While the story for solar power in the developed world has been nothing investors can clap about, they might find something worth their applause in emerging markets.

For a majority of the world, solar power costs much more than energy from conventional power plants, particularly if you include battery costs for storing energy. But for those living in undeveloped regions, solar power actually offers substantial benefits in cost.

The dropping prices of polysilicon, coupled with other technological advances, are opening up an enormous market for solar power. Along with some incredible buying opportunities for solar energy stocks.

Currently there are about 1.3 billion people around the globe who live in areas that have no access to grid electricity. And while most of these people are very poor, they actually pay a lot more for lighting their homes than people in developed countries.

Why are people paying more for lighting in undeveloped areas?

Because they’re using inefficient kerosene lamps, an archaic technology widely used almost a century ago in the United States.

It Makes Economic Sense

Today, kerosene lamp lighting costs twice as much compared to solar power.

Then there’s safety.

It’s estimated that 1.6 million people are killed each year due to indoor air pollution caused by burning kerosene, not to mention the deaths that occur from fires. And safe, solar powered bulbs can be 10 to 20 times brighter than kerosene lamps.

The switch to solar isn’t just for providing safer and cheaper light; there’s another power demand on the rise… mobile phones.

Mobile phones have become increasingly popular in Africa, where half the population of one billion now has a mobile phone. But in order for many to charge their phones, they have to rent a charger since they have no grid access or other form of electrical power.

The innovative companies below have seen an opportunity here, and are manufacturing and selling inexpensive solar lamps with special plug-ins for cellphones.

A Tool to Change the World

The San Francisco-based company d.light offers their d.light S250, a solar lamp with a mobile-phone charger that can provide up to 12 hours of light on a single day’s charge.

Currently on display in the British Museum, its curator Neil MacGregor has written a book A History of the World in 100 Objects, where he describes the d.light S250 as a tool that will change the world.

The S250 provides a highly efficient LED light that can illuminate an entire room and last over 50,000 hours. With four different brightness settings, it can provide up to 12 hours of bright light and 100 hours of bed light setting.

The S250 also offers the convenience of in-home mobile-phone charging. Designed with an outlet that can charge a wide range of mobile phones, it takes away the need for people to go out and rent costly chargers.

And the S250 is not alone; the company provides three different solar lantern models costing from $10 up to $45.

The company has really cracked into this market, and has sold more than a million lights in 40 countries. But d.light has even bigger goals for the future.

By the end of 2015, they hope to have their products in the hands of 50 million people. And by the end of 2020, they expect to have improved the quality of life of 100 million people.

Eight Minutes and Nineteen Seconds

Another smaller player trying to grab a piece of this growing market is Eight19. Based out of Cambridge, U.K., the company takes its name from the time it takes sunlight to reach the earth – eight minutes and nineteen seconds.

What separates Eight19 from d.light is its larger IndiGo system that includes a 2.5-watt solar panel (installed on the roof or a pole outside a home), a lithium-iron phosphate battery pack and two LED overhead lamps.

The cost for IndiGo is less than $50 and pays for itself in less than two year. And while the upfront price is too costly for many, Eight19 (along with other companies) offers a payment plan to make the system affordable.

Customers simply pay $10 for the system upfront and then pay a weekly fee for the power it generates. Every week, IndiGo users go to a local vendor and buy a scratch card for about $1. The card will give them a number that they then text to Eight19 for verification.

The company texts them back a code they put into a keypad that unlocks electricity from the device for a week, supplying power to the phone charger and LED lights.

While several competitors are trying a pay-as-you go system, Eight19 is ahead of the curve since they let customers upgrade their system once they have paid off their previous device (which takes about 18 months).

IndiGo customers can upgrade to bigger solar panels, larger batteries, more lights and the ability to power smaller devices.

It’s a great system. By using the money that would have been spent on renting cellphone charges and kerosene, customers can instead progressively build up their system.

Eventually a home could have enough power for larger appliances like refrigerators, or a sewing machine (something that can make them some money).

This technology can bring light and electricity not to just homes, but schools and workplaces in developing markets. Helping power internet connections, enabling laborers to work through the night and providing light for children to do their homework in the dark.

A Brighter Future for All

This is an incredible opportunity to invest in solar energy stocks. All the conditions are right for these solar power products to expand in emerging markets.

