Did You Grab This Big Winner?

In today’s tough market finding a big winner isn’t the easiest thing to do.  So when you notice that great stock pick making you big money, it’s time to pay attention.  When you find a winner on your hands you need to look closely at the company, your results, and figure out how to do it again!

 

Today, were going to take a closer look at one of our earlier picks – PRIMEDIA (PRM).

 

Just a few months ago, we wrote up this company as a great stock idea… little did we know just how right we’d be.

 

You see, some really interesting information came to light recently.  The Company agreed to be bought out by a top tier private equity shop.  Just look at what the news did to the stock…

 

 

 

 

 

 

 

Chart courtesy of stockcharts.com

 

The results were stunning.  PRM skyrocketed higher by 62% literally overnight.  Talk about filling your bank account with extra cash!

 

Clearly the deal is a good one for shareholders… PRM stock had been stalling around the $4.25 level.  Something was needed to push it higher.  The announcement of TPG buying the company for $525 million was just what was needed.

 

Congratulations all around!

 

Now, before we get too far ahead of ourselves, let’s take a moment and look at why this investment was so successful.

 

Picking PRIMEDIA wasn’t just dumb luck.

 

We didn’t just throw darts hoping to get a big winner.  Nope, we looked at the company, analyzed the business and the financials, and selected this stock based on strong fundamental analysis.

 

Let’s take a closer look at the key items that caught our eye.

 

First and foremost was the strong business.

 

PRIMEDIA produces free magazines.  These products are targeted at people looking for real estate and housing… specifically apartments.  The company drives revenue by selling advertising.  It’s a genius strategy.

 

This did two things…

 

First, despite the real estate downturn, their product was still in demand.  Not only form users needing a place to live, but from apartment managers needing tenants.  Connecting tenants and landlords is never a bad idea.

 

Second, it allowed the company to move their “Free” distribution model from physical magazines to online content.  The business model is the same, and the delivery is even more efficient.

 

The second key indicator of PRIMEDIA’s strength was their impressive revenue.

 

Despite the economic downturn in the real estate market, many of PRIMEDIA’s customers kept coming back.  They needed to attract top notch renters or buyers, and PRIMEDIA was a strong source of viable leads.  It’s like gold in a depression!

 

Their recurring revenue stream allowed the company to continue operations during the downturn, and come out stronger afterword.

 

It’s not every day you see a small company like PRIMEDIA put up big revenue numbers but that’s exactly what they do.  In addition to strong revenue, the company made a big push to pay down debt… and just a few quarters ago started paying a huge dividend.

 

And that leads us to our third indicator… a juicy dividend.

 

Many analysts will disagree with me on this indicator… but a big dividend is a nice thing to have when investing in any company.  And that’s exactly what we got with PRM.

 

Consider this… dividends provide bigger gains to an investor.  It’s a nice steady stream of income the investor can reinvest any way they see fit.

 

Dividends also provide a big indicator of proof.  It’s proof the business is going well.  Proof that profits are strong.  And proof management is being a strong steward of the business.

 

Look folks, you can’t fake dividends.

 

That’s three big reasons PRIMEDIA was a great company to invest in… and as they say “the proof is in the pudding.”

 

Well, now the proof is in your bank account!

 

Remember, hitting a homerun on one of your investments feels great.  But, remember to take a moment or two and look around.  Study why the trade worked out, and focus on what attracted you to the winning company in the first place.

 

As you’re looking at the next company to invest, you’ll have an even stronger opinion about the stock!

 

Good trading everyone… on to the next company!

 

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This Stock Is Going To The Moon! Grab Your Share Of The Profits Now!

As I’m looking at this chart, all I can think is… “I know what’s happening!”
I found a stock that’s caught the eye of investors. The stock bottomed in July of 2010 and has been shooting for the moon ever since.

This stock is up almost 103% in just 7 months.

Is it too late to get on board?

Not by a long shot. Back in 2007 this stock traded for over $10 a share… If it reached the old highs, it could double in value again! And I think we’ll get back to that level in the next few months.

But that’s not the only reason why I like this company.

The stock I’m going to introduce to you is in an industry poised to rebound…They have a unique business model generating hundreds of millions in revenue… the stock is hugely undervalued… and the stock pays a fat juicy dividend.

