There’s no denying it… The evidence has been mounting for several quarters now. Home prices are on the rise and the number of distressed houses on the market is dropping steadily. In some key real estate markets, there are even reports of shortages of available homes on the market.

Investors have taken note and are buying up shares of stocks that are directly affected by the recovery. Traditional homebuilder stocks are trading higher, along with suppliers such as companies that sell building supplies and home furnishings.

One company that’s poised to take advantage of the trend is Lumber Liquidators (NYSE: LL).

Lumber Liquidators is a niche player in the building material sector. It focuses exclusively on hardwood flooring and related accessories.

The company is large enough to compete on the highest levels (booking contracts with the blue-chip developers), but still small and nimble enough to represent a tremendous amount of growth potential.

To understand just how much growth is in store for Lumber Liquidators, let’s first take a look at the broad housing environment.

Housing Market in Sustained Uptrend

Demand for homes in key markets across the U.S. has been rising, with two primary drivers pushing the action:

• Individuals are buying homes as employment improves and interest rates remain attractive.
• Institutional investors are buying distressed homes in bulk, renovating and renting properties.

Perhaps the most dramatic influence right now is the private equity company The Blackstone Group (NYSE: BX), which has plowed billions of dollars into distressed homes across the U.S.

The firm’s strategy is to buy foreclosed homes in bulk and then deploy an army of contractors and skilled laborers to renovate the properties. These homes are then rented out, netting positive cash flow for the firm and its investors.

While the cheapest homes have already been purchased, Blackstone isn’t planning on shutting down its buying program any time soon. The company recently added $2.1 billion to its credit line, giving it plenty of additional capital to purchase and renovate distressed homes.

Blackstone isn’t alone in its strategy of buying single family homes and renting them out to individual tenants. Silver Bay Realty Trust (NYSE: SBY) is a real estate investment trust (REIT) that was formed last year. Silver Bay put together a tremendous amount of capital to become the largest publicly traded REIT focusing exclusively on single family homes.

On a personal note, I had a conversation this week with a developer in the Las Vegas area. The small private company my acquaintance works for recently bought an entire neighborhood worth of lots to build out. The firm already has excess demand for the homes that are in the building stage, and is having trouble finding new developments to buy in order to repeat the process.

Home Depot and Lowes Earnings Confirms Demand

This week’s earnings announcement from Home Depot (NYSE: HD) and Lowe’s Companies (NYSE: LOW) also confirms the strong demand for building material.

On Tuesday, Home Depot hit a new all-time high after beating earnings estimates with an 18% increase in profit. Management raised guidance for upcoming quarters based primarily on…. you guessed it… the ongoing housing recovery.

Here’s a quote from the company’s CEO, Frank Blake: “[W]e continue to see benefit from a recovering housing market that drove a stronger-than-expected start to the year for our business.”

Lowe’s followed with its own report on Wednesday, booking a solid 14% increase in profit. Investors continue to bid the shares of both stocks higher as confidence in the housing recovery grows.

Lumber Liquidators – The Optimal Choice

Of all the companies mentioned, though, Lumber Liquidators is the best opportunity to take advantage of the new housing boom. Not only does it offer tremendous growth potential, but the company is small enough to continue to grow at a fast clip for many months (or even years) to come.

The management team has done a good job of generating growth, by building out a quality line of products and developing strong relationships with large building conglomerates as well as small individual contractors.

A good bit of Lumber Liquidator’s business comes from large homebuilders that buy flooring in bulk. But it is important to note that the company also gets a tremendous amount of business from the remodeling industry.

With large companies like Blackstone buying billions of dollars’ worth of distressed homes, there is a huge amount of renovating that needs to be done across the country. While Lumber Liquidators doesn’t sell directly to Blackstone or Silver Bay, the company is most definitely benefitting from the myriad of contractors who are employed by these REITS.

On April 24, Lumber Liquidators announced stellar earnings for the first quarter. Even though the first quarter is seasonally weak for builders, Lumber Liquidators netted a 22.5% increase in sales and a 92.5% increase in earnings.

The company also reported an increase in comparable store sales of 15.2%. This shows that while the company is benefitting from opening new stores across the country, the performance of its existing stores is also a significant factor driving revenue growth.

The strong quarterly report was just another data point in a series of healthy quarters for the company. Take a look at the chart below. It shows acceleration in both revenue and earnings growth over the last several quarters.

