Air Canada Should’ve Been Buffett’s #1 Pick – Not America’s “Big 4”

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Last summer on June 28th, I wrote to you and identified Air Canada (ACDVF) as a tremendously undervalued stock.

Since then the rest of the market has caught onto the Air Canada story as the share price has subsequently risen more than 50 percent.

I’m thrilled with how this has played out for us…

But I don’t think that the Air Canada story is done.

This stock is still BY FAR the best value in the airline sector, and today I want to crunch the numbers to show you why.

But first, a quick reminder why we were looking at airlines in the first place.

Warren Buffett is Incredibly Bullish on Airlines

Over the past several years, Warren Buffett has invested billions of dollars into the four main U.S. airline operators.

As of the last regulatory filing, Warren Buffett’s company Berkshire Hathaway owns the following:

  • 65.5 million shares of Delta Airlines (DAL) worth $3.3 billion
  • 54.8 million shares of Southwest Airlines (LUV) worth $2.5 billion
  • 21.9 million shares of United Continental (UAL) worth $1.8 billion
  • 43.7 million shares of American Airlines (AAL) worth $1.4 billion

Combined, that is a $9.0 billion investment which even for Warren Buffett is enough money to show he is extremely bullish on the sector.

The interesting thing about Buffett moving into airlines is that for decades he hated the sector as an investment class with a passion. He once even called the industry a “death trap” for investors.1

So what changed to make Buffett warm up to airlines?

The answer is competition. Or more accurately, the lack of competition.

Buffett started investing in airlines in 2016 after U.S. Airways merged with American Airlines. The consummation of that merger marked the end of a decade-long period of constant airline consolidation which changed the competitive landscape of the industry.

Instead of 20 plus airlines competing relentlessly for passengers, by 2016 the industry had been reduced to mainly the Big 4. Out went an era of discount pricing and relentless competition and in came an era of sensible pricing and widening profit margins.

This industry is now what is called an oligopoly, folks. And while it isn’t great for customers, it is fantastic for airline profits.

Mr. Buffett is Still Missing the Best Airline Bargain

When I wrote last June about airlines, I noted that Buffett should have been looking north of the border at Air Canada if he really wanted to own an airline with some upside.

Since then, I have not been proven wrong with Air Canada’s share price vastly outperforming all of Buffett’s four airline holdings.

Air Canada chart

My opinion is that today it still isn’t too late for Buffett to get invested in Air Canada. The stock still has plenty of room to run.

Buffett has invested in the four major U.S. airlines because the industry is now an oligopoly. In Canada there is even less competition with the market being essentially a duopoly consisting of just Air Canada (55 percent market share) and its main competitor WestJet (37 percent market share).

Further, Air Canada shares are still very inexpensively valued. Today, the major U.S. airlines still trade at twice the valuation that Air Canada trades at relative to EBITDA (earnings before interest, taxes, depreciation and amortization).

That means that relative to the U.S. carriers, Air Canada has both half the competition (only one main competitor) and half the valuation!

When it comes to those two factors, smaller is definitely better.

Additionally, I believe there is a significant catalyst coming that will continue to push Air Canada’s share price higher…

Air Canada’s Cash Flow is About to Soar

With the company now wrapping up a major period of capital investment in new planes, cash outflows are about to decrease significantly which means that the free cash flow the business generates is going to increase.

Capital Allocation Strategy

Source: Air Canada Corporate Presentation

Over the next three years, Air Canada’s management believes that the company will generate $4.0 to $4.5 billion in free cash flow. That is cash flow that is available after paying all of the bills and making all capital expenditures.

If the company were to use all of that free cash flow to repurchase shares, it could retire half of the shares Air Canada has outstanding in just three years.

That’s great news for the share price!

Bottom line: Warren Buffett is bullish on airlines for good reason — the profitability of the industry has seriously improved. However, the best way to play the action is north of the border — where Air Canada operates with less competition, a cheaper valuation, and with a cash flow catalyst just over the horizon.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

1 Buffett Decries Airline Investing Even Though at Worst He Broke Even, Forbes

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URGENT: If You’ve Missed the Rally — Read This

This post URGENT: If You’ve Missed the Rally — Read This appeared first on Daily Reckoning.

There’s nothing more heartbreaking than a missed opportunity.

About five years ago, I had a conversation with Jake, a good friend of mine who was also a hedge fund manager.

Jake was telling me his biggest regret when it came to investing.

“If only I had realized how strong the market was in 2012,” he told me with shame in his eyes. “I missed out on one of the best investment periods in my life! One that would have vaulted my company into the big leagues!”

Today, Jake doesn’t have a fund to manage. All of his investors pulled their money from his fund and he’s left managing just a small amount of capital for himself.

I can’t help wondering what would have happened to his career if he hadn’t spent the majority of 2012 through 2015 with his money on the sidelines.

There are some market opportunities you just can’t afford to miss, which is why I want you to pay special attention to today’s Daily Edge opportunity.

The 2019 Market Move You Don’t Want to Miss

Whenever we see the entire market, or even a group of stocks moving higher, it’s easy to think we’ve missed the boat. Human nature tells us to wait for a pullback, rather than jumping in and buying while prices are pushing higher.

That’s exactly what my friend Jake did when the market started trading higher in 2012.