You have large, poor rural populations living in excessively sunny regions with no access to grid energy, who are also currently paying excessively high prices for their lighting needs.

For those who can even afford power, they spend a large portion of their income on kerosene for lamps (which provides no return) or have to travel to bigger towns a number of times a week to charge their phones.

Amid the declining cost of batteries, LED lighting and solar panels, in concert with inventive business plans, millions of households in Africa and other developing regions will continue to switch from unsophisticated kerosene lamps to safer and cleaner solar electrical lighting.

And while the companies mentioned above aren’t publicly traded, investors should keep an eye on the growing solar demand in emerging markets.

Two Solar Energy Stocks

Those who produce solar panels, like First Solar, Inc. (Nasdaq: FSLR), and manufacture polysilicon, like GT Advanced Technologies, Inc. (Nasdaq: GTAT), will start to see demand for their products increase as people with no access to grid energy continue to purchase products from companies like d.light and Eight19.

Good investing,

Ryan Fitzwater

Bonds yield next to nothing. Money markets pay literally nothing. Residential real estate is swamped in a flood of short sales and foreclosures. Gold – after climbing six-fold over the last 12 years – may have topped out. And stocks are gyrating madly.

Given all this, where does the prudent investor put his money to work?

That’s what I asked Rick Pfeifer, an Oxford Club Pillar One Advisor and Senior Portfolio Manager with Fund Advisors of America, a Maitland, Florida-based money management firm, in a recent interview:

Q: Rick, the typical investor is disgusted with the yields on bonds and cash and scared to death of the stock market. What are you saying to clients?

A: I’m telling them that now is an excellent time to take a portion of their portfolio and diversify into alternative assets: convertible bonds, preferred shares, foreign currencies, hedge positions, ultra-cheap commodities and so on.

Q: Okay, let’s take these one at a time. What are you buying now and why?

A: We recently launched a managed account for individual investors that we call The Global Hedge Portfolio. The idea is not to replace your traditional stock and bond portfolio, but to offer a complement to it. We’re seeking profits in investments that don’t move in lockstep with either the S&P 500 or Lehman’s Treasury Index.

Q: Give me a couple of “for-instances.”

A: Take the situation in the Eurozone, for example. We see European leaders and the European Central bank doing a whole lot of talking, but we don’t see genuine, concrete steps toward solving the huge fiscal problems in Southern Europe. Some might even argue that the reason they haven’t yet taken serious corrective steps is because their options are so limited. Italy, for example, is simply too big an economy to bail out, in my view. My co-strategist Greg Galloway and I forecast that the euro will fall to parity with the dollar within 12 months. So we are short the euro in our Global Hedge Portfolio.

Q: Can’t fault your thinking there. I’ve been saying much the same thing for months now. What else are you doing?

A: We’re investing in overlooked asset classes with plenty of upside potential. Take timber, for example. Over the long run, investments in timber have beaten stocks by about 4% annually – and with considerably less volatility. Plus, timber is uncorrelated to stocks, making it an excellent way to balance your portfolio. One timber trust we own is seeing revenue grow 23% annually. Operating margins top 24%. And we’re getting a 3.5% dividend yield, too.

Q: What else are you buying?

A: We’re finding bargains in certain international markets, particularly Asia and Latin America. Because domestic demand there is growing, these areas are largely immune to problems here at home and in the Eurozone. For example, we’re buying an Asian auto manufacturer that’s selling for just half of annual sales. It’s trading at a substantial discount to book and should easily triple its earnings this year. We’re also picking up undervalued oil assets in Brazil, high-yielding energy trusts in Canada, a high-quality wine maker in Chile and the world’s leading food company, denominated in Swiss francs.

Q: How about metals?

A: We’re not buying commodities directly. Instead, we’re buying metal producers that appear undervalued and have big dividends attached.

Q: What about gold?

A: I don’t know what gold is going to do and I don’t think anyone else knows, either. But some gold producers are selling at mouth-watering prices right now, even if gold goes nowhere. One of our favorites yields 10% right now. If gold takes off, great. But if it moves sideways for a while, a 10% yield makes it a comfortable wait.

Q: What if gold moves south?

A: We run trailing stops on our investment positions. That gives us unlimited upside potential with strictly limited downside risk.

Q: Anything else you really like?