Looking forward, analysts are expecting 44% growth in earnings this year. While this is definitely a strong growth rate, it’s even more important to note those same analysts continue to raise their estimates for this company.

It seems that Wall Street can’t keep up with the actual growth, as Lumber Liquidators continues to surprise investors with even stronger growth than expected.

This is exactly what you want to see from a company that is capturing market share in a growing sector. A virtuous circle of increasing estimates and rising investor sentiment can push a stock higher by many multiples.

Over the next year, analysts should boost their 2014 estimates, with $3.50 being a strong possibility. If investors are willing to pay 35 times forward earnings for this dynamic growth company, the stock would naturally trade at $122.50 – representing a 38% gain from current prices.

Of course if Lumber Liquidators continues to post 92% profit growth, these estimates will turn out to be very conservative and you could realize a triple-digit profit.

Now is the time to pick up shares of this tremendous growth stock. There is no debate… the housing industry is growing stronger by the day.

I’m used to speaking in public. I’ve spoken at investment conferences all over the world. I have been interviewed on dozens of radio programs including Bloomberg. And I regularly appear on the big TV networks including CNBC and Fox Business.

Additionally, I moonlight as a ring announcer for boxing and mixed martial arts events. Strange job, I know, but I love it. I can be found on HBO, Showtime or ESPN just about every month.

So getting up in front of a room full (or arena full) of people doesn’t rattle me. However, on my drive to today’s engagement, my stomach was doing flips like it hasn’t in years.

I was asked to give a presentation to a class of high school seniors.

Typically, when I talk about stocks, I talk to experienced investors. They are excited to attend a conference, or they have made a conscious choice to tune in to financial programming.

That’s not the case with my latest “captive” audience. They don’t have a choice. It’s me… or detention.

How in the world am I going to connect with 17-year-olds who are counting down the minutes until lunch?

Money Gets Attention

Well, since many of them were probably already thinking about McDonald’s (NYSE: MCD), I could show them how they could have tripled their money if someone had the foresight to buy them some stock when they were 7 years old.

That should raise a few heads off of desks.

When I wrote my book Get Rich with Dividends I had two goals.

The first was to help people generate greater income and create wealth through dividend-paying stocks. But my second was the hope that younger readers, in their 30s, 20s or even teens, would learn the strategies in the book and begin to invest early.

After all, a 30-year-old who invests $10,000 in the right dividend growth stock could easily have over $1 million at age 65.

Even better, a 25-year-old who puts the same amount of money away until they’re officially a senior citizen can grow a nest egg worth $3.5 million at retirement.

It’s Like Free Money

There are two important steps to take if an investor wants to grow their wealth so significantly.

1)    Invest in Perpetual Dividend Raisers – these are stocks that raise their dividends every year. And, hopefully, they do it at a meaningful pace. A 1% raise is better than no raise at all, but 10% is a heck of a lot better than 1%.

2)    Reinvest the dividends – that allows the dividends to compound. When an investor reinvests the dividends, they buy shares with their dividends (usually commission free), which generates more dividends, which buys more shares, which generates more dividends, etc. The power of compounding is incredible.

Here is an example:

An investor buys 400 shares of a $25 stock. His initial payout is $10,000. The stock has a 4% yield, which grows 10% per year. And over the decades, the stock goes up in line with the historical market average.

At the end of one year, the stock will generate $415 in income (not $400 because the dividend is reinvested quarterly). After that first year, the investor will own 415 shares.
After five years, the investment produces $711 in income and the shareholder owns 490 shares.

After a decade, the investor receives $1,440 in dividends annually and owns 617 shares.

At this point, the shareholder now owns over 50% more shares than he started with and those shares are all generating a higher dividend than the original position 10 years earlier.

After two decades, the holdings produce $6,440 in dividends on 1,053 shares, achieving a 64% annual yield on the original cost.

By the time we hit the 30-year mark… things really start to heat up. The $10,000 investment now earns $32,508 in annual income on 2,127 shares – a yield of 325% on the original investment

And 40 years after the initial stake, the figures are incredible. The investment generates $203,600 in annual income on 5,062 shares. The yield is now 2,036%.

This works in real life… not just in theory.

A $10,000 investment in Colgate-Palmolive (NYSE: CL) 30 years ago would have you $9,732 short of being a millionaire today.