Jake realized that a shift had taken place. But he decided to wait for a pullback before he put the money in his hedge fund to work. If you’re a student of the markets, you know that the market didn’t really pull back significantly until 2015. And by that time, Jake’s investors had lost patience and pulled their money out.

This is the true definition of being “penny wise and pound foolish.”

By trying to time the market and save a few points getting in at a cheaper price, Jake missed three years’ worth of gains for himself and his investors.

I bring this story up because today’s investors may be feeling similar sentiments about the oil market.

In December, the price for a barrel of oil was in a free-fall, with oil futures hitting a low of $43.40 on Christmas Eve.

Fast forward to this week and oil just pushed over $65 per barrel on news that Trump plans to re-implement sanctions on countries that trade oil with Iran.

In short, oil has rallied more than 50% from the December low. And a number of traders that I’ve heard from are lamenting the fact that they didn’t get in when oil was cheaper, and that they can’t buy now because it’s rallied so much.

These traders are falling into the same trap that my friend Jake did. They’re afraid to put their money to work because they don’t want to look foolish if they buy now when oil prices are higher, only to experience a pullback.

It’s a tough spot to be in. Because the more oil rallies, the more they look foolish for not being in the market and taking advantage of higher oil prices.

Fortunately, you’ve been profiting from this rebound in oil, because we’ve been talking about a lot of great opportunities in the energy sector for the last several months.

You have been profiting haven’t you?

If not, don’t make the mistake of waiting any longer. Because this week could be the start of the next big push for energy investors.

An All-Star Lineup of Energy Earnings Reports

This week — starting tomorrow morning — we’ve got a handful of earnings announcements that will give us a good perspective on where energy stocks are headed this year.

Tomorrow, energy titan Hess Corp. (HES) will release its earnings report before the market opens. The company’s management team will then host a conference call at 10:00 EST where they will be sure to discuss their views on the future price of oil as well as the company’s outlook for profits the rest of this year.

And then on Friday morning, Exxon Mobil (XOM) and Chevron Corp. (CVX) will post their earnings before the market opens. The investor conference call for XOM starts at 9:30 EST and the call for CVX is scheduled for 11:00 EST.

(You can listen to the calls yourself via the “investor” tab on their respective websites.)

These three earnings reports will set the tone for the entire energy complex.

Think about the companies that not only produce oil and natural gas, but also the service companies that supply the drilling rigs, and the pipeline companies that transport oil and gas away from the wells. You’ve also got refiner companies that are currently locking in big profits from selling gasoline and diesel fuel at high prices. And even specialty companies that provide sand and water for the “fracking” process.

There are so many stocks in this industry which have already been trading higher this year. You may have seen these movements and told yourself that you’ll buy the next time these names pull back.

Today, I wanted to tell you about my friend Jake’s experience so you don’t make the same mistake and miss out on this opportunity.

Oil stocks may have already moved higher from the December lows.

But they still have a long way to go.

Keep in mind that oil companies don’t need oil prices to continue to move higher to generate profits. Just keeping oil stable at the current levels will allow big companies like Exxon and Chevron to ramp up production and generate big quarterly profits.

And that means pipeline companies will have to transport more oil from wells to the refiners. The refining companies will have to churn out more gasoline and diesel fuel.

And everyone along the way will see profits continue to climb through the summer.

So if you’re sitting on the sidelines wondering when to get in on this energy market, please don’t wait any longer.

The earnings reports coming up this week could spark a new fire under these stocks and keep the positive trend going. You’ll want to make sure your capital is invested so you can profit from this next move.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
TwitterFacebook ❘ Email

The post URGENT: If You’ve Missed the Rally — Read This appeared first on Daily Reckoning.

The U.S. Oil Story Nobody is Telling

This post The U.S. Oil Story Nobody is Telling appeared first on Daily Reckoning.

Everyone knows that American shale oil production is booming.

The mainstream media has been all over the story.

They should be. After all, what the entrepreneurial U.S. oil and gas industry has done to free oil long-trapped in shale rocks has been incredible.

But…

What not so many people know is that the shale producers are pumping the WRONG KIND of oil. U.S. refineries are desperately short of a different kind of oil than what the shale producers are delivering.

This is the untold story of the oil market — one that we can take advantage of as investors.

U.S. Shale Oil is Light — U.S. Refineries were Built to Process Heavy

Turn the clock back 15 years and you would see that shale oil production was non-existent. At that time (and for decades prior), everyone believed that U.S. oil production was in terminal decline.

We knew that there was lots of oil trapped in shale rocks, but it was uneconomical to produce.

As a result, U.S. Gulf Coast refineries were built to process the only oil that they expected would be available to them — heavy oil imported from Canada, Venezuela and the Middle East.

Heavy oil is a dense type of crude that doesn’t flow easily — picture molasses. Heavy oil also contains impurities like carbon and waxes and therefore is more expensive to refine into finished products.

Because it is more expensive to refine, it is less valuable. Heavy oil usually sells at a significant discount to a light oil blend like West Texas Intermediate (WTI), which is the oil price that is commonly referred to in the financial media.

The shale oil revolution created a surge in production, but more specifically a surge in light oil production.

This is not the type of oil that most of the multi-billion dollar Gulf Coast refineries were built to process.

This lack of light oil refining capacity on the Gulf Coast is why we are seeing American oil exports explode higher. We can’t refine all of the light oil being produced from shale here in America, so we have to send it abroad where there is still refining capacity for it.