A: Quite a few things, really. I’ll mention one. Residential real estate is a mess, not only in the United States but in many overseas markets, as well. But we’re finding real bargains in commercial real estate in select overseas markets. Of course, we’re not buying the buildings themselves. Our investments are totally liquid. And, in addition to potential share price appreciation here, some of the assets are currently yielding more than 7%.

Q: Good to know, Rick. And an excellent reminder that for investors who are willing to invest worldwide, there are always opportunities available somewhere. Thanks for sharing your thoughts with us today, Rick.

A: Any time. It’s my pleasure.

Good Investing,

Alexander Green

There’s a deluge of statistics that are listed for stocks on sites like Yahoo! Finance and Google Finance. And one of those metrics listed front and center is the beta coefficient, or “beta.” Some investors may be familiar with the fact that beta is a metric that is supposed to imply risk.

But it’s a definite must for investors to know the distinction between short-term risk – where beta and the concept of price volatility are useful – and longer-term, fundamental risk where economic and corporate risk play a larger role.

High betas may mean price volatility over the near term, but they don’t have to necessarily rule out long-term opportunities. While beta does say something about price risk, it does have its limits for investors looking at fundamental risk factors.

What is the Beta Coefficient?

• Beta is a measure of a stock’s volatility in relation to the overall market.
• The market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market.
• A stock that swings more than the market over time has a beta above 1.0.
• If a stock moves less than the market, the stock’s beta coefficient is less than 1.0.
• High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.

In other words, volatility refers to the amount of uncertainty or risk about the degree of changes in a stock’s value. A higher volatility means that a stock’s value can potentially be spread out over a larger range of values.

This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security’s value does not fluctuate dramatically, but changes at a steady pace.

The beta coefficient is a key component for the Capital Asset Pricing Model (CAPM), which is used to calculate cost of equity. The Capital Asset Pricing Model describes the relationship between risk and expected return and that is used in the pricing of risky securities.

In simpler terms, the idea behind CAPM is that investors need to be compensated in two ways:

• The time value of money – Money could be earning interest in a risk-free investment like a U.S. treasury. Therefore you must be earning more than this rate for an investment to be worthwhile. (Rates usually aren’t this low…)

• Risk – For an investor to take on more risk there must be more reward.

So in the academic investing world beta offers a clear, quantifiable measure, which makes it easy to work with.

Where Beta Loses its Luster

But there are three major reasons the beta coefficient can fall short in applications for an average investor:

• Beta doesn’t incorporate new information. We have all seen that new knowledge regarding economic, political, industry or corporate factors can have a tremendous affect on a stock.

• Past price movements are very poor predictors of the future. Betas are pretty much just reflective pools of the past. They do nothing to tell you what’s ahead.

• Betas on a single stock tend to flip around over time, which makes it unreliable. If you’re day-trading, beta is a fairly good risk metric. But for investors with long-term horizons, it’s less useful.

The Bottom Line

We investors see risk as the possibility of suffering a loss, so when we consider it, it’s in terms that our investment will decrease in value. The concept of beta doesn’t think that way – it does not distinguish between upside and downside price movements.

For most investors, downside movements are risk while upside ones mean opportunity. The beta coefficient doesn’t help investors tell the difference. And, to the average investor, that’s not too sensible.

Good Investing,

Jason Jenkins

And they should be. They just shouldn’t be surprised…

Because this is merely the latest of many examples of the government sponsored enterprise (GSE) behaving badly.

Freddie Mac, first formed in 1970 as the Federal Home Loan Mortgage Corp., was allegedly designed “to stabilize the nation’s residential mortgage markets and expand opportunities for homeownership,” as its website claims. But as recent history has clearly shown, it and its partner in crime, Fannie Mae, have done anything but that.

One of the first publicly recognized signs of its history of corruption came in 2003, when Freddie was fined $125 million for essentially cooking its books between 2000 and 2002. But other than the measly penalty, the scandal led to nothing more than a small round of management layoffs.

No new regulations were slapped on the mortgage investment company. It was largely allowed to go about its business as usual, despite a few congressional and presidential attempts to reform the financial reprobate.