And 10 grand in McDonald’s would have turned into $944,806.

Better Than a Gift Card

With the end of the school year approaching, you probably know someone who is graduating from high school or college.

If you need to give them a gift, consider shares of a quality Perpetual Dividend Raiser. Give the graduate the explicit instructions that the stock is not to be sold for at least 20 years.

When the kids use the money to buy a house, send their own kids to college or even help fund their retirement decades from now, they’ll look back fondly on the gift you gave them this year.

I hope at least one of those students that I spoke with will look back on my presentation and remember Mr. Singer’s guest speaker who made them forget about lunch for a half hour and instead opened their eyes to a rich financial future.

Good investing,

Marc

P.S. You can see exactly which Perpetual Dividend Raisers I recommend by reading the Oxford Income Letter, which requires an Oxford Club membership. Each month I reveal stocks that I expect to generate numbers just like I highlight above. In fact, I just discovered the single biggest income opportunity of 2013… and it’s all thanks to a huge blunder by the Obama administration.

According to the IMF, the world’s richest country per capita is little ole Qatar located on the Persian Gulf. Because of its location, oil and natural gas have made it a major player on the international scene.

And as the country goes, so does its biggest financial institution, Qatar National Bank SAQ (QNBK).It’s now considered the world’s best bank.

Here’s how it got that title…

Follow the Money

Bloomberg Markets puts together an annual ranking of the world’s strongest banks, using the following criteria:

• Bloomberg evaluates 78 banks with a minimum of $100 billion in total assets.
• The bank’s ratio of Tier 1 capital to its risk-weighted assets is worth 40% of the total score. In case you need a refresher, Tier 1 capital is cash, equity and some forms of preferred stock that serve as a cushion against financial blows.
• 20% of the weighting belongs to the ratio of nonperforming assets to total assets.
• Another 20% goes to the ratio of reserves for loan losses to nonperforming assets.
• 15% goes to the ratio of deposits to funding.
• And the final 5% goes to the efficiency ratio. It’s a figure that looks at the costs of revenues and gives us a clue as to how banks compare to their peers.

Banks that reported losses for 2012, that failed the Fed’s stress test or did not report financial data for last year were not entered in the rankings. After all was said and done, QNB pushed past the reigning heavyweights from China and Canada to take the top spot.

Oil Money

As I stated before, Qatar National Bank is highly tied to Qatar’s government. The Qatar Investment Authority (QIA) – a sovereign wealth fund – owns 50% of the bank. As is the role with many such entities, the QIA is the arm of the government that invests globally.

Since the start of the global recession in 2008, sales of oil and natural gas allowed Qatar to grow at about 13% annually. In the same period, the country has grown since Qatar National Bank has seen annual profits increase an average of 27%.

Interestingly, the bank is bigger than the rest of the banks in the country put together. According to 2012 numbers, it was the originator of almost 70% of the loans to the Qatar government and its state-sponsored entities. These same entities added up to more than 50% of its deposits.

With such strong ties to one of the wealthiest governments in the world, it’s clear the bank doesn’t have to worry about many of the structural issues that plague many of the world’s largest banks.

While it’s difficult to invest directly in Qatari stocks, you can invest in the Qatar Investment Fund (LSE: QIF).

It’s a closed-end fund that invests strictly in Qatari equities and is up over 7% for the year.

Its top holding? You guessed it… Qatar National Bank is worth 18% of the fund’s portfolio.

With the bank and the rest of the country on an upswing, this fund should make money.

Good investing,

Jason

The cause, of course, is Federal Reserve intervention in the bond market. Ben Bernanke is spending hundreds of billions to buy longer-term bonds and force interest rates down.

Pundits will argue about whether this is ultimately a good thing or a bad thing, but there is no denying that in the short run this has given the stock market and the housing market a shot in the arm.

Mortgage rates are near record lows. And with cash paying next to nothing – if not nothing itself – investors are moving into stocks and riskier bonds.

The question for investors, of course, is what will happen when this Fed stimulus ends.

Since it will signal that the Fed believes the economy is strong enough to continue growing without intervention, the Fed’s exit will be a neutral factor for the stock market.

But it will create turmoil in the bond market.

Prices Will Plummet

Picture a seesaw. Interest rates and bond prices are inversely correlated. When interest rates go up, bond prices go down. And vice versa.