Don’t let these exploding oil exports make you think that we have too much oil here in the United States.

In fact, the U.S. is still a big net importer of oil.

We are only exporting light oil specifically because we don’t have enough refining capacity to process this specific type of oil.

We are still importing the heavy oil that much of our refinery complex was built to process. And currently these refineries are having a hard time getting enough of that heavy crude.

Collapsing Venezuelan production, a lack of oil pipelines out of Canada, and production cuts by Saudi Arabia have put a big dent in the supply of heavy oil.

With heavy oil demand from our refineries strong and supplies of heavy oil tight, the usual pricing result has arrived.

Heavy oil prices are exceptionally strong.

How to Play the Heavy Oil Trade: Cash Gushing Canadian Producers

We have been following this heavy oil trade for months here at The Daily Edge. In December we predicted a big rebound for Canadian heavy oil prices. That rebound has transpired.

Last month we noted how Warren Buffett also pounced on the trade.

Now, here we are today and the rest of the market is still very much behind on this opportunity.

Here’s how we continue to stay ahead of the market and exploit this opportunity:

Baytex Energy (BTE) is a dirt cheap Canadian heavy oil producer. When I say dirt cheap I really mean it.

With current oil prices, Baytex is going to generate roughly $300 million of free cash flow in 2019.

When I say free cash flow I’m talking about cash flow in excess of all spending necessary to run the business. Cash that can be used to repay debt, pay dividends, or invest in growth.

At the current share price, the stock market is valuing the entire business as being worth just $1.3 billion. That means that Baytex is currently trading an astounding free cash flow yield of 23%. ($300 million / $1.3 billion)

Realistically, Baytex shares could double from here and still not be considered expensive.

Eventually the market is going to catch on the great pricing Baytex is receiving for its heavy oil and this dirt cheap valuation is going to get corrected.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

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Taking a Trip This Summer? Let Your Hotel Pay For It!

This post Taking a Trip This Summer? Let Your Hotel Pay For It! appeared first on Daily Reckoning.

Here at The Daily Edge, we’re all about finding market plays that can give you an advantage and make you more money.

But it’s not just about the cash. Because it really is true that money can’t buy happiness. It’s what you DO with the money that really matters.

Of course, I’m talking about things like:

  • Affording the comfortable retirement you truly deserve.
  • Paying for a special adventure with loved ones.
  • Or even just buying a gift or a meal for your grandchildren.

These are the things that we’re really after when we lock in our profits from the market. And today, I’ve got an opportunity for you to pay for a trip using the very same companies that usually take money from world travelers!

2019 is a Strong Year for Hotels

As the weather turns warm and my kids start looking forward to school ending, I’ve found myself thinking about making memories with the family this summer.

We’re going to spend some time with the in-laws at the beach in June. And maybe after that I could take the kids on a sightseeing trip or to visit my sister in the Midwest. I’ve been checking hotel rates and figuring out which weeks all the kids will be available between camps, sports practices, and other activities.

It seems I’m not alone in thinking about traveling this summer.

This week as I was researching the different market opportunities I follow, I came across an interesting statistic for the hotel industry.

So far this year, hotel occupancy has been very high. In fact, the rate is several percentage points ahead of where it would normally be at this time of year.

It’s especially encouraging to see this trend early in the year. Because as we head into the summer months, hotels typically start to fill up, peaking around 74% in the first half of August.

High Occupancy Drives Hotel Profits

This is shaping up to be an excellent summer for traveling thanks to the strong economy we’re experiencing in the U.S., as well as some encouraging signs from international markets!

In the U.S., the job market has been strong with hundreds of thousands of new jobs created each month and wages rising. This leaves workers with more money for traveling, and in many cases companies are offering more vacation time to attract quality workers!

In addition, although Chinese economic growth slowed last year, there are new signs pointing to a more stable environment in 2019. That could boost international travel which is also great news for large hotel operators.

With so much money available for traveling, and the statistics already showing us that travelers are hitting the road, now is a great time to invest in hotel stocks.

That way, when these companies report strong earnings during the spring and summer months, the stock prices should spike, handing you some extra cash to use on your next excursion!

Let’s take a look at three hotel stocks that will profit from the surge in travel this year.

Three Hotel Plays to Pay for Your Next Trip

Marriott International (MAR) is in an exciting period of growth both in the U.S. and internationally. Last year, the company earned $5.38 per share which was a 40% jump from 2017. More importantly, the company added more than 80,000 rooms during the year which leaves Marriott with many more rooms to rent out during the busy season this year.1

Just this week, Marriott announced that the company will open about 1,000 new hotels in the Asia-Pacific region, helping the company to capitalize on stronger growth expectations for this emerging area of the world. The stock has been moving higher this year and I expect more gains for investors as travelers hit the road this year.

Hilton Worldwide Holdings (HLT) has made some major changes for investors over the past few quarters. The company separated into three distinct businesses: Hilton Worldwide Holdings manages the company’s traditional hotels. Park Hotels & Resorts (PK) focuses more on the resort business. And Hilton Grand Vacations (HGV) is the company’s timeshare division.

