion. If the impact of the extra week were excluded, the company stated that its total sales increased 2.1%.

During Q4 2016, Darden reported diluted net earnings per share of $1.10, which beat analysts’ estimates by $.02. However, the $1.79 billion in revenue it reported for the year missed estimates by $20 million. Noteworthy is its EPS of $1.10 increasing 19.6% in Q4 2016, compared to Q4 2015, when it was $.92.\

All told, Darden’s revenues were down 4.7% for the three months ended May 31, compared to the same period in fiscal 2015. That includes all of its brands.

For the entire fiscal 2016, revenue increased 2.5% to $6.9 billion, from the roughly $6.8 billion reported for fiscal 2015. Darden noted that the results for the three and 12 month periods ending May 31, 2015 include the additional week of operations.

While revenues for the fiscal year were up 1.7% at Olive Garden, they were up 5.4% at Bahama Breeze and 3.7% at Seasons 52. For the quarter, they were up 2.4% at Olive Garden,4.7% at Bahama Breeze, and 5% Seasons 52.

The fact that the brands outside of the flagship Olive Garden are posting increases in their sales should be considered to be good news. All of them are contributing to Darden’s continued revenue growth.

Back in 2014, activist investor Starboard Value raised its stake in Darden and its actions set the company’s stock price on an upward path of growth.

Starboard implemented a series of operational changes, including what I’ve called “breadstick gate.” After kicking out all of Darden’s board members, Starboard set about dallying around with food preparation, including the restaurant brands’ signature breadsticks.

Little did I know that the change, as well as many others, would be just the right recipe to grow Darden’s shareholder value. The company boasts a market cap of $8.2 billion driven by the performance of hundreds of restaurants throughout the world, including Bahama Breeze, LongHorn Steakhouse and Seasons 52.

 · Starboard to the rescue

In mid-July of 2014, prior to Starboard’s changes being fully implemented, Darden’s stock was trading around $44 a share. On Wednesday, it closed at $66 a share. In fact, the company has risen almost 50% since Starboard’s intervention, outpacing the S&P 500’s gains of just 6%.

Investors have cheered small and large steps made by the relatively new Darden, as far as its board members are concerned. For example, pre-Starboard intervention, Olive Garden waiters doled out breadsticks to as many requested by diners. The problem with this was diners didn’t eat them all, leaving them to grow cold and less appetizing, leading to waste. To stop this, the company leaned hard on restaurants to serve only one breadstick for every person in the party, plus one.

Furthermore, “refills” were only to made on request; no more of just bring them out to diners because the bread basket was empty.

In addition, to addressing that waste, Olive Garden chefs were introduced better recipes to improve the breadsticks.

The breadstick improvements were listed as part of an extensive plan to cut costs and improve sales. Those changes include whetting the alcohol buds of diners by offering customers who must wait for a table a discount on a glass of wine in hopes that they will order more when they are seated. For a reason beyond my understanding, the Italian-themed restaurant had started offering non-Italian meals. Recognizing that was somewhat counterproductive, Starboard got rid of those menu items.

 · What makes Darden attractive

In addition to the latest increase in Darden’s revenue, there are several other factors that make it attractive. Many of them were pointed out over the past few weeks by analysts who upgraded the company.

In maintaining its outperform rating on Darden, Oppenheimer found the company to have limited risk to the companies estimates for fiscal 2017. Also, it was believed that Olive Garden will continue to outperform the industry.

Tigress Financial last week upgraded Darden to buy from neutral. Last month, Piper Jaffray upgraded the company to overweight from neutral. It set a price target of $67 to $78 a share.

Deutsche Bank maintained its “buy” rating and $76 price target on the stock ahead of the results.

 · Attractive dividend

Also attractive for Darden is its dividend. It pays a $2 dividend, with a yield of 2.99%.

Compared to the dividends paid by its competitors, Darden’s is less than stellar. this is despite it having a sizable market cap of $8.2 billion.