So when the biggest player in the bond market – the U.S. Federal Reserve – quits holding rates artificially low they are going to spike higher. And that’s not good for bonds.

Prices will plummet.

How does a fixed-income investor protect himself? There are several ways.

The first is to limit overall exposure to the bond market. Anyone who has half or more of his liquid net worth tied up in historically “safe” bonds – like Treasurys and high-grade corporates – is going to get his head handed to him.

However, it’s important to remember that if you buy a bond at par ($1,000) and interest rates go up, the drop in the market value of your bond (assuming there is no default down the road) is merely temporary. You can ride out a rising interest rate environment and recover your full investment at maturity.

But most fixed-income investors don’t have enough capital to diversify in individual bonds. And there’s the rub. If you own a bond fund, even a U.S. government bond fund, there is no assurance that you will get your principal back ever.

Why?

Because the vast majority of funds are forced to keep buying new bonds as interest rates rise. And that means the net asset value will stay under continued pressure.

Fortunately, an innovative new investment vehicle protects you from this problem.

They’re called defined-maturity exchange-traded funds (ETFs).

If you haven’t heard about these, it’s probably because most were only recently launched. They solve the rising interest rate conundrum for bond fund investors.

For example, if you want to buy short-term investment-grade corporate bonds, you might try the Guggenheim BulletShare 2015 Corporate Bond (NYSE: BSCF), maturing on Dec. 31, 2015, and currently yielding 1.93%.

Or, if you prefer the tax-free route, you might try the iShares 2017 S&P AMT-Free Municipal Series (NYSE: MUAF), maturing Aug. 31, 2017.

If you want more yield – and are willing to take more risk – you might try the Guggenheim BulletShares 2018 High Yield Corporate ETF (NYSE: BSJI) with a maturity date of Dec. 21, 2018, and a current yield of 6%.

There are other funds like these to choose from and – gauging by their popularity – many more to come. But the key advantage here is that you can collect the bond’s face value at maturity.

I can’t emphasize enough that closed-end funds and open-end mutual funds don’t mature – and neither do 99.9% of all ETFs. So these funds are truly offering something new and better.

And that something is hard-to-find fixed-income protection against rising rates. And – trust me – it’s only a matter of time.

Good investing,

Alex

P.S. My friend and colleague Marc Lichtenfeld has identified a much more lucrative way to play the bubble in bonds. It’s through a unique kind of investment he calls “Spread Trusts.”

When the bubble finally bursts, these trusts are poised to shoot as high as 164% and pay out double-digit income for years.

To learn more about them, click here.

It all started back in 1993 when the United States and Russia signed a historic agreement creating what’s called the “Megatons to Megawatts” (MTM) program.

The program’s goal is turn the deadly highly enriched uranium inside Russian nuclear weapons into the fuel for American power plants.

When the program comes to an end in December, it will have converted 500 metric tons of highly enriched uranium (about 20,000 nuclear warheads’ worth) into fuel for America’s nuclear reactors.

On March 4, 2012, Russians re-elected Vladimir Putin for a third term. Given Putin’s disdain for the West, it’s doubtful the MTM program will continue.

It will leave a big hole in the world’s supply of enriched uranium. It will also leave Russia in the uranium catbird seat. As the supply from dismantled warheads wanes, worldwide uranium prices could double from current levels.

Ready to Spike

Take a look at the graph below…

The spot price for uranium soared to nearly $140 per pound in 2007. Then, almost as quickly as it soared, the price plummeted to the $40 level in early 2009.

The green metal managed to claw back to $70 per pound in early 2011. But then a nuclear disaster shook the sector… Fukushima. Following an earthquake and a disastrous tsunami, the Japanese plant experienced a deadly meltdown.

Next to Russia’s Chernobyl accident in 1986, Fukushima is the only incident to reach Level 7 on the International Nuclear Event scale.

Countries around the world reacted hastily.

• Japan shut down all 50 of its nuclear reactors.
• Germany shut down 8 of its 17 reactors and resolved to phase out the rest by 2022.
• Switzerland decided on a slow phaseout starting in 2019 and extending through 2034.

And prior the Fukushima disaster Austria, Sweden, Italy and Belgium had plans to eliminate their nuclear facilities.