Do you really need more of a reason to buy?

I didn’t think so… now without further delay let me introduce my latest hot stock pick.

COMPANY DESCRIPTION
The company I want to introduce to you today is none other than NorthStar Realty Finance Corp (NRF). They trade on the New York Stock Exchange for about $5.18 a share.

The stock has seen a huge run in the last few months… but I’ll get to more on that in a moment. First, I want to tell you more about what this company does.

NorthStar first and foremost is a REIT.

In other words, they are a Real Estate Investment Trust (REIT). That means two things… first, they are focused entirely on the real estate industry. And second, as a REIT they are required by law to pay out a big portion of their profits to investors.

So what do they do?

It’s a bit complicated, but in a nutshell, NorthStar uses their capital… their cash… to buy real estate securities. They leverage up the investment and use cheap money to buy mortgage backed securities, rated notes, mezzanine financing, structured financing, secured financing, and other real estate debt.

These investments throw off nice streams of cash…

Best of all, the cash profits get returned to shareholders – just like you and me!

NORTHSTAR’S BUSINESS
Now, you know NorthStar invests in real estate securities… but that’s not all they do.

NorthStar sets itself apart from the pack by also taking its business a slightly different direction. They offer what they call “Net Lease Properties.”

This is a very unique strategy.

The company partners with a corporate client who needs to operate in a big space.

NorthStar invests in the property and signs a net lease with the tenant. They only do this with big organizations.

It’s a great deal for both parties.

The corporate client gets a great piece of property without having to front all the cash to buy it. NorthStar grabs a nice piece of real estate and now has a solid tenant who signs a long term lease and pays all the bills. The arrangement is designed to throw off a nice stream of profits too!

Now, I know what you’re thinking… real estate!?!

The entire industry has been in the trash lately. The homebuilders are getting crushed.

Home values are down across the board. And the news is filled with horrible stories about rampant foreclosures. The commercial market isn’t any better!

Despite the horrible news, the industry isn’t going away.

Think about it. We’re always going to need a place to live and an office to work in. We’re going to need manufacturing plants, and production facilities… and distribution centers.

The heart of all these locations is real estate… and despite the recent market turmoil, now’s the time to be buying.

You buy when prices are low.

You buy when other investors are afraid.

You buy when nobody else is… and that’s when you grab the really big profits.

And that’s what NorthStar is doing. They’re holding tight to the real estate market.

They’re using this challenging time to buy up good quality securities and properties nobody else wants.

Here’s a perfect example…

Just a few months ago, NorthStar bought $28 million worth of real estate notes for only $2 million. Does that mean they just made $26 million? Of course not… but if these notes return just 20% of their original value, NorthStar (and their shareholders) will be making big money!

Clearly, the financial situation is key – so let’s take a closer look.

NORTHSTAR’S FINANCIALS
Now the third quarter was a bit rough…

Revenue was strong at over $126 million. Most of this was interest income from their portfolio and rent payments. However, the company did post a loss. Net loss to
common stockholders for the third quarter 2010 was $144.1 million. That’s about $1.87 per share.

However, keep in mind, $198 million was due to an unrealized loss on their investments. If you kicked just those losses out of the numbers, the company would have been profitable.

Now, before you start worrying, remember – we’ve just survived one of the most brutal economic recessions of our time. As we see the markets improve, I believe the company will see its portfolio increase in value again… not fall. And that will provide a huge driver to the stock.

Now the valuation on this company is a little ridiculous.

I feel like I’m buying the Tiffany Diamond for $5.18 at a garage sale!

Consider their book value. That’s the value of all the assets after subtracting out all of their debts. The book value is $15.78 per share! Right now you can buy the stock for a 60% discount off of book value… that’s a huge deal.

Another valuation metric I like to look at is Dividend Yield.

As a comparison, the S&P 500 dividend yield sits at around 1.78% right now. So, for every $100 invested, you get back $1.78.

With NRF it’s a little different.

NRF paid out a dividend of $0.10 last quarter (and have for the last 8 quarters). Assuming they continue paying out at that rate… it means the company is sending about $0.40 a year to shareholders.

With a stock price of just $5.18, it works out to a dividend yield of about 7.75%.

In a nutshell, for NRF to reach parity with the S&P 500 on a dividend yield basis, the stock would have to climb by over 440%!

