Friday, April 29, 2016

Email For More

I have agreed to pause the public publishing of my articles due to compliance.
Too bad, because I was just getting started.

If you'd like to receive some of my future articles, please email your name to

I will also be stopping the model portfolio trading, so here is the final snapshot of the holdings:

Good luck and stay tuned.

Friday, March 11, 2016

Why Bank of America (BAC) is My Favorite Bank Stock

Bank of America (BAC) is my favorite bank stock right now, and its future looks a lot brighter. The share price could double from here.

Bank of America has underperformed for a number of years in an already-shaky banking sector, with added uncertainty regarding interest rates, economic growth, lending, income generation, and regulation. But the worst is now likely behind BofA (BAC), and investors could begin to warm up to and even chase the stock due to very attractive and deeply-discounted valuations, strong cash flows, a growing dividend, increasing earnings, peer outperformance, and an improving overall environment.

After collapsing during the financial crisis of the Great Recession (2007-2009), Bank of America (BAC) has been stagnant during the economic recovery which followed. Though the stock bottomed in early 2009 and again in late 2011, it has done almost nothing for three years since 2013.

Bank of America (BAC) has underperformed the broad Financials sector (XLF).

BAC is significantly lagging Since the 2007 peak:

BAC is significantly lagging since the the beginning of 2010, with a negative return while Financials (XLF) as a whole are up big:

Now is the time to BUY Bank of America (BAC), and here's why:

Bank of America is trading at very attractive valuations, selling at a deep discount likely due to overblown fears. 

The stock is currently trading at a Price-to-Earnings ratio (P/E) of 10 and a forward P/E of 8. Moreover, the P/E ratio has dropped considerably to a low not seen since 2012:

Furthermore, the stock is selling at nearly HALF its Book Value (P/B) and even below its Tangible Book Value (P/TB):

Most Bank stocks have been selling at discounts to Book Value or close because of all of the fear surrounding the sector. But with much of the Financial Crisis and potential hurdles behind us, buying BAC at around half of BV is a steal.

Bank of America is fairly solid financially and in many ways stronger now than it was before the Great Recession. 

BAC's liquidity and ability to withstand a slowdown is visible in its Cash Ratio and Quick Ratio:

BAC's Total Current Assets and Total Assets are bigger than Total Current Liabilities and Total Liabilities, and Total Deposits have been growing:
BAC also has a greater ability to cover its Debts, visible in its much lower Debt-to-Equity (Debt/Equity) and Debt-to-Assets (Debt/Assets) ratios:

Add to that a decreased Beta, which signals a decreased volatility compared with the past 5 years:

Bank of America has improved on both its Earnings and its Margins. 

It has been able to grow its Earnings Per Share (EPS):

Margins (Profit Margin & Operating Margin) are positive and also improving:

Net Income (NI) is positive and has been on the rise:

Net Income (NI) by business segment:


Bank of America's cash flows are pointing to a safer, more liquid, and growing company. Usually considered one of the most important determinants of a financially-strong company (or, in the opposite case, an accounting "red flag"), Cash Flow for BAC is mostly a positive factor. 

Free Cash Flow (FCF) is positive. Though it has been volatile, it still looks good:

BAC's Operating Cash Flow (CFO) is positive. Another major "red flag" in the case of negative CFO, Bank of America still has the "green light" because its CFO is positive.

BAC's Cash Flows from Operations (CFO), Investing (CFI), and Financing (CFF). Financing has turned negative, but overall Cash Flows are acceptable.

Cash Flows are important because they can indicate a company's ability and liquidity to weather a slowdown or cover its debts, as seen in BAC's Cash Flow from Operations (CFO) to Current Liabilities ratio:


Another good reason to own BAC is the Dividend that pays investors an income stream while they wait. Even better, though the current 1.51% Dividend is still low, it has been growing:

Additionally, as Banks continue to strengthen and overcome the strict regulation which has limited their ability to raise dividends, BAC's dividend might approach its historical level of closer to 4 or 5%:


Insiders still own only a tiny piece of BAC stock, but their support has grown, as visible in the growing number of shares owned by insiders:


Bank of America is also attractive when compared to its competitors, not just on an absolute basis.

When compared to companies like Citigroup (C), JP Morgan (JPM), Wells Fargo (WFC), US Bancorp (USB), American Express (AXP) and Goldman Sachs (GS), Bank of America (BAC) has a very attractive P/E Ratio, PEG Ratio, P/S Ratio, and P/B Ratio. In fact, its Price-to-Book (P/B) ratio is the lowest of its major competitors, and far below most of them.