Now that the separation is complete, you can invest in HLT and profit just from the company’s hotel business. Investors appear to prefer the ability to zero in on the lucrative hotel business, driving shares of HLT to a new all-time high this week. Investors expect HLT to grow earnings by 72% this year, and that’s the sort of growth that should drive the stock sharply higher this summer!

Choice Hotels International (CHH) operates several well-known hotel brands including Comfort Inn, Clarion, Econo Lodge and Sleep Inn. The company has focused on offering more affordable rates, which allows Choice to capture a large amount of business from young families and budget-conscious travelers.

Choice has about 7,000 hotels representing 570,000 rooms spread across 40 different countries and territories.2 This wide assortment of locations will give Choice Hotels plenty of opportunity to profit from any number of different attractions and destinations. And with profits set to grow by 33% this year, investors should be richly rewarded.

Stay Tuned for this Off-Market Lodging Opportunity

While the hotel business continues to be a very profitable place to invest, many travelers are also considering a different lodging option.

I’m sure you’ve heard of Airbnb, the company that allows individuals to list and rent their homes on a short-term or medium-term basis.

My parents have used this service to rent out rooms in their home and have had enjoyed the experience (as well as the extra money from their guests). If you have extra space in your home, I would highly encourage you to check out Airbnb as a way to generate extra income this summer.

There will soon be another way to make money from Airbnb as the company is planning to offer shares to investors this year.

I wouldn’t recommend buying shares immediately after the new stock hits the market. Hot new IPOs like Airbnb tend to trade high to start with and then sell off quickly as investors take profits.

But the business model is one that could generate big profits in the years ahead. And once the dust settles on Airbnb, the new stock could be a great opportunity to build your wealth from individuals renting out their own properties.

With so many ways to make money from a rush of travelers this year, make sure you’re locking in your share of the profits!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
TwitterFacebook ❘ Email

1 Marriott International Reports Fourth Quarter Earnings Results
2 Choice Hotels International, Inc., Finviz.com

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Am I a Horrible Dad? Plus, 4 Principles to Guide Your Children Towards Financial Success

This post Am I a Horrible Dad? Plus, 4 Principles to Guide Your Children Towards Financial Success appeared first on Daily Reckoning.

Beau HendersonEven after they’ve grown up, your kids still probably ask you if they can “borrow a few bucks” every now and then.

According to Barron’s, nearly 80% of parents give some financial support to their adult children.

Whether it’s money toward a new car… help with a medical bill… or even just keeping them on the phone plan, you’re probably included in that number if you have kids.

After all, it’s only natural to want to help your kids when they need assistance.

And the easiest way to do that is financially.

But if you’re retired or approaching retirement, you know this can be difficult to budget for.

That’s why today, I’m bringing in my colleague Zach Scheidt to go over four principles you can follow to help your loved ones be successful — without sacrificing your income.

Helping Adult Children Through Life’s Difficult Periods

Zach ScheidtAm I a horrible dad?

I’ll let you be the judge…

This weekend, I took some time to go golfing with my brother. I don’t get to play golf very often, but it’s always nice to get a little one-on-one time outdoors with family members.

Halfway through our round, I got a text from my 19-year-old son David.

Apparently, David blew out the clutch on his car and it needed to be replaced. What’s more, he wasn’t able to work at his pizza delivery job without a vehicle.

David was panicking and didn’t know what to do!

And I had a dilemma… Do I jump in and help him out? Or do I let him work his way through the situation?

When I got the text from David, the first thing that went through my mind was “How can I make this better?”

As a dad, I want my kids to have a great life. I want them to have meaningful friendships. I want them to grow up to be responsible, fulfilled adults. And I want them to financially successful.

So naturally, I started thinking through solutions to help David get through this.

“How much will it cost to get the clutch repaired?” I asked.

David did some research and found a garage that could do it for $1,500.

“But Dad, I only have $1,200 in savings. And without my car, I can’t earn any more!”

Again, I wanted to jump in and say “No problem bud, I’ll pay to fix your car.”

But then what message would that send to David? Should he ask his Dad for a handout every time he runs into a financially challenging situation?

It was probably fortuitous that my brother and I happened to be on the golf course together that day.

I told my brother about the situation and the two of us reminisced about the times we were in similar situations growing up.

My memory was being stranded on the side of the road with an overheated engine. My dad helped me make the call to get a tow truck. And he made sure I had a way to get home. But it was up to me to scramble and figure out a way to pay for the repair.

My brother had a similar experience, being without a vehicle until he scraped together enough to pay the next installment for his insurance policy.

We’ve all been there.

And as my brother said, “The times when you have to struggle to figure things out… Those are the times when you really grow as a person!”

And so this weekend I didn’t pay for David’s car to get fixed.

Does that make me a horrible dad? I don’t know… I’d be curious to hear what you think!

As my kids get older, I’ve been thinking a lot about how to help them succeed in life.

By not allowing them to work their way through some tough scenarios, we’re robbing them of an important learning experience. We can be taking away the opportunity for them to earn that special level of confidence you get from figuring something out on your own!

At the same time, offering too much financial support to a young adult can also put you in a place where your retirement savings are depleted, or where you have to work longer before retirement.

I’m still learning and with six kids still at home, I’m sure there will be plenty more “young adult financial decisions” in my future.

But here are four principles I’ve settled on. Maybe they’ll help you with some of the scenarios you face as well!