The sudden plunge in demand once again sent uranium prices to the $40 level. But prices won’t stay this low for much longer.

No Other Choice

Japan’s initial reactor shutdowns and those planned by European countries will have little, if any, effect on long-term uranium demand.

Right now, there are 435 nuclear power plants in operation around the globe. An additional 67 more are under construction. Incredibly, despite the Fukushima fallout, another 317 are proposed and could be on line in as few as 15 years.

A World Nuclear Association report from August 2011 (five months after Japan’s meltdown) had this to say about the growth of nuclear power:

“[There are] 60 reactors being built around the world today. Another 150 or more are likely to come online during the next 10 years. Over 200 are further back in the pipeline.

“The global nuclear industry is clearly going forward strongly. Countries with established programs are seeking to replace old reactors as well as expand capacity.

“An additional 25 countries are either considering or have already decided to make nuclear energy part of their power generation capacity. Most (over 80%) of the expansion in this century is likely to be in countries already using nuclear power.”

For uranium bulls, it’s great news. Demand is about to outstrip supply.

In 2011, the world’s reactors used 165 million pounds of uranium. At the same time, global production amounted to just 143 million pounds.

The MTM program was there to fill the balance.

But that’s about to change…

When the deal with the Russians ends, 24 million pounds of uranium supply will instantly disappear. And it will happen just as global demand begins to surge.

Annual production will need to increase as much as 136,000 tons by 2035 in order to keep up with demand. Not only will we need more mines, we’ll also need more processing facilities to turn raw uranium into a product suitable for nuclear fuel.

Bottom line… somebody’s going to get rich.

One of Many

While Kazakhstan has emerged as the world’s largest supplier of uranium, Canada is No. 2. The biggest supplier in Canada is Cameco Corporation (NYSE: CCJ). It’s one of many companies that will ride the back of the uranium bull.

Cameco mines are responsible for about 14% of global uranium production. It owns mines in Canada, the United States and Kazakhstan – which collectively hold 465 million pounds of proven and probable reserves.

The company’s flagship operation is the McArthur River Key Lake mine. Located in Saskatchewan’s Athabasca Basin, the mine is the largest high-grade uranium mine in the world.

Its average ore grade is 100 times greater than the world average.

Cameco also owns the world’s second largest deposit of high-grade uranium. Its Cigar Lake mine, also in the Athabasca Basin, is still under development. Production is on schedule to start by the end of June. Once the mine is running, it will produce 18 million pounds of uranium per year.

The company expects its total annual production to be 36 million pounds by 2018.

Cameco’s share price has seesawed between $16.41 and $23.23 over the past year. The stock is currently trading about $2 off its highs.

The mainstream media and the investing herd will soon get wind of the coming uranium shortage. Shares of Cameco, along with those of other uranium miners, could explode higher on the news.

As the program that kept the uranium bull in the pasture comes to an end, something big is about to stir the mining industry.

Good investing,

Dave

Most investors are convinced the defense sector will lag as Uncle Sam cuts his spending. But their worries have not yet proven true.

At the end of April, the big five defense contractors reported earnings that beat Wall Street expectations. These earnings reports were the initial pieces of information released to the public after the across-the-board cuts were put into action.

So far so good.

Even before Congress threatened strong Department of Defense cuts, U.S. defense contractors prepared for a dip in Pentagon spending. With an anti-war president in power, they could read the writing on the wall.

In anticipation, major contractors downsized and consolidated operations. They cut the less-profitable parts of their businesses.

But the other move they made, and this is huge, was to seek out new markets. Companies looked outside American borders for alternative markets.

During the recent earnings season, the brass at the top defense contractors preached the benefits of international markets on their first quarter conference calls. All of them revealed that domestic cuts are and will be balanced out by expansion outside the United States.

And this wasn’t just the executives blowing smoke.

Always a War Somewhere

The world is a dangerous place. The United States can’t police every threat.

Countries across the globe are desperate to defend themselves from an array of threats. That means the demand for American military technology is expected to stay strong.

For example, many countries in the Middle East are terrified of Iran and the possibility it could obtain nuclear weapons. With strong oil prices lining their coffers, many Gulf countries have turned to American contractors for military aerospace products.

It’s a similar story in China. As the country’s economy expands, its government has greatly increased defense spending. Many American military companies are finding strong demand in China.