BAC has far more Cash and Short-Term Investments ($167 Billion) than all of its competitors except for JP Morgan:

BAC has strong Revenues and competitive Net Income when compared to the other banks:

BAC has strong liquidity and Free Cash Flow compared to its peers:

BAC has room to grow its Dividend:

Even with the attractive valuations, strong financials, improving business, etc., Bank of America (BAC) has still underperformed most of the Financials Sector over the past two years:

Surprisingly though, since the March 2009 bottom the worst performers have been Goldman Sachs (GS) and Warren Buffett's Berkshire Hathaway (BRK.B):

Bank of America (BAC) is, however, the 4th largest allocation within the Financials ETF (XLF):


Bank of America (BAC) has recently seen a sharp drop from ~$18 to $11, with a break below the critical $15 level. The $15 level dates back to 2013, so rising back above it could be difficult but is necessary for the continuation of the uptrend.

On the positive side, even with the overhead resistance, the Relative Strength Indicator (RSI) is trending up and even hinted at a bottom in February with a "positive divergence" in RSI while the stock price made new lows:

Furthermore, the Weekly chart looks excellent as the 50, 200, and 300-week Moving Averages are aligned properly and shorter-term momentum is leading. This Weekly chart will look even better, way better, if BAC can climb back above the 200-week MA.

Perhaps the rolling 52-Week-Highs and Lows could signal upcoming trend as well:
It is a bit disconcerting that the 52-Week-Low (red line) was violated and is trending down, but if BAC could break back above the $18.48, 52-Week-High (orange line), there is A LOT of upside.


Bank of America is still one of the biggest and most well-known banks, with a great reputation and plenty of awards. There is plenty of room for improvement, but the brand name is a huge plus. 

Nothing is guaranteed, but think about it this way: If there is another banking or financial crisis, which bank is the US Government most likely to save solely due to its name? 

It also helps to have a leading Wealth Management brand name like Merrill Lynch:

Bank of America (BAC) has been overlooked and its stock is set up for major upside.
It is selling at steep discounts; it sports attractive valuations; it has improved its financial strength substantially; it is profitable; it is growing; it has good cash flows; it has growing insider support; it has strong peer comparisons; it pays a dividend; it has a great brand name; and it has plenty of room to exceed expectations.
Bank of America (BAC) may be the best Bank stock to invest in, and it could double, triple, or more over the next years if it can continue to improve.

Includes: BAC, XLF, JPM, C, GS, USB, BRK.B, WFC, AIG

Tuesday, March 8, 2016

Gold: Avoid The Trap

Contrary to what most investors and gold buyers believe, the rally we've seen in Gold (GLD)($GOLD) in 2016 is just a counter-trend rally within a multi-year downtrend. Gold is only a few months removed from 6-year lows, and we haven't even truly seen panic and capitulation normally associated with a long-term bottom. Simply put, gold was due for a "bounce" or a "breather" before it can continue its decline. Don't get too excited!

Gold is in the midst of a major long-term bear market, ultimately headed to what I predicted in 2011: $700/oz.

Everyone has already seen the massive collapse which cut gold prices by nearly half, from the September 2011 high above $1900 to approximately $1050 by December 2015. Yet though gold has been performing very well so far in 2016 (already above $1250), it is inevitably doomed to resume the downtrend. My research strongly points to a further decline, including sharp drops and even price crashes as the "Gold Bubble" unwinds.

Though gold is, in our opinion, on its way to $700, it could not do so all at once. Trends and cycles do not exist in straight lines, and gold (like all other bear or bull markets) moves in fits and starts, switching on and off between sharp declines and counter-trend rallies. What matters most, however, is the long-term trend. And though gold bulls are convinced the worst for gold is now behind us, it is exactly this gold bounce or "false recovery" that tricks them into jumping back in right before the next plunge.

Gold could either reverse back to the downside right now or could continue to recover higher, but why buy gold when the upside is limited? If the bounce continues, gold has major resistance at $1300, $1400, $1550, $1600, and $1800; plus it is very unlikely that gold could even break above $1600 for many years to come.

Even if gold does continue higher, there are much better alternatives. Though many would like Gold to be considered a Currency, it has been trading like a Commodity. If commodities continue to recover from their major bear market, you'd be better off investing in Energy (USO)(UCO)(XLE)(UNG), Industrial Metals (AA)(X)(CLF), Coffee, Sugar, and even Platinum. The stock market doesn't look like a screaming buy, but even a simple Index Fund (SPY) could outperform Gold (GLD) going forward.

If you missed the bounce, move on.
This is not a new bull market, just a trap.
Gold is a lose-lose situation and a broken trend.
Don't double down, don't fall for it again, don't be a sucker.


Sunday, March 6, 2016

Overrated: Conor McGregor, Ronda Rousey, and Holly Holm of the UFC

Nothing lasts forever, especially in the UFC.