Congress Loves Freddie Mac

There’s an easy reason for why Freddie Mac got away with so much and continues to do so today: its incestuous relationship with Congress. As Politico reported on July 16, 2008:

“Over the past decade, they [Fannie Mae and Freddie Mac] have spent nearly $200 million on lobbying and campaign contributions… The two government-chartered companies run a highly sophisticated lobbying operation, with deep-pocketed lobbyists in Washington and scores of local Fannie- and Freddie-sponsored homeowner groups ready to pressure lawmakers back home. They’ve stacked their payrolls with top Washington power brokers of all political stripes…”

Put bluntly, they own key members of Congress, who know they won’t have nearly the same spending power come election time if they don’t make Freddie and Fannie very happy. Not that Congress seems all that broken up about being owned though, considering the significant investments many of them made into the companies before they both went all but belly-up.

Massachusetts Representative Barney Frank even dated a Fannie Mae executive in the 1990s, leading many to speculate whether the two were mixing business with personal gain. And it’s a documented fact that Frank, among others, fought long and hard to maintain that neither institution had any “safety and soundness problems.”

With those kinds of relationships going on, it’s no wonder that Fannie Mae’s former chief credit officer, Edward Pinto, went on to speculate that both GSEs were purposely misrepresenting their actions for years before either of them ever got caught.

The Financial Crisis and Beyond

With heavy government backing, government financing and government excuses, Freddie Mac and Fannie Mae essentially did whatever they wanted to do… which was make money by jeopardizing and ultimately wasting billions of taxpayer dollars to help push the housing market right into a dangerous position.

And that bubble eventually burst, as all of them eventually do.

As Bloomberg’s Jonathan Weil pointed out last month, they are hardly the only institutions to blame for the lingering financial crisis of 2008. The Fed, with its prolonged low interest rates and “worthless regulators or banks with excessive leverage,” deserves censure, as well.

But Fannie and Freddie still played an enormously significant part in the mess, and they did so of their own free and well informed will. So this latest round of overwhelming greed is just another example of Freddie Mac conducting business as usual.

Was it wrong that they purposely barred a majority of Americans from refinancing their homes in the midst of falling mortgage rates… then capitalized on their unethical actions by trading on that knowledge?

Of course!

Just don’t expect anything to change anytime soon. As evidenced by its past and present actions, Freddie Mac is one company that can – possibly quite literally – get away with murder in the future.

Good Investing,

Jeannette Di Louie

And, for a growing number of investors and institutions, this alternative marketplace is quickly becoming a hot spot to potentially cash in on a number of firms before they go public.

In fact, you might even be eligible to participate… and not even know it.

The Truth About Secondary Markets

According to aonetwork.com, secondary market exchanges serve to facilitate the purchase and sale of illiquid, restricted and alternative assets, such as private company stock and restricted public equity.

Facebook, Zynga (Nasdaq: ZNGA) and LinkedIn (NYSE: LNKD) all sold on secondary market exchanges before they filed to go public.

Today, well-known firms such as Twitter, Bloom Energy, e-Harmony and Foursquare can all be found on these exchanges, as well.

And many other companies, tech start-ups especially, are finding secondary markets as nice alternatives to IPOs.

LinkedIn CEO Jeff Weiner explains, “Historically when companies had established a certain level of performance and maturity, the IPO was a natural next step. The reason for that was to generate liquidity… to get access to currency… capital… and [for] credibility. The secondary market can help check the box for a few of those objectives.”

So, could secondary markets ever replace the IPO?

Not a chance. Private companies aren’t required to disclose their financial information to investors like publicly traded firms. That’s one of the major risks in this market.

But as Reuters points out, “While the amount of information that would-be investors have is surely lower than if there were a formal SEC-registered prospectus, the rise of the internet has made it much easier to do reasonably good due diligence on how much a company might be worth.”

That’s a big reason the amount of capital flowing in the private-share trading business has more than doubled in value, to $7 billion, in just the past two years.

Even more, Congress is looking to pass laws that could push even more liquidity to this market by doubling the amount of shareholders, to 1,000, that private companies are allowed before needing to publicly disclose their finances.

This is very promising news for companies, like SecondMarket and SharesPost, involved in the secondary market…

Introducing SecondMarket and SharesPost

Founded in 2004, SecondMarket offers a number of asset-backed investments – including auction-rate securities, bankruptcy claims, private company stocks and fixed income products. Meanwhile, SharesPost specializes only in the selling of private company stock.