Principle #1: Let Them Do Their Own Homework

As David and I were discussing his situation, I asked him to find out how much it would be to fix his car. It was up to him to call the mechanic and learn as many details as possible.

David also talked about possibly trading in his car and just getting something new.

While I didn’t think this was a great idea, I asked him to find some cars that he might be interested in, check different prices, and figure out what he could get from selling his current car.

By requiring him to do the research, (and helping to steer him in the right direction), I gave him the chance to learn how to work through a similar situation in the future.

Principle #2: Suggest Different Options to Consider

When David asked about possibly trading in his car and getting a newer used vehicle, he had his eye on an Infinity. That’s probably not the type of car that would serve him best as he works a delivery job and starts college in the fall.

I suggested looking at some Toyota, Honda or domestic sedans that might be priced more reasonably and still get him exactly what he needed for this stage of his life.

Similarly, you might ask your son or daughter to consider a different apartment complex (if they’re looking for a place to live), or a college with more reasonable tuition payments.

You don’t have to make the decision for them. But sometimes just by suggesting some different options, you can help them think through what is best.

Principle #3: Safety First

Of course some situations require us to step in right away, regardless of the financial cost.

When I was stranded on the side of the road, my dad made sure I got home safely. I can also think of medical situations that would require us as parents to step in and help first, before discussing finances later.

Of course you have to be the judge of which situations are urgent, and which situations allow you to take time to think through and discuss options.

So while I may sound “tough” when talking about sometimes letting our children learn life’s lessons the hard way, there are still plenty of situations where it makes sense to intervene.

Principle #4: Help by Enabling THEM to Succeed

Sometimes it takes a little creativity to find a good solution. But when our young adult children need financial help, there can be times where we help THEM actually dig out of the spot they’re in.

In David’s case, we settled on me co-signing a new credit card application for him.

Yes, I know credit cards can be dangerous. And I can guarantee you that we’ll be discussing exactly how he uses this card over the next few weeks.

But by doing this, I wasn’t giving him a hand out. Instead, I was giving him a financial tool that would allow him to get his car fixed. David’s only going to spend about $300 on this card, and he’ll be able to pay off the balance in the next few weeks.

Plus, by getting his first credit card, he’ll be able to build a credit history which might come in handy when applying for an apartment or some other life event down the road.

Here’s to living a rich and rewarding retirement!

Zach Scheidt

Zach Scheidt

The post Am I a Horrible Dad? Plus, 4 Principles to Guide Your Children Towards Financial Success appeared first on Daily Reckoning.

Tax Refunds Delayed — Keeping Walmart’s Profits Waiting

This post Tax Refunds Delayed — Keeping Walmart’s Profits Waiting appeared first on Daily Reckoning.

Have you received your tax refund yet?

Chances are good that if you were owed a refund, your return has been delayed. The government shutdown caused the IRS to furlough workers during some of the most important weeks for processing tax returns. And it’s taking the agency time to catch up.

So even if you were responsible and filed your tax return well ahead of the crowd, you may still be waiting on your refund check.

That’s the bad news.

But today, I want to show you why this delay could actually lead to a much bigger check for you.

In fact, whether you’re expecting a tax refund or you’ve got to write that dreaded check to Uncle Sam, this tax refund delay can help you capture some unexpected wealth.

Let’s take a look!

The New Tax Rates Delay Refunds

There’s been a lot of talk about tax refunds recently thanks to the new tax bill that went into law last year.

The new tax bill lowered the tax rate for most Americans, but also made major changes to what deductions families and individuals can make. We’ve talked about many of these changes here at Money & Credit, including the lower withholding rates that have allowed Americans to keep a larger portion of every paycheck throughout the year.

Now that it is time to turn in your tax return for 2018, many of those changes are under scrutiny.

I’ve become keenly aware of these issues in part because my brother is an accountant and is currently up to his neck in personal and small business tax returns. I got a chance to see him over the weekend and he was exhausted. It’s been a stressful year as he has had to work extra hard to make sure that all of the changes are being taken into account for the tax returns he prepares.

“Zach, it’s not just that the IRS was essentially closed for a couple of months. It has also taken extra time for many of the software platforms that we use to update all of the new changes.”

So these are two big issues that are causing a delay in the tax refunds Americans would typically be receiving this time of year.

First, the IRS was closed, causing a pileup in the number of returns waiting to be processed.

And second, individuals and business are taking more time to actually filetheir return because it is taking some time to handle the changes from the new tax bill.

This has had a pronounced effect on retail spending in the United States, which in turn is setting up an interesting opportunity for investors.

Delayed Spending Boosts Spring Profits

Wall Street has been a bit frustrated with how the delay in tax refunds has affected spending in the United States.

You may have heard that recent reports on total retail sales have come in a bit weak. And those “weak” readings have naturally sent some retail stocks lower. After all, Wall Street is worried that lower tax returns could lead to disappointing profits for retailers.

But here’s the thing…

Those tax refunds aren’t “gone.” They’re just taking a little longer to work their way through the system.

Which means American consumers will still be spending the cash that they get back from Uncle Sam.

The spending may have just been deferred from February and March to heavier spending in April and May.

So what does that mean for us as investors?

Well I’m expecting those refund checks to drive surprisingly strong retail sales in this new second quarter of 2019. And I expect those strong sales to catch Wall Street investors off-guard.