For example, DineEquity (NYSE: DNI) pays a $3.68 dividend with a 4.42% yield. Its market cap is $1.5 billion. It owns the International House of Pancakes and Apple’s Neighborhood Grill & Bar.

Another competitor is Brink International (NYSE: EAT), which owns Chili’s Grill & Bar and Maggianos Little Italy. Brink’s market cap is $2.6 billion. Its dividend is $1.28, yielding 2.77%.

 · What’s next for Darden

This was not exactly the quarter that had been anticipated for Darden, especially considering the EPS miss. However, to its credit, I reiterate that investors should take some solace in the restaurant operator’s ability to raise revenue at
its other restaurant brands.

Investors should also take note of the company’s share buyback program. During Q4 2016, repurchased approximately 0.7 million shares of its common stock for a total cost of approximately $45 million. This leaves roughly $315 million remaining under the current $500 million repurchase authorization.


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Zooming in on Cash Flow to Debt Ratios to Determine Company’s Value

Zooming in on Cash Flow to Debt Ratios to Determine Company’s Value

A significant measure of a company’s financial health is reflected in its cash flow to debt ratios, and based on a recent report, investors should pay particular attention to the amount of debt some S&P 500 companies are amassing.

While their cash balances are growing, so too are their debt levels. During the first quarter of this year, debt levels reached highs that had not been seen for at least a decade, according to FactSet, a finance research firm.

Despite this unsavory trend, there are some companies that are managing to keep their debt levels low, making them ideal candidates for those who use cash to debt ratios in determining how to invest. These include a couple of tech giants, which are a part of the information technology sector that has historically had cash balances that grew more than debt levels.

 · Importance of cash to debt ratios

Cash to debt ratios show how much cash a company has to pay off its debt. Investors want to see high ratios, which indicate that the company is well-positioned to pay off its debt. Furthermore, if that company needed to borrow more, the impact would not be as significant as it would be for a company with low ratios.

Many investors place more reliance on price to earnings ratios to measure a company’s financial health. However, some observers think that cash flow ratios are a better measurement of a stock’s value.

The metric can be particularly helpful due to the accounting method a company uses, such as GAAP, to report their earnings. The company may report strong profits, but through the lens of GAAP reporting, that amount could be less. Investors get a truer look at a company’s cash flow by look at their earnings based on GAAP.

Investors can also look learn more about a company’s cash flow-to-debt ratio by reviewing its EBITDA. The method is not considered as liquid as cash from operations, notes Investopedia. It also points out that without further information about the makeup of a company’s assets, it is difficult to determine whether a company is as readily able to cover its debt obligations in this method.

 · Cash versus debt

FactSet found that the growth in aggregate debt has outpaced that of cash among the companies in the S&P 500 index. Specifically, during the first quarter of 2016, debt grew to $4.2 trillion for the index, which was an increase of 9.9% year-over-year. That’s also an uptick of 3.3% from the fourth quarter of 2015.

Furthermore, the S&P 500 cash and short-term investments balance amounted to $1.45 trillion in the first quarter, according to FactSet. That marks a 5.7% increase from the year-ago quarter and a 1% jump from Q4 2015. Also noteworthy is that the balance in Q1 represented the largest cash total in at least 10 years.

Lastly, the cash to debt ratio fell 3.8% to 34.7% in Q1, which marked the lowest ratio since Q2 2009. The 10-year average cash to debt ratio is 36%.

 · Sectors, stocks with low ratios

Now that we’ve gotten all of those numbers out of the way, let’s get to the sectors and stocks that have attractive cash flow to debt ratios.

Six out of the nine sectors of the S&P 500 saw decreases in their ratios compared to the year-ago quarter, according to FactCheck. Those sectors were consumer discretionary, consumer staples, healthcare, information technology, telecom, and utilities.

The information technology sector maintained the largest cash balance, at $603.8 billion by the end of the first quarter. The sector saw its balance grow 20.1% compared to the first quarter of 2015. That was more than any other sector.

Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) topped the list of companies ranked by quarterly cash and short-term investments. At the end of the quarter, Microsoft and Alphabet had cash balances of $106 billion and $75 billion, respective.

If long-term investments are included in the company’s cash total, then Apple and General Electric top the list with balances of $232.9 billion and $129.7 billion, respectively.


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Don’t Turn to Booze During Market Volatility; Invest in Booze Stocks

Don't Turn to Booze During Market Volatility; Invest in Booze Stocks

It’s thought that during turbulent market times like these, investors’ nerves are shot out. To calm themselves, many may increase, or start, their consumption of alcohol. This is why we often see the value of so-called sin stocks such as those from alcohol makers increase.

Considering the volatility in the markets right now, expect to see the stocks of the makers of beer, wine and liquor soar. Since the markets around the world began to tank due to Brexit last week, there are a few sin stocks that have ticked upward. Furthermore, any losses have been minimal. The mere fact that they have been up while most of the Dow has been down, speaks volumes for their resilience.

Here, we’ll discuss three spirits companies that you may consider as valuable investments, instead of seeing them as self-medicating tools.

 · Jack Daniels

First up is Brown-Forman (NYSE: BF-A). Its Jack Daniels family of brands has contributed greatly in helping to grow the company’s market cap to roughly $8.2 billion.

Last week, the company bearishly breached its 50-day moving average. The stock has outperformed over the last year, as well as over the last month, making it a leader among its peers. Those peers include Constellation Brands (NYSE: STZ) and Diageo (NYSE: DEO).

Brown-Forman’s share price performance has been -4.09% over the last 12 months, but that is still above its peer median of -7.12%. The 30-day trend in its share price performance of -1.25% is also above the peer median of -1.92% suggesting that this company is a leading performer relative to its peers, according to Capital Cube.

When the company released its fourth quarter and fiscal year results earlier this month, it reported that its net sales declined 1% to $933 million. Its operating income grew a whopping 212% in the fourth quarter to $726 million. Diluted earnings per share increased 291% to $2.60 compared to the prior-year period.

Its net income for the year grew 56% to roughly $1 billion compared to its growth in 2015.

Earnings per share grew 63% to $5.26 from $3.23. In addition to the extraordinary growth in net income, the company benefits from expanding profit margins, too.

As American whiskey gains more global interest, Brown-Forman has positioned itself to take advantage of that interest by investing capital to expand its capacity. Its strong free cash flow and capital efficiency also position it to deliver top-tier returns for its shareholders.

The company offers a dividend of $1.40, yielding 1.6% per share.

 · Vodka

Diageo, which makes Smirnoff products, was upgraded Tuesday by Societe Generale to hold from sell. It trades at a higher price to book ratio (4.60) than its peer median (3.12), according Capital Cube.

Diageo boasts a market cap of roughly $65 billion. It also pays an impressive dividend of $2.54 per share, with a 2.43% yield.

Other positives for Diageo include a high profit margin, which is about 23.5%. Also, compared to its peers, Diageo’s annual revenues are better than the change in its earnings. Still its revenues have grown more slowly than its peers over the past few years. This is reflected in its high pre-tax margin, notes Capital Cube.

We’ll learn more about Diageo’s performance when it reports its earnings next month.

 · Constellation in the stars

Constellation Brands boasts a market cap of $31 billion.

Its Class A’s current price/book of 4.04, which is about median in its peer group, according to Capital Cube.

Observers have raised concerns that the company could be overinvesting as they see the business having only median returns. Still, it’s relatively high pre-tax margin suggests tight control on its operating costs compared to its peers.

It pays a dividend of $1.60, yielding 1.05%.

Market Realist pointed out that last week that Brown-Forman was trading at a forward price to earnings ratio of 27.6x. So Constellation Brands looks undervalued at its current valuation multiple, especially given the strong sales and earnings expectations compared to those of its peers.

The company reports its first quarter earnings for 2017 on Thursday.