It is extremely rare for professional fighters to achieve an undefeated career, and such a thing has actually never been done in the world of Mixed Martial Arts (MMA) within the UFC. Everyone makes mistakes, everyone has a bad day, and everyone loses eventually. Fighters who win face increasingly tougher opponents, higher stakes with much more on the line, and more pressure to succeed and live up to expectations.

As the winning-streaks continue, the probability of continued massive success actually decreases. Not only does the competition improve, but the champion fighters also have to deal with increasing age, declining strength, and overall arrogance which likely factors into their losses.

Yet when it comes to UFC events over the past two years, fans have been completely shocked by the major "upsets" and losses of Ronda Rousey, Conor McGregor, and Holly Holm. The longer the winning streaks, the higher enthusiasm for the fighter. But in reality, these fighters lost exactly at the highest peak of their popularity, and specifically when nearly everyone thought a win was "guaranteed".

Ronda Rousey took the world by storm in 2015, as she carried a 12-0 undefeated professional record into her highly publicized and highly anticipated UFC Championship fight against Holly Holm in UFC 193. There was so much to be excited about: Ronda Rousey was a huge role model for women all over the world, she was undefeated, she had a strong personality, and she was destroying her opponents! Leading up to UFC 193, Rousey finished 11 out of 12 of her opponents within the first round! Even more impressive (and probably a factor in her over-confidence), Rousey won the three fights leading to UFC 193 in 16 seconds, 14 seconds, and 34 seconds.

Conor McGregor also soared in 2015, as the loudmouth, larger-than-life personality was backed by a 15-fight winning-streak dating back to 2011 and the title of "UFC Featherweight Champion". He was a hero not only for Ireland, but for people all over the world. His abilities and trash-talking brought him to the top of the fighting world, but his arrogance would lead to his failure in UFC 196.

To be clear, Rousey and McGregor definitely deserved the credit and excitement. I am not questioning their abilities, I am instead questioning the over-confidence by fans, commentators, and Las Vegas odds-makers that they would keep winning. After such impressive win after win, it's hard to imagine these champions losing; but it is specifically at these times that the biggest upsets materialize time and time again.

Here is how Rousey and McGregor became "Over-Rated":

Both Ronda Rousey and Conor McGregor earned their success, but the world took it too far.

Rousey became overrated when Sports Illustrated declared her "Unbreakable" and when she became the first woman ever on the cover of Men's Fitness magazine. She was definitely a superstar, but every fighter has a weakness or a bad fight; "unbreakable" went a bit too far and was proven wrong about 6 months later. We're not even discussing all of the other magazine covers, movie roles, and promotions Ronda had.

Perhaps the biggest sign of over-confidence in the over-rated Ronda Rousey was the betting odds leading up to her UFC 193 match against Holly Holm.

Most fights pay $150-300 for every $100 bet on the underdog, and pay $100 or so for every $200-300 bet on the favorite. But the Rousey vs. Holm fight had RIDICULOUS odds:

For UFC 193, Rousey was one of the biggest favorites of all-time. To win only $100, you'd have to bet between $700 and $2000 on Rousey (depending on the oddsmaker). If you bet on Holly Holm, you could earn up to $700 for just a $100 bet. The odds were extreme, pointing directly to an extremely over-confident crowd. Holly Holm was also undefeated (9-0) leading up to the fight, why wasn't anyone paying attention?

A similar situation existed for Conor McGregor, though not as extreme as Rousey. A win by McGregor still had extreme odds:

The payout was slightly different depending on where you look, but McGregor was still a huge favorite at either -$380 or -$430.

But it wasn't Conor McGregor's odds of winning that hinted at a loss, as much as it was his over-confidence and arrogance. As the UFC Featherweight Champion, McGregor dominated the 145-pound division. Now, however, he was reaching FAR beyond his domain. Not only were his Vegas odds of winning very high, but he moved up two weight classes to 170 lbs for a fight against one of the best fighters in the UFC, Nate Diaz. Diaz is great on his feet, with excellent boxing abilities, and his black-belt Jiu Jitsu game is arguably #1 in the UFC.


Posted by MMA Fight Night Live 2 on Saturday, March 5, 2016

McGregor should have learned from the failures of BJ Penn. Penn, known as "The Prodigy", was a UFC champion in two weight classes (155 and 170), but his arrogance led him to failure and underperformance. BJ Penn could have probably dominated the 155-pound Lightweight division for years, but instead he attempted to dominate the 170-pound Welterweight division when he simply was undersized against the legendary George St. Pierre (GSP).

When BJ Penn did focus on his real weight class, he dominated.
This is my brother and I with BJ Penn the morning after he demolished Diego Sanchez in UFC 107:

This is what his opponent, Diego Sanchez looked like:

Hopefully McGregor will learn his lesson and stick with his natural weight class, rather than trying to conquer what's beyond his grasp.

Remember, nobody is perfect and anyone can lose, especially when you least expect it.