If that’s not a nice return I don’t know what is!

Now, I’m not the only one who likes this company. While doing my research, I came across a document filed with the Securities & Exchange Commission. It’s form SC- 13G/A, filed by none other than the investment company BlackRock.

In case you didn’t know, BlackRock is one of the largest investment managers in the world.

They manage more than $3.56 trillion dollars of capital.

Here’s the takeaway… According to these filings from early February, BlackRock owns over 4 million shares of NRF in their various funds. That’s more than 6.35% of the company.

Clearly they see the huge upside potential like I do!

ANALYSIS OF NRF STOCK
The stock is volatile and tends to bounce around a lot… but that’s “OK.” This is one company you want to buy now and hold for a while. Given the improving industry fundamentals, low book value, high dividend yields, and great market position… this stock could be a huge winner for us.

 

 

 

 

Chart courtesy of StockCharts.com

 

 

ACTION TO TAKE
If you like what you’ve read, do your own research… then Buy NRF up to $5.35 a share.

 

Prices as of February 14, 2011
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less. “Buy-up-to” means don’t pay more than this price for the stock. If you can get it cheaper, then great! “Hold” means hold if you own it, but don’t buy it if you don’t. “Sell” means sell. Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.

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Will This Stock Leapfrog The Others?

This week we’re bringing you a brand new On The Radar Report. As you know we seek to profile some of the most exciting and explosive stock investments around… and this company has HUGE potential.

We think you should take a closer look at:

LeapFrog Enterprises (NYSE: LF)

QUICK FACTS
Ticker:                                        LF
Industry:                                    Toys & Games
Recent Price:                           $4.44
Market Cap:                              $288 million
Average Volume:                     142,864
Dividend Yield:                         N/A
Website:                                    www.leapfrog.com

 

COMPANY DESCRIPTION

LeapFrog (LF) specializes in educational toys for young children, ages 6+ months to nine years old. They combine cutting edge technology with a proprietary curriculum developed to create entertaining and educational toys. The company’s toys are sold in 44 countries. Better yet, the company has been able to place LeapFrog toys in over 100,000 U.S. classrooms.

Most products are sold through national retailers and specialty stores. By getting products into the hands of children at an early age, they ensure that the next generation of learning toys are added to the collection. It creates a recurring stream of revenue for the company.

Products include everything from one of the most technologically advanced teddy bears to interactive books and even child style laptops.

 

FINANCIALS

LeapFrog’s financials are finally starting to “LEAP” ahead!

While toy sales suffered during the economic downturn, the company was able to adjust expenses accordingly. Their first quarter sales speak volumes. Sales for the quarter were an astounding $40 million… not bad considering we are still exiting a recession.

Remarkably, the company reported gross margins of 29.6%

While LeapFrog did post a loss, management believes they will still be able to reach their net income per share targets of $0.15 to $0.20 for the year. The company is still well capitalized with about $77.5 million cash on hand.

 

RECENT EVENTS

LeapFrog caught the eye of Barron’s who recently recommended 10 debt free stocks with strong profits in 2010… of course LF was one of the 10.

Earlier in the year the company released a new “app” for the iPad, iPod, and iPhone. The “Scout’s ABC Garden” helps teach letters and letter sounds to young kids.

 

MANAGEMENT TEAM

The current management team consists of:
William B Chiasson – CEO
Mark A Etnyre – CFO
Michael J Dodd – President and COO
Michael Y Chai – Executive Vice President

 

STOCK ANALYSIS

LF’s stock is rallying above the 50-day moving average and nearing the 200-day. We’re seeing a positive technical indicator with the 50-day moving average heading slightly higher and the stock trading well above those levels.

 

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Thinking of Investing in Real Estate Stocks? What To Look For…

The First Thing I look For…

Have you ever struggled to put together a toy or game for a kid?  I had the pleasure of recently assembling a trampoline for a 6 year old.  And this young lady couldn’t wait to get to her new toy!

Of course, assembling a 10 foot trampoline isn’t such an easy task.

You know the rule of assembling things… read the instructions all the way through before starting anything.  The assembly should go smoothly.  Of course, when it came to the trampoline I simply glanced at the instructions then started screwing parts together.