 · In conclusion

Sin stocks don’t only perform well during when there is market turmoil, or when we’re in bear markets. They also benefit from the many celebratory experience people have that entail parties and spirits.

In addition, these companies have consistently paid attractive dividends, as noted about the companies in this piece.

Sin stocks, like all other put upon companies that often draw ire, tend to prosper in times like these. If you have tossed and turned in your sleep and worried endlessly over the past few days over the performance of your investments, consider picking one of these stocks, instead of a drink!


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Fallout from Brexit Highlights Importance of Proposed DOL Fiduciary Rule

Britain’s vote to leave the European Union has caused unprecedented uncertainty and volatility in stock markets around the world. One result is the influx of calls that financial advisors are receiving from panicked investors who are seeing the value of their 401(k)s and other retirement accounts tumble as a result of Brexit.

As they provide assistance, it will be interesting to see how they advise clients as a new law governing them putting their clients’ best interests above their ability to rake in more commissions and fees takes shape. Referred to as the fiduciary rule, it is a proposal from the U.S. Department of Labor that is attended to protect investors from unscrupulous advisors more concerned about commissions than their clients’ financial well-being.

 · Fiduciary rule defined

In 2010, the DOL spelled out in a press release the generalities of the proposed fiduciary rule. In the release, it was explained that the proposed rule was meant to update the definition of “fiduciary” to more broadly define the term as a person who provides investment advice to plans for a fee or other compensation.

The proposed rule defines when a person providing investment advice becomes a fiduciary under the Employee Retirement Income Security Act. The proposed amendment would update that definition to take into account changes in the expectations of plan officials and participants who receive advice, as well as the practices of investment advice providers, according to a release from the DOL.

 · Best interests

The proposed fiduciary rule has caused much angst among financial advisors who say that the DOL is overstepping its bounds in calling for them to abide by specific standards in providing financial advice to clients.

Proponents of the proposed rule believe some advisors push products on clients who may not need them, all because the advisors wanted to collect more in commissions and fees. To stymie this practice, which has been estimated to have cost investors more than $17 billion annually in wasted costs, calls were made for government intervention.

The DOL boasts being mindful of these criticisms and attempting to revamp the rule. The latest version is intended to adequately protect consumers and level the playing field for advisers who do right by their clients.

Furthermore, the DOL says its new proposed rule minimizes compliance burdens. Industry players beg to differ.

As an investor, there are some things that you can do to protect yourself from unscrupulous advisors.

 · Disdain

Many in the financial advisory space have been insulted by proponents of the rule. They have said that it is not a matter of them wishing to make money on the unsophisticated investors by taking advantage of their ignorance of the best financial products for them. Instead, financial advisors have remained steadfast in their support of guidelines to make sure those in their industry put the best interests of clients ahead of their own financial gains. No matter, observers say many financial advisors seem hell bent on throwing as many monkey wrenches as they can in the process of making sure that happens.

 · What should an investor do?

Their homework.
Before you approach a financial advisor about how you should play the market in light of Brexit, take the time to do some research on your own. This is especially the case for investors who work with broker dealers because this group of advisors is thought to have their operations impacted the most by the proposed rule.

We could see mutual fund companies change their product offerings to investments that advisers and broker-dealers will use for retirement accounts such as IRAs.
One example is their possible use of passive investments, which tend to keep investment fees as low as possible.

So, investors should consider mutual funds that are not heavily weighted with sales loads and high fund expenses.

Advisers are reportedly reaching out to clients in the wake of Brexit, according to Investment News. Investors should as ask if their portfolios are globally diversified, which should buffer them against downturns in the markets like this.

Beware of advisers who advise you to trade during these volatile times. Many advisers are telling clients that this volatility is short-term, so don’t have a knee-jerk reaction. This is wise for the long-term investor.

Lastly, take a look at the proposed DOL rule. There you’ll find what proponents are trying to protect you from, which should give you an idea of what you should ask your advisor.


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