Over the past couple of months, a few key retail stocks have been stuck in a holding pattern waiting for good news to hit.

Shares of Wal-Mart Stores (WMT) for example are trading at the same level from late January. And shares of popular retailers like Target Corp. (TGT) and TJX Companies (TJX) have just barely made back losses from late in 2018.

The stock prices for these retailers are being held back in part because many taxpayers haven’t yet received their refunds. And so they’re not in a rush to head out and spend that cash.

But this month, as accountants wrap up their customers’ tax returns and the IRS catches up on its inflated workload, we should see tax refunds making their way to retailers around the country.

And as these retailers start reporting strong spring sales, stock prices will be poised to jump higher.

If you’re one of the forward thinking investors who owns shares of these retailers, you’ll be in prime position to profit from a jump in sales.

So as we head toward the April 15th tax filing deadline, make sure you are positioned to profit from all of those shoppers who will be taking their checks to spruce up their spring wardrobes!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, Money & Credit

The post Tax Refunds Delayed — Keeping Walmart’s Profits Waiting appeared first on Daily Reckoning.

Mailbag: Your Top 3 Retirement Questions Answered!

This post Mailbag: Your Top 3 Retirement Questions Answered! appeared first on Daily Reckoning.

I’ve received tons of emails from readers like you with questions about retirement.

There’s just no way I could respond to them all.

And while many people don’t like getting so many emails, I do.

Why?

Because it means that there are existing or future retirees out there who can use my experience to live a more fulfilling retirement.

That’s the reason I became a retirement coach in the first place!

So today, I’m going to answer the Top 3 most frequently asked questions I get from readers about retirement.

Let’s get to it!

Question #1: “I plan on retiring this year, but I won’t be eligible for Medicare for another three years. What are my other options for health insurance?”

Purchasing health insurance outright can get expensive.

Most Americans receive healthcare coverage from their employer which brings down the cost. And by the time they retire, they’re eligible for government-sponsored health insurance through Medicare.

But if you’re ready to retire before 65, which is when Medicare eligibility kicks in, one option worth considering is what I call a “step-down retirement.”

It’s a simple strategy where you significantly cut back your hours at work, let’s say to 2 days a week for example.

Or you can find a new part-time job instead if you prefer.

Since you’re still working, you can keep employer-sponsored health insurance.

But you’ll still have the majority of your time free to start settling into your new retirement lifestyle.

Once you reach 65, you can make the switch to Medicare and fully retire.

This is a great strategy for not paying full price for health insurance, and it has some other added-in benefits as well!

You’ll still receive part-time income, so you may even be able to afford to delay filing for Social Security and receive a higher monthly benefit.

And you have room to settle into your new identity as a retiree.

I recommend everyone consider this option when they’re planning for retirement, even if health insurance coverage isn’t your top concern.

Question #2: “What’s the biggest mistake you see people make while planning for retirement?”

The biggest retirement planning mistake I see actually has nothing to do with finance.

I had one client who was a former Delta pilot.

He was very successful and had all of his finances for retirement squared away.

But he didn’t plan for his new identity as a retiree which caused him serious problems.

He was used to walking through terminals in his pilot gear and seeing people express respect for his status.

He enjoyed the admiration!

But when he retired the pilot uniform, all of that went away. He felt like he lost a piece of his identity and became seriously depressed because of this.

This is a phenomenon I see all too often.

People of all professions identify strongly with their careers. After all, “What do you do?” is one of the first questions people ask when they meet someone new.

Before you retire, you need to ask yourself, “What do you want to do?”

I’ve seen people use their newfound free time to write a book, volunteer, start a business, and much more.

If you’re looking to avoid the most common retirement mistake, then you need to start thinking about what type of person you want to be when your career ends.

Question #3: “How will my current income affect what I receive from Social Security when I retire?”

Earned income is one of the many factors that contributes to how much your monthly Social Security check will be.

More specifically, Social Security uses your highest 35 years of earned income in its calculation of your monthly check.

The more money made over these 35 years, the higher your benefit will be.

The math on this calculation can get complicated pretty quickly.

And even if you use the income earning chart on the Social Security website, it will only give you a rough estimate.

But what you need to know is that to get the highest amount, you’ll want to have as many years as possible earning the highest income possible — which actually brings me back to Question #1 when I talked about a “step down” retirement.

If you don’t have 35 years of work experience, or you earned very little in a few of those years, working a part-time job is an excellent way to replace some of those zero-income years that are weighing on your Social Security benefit.

Of course, everyone’s situation and ability to work part-time is different. But know that ultimately, the more income you make, the more you’re entitled to in Social Security benefits.

That’s why it’s so important to file with a plan that takes into account every factor to make sure you and your loved ones are getting all you deserve.

Do you have any questions about retirement that you want me to cover in this newsletter?

If so, I’d love to hear from you!

As a retirement specialist, I’m not able to provide you with the best and most accurate information unless I know a little about your situation.

Here’s to living rich,

Beau Henderson

Beau Henderson

The post Mailbag: Your Top 3 Retirement Questions Answered! appeared first on Daily Reckoning.

BEWARE: Here’s How to Protect Yourself From “Spam” Robocallers

This post BEWARE: Here’s How to Protect Yourself From “Spam” Robocallers appeared first on Daily Reckoning.

Scott HiltonHappy tax season!