All of the companies mentioned above (Twitter, Bloom Energy, etc.) either trade on SharesPost, SecondMarket, or both. These two companies currently dominate the secondary market space.

The main purpose of these firms is to connect buyers and sellers to trade the various assets they offer. In a way, they are sort of like e-Harmony or LinkedIn, but for investors and institutions.

For example, SecondMarket uses a proprietary matching algorithm to search through its 75,000-customer base and find good matches between buyers with sellers. After a trade is complete, the companies then take a cut of the total transaction, roughly 3%. This business model has made SecondMarket worth about $200 million, according to The Wall Street Journal.

And now a slew of new competitors are catching on…

For example, Crain’s New York Business reports financial services firm Knight Capital Group (NYSE: KCG) just established its own private-share trading business in December. And LiquidNet, an institutional brokerage firm, also entered this space last year.

As I eluded earlier, not all investors are eligible to enter this market. It’s only open to financial institutions and accredited investors. In other words, you need to be a hedge fund, investment bank, or have a net worth of $1 million and an annual income of $200,000, or a joint income of $300,000 with your spouse, to start investing.

Plus, it’s worth mentioning many of these firms have minimum transaction requirements. For instance, SecondMarket has a minimum transaction amount of $100,000. So you need to have a good amount of cash to get involved.

The Bottom Line

Of course, before entering any investment, it’s important to do your homework first and know what you’re getting into. The secondary markets are certainly not for everyone, but it is a very interesting development and is helping reshape the way companies prepare for their IPO.

Good investing,

Mike Kapsch

Instead, it may be a product of social behavior and theory. I present to you the premise of the “commodity supercycle.”

The concept is more than vague investor intuition; its theory is based on the work of twentieth-century economists who studied the result of demographic shifts in populations. These shifts resulted in specific effects regarding the demand for basic commodities.

Economist Simon Kuznets, the 1971 Nobel Prize winner, did research on emerging markets that led him to discover that 20-year cycles arise in countries with policies to expand infrastructure – which generates a substantial increase in the demand for resources. He uses the United States in the 1950s as an example with the creation of President Eisenhower’s U.S. interstate highway system. This same cycle has been seen in the past decade in China, India, Brazil, Russia and other emerging markets.

A Growing World Population

On average, these emerging markets are increasing infrastructure spending at about 10% annually as population growth and desire for improved standards of living are fulfilled. A growing world population coupled with finite raw materials will equal higher commodity prices. The impact of the commodity supercycle on gold is a tendency for gold, precious metals and other tangible assets, such as rare coins, to rise as the demand for commodities rises. Gold is up from $250 in 2000 to over $1,700 currently. Silver was $4 in 2000. Need I say more?

Now, how do we apply this to the markets? We know that equities move in cycles. If in one decade, equities crash, the next decade stocks boom. Commodities also move in long-term bull and bear cycles. But we must take into account that the long-term cyclical movements often contain short-term cyclical movements.

Only Half the Way Through

These cycles can be traced back to the eighteenth century. The average bull run has lasted over 20 years, with average cumulative gains of 293%. The secular bull market of the mid-1960s to the early 1980s was followed by a bear market that ended when the latest upswing began in 2001. Generally, commodity supercycles last 20 to 25 years.

According to renowned global commodities analyst and investor Jim Rogers, the current supercycle began in 2000. This means that we’re only halfway through this latest bull market.

The commodities supercycle has become an essential gauge for investors as commodities, especially gold, have turned out to be a natural hedge against a weak dollar and high inflation. Therefore, commodities investment has become a major turning point for several countries, banks, investors and the everyday individual.

People have found a number of reasons to consider an investment in commodities or commodity-based equities, be it through an actively managed natural resources fund or a passive vehicle like an index fund or exchange-traded fund. If prices for fuel or other commodities rise, one way to hedge against the impact of that price increase is to invest in those commodities.

So to some, there is a method behind the madness – and it has social science behind it.

Good Investing,

Jason Jenkins

While we were mowing down every opponent, I noticed that the Japanese referees tried very hard to even things out by calling fouls on us every chance they got.

For example, a blocked shot was always a foul.

This is called home-court advantage.

American multinational executives, trying to grow in emerging markets like India, must feel just like we did, as regulators do everything possible to keep them off balance by favoring domestic companies.