The Winners

There are four major players poised for future success. They are Lockheed Martin (NYSE: LMT), Boeing (NYSE: BA), General Dynamics (NYSE: GD) and Raytheon (NYSE: RTN).

Two of them are excellent examples of companies doing big business as global defense spending surges.

For example, Australia just ordered 100 of Lockheed’s popular F35 fighter jets. Lockheed CEO Marilyn Hewson said in conference call that the global sales of the fighter – along with other programs – will aid in growth.

“We are on a path to grow international sales from approximately 17% of total revenues last year,” she said, “to at least 20% in the next few years.”

Earlier this year, the company had meetings with Italy and a host of Middle Eastern countries such as as Israel and Saudi Arabia. The meetings focused on an array of security issues like fighter jets, missile defense and cybersecurity.

These are all areas where Lockheed Martin will increase its international sales.

In recent conference calls, Raytheon CEO William Swanson said, “International continues to be a key differentiator for the company. In Q1, our international business represented 26% of our total sales. We have a very broad offering and a multitude of capabilities that serve our international partners well. We see a lot of strength – and we see it growing meaningfully.”

All told, Raytheon’s overseas orders should increase 20% for 2013.

The bottom line is Washington’s budget cuts are real, but they are nowhere near as deadly as many naysayers want us to believe. The biggest and smartest defense companies saw the cuts coming and they reacted appropriately.
The filled the domestic void with an array overseas opportunities.

Despite the dire rhetoric, the top four players – especially Lockheed Martin and Raytheon – are well-positioned for the future.

Good investing,

Jason

The answer can be instructive.

For instance, over the last five years the Dow has moved over 16,000 points. It’s gone from a high of over 14,100 to a low of around 6,500 to a recent all-time high of more than 15,100.

That’s a wild ride. How’d you handle it?

Let’s hope you didn’t choose the worst option… which was panicking when things got tough, selling somewhere near the bottom and listening to some talking head who insisted the end was nigh.

It never pays to be an emotional investor rather than a rational one.

And if you were aided and abetted by a broker, financial advisor or newsletter editor who advised you this way, do yourself a favor and hand him his pink slip.

A slightly better strategy than a full-on panic would have been to do nothing.

Inactivity doesn’t require great brilliance but – with the market now at new all-time highs – you can at least console yourself with Billy Shakespeare’s observation that “all’s well that ends well.”

If you reinvested your dividends (and capital gains distributions) along the way, you at least got some compensation for all those sleepless nights.

Better still would have been to use the market crash as an opportunity to accumulate great assets at great prices.

After all, many stocks were selling at single-digit earnings multiples and yielding 7% or more. Junk bonds – whose yields are now at the smallest premium to Treasurys in history – were yielding over 20%. And many real estate investment trusts, in addition to yielding 12% or more, have put on ferocious rallies.

Can’t Beat This

As I pointed out in hundreds of Investment U columns over the last four years, it was easy pickings – especially since so many investors simply sat on the sidelines and left the bargains there for the rest of us with enough gumption to take advantage of them.

But even better would have been to do what Oxford Club members did over the last five years.

With the luxury of hindsight, it’s clear that our investment strategy was uncanny. Almost unbelievable, in fact. And we don’t need to resort to industry-standard cherry-picking to prove it.

Just glance at the chart below…

You see, 2008 was the worst year for the stock market in modern history. The S&P 500 finished the year down 38.5%.

In The Oxford Club‘s Trading Portfolio, as you might imagine, our trailing stops knocked us out of some positions with losses. Yet those same stops protected our many gains, too.

Taking into account every recommendation, we closed out 45 positions in 2008 with an average gain of 28.62%. (See chart below.) That’s pretty incredible in a year when the market took almost a 40% swan dive.

That was just for starters, however.

No sooner were we fully in cash than we started redeploying our proceeds and rode the market rebound like Silver Spurs champions.

We have taken a number of profits – and a few losses – in our Oxford Trading Portfolio since the market bottomed four years ago, but our overall position could hardly be better…

We currently have 24 recommendations in our Trading Portfolio. Twenty-three of them are profitable, with gains of as much as 261%. Our one down position – DigitalGlobe (NYSE: DGI) – is 3% below our initial entry price.

A Winning Strategy

With world-class performance like that, it’s no surprise that the independent Hulbert Financial Digest ranks us among the best-performing investment letters in the nation for more than a decade now.