Or should I call it spam season?

Maybe you’ve noticed the number of spam phone calls have picked up recently.

Well… I’m here to tell you that the uptick is directly related to tax season.

That’s because fake IRS calls are one of the easiest (and most lucrative) scams out there.

If you’re unfamiliar, IRS scams usually involve fraudsters posing as agents calling unsuspecting citizens (mostly around retirement age) demanding payment for uncollected taxes.

But they don’t stop there. These are some of the most aggressive scammers out there — threatening to arrest victims within 24 hours, garnish wages of loved ones, and even repossess valuable property if money isn’t routed or payed over the phone immediately.

Believe me, I’ve heard some of these calls firsthand. And they’ve got the potential to cripple your financial situation…

That’s why today, I want to talk about ways you can spot these scams and stay on the path towards a brighter financial future.

Here’s How to Avoid “Scam Season” Phone Calls

Tax season is prime time for scammers, robocallers and cyberthieves to prey on taxpayers. In fact, Tax Day 2018 saw more scam, fraudulent and nuisance robocalls placed than any other day last year, according to Transaction Network Services, Inc.

That day alone saw 143 million high-risk phone calls that undoubtedly cost unsuspecting victims millions of dollars that they will likely never recover.

So what can you do to make sure you’re not their next victim? Here are my recommendations:

Recommendation #1: Know IRS Procedures — Believe me, the IRS is aware of this growing problem. Therefore, they’ve made procedures available to the public on their website. Here are some of the most important:

  • The IRS won’t call taxpayers if they owe taxes without first sending a bill in the mail.
  • The IRS will never demand payment without allowing taxpayers to question or appeal the amount owed.
  • The IRS will never demand that taxpayers pay their taxes in a specific way, such as with a prepaid debit card or any payment specifically over the phone.
  • And the IRS won’t threaten to contact local police or threaten legal action for non-payment of taxes.

Recommendation #2: Never Be Quick to Give Out Personal Info — If you are a target of one of these suspicious calls, be sure to never give out any personal information before verifying the legitimacy of the person on the other line.

This can be as simple as not saying “yes” when questioned whether you can clearly hear the person calling… Or as serious as voluntarily verifying your home address.

The best move would be to ask the caller his or her business affiliation, look up their phone number yourself online, and then call back to address the problem at hand.

Recommendation #3: Register Your Phone Number — The Federal Trade Commission operates the National Do Not Call Registry, a free service that reduces the number of unwanted sales calls that you receive.

Now, although illegal IRS scams do not fall under the “unwanted sales call” category, registering for this free service will take your phone number off robocall lists that are likely to fall into these scammers hands, thus minimizing your risk of being the next victim.

I actually just registered myself as I wrote this piece. It took all of one minute!

Bottom line: phone scammers cost hardworking people like yourself over $350 million annually.

But by knowing how to quickly determine the legitimacy of the people on the other line, together we could soon take the money-making opportunities away from these crooks — which will stop jeopardizing our financial futures every time we pick up the phone.

Give Yourself Credit,

Scott Hilton

Scott Hilton

The post BEWARE: Here’s How to Protect Yourself From “Spam” Robocallers appeared first on Daily Reckoning.

5 Reasons to Buy Franklin Resources BEFORE the Cycle Turns

This post 5 Reasons to Buy Franklin Resources BEFORE the Cycle Turns appeared first on Daily Reckoning.

For more than a decade, investors have pumped cash into index funds and other passive investment vehicles, much to the dismay of active managers.

The dollar amounts involved are staggering.

As a result, the share prices of publicly traded active asset managers have struggled.

But what we all need to remember is that the popularity of passive and active investments is very cyclical. And this cycle is currently very, very long in the tooth.

That is why I believe right now is the time for us to buy these active asset managers BEFORE the cycle turns back in their favor. And I’ve got the perfect stock in mind…

Background — The Rise of the Passive Investment Bubble

Since 2009, the percentage of cash invested in passive investment vehicles has soared, going from representing 25 percent of the market to 50 percent.

All of this market share growth for passive investments has come at the expense of active managers.

rise of passive investments

This is not the first time that passive investing has experienced a huge surge in popularity.

The last time that we witnessed it was during the technology bubble in the late 1990s, when dollars flooded into index funds and ETFs that were dominated by soaring (and very risky) technology stocks — think of these risky stocks like the “FANGs” of their day.

We all know how that ended… the tech bubble burst and the cycle turned hard. The result being that investors took their money out of risky passive investments and into value stocks to get far away from the “FANG stocks” of their day.

This caused value stocks to massively outperform the market and the businesses of active asset managers to explode soon after (in a good way!).

And you know what they say: History never repeats, but it often rhymes.

I believe the turn back to value stocks is coming soon. And it is going to be very reminiscent of what we experienced at the turn of the century.

Which makes now the perfect time to start buying shares of this specific active manager…

Buy Franklin Resources (BEN) Before the Cycle Turns

Franklin Resources (BEN) is a value focused active asset manager which means the company is a perfect stock to buy now, before the cycle turns back to value.

There are several reasons that I think Franklin Resources specifically is the right active value asset manager to buy today.

First – Franklin Resources has a balance sheet to die for. The company currently has $6.5 billion in cash sitting on its balance sheet and zero debt.

Second – The shares of Franklin Resources are dirt cheap.