We were 70% finished before our problem came to light…

The netting wasn’t aligned properly with the frame.  If I’d have paid closer attention to the directions I would have noticed the importance of aligning everything.  The simple act of looking at the instructions first would have saved me an hour of disassembling… and then reassembling the great new toy.

It’s a horrible lesson to learn.  And if you ever find yourself assembling a trampoline for an anxious 6 year old, read the directions front to back.  The extra 10 minutes will save you hours of tedious work.

So what’s my story have to do with investing?

The first thing you should do when assembling a new toy is read the instructions.  The same rule applies to investing.

There’s one thing I always look at well before starting any analysis or research.  It may seem funny to point to one significant data point… but I’ve learned this lesson the hard way too.

What’s the one thing to look at before analyzing financials, reading about management, studying the industry, or researching valuations?

I look at this one thing before I look at the value of the stock, or how it’s trading in the markets.

The first thing I always check for is simply – REVENUE!

It sounds simple I know, but it’s not.

Why such a focus on revenue?

This one number – revenue – will tell you a lot of information about a company.  The first thing to notice is if the company has any revenue at all.  Often management is so focused on the future… new products… recent joint venture deals… and all the hype of running a public company they forget the number one goal is to sell something.

If a company has no revenue it means they have no customers… and more importantly, they have yet to prove they can sell anything.

Now I know in certain situations some companies won’t have revenue… for example a drug development company or a business focused on commodities exploration.  In that case, you know right off the bat these businesses are high risk… and what will drive their business isn’t operational excellence, but outside influences.

Here’s the deal.

If you want to take a risk, go ahead.  But understand what you’re getting into.  A new biotech company might have the cure for cancer… but it will take years of testing and study to get through FDA trials.

As a result, the company stock price won’t move higher on news from the business.  Instead, short term news and events will impact the stock price. Signing up a big drug development partner, or seeing the drug pass form one phase of testing to another will often lift the price of a drug company.

So will the CEO speaking at an important industry conference.

News of mergers and acquisitions in the industry could also drive the stock price higher.

Believe it or not, if you find a small biotech company without any revenue, a big driver of their stock price could be a competitor’s product getting FDA approval.  Many investors assume if one drug is approved, other similar drugs will also get approval.

You see how this simple indicator… revenue… changes how you should look at a company!

So what about companies showing revenue?

This presents an opportunity to look for good and bad influences on a company… before investing.

Let me give you an example…

Back to the drug industry.  We all have friends and family who take medication regularly.  Some use it to reduce the risk of a heart attack… others lower their cholesterol levels… still others take drugs for calming mood swings, or eliminating stomach problems.

These are often lifetime issues that just don’t go away.

The drugs don’t cure the disease… they make the symptoms manageable.  As a result, week after week, month after month, year after year, the users of these drugs fill and refill their prescriptions.  It’s known simply as recurring revenue!

And recurring revenue is a very good thing.

You’ll see this in a number of industries.  Just think about all the recurring bills you pay… your cell phone bill, the electric utility, the magazine subscription, even the cable bill arrives every month and you pay like clockwork.

Nobody has to sell you anything.  Nobody forces or cajoles you into paying with a credit card or writing a check.  We often pay these bills without even thinking about it… and that’s the best kind of revenue there is!

Recurring revenue is often a very good sign for a business… and also a good sign of just how happy customers are.

Now, I don’t have much more room, but there are a few other things you want to look at when examining a company’s revenue.

I always like to focus on sources…

For example, does the company get 40% of its revenue from one customer?  Read the 10-K they file with the SEC.  Every company has to list their top customers… and how much they buy.

If a company has a big percentage of sales from one customer it’s a red flag.  It’s worth taking a little extra time to find out why… and what the company is doing to find more customers.

The other thing I like to focus on is Growth Rate.

Is the company growing revenue, or is it stagnant?  Or worse… is revenue falling?  This is a big factor not to be overlooked.  Did they raise prices?  Did they introduce a new product?  Or did a competitor steal market share from them?

There are a lot of other things to focus on when it comes to revenue, and I’ve just touched on a few key issues today

What you really need to keep in mind is simple… look closely at revenue first.  If that looks strong, then spend some more time on your research and analysis.  If the revenues look weak, take a pass… there’ll always be another company vying for your attention and investment dollars.

 

 

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