Monday Mailbag: Consumer Scams, Icahn’s Mistake, OPEC’s Pivot
Even after ample experience with the Investing Daily Mailbag, I can rarely anticipate which topics our admirable readers will tackle next.
One moment, they’re sharing their thoughts about emerging markets, precious metals and municipal bonds. The next, it’s marijuana stocks, President Trump’s fiscal policies and index funds.
Here are the standout letters from this week’s eclectic grab bag of correspondence:
Late-night scam artists…
“You advise us that the first rule of financial management is to pare down debt. I have more debt than I’d like and I see these ads on television in which companies offer to help people get a handle on their debt. Are they reputable?” — Sally R.
Sally, in a word, no. These scams are all the rage on late-night television. The ad usually starts with a montage of average people, tormented by too much debt.
A smiling fellow (often a washed-up former congressman) suddenly appears and promises to slash your debt. All you need to do is call the phone number on your screen and salvation is yours.
Here’s the reality: Debt management companies solely exist to pick your pocket. They charge sky-high fees and they don’t eliminate your debt, they merely repackage and consolidate it. And at the end of the day, you still have the same debt — but now, on top of your debt, you’ve just spent a large fee to a company that merely played paper games with it.
The same applies to companies that promise to help you escape your responsibilities from the IRS. These tax scamsters start coming out of the woodwork about now, during tax season. Slash your overdue taxes by huge percentages, simply by calling that 1-800 number? It can’t be done.
Icahn’s fruitless move on Apple…
“Carl Icahn is no fool, so why did he dump his shares of Apple way back in April? Does he know something we don’t?” — Bill H.
Billionaire Carl Icahn made his reputation as an aggressive, take-no-prisoners corporate raider, but he must feel a tad sheepish these days. The super investor announced on April 28, 2016 that he was dumping all of his Apple (NSDQ: AAPL) shares, out of concerns that sales in China were in a long-term slump. Since then, AAPL shares have jumped about 33%.
Apple continues to thrive in China, proving Icahn and the naysayers wrong. This year, the Cupertino giant shrewdly expanded its cheaper, mid-range line-up of iPhones in China and India, where average incomes are lower.
Apple still is home to scores of innovative engineers and marketers. The company’s pipeline is jammed full of new products awaiting launch, including the iPhone 8.
Apple also is sitting on $246 billion in cash, almost all of it parked overseas to avoid higher tax rates in the United States. Trump’s tax repatriation plan would invigorate Apple like a short of steroids. The verdict: Don’t repeat Icahn’s mistake. Hang onto this growth stock for the long haul.
The generic drug bonanza…
“There’s been a lot of talk from politicians about cracking down on high drug prices. Should I avoid drug stocks?” — Leslie S.
I’ll let Linda McDonough, chief investment strategist of Profit Catalyst Alert, answer that letter:
“Generic drugmakers, whose sole mission is to clone branded drugs, are enjoying a boom thanks to outrage over some obscene price increases for branded drugs and a less bureaucratic Food and Drug Administration, which implies faster approvals of generics. Generics can cut branded drug prices as much as 80%.”
Along those lines, one stock that I like now is Teva Pharmaceuticals (NYSE: TEVA), the world’s largest maker of generic drugs. Teva is a smart pharmaceuticals play with exposure to both generic and branded portfolios.
Temporary political pressures such as President Trump’s “populist” rhetoric about supposedly high drug prices are weighing on the stock. However, as Linda notes, the FDA is almost certain to be more lenient under the deregulation-minded Trump. What’s more, the high cost of drugs will continue fueling demand for generics.
Rising rates: Fear not the taper…
“I’m an income investor nearing retirement and I’m heavily invested in utility stocks. Should I be worried about rising interest rates this year?” — Chris B.
I’ll throw that question to Ari Charney, chief investment strategist of Utility Forecaster. Ari asserts that utility stock investors shouldn’t get too spooked by rising rates:
“There’s still room for hope about the utility sector’s prospects at a fundamental level, even if rising rates weigh on share prices. After all, stronger economic growth will drive stronger electricity sales.
Beyond that, a rising-rate environment shouldn’t automatically cause alarm for dividend investors. First, it’s important to remember that fixed-income securities don’t offer the dividend growth and potential for capital appreciation that utility stocks do.
And while the utilities sector has sold off at the outset of past rate-hiking cycles, it still went on to produce decent returns, especially when including the reinvestment of dividends.”
Water: The ultimate commodity…
“I’ve noticed that some OPEC countries, particularly the Saudis, are trying to diversify their economies and reduce their dependence on oil revenue. Do you see any investment opportunities in this trend?” — Lenny K.
Let’s focus on OPEC-leader Saudi Arabia.
Among the desert kingdom’s attempts to modernize its oil-dependent economy is a huge investment in water purification, production, storage, and distribution.
One of the surest ways to make money in a turbulent world is to invest in unstoppable trends that are transforming societies and economies. When a powerful oil-dependent nation such as Saudi Arabia embraces the water industry, well, it should tell you something. The time to get in on this trend is now, before the rest of the investment herd figures it out.
Driving the need for clean water is the inexorable pace of climate change. Whether you think rising global temperatures are human caused or not makes no difference; the overwhelming scientific consensus is that it’s real and getting worse.
Consider this high-quality, water industry investment: First Trust ISE Water ETF (NYSE: FIW).
First Trust ISE Water tracks the ISE Water Index, a benchmark of companies that generate a major portion of their revenues from the potable and wastewater industries. With holdings of 34 water-themed stocks, FIW now boasts an asset base of $252.88 million. With a reasonable expense ratio of 0.57%, FIW has generated a year-to-date return of 5%.
Got a question or feedback? Send me a letter: firstname.lastname@example.org — John Persinos
Rethink the old rules of investing…
How many times have you heard a financial analyst say: “The best way to make money in the stock market is to buy solid blue chips and hold them forever.”
And yet, in this fast-changing world, the old rules need to be reexamined. Buy-and-hold is all very fine and good, but it’s certainly no way to get rich. There’s a better way.
Jim Pearce, chief investment strategist of Personal Finance and director of portfolio strategy for Investing Daily, asked his team of analysts to put a trading system called Rapid Profits Matrix to the test.
What they found is startling: Rapid Profits Matrix outperformed buy-and-hold up to 4.9 times in direct competition. Shouldn’t you put this trading system to work for you? Learn the details by clicking here.