The current market capitalization (share price multiplied by the number of shares outstanding) of the company is $17.1 billion. If I subtract the $6.5 billion in cash that the company has, this means that the market is currently valuing the entire business as being worth $10.6 billion.

With normalized net income of roughly $1.7 billion in each of the past three years, this means that Franklin Resources trades at just 6.2 times its $10.6 billion enterprise value to net income. That’s dirt cheap.

Third – This business is generating a lot of excess cash flow and is returning a large amount of it to shareholders. The current dividend yield for Franklin Resources is 3.1 percent and the company has repurchased $3.5 billion worth of shares over the past three years.

And it is doing this during a period of time when its active value focused style is out of favor.  When the cycle turns, the cash being generated will only go up.

Fourth – Forty percent of Franklin Resources shares are still owned by the Johnson family which founded the company in 1947. Greg Johnson, the son of the original founder, is still CEO and Chairman of the business.

This is music to a value investor’s ears as this means that insiders are fully aligned with shareholders and are in this for the long-term.

Fifth – A competitor, Oppenheimer Funds, was recently sold for a price that valued the company at 2.4% of total assets under management. Despite being a very similar business, Franklin Resources trades for just 1.5% of total assets under management, or only 60 percent of what the Oppenheimer deal suggests it should.

Put these all together and Franklin Resources combines a cheap valuation, incredible balance sheet, aligned management team, a large dividend, and significant share repurchases…

And all of this is BEFORE the huge uplift in business that will come when the cycle turns back to value.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

The post 5 Reasons to Buy Franklin Resources BEFORE the Cycle Turns appeared first on Daily Reckoning.

Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long…

This post Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long… appeared first on Daily Reckoning.

Have you received your tax refund yet?

Chances are good that if you were owed a refund, your return has been delayed. The government shutdown caused the IRS to furlough workers during some of the most important weeks for processing tax returns. And it’s taking the agency time to catch up.

So even if you were responsible and filed your tax return well ahead of the crowd, you may still be waiting on your refund check.

That’s the bad news.

But today, I want to show you why this delay could actually lead to a much bigger check for you.

In fact, whether you’re expecting a tax refund or you’ve got to write that dreaded check to Uncle Sam, this tax refund delay can help you capture some unexpected wealth.

Let’s take a look!

The New Tax Rates Delay Refunds

There’s been a lot of talk about tax refunds recently thanks to the new tax bill that went into law last year.

The new tax bill lowered the tax rate for most Americans, but also made major changes to what deductions families and individuals can make.

We’ve talked about many of these changes here at The Daily Edge, including the lower withholding rates that have allowed Americans to keep a larger portion of every paycheck throughout the year.

Now that it is time to turn in your tax return for 2018, many of those changes are under scrutiny.

I’ve become keenly aware of these issues in part because my brother is an accountant and is currently up to his neck in personal and small business tax returns. I got a chance to see him over the weekend and he was exhausted. It’s been a stressful year as he has had to work extra hard to make sure that all of the changes are being taken into account for the tax returns he prepares.

“Zach, it’s not just that the IRS was essentially closed for a couple of months. It has also taken extra time for many of the software platforms that we use to update all of the new changes.”

So these are two big issues that are causing a delay in the tax refunds Americans would typically be receiving this time of year.

First, the IRS was closed, causing a pileup in the number of returns waiting to be processed.

And second, individuals and business are taking more time to actually file their return because it is taking some time to handle the changes from the new tax bill.

This has had a pronounced effect on retail spending in the United States, which in turn is setting up an interesting opportunity for investors.

Delayed Spending Boosts Spring Profits

Wall Street has been a bit frustrated with how the delay in tax refunds has affected spending in the United States.

You may have heard that recent reports on total retail sales have come in a bit weak. And those “weak” readings have naturally sent some retail stocks lower. After all, Wall Street is worried that lower tax returns could lead to disappointing profits for retailers.

But here’s the thing…

Those tax refunds aren’t “gone.” They’re just taking a little longer to work their way through the system.

Which means American consumers will still be spending the cash that they get back from Uncle Sam.

The spending may have just been deferred from February and March to heavier spending in April and May.

So what does that mean for us here at The Daily Edge?

Well I’m expecting those refund checks to drive surprisingly strong retail sales in this new second quarter of 2019. And I expect those strong sales to catch Wall Street investors off-guard.

Over the past couple of months, a few key retail stocks have been stuck in a holding pattern waiting for good news to hit.

Shares of Wal-Mart Stores (WMT) for example are trading at the same level from late January. And shares of popular retailers like Target Corp. (TGT) and TJX Companies (TJX) have just barely made back losses from late in 2018.

The stock prices for these retailers are being held back in part because many taxpayers haven’t yet received their refunds. And so they’re not in a rush to head out and spend that cash.

But this month, as accountants wrap up their customers’ tax returns and the IRS catches up on its inflated workload, we should see tax refunds making their way to retailers around the country.

And as these retailers start reporting strong spring sales, stock prices will be poised to jump higher.

If you’re one of the forward thinking investors who owns shares of these retailers, you’ll be in prime position to profit from a jump in sales.

So as we head toward the April 15th tax filing deadline, make sure you are positioned to profit from all of those shoppers who will be taking their checks to spruce up their spring wardrobes!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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The post Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long… appeared first on Daily Reckoning.