I don’t know any stock investor who played this 16,200-point move better than we did.

I’m often asked how we could know that the market would fall so precipitously and then rebound so magnificently.

That’s the fascinating part. We didn’t.

The Oxford Club uses a proprietary trading strategy that allows members to capitalize on the uncertainty inherent in the world’s financial markets.

Some investors believe that with the market moving into all-time high territory they don’t need a battle-tested system that maximizes gains in the good times and protects those profits in the bad ones.

But they do.

If you aren’t ready for the bear market that follows every bull market – or the bull market that follows every bear – you aren’t managing risk. You’re flying by the seat of your pants.

And if there’s one thing a 16,200-point move in the market proves, it’s that that doesn’t work.

Good investing,

Alex

There are two things I am absolutely certain of. First, next April 15 I will be writing a check to the IRS. And second, natural gas will be the primary fuel for the next 100 years.

Well-positioned gas companies will be golden for many years to come, and no one is doing it better or has more potential than Chesapeake Energy (NYSE: CHK).

I know they have had a tough road for the last year or so, but Chesapeake is set to be one of the biggest and best once again.

It recently blew away earnings and year-over-year comparisons.

The company had a 67% year-over-year increase in earnings, a 42% increase for the same period in revenues and beat earnings and revenue estimates.

Natural gas liquids production was up 9% year over year, oil production was up 56% and, for the same period, Chesapeake lowered production costs 26%.

And, most notably, 85% of its drilling is focused on oil plays, which brings a much higher price than natural gas.

Now, I know Chesapeake has had a funding gap that has been at the root of most of its problems for the past year, but it has already met one half of its assets sales goal in just the first quarter of this year. It did it by selling drilling leases that are about to expire on undeveloped gas properties.

Chesapeake has been able to solve its funding problems by selling drilling rights that will not affect its future performance, and it still owns 14 million acres of gas and oil rights.

In fact, the company’s production growth rate for the past few years is 15% to 20% in spite of the sale of assets.

Seventy-eight percent of its 2013 gas production is hedged at a price that’s one dollar higher than the best price the company got last year, and its production costs in the first quarter are down 18% from last year.

And, to top it all off, Chesapeake recently won a big lawsuit involving its bonds and – this is beginning to sound like a wishlist – there are rumors that Chevron (NYSE: CVX) or Exxon (NYSE: XOM) could make a buyout offer. A buyout is unlikely but, as we all know, rumors like these drive the stock price.

You must own companies in the gas business, and Chesapeeake is my favorite.

A Big Surprise From Mutual Funds

For the 30 years I have been in the markets, the one rule for mutual funds that seemed to be cast in stone was not to chase short-term performance. In other words, you had to look at the long-term performance of funds to make a good choice.

Well, so much for cast in stone in the markets.

A recent article in The Wall Street Journal cited data since the collapse in 2008 and 2009 that indicates short-term performance – one-, three-, six- month and one year – is a much better indication of future returns. And it’s by a big margin.

The study tracked the performance of 300 mutual funds since 1999. It clearly showed that focusing on the one- to 12-month performance periods returned 12% annually since 1999 as compared to 3.5% for the S&P 500. And, returns got progressively worse as the length of the performance period increased.

A caveat to the findings is this system worked best with no load funds and less-risky funds. Look for funds with risk levels equal to the overall market. But the cheapest funds in this study were not the best performing.

In fact, the study concluded that investors are too focused on costs and not enough on returns… and it is costing them money. They lose it on the other end of the equation.

No one was more surprised by these results that I was. This is earth-shattering for the mutual fund world.

The “Slap in the Face” Award: An Expensive Umbrella

For the better part of the last 22 years, rain or shine, I have walked to work, about two miles each way. And in that time I have lost, left behind, broken or had the wind blow apart at least 100 umbrellas. And umbrellas are the point of this week’s Slap in the Face Award.

In fact, it’s an $1,800 umbrella

The Fox Company of London sells an umbrella that costs $1,800. It has a silver handle with black beech for its shaft.

$1,800!

If you remember the TV show The Avengers, a Fox umbrella was always in the hand of Steed.

But, no matter what the materials are, or who carries them, you can still leave it in a restaurant, a doctor’s office or a hundred other places. The wind will still blow it inside out and break the little parts that hold the fabric up and another person can innocently pick up one of a thousand black umbrellas, which is what the Fox is, and leave you his $10 one.