This is just one reason you should invest in emerging market multinational stocks.

I call these stocks “boom chips.” The best way to describe a boom chip is to contrast it with, what is in many ways its opposite, a blue-chip stock.

Blue Chippers

Blue-chip companies are large, stable, mature companies with slow but steady sales and profit growth, and dependable dividends.

A good example is Kraft (NYSE: KFT) – a bundle of blockbuster brands including Jell-O, Maxwell House, Tang, Miracle Whip and Oreos. Kraft has 12 brands, generating $1 billion each year, and Tang is the most recent addition to this exclusive club. With all of these killer brands aimed at emerging growth, Kraft is expected to grow revenue around 4% a year over the next three years. Not bad for a food giant.

But while a stock like Kraft is a great way to protect wealth, you need to think a bit more boldly to put some sizzle into your portfolio and build real wealth.

You do this by following John Train’s advice in his book Preserving Capital:

“Be an adventurer; like the American of a century ago, not his clerkish descendant of today. You must think as a builder, a conqueror.”

You do this with boom chips, which offer:

• Much faster growth than blue chips.
• Home-court advantage against foreign competitors.
• Breakthrough products and services.
• Big cost advantages and protected markets.
• Still at an early stage of their growth cycle.
• Off the radar screen of Wall Street analysts.
• Big upside potential – 10 times growth over three years.

What Are Boom Chips?

Boom chips are oftentimes multinationals based in emerging markets.

Why?

The Economist projects that 39 of the 45 fastest-growing economies over the next five years will be emerging markets.

Emerging market countries make up nearly 40% of the value of the world’s stock markets and 35% of global consumer spending, plus account for a staggering 83% of the world’s population.

According to the World Bank’s projections, the global middle class will rise from 400 million in 2000 to 1.2 billion by 2030, making up 93% of the world’s middle class and controlling over $6 trillion in spending power.

Two Great Boom Chips

I would now like to highlight two food boom chips that are growing much faster than Kraft.

Brasil Foods (NYSE: BRFS) is a market leader in meats and dairy with two-thirds of its sales in Brazil. It’s the world’s largest poultry exporter, Brazil’s largest maker of frozen microwave dinners and meats, and supplies McDonalds, Pizza Hut and Burger King restaurants. During a recent quarter, its net earnings rocketed 73% and its three-year average annual total return reached 35.6%.

Here’s the clincher for me: Studies show that as incomes rise in emerging markets, diets change rapidly to include less rice and vegetables and more meat and dairy. This is a growth sweet spot and Brasil Foods is at the bull’s-eye.

And so is today’s Investment U Plus pick. It’s a leading poultry and animal feed company that grew net profits 15% on an annualized basis over the past 10 years. Its stock was up 20% in 2011 while emerging markets were down 20%.

Its CEO took over his family’s small grain-seed business when he was 30, and grew it into a leading poultry provider, and one of the largest animal feed distributors in the world. It has $33 billion in revenue and operations in more than 17 countries (including the United States).

It’s currently ramping up growth by pushing into Vietnam and China.

So blend some boom chips with traditional blue-chip stocks and supercharge your global portfolio.

Good Investing,

Carl Delfeld

Market players began to disregard all the premature “good news” coming from Europe and started making better investment decisions.

At the beginning, they were bullish on any positive news, and then funneled all their money into Treasuries – with a return of around 2% – when that “good news” turned out to be less than credible.

As we have said here many times, “Save yourself the heart attack of this rollercoaster ride. This is a time when trusted strategies can deliver peace of mind.”

And so with all the volatility, the clear strategy was to reduce risk while gaining the best possible return. For this reason, dividend-paying stocks have been attracting investors of all types for their high yields and market-trumping returns. The yields of dividend-payers have dwarfed those of 10-year Treasuries.

But when everyone is preaching the same game plan, there can be some drawbacks. So we must ask: With all their newfound popularity, have dividend paying stocks become too pricey?

Here are three important factors to look at:

1. Investors poured $31.3 billion into mutual funds and exchange-traded funds that invest in dividend payers last year, nearly five times the amount in 2010, according to researcher Lipper Inc.
2. All equity funds and ETFs lost around $33.5 billion.
3. Stocks, in the Standard & Poor’s 500 Index, that pay dividends posted a 1.4% total return in 2011, while non-payers fell 7.6%.

The flood of funds into dividend payers is making their stocks more expensive.

Here’s how it usually happened over the years; dividend stocks trade at lower price-to-earnings ratios, with the expectation that they’ll grow less quickly than other stocks.

This still remains true. However, the gap between payers and non-payers is shrinking. If you look at the end of 2010, the average price-to-earnings ratio of non-payers in the S&P 500 was 37% higher than the average P/E for payers; presently it’s at 33%.

This recent phenomena has been caused by the introduction of the short-term investor into the dividend market and the drawback of the higher prices could mean that they may not be able to duplicate last year’s strong performance. The fact that the sector is “en vogue” has also seen some yields push down.

Don’t Fret Long-Term Investors

If you’re investing or thinking about investing in dividend-payers, you have to keep this a long-term strategy because that will be the most beneficial play.

Because they tend to be less volatile than non-payers, they tend to lag in a bull market, but hold up better when markets falter, says Howard Silverblatt, the senior index analyst at Standard & Poor’s. “Basically, the dividend acts as an anchor holding the stock in place,” he says.

And because many companies increased their dividends over the course of 2011, dividend investors will be getting more income through 2012. “Unless companies cut [their dividends], you almost have to get a double-digit increase this year,” Silverblatt says.

Don’t Overpay

Investors should focus on companies that are still growing their dividends and not chase yields. “Dividend growers are great inflation protection because that yield is increasing every year,” says Steven Roge, a portfolio manager at R.W. Roge & Company. And if the yield is rising, he says the underlying fundamentals of the company are likely improving, too.

Great things to keep in mind…

For more information on dividend stocks, take a look at our dividend investing site map.

Good Investing,

Jason Jenkins

And we know that the older we get, the more we spend on healthcare.

Consider:

• The average senior takes between two and seven prescription medications.
• Two out of three seniors will suffer a physical or mental impairment.
• One out of three seniors will spend time in a nursing home.

All of those things cost money – not to mention, chemotherapy, insulin, rehab stays, regular doctor appointments, weight loss programs and nutritional supplements.

That’s why it’s a great time to put money to work in the sector. Revenue and earnings are going to explode higher in the coming year, particularly in the two most innovative groups – biotech and medical technology.

But the time to get in is now. Here’s why.

On the chart below, over the last six months, starting right before the market sell-off over the summer, biotech and med tech have underperformed the S&P 500.

Six Months:

• S&P 500: -3%
• Medical Equipment: -7%
• Biotech: – 11%

However, that underperformance isn’t the norm.

As you can see on the following charts, biotech and medical technology strongly outperform the S&P 500 over five- and 10-year periods.

Five years:

• S&P 500: -7%
• Medical Equipment: +20%
• Biotech: +71%

Ten Years:

• S&P 500: +16%
• Medical Equipment: +117%
• Biotech: +163%

So, history tells us that medical technology stocks like Intuitive Surgical (Nasdaq: ISRG) and biotech stocks like Celgene (Nasdaq: CELG) blow away the market averages. Yet right now, the group is underperforming.

I don’t expect that to last. Not when the fundamentals are lining up to create a boom in healthcare that some experts are saying will be similar to the beginning of the internet.

If any sector is going to dominate the news, politics and your finances in the coming decade, it’s going to be healthcare.

And because of the near-term underperformance, the sector is giving you a great opportunity to get in while the getting’s good.

This is a trend that’s going to have legs for a long time. But if you can start scooping up some of the best small- and mid-cap biotech and medical technology stocks now, imagine what they’ll be worth five and 10 years from now.

Anyone who bought Celgene 10 years ago is sitting on a 1,000% profit. Investors in Intuitive Surgical have made nearly 25 times their money. A $10,000 investment in 2002 is now worth $245,000.

With Baby Boomers aging and $4 trillion building up like flood waters against a levee, the underperformance of the sector isn’t going to last long. The market is giving us a rare opportunity to buy a group of stocks that are going to generate enormous profits for investors – and those stocks are currently on sale. It’s time to go shopping and fill up the cart.

Good Investing,

Marc Lichtenfeld

But very soon, those detractors will likely be eating their words. I’ve said it many times in the past: Technology marches on, and the cost of manufacturing will come down.

Well the cost of manufacturing solar isn’t just coming down; it’s dropping through the floor. By the end of this year, solar will be so cheap it will compete with just about any other form of generation. It already does in some places, and at commercial scale levels. The best part? It will do it without subsidies.

You see, solar panel prices are about to cross a tipping point. It’s all due to the drop in price of a solar module’s most crucial ingredient: polysilicon.

The Polysilicon House of Cards

Polysilicon prices have collapsed 90% in the last five years. That translates directly into lower module costs, lower panel prices and ultimately into a lower installed cost per watt.

How did this happen? Way back in 2006, there was a run on polysilicon. It turns out it’s the same material used to make integrated circuits. But all of a sudden, the solar industry was booming, and competing for what was then a limited supply.

Its use for solar was rising rapidly, and 2006 was the first year that 50% of all polysilicon went into the manufacture of modules for solar panels. And panel manufacturers were clamoring for even more.

Polysilicon makers were laughing all the way to the bank, and then some. They essentially were an oligopoly, and were earning upwards of 40% margins on their product, according to a recent research report published by GTM Research.

Prices just kept rising along with demand, and by 2008 the shortage was so severe, polysilicon was selling for over $400 per kilogram on the spot market. Margins had risen to 70%.

Naturally, this lured new players into the market, and led existing makers to expand manufacturing capacity. But they overestimated how much was really going to be needed.

By 2011, much of this additional capacity began to come online, and polysilicon prices started falling. By March of 2011, the spot price had dropped to $80 per kilogram, and by this past December, it was all the way down to $30 per kilo.

This incredibly low spot price was all the leverage customers with long-term contracts needed to renegotiate lower prices.

GTM Research predicts that in 2012, these declining silicon prices will lead to even lower module prices. At the beginning of 2011, module prices were $1.80 per watt. By the end of 2011, they were halved to $0.90 per watt.

Closing in on Grid Parity

This year, GTM expects module prices to breach the $0.70-per-watt barrier and continue to head south. Of course, with other manufacturing costs and installation being relatively fixed, lower raw material means lower panel prices. And $0.70 per watt is below the magic $1.00-per-watt level that’s widely viewed as “grid parity” for solar.

That’s the point where it makes just as much sense to use solar as any other form of generation.

The system I installed at my farm is 10.08 kilowatts (KW). Over its 25-year lifetime, it’s expected to produce an average of 12,000 to 18,000 kilowatt-hours (kWh) per year.

I’m leasing my system for five years, and will then purchase it. My total all-in cost is about $27,000. (Since I’m leasing the system, I don’t receive any government subsidies or tax breaks.)

Let’s assume that the system produces the minimum amount per year, 12,000 kWh.

Multiplying by 25 and then dividing by the cost of the system, we come up with $0.08 per kWh. My current electricity from the grid operator costs $0.14 per kWh.

That’s almost a 50% savings. If I produce even more, my savings will be even higher.

And this system has panels that were manufactured in 2011. Panels made this year will be even cheaper, and so will the all-in cost.

Misinformation and Black Eyes

So what’s keeping solar from being widely adopted? Lack of information, for one…

The industry got quite a black eye over the Solyndra deal.

GTM Research Senior Analyst, Brett Prior, believes the industry will continue to grow at 10% to 20% per year for the foreseeable future. He had this to say about the polysilicon market today:

“After a half-decade of silicon demand outstripping supply, the aggressive expansion plans finally overshot.

“This supply/demand imbalance will push producers to lower contract prices closer to the level of manufacturing costs at $20 per kilogram, and will force higher-cost manufacturers to exit the industry.

“The end result is that the current roster of over 170 polysilicon manufacturers and startups will likely be winnowed down to a dozen survivors by the end of decade.”

I believe that as prices continue to drop, solar will continue to gain in popularity.

Big panel manufacturers like U.S.-based SunPower Corporation (Nasdaq: SPWR) will be around when the dust settles. They currently make the most efficient (19%) commercially available panels in the world. The stock is way off its highs of a year ago, but is up a healthy 22% since the beginning of the year.

So is it solar boom time? I don’t have a crystal ball, but with module prices continuing to drop, it becomes more attractive every day. That’s good news for panel manufacturers, as they’ll continue to improve as volumes ramp up. Investors certainly won’t find them any cheaper than they are right now.

Good Investing,

David Fessler