I can think of a lot of things to do with $1,800; an umbrella is not one of them. If I had purchased Fox umbrellas, I would have spent something in the area of $36,000 on umbrellas over the past 22 years. I haven’t spent that much on cars in the last 20 years. But, that’s another story.

We really have too much money to spend.

Monopoly is a great game for many reasons. One is that it reflects personality traits so well.

Thinking back, most of my six siblings never got the game at all. They cautiously managed their cash and bought random properties. This allowed them to stay in the game for a long time but made ultimate victory rare.

As for me, I went for the kill.

It was a strategy of feast or famine. I either crushed opponents with hotels on a great monopoly like Boardwalk and Park Place… or I would crash and burn.

The idea raises a good question. Why is it that so many people are bad at the simple game of Monopoly?

You’ve Been Taught Wrong

I think it is because we are taught at a tender age that tycoons adept at cornering markets like John Rockefeller or Bill Gates are greedy bad guys.

The belief is compounded when we go to college and socialist-minded economics professors rant about evil monopolies and the need to “regulate” the free market.

Apparently, Carlos Slim, the wealthiest tycoon in the world according to Forbes, never studied economics. Slim’s vast wealth was built on the back of Mexican telecom monopolies.

Slim’s firms have captured 80% of Mexico’s landlines, 70% of the cellphone market, and account for an incredible 34% of the value of the country’s entire stock market.

Hmmm… maybe monopolies aren’t all that bad?

Lasting monopolies are tough to find in America, but there are plenty of them in frontier and emerging markets.

That’s because these markets are a fascinating blend of “wild west” and “state” capitalism.

Early movers in these regions can gain enormous economies of scale. It makes future competition difficult. Making it easier for the home team, governments tend to keep Western intruders at bay with import and investment restrictions.

Then there are many of these monopoly-like state-owned giants whose stocks are publicly listed. Try to compete with the government… I dare you.

Protect Your Castle

Let’s not forget, there are plenty of companies that don’t have a full-on monopoly, but still profit handsomely from some sort of edge that gives them a big head start.

We refer to these sorts of edges as “moats.”

They can be based on size, cost advantages or some intangible benefit such as a dominant brand name.

For example, perhaps the company teamed up with a giant. Or in the case of Rockefeller, they have the cash and dominant market position to buy the competition.

Or perhaps they are just very well run companies head and shoulders above their competitors. I call this a market monopoly.

Whatever the edge, these companies are attractive to investors for only one reason – their ability to deliver consistent and strong revenue and profit growth.

So don’t be shy about investing in monopolies. After all, only one company (Parker Brothers) makes the game of Monopoly.

A Real-World Winner…

If I quit writing there, I can envision what my inbox would look like on Monday morning. “Give me a stock to look at,” scores of you would write.

I don’t like to disappoint. So if you want to win the real-world game of Monopoly, here’s one for you…

The poster country of “state capitalism” is China and one high-profile monopoly is China Mobile (NYSE: CHL). The government’s 70% ownership stake is a strong incentive to protect the company’s dominant stance.

So despite my strong distaste for state capitalism, now is a good time to look at China Mobile when many folks are questioning the country’s growth prospects.

The company’s $90 billion in yearly sales is built on a customer base that exceeds 650 million people – a cellphone market that’s some three times that of America.

As a defensive consumer business with a 3.7% dividend yield, the stock will hold up well in the toughest of markets. With its $64 billion cash stockpile and a stock that trades at just 10 times 2013 expected earnings, China Mobile is a value play.

But what’s the catalyst to unlock this giant’s value?

Evidence points to China Mobile laying the groundwork to become a major iPhone carrier. Apple’s market share of China’s smartphone market is now only 8% compared with Samsung’s 20% share.

A deal will add another lucrative layer to China Mobile’s growing monopoly.

So what do you think? Do you have what it takes to win the real-world game of Monopoly? I hope so.

Market dominance is a proven strategy to build immense wealth.

Good investing,

Carl

Case in point: As I watched ESPN’s SportsCenter for the third time this morning, I saw another trailer for Iron Man 3.

While checking for showtimes, it hit me. This is all Disney… or the Walt Disney Company (NYSE: DIS).

Well, I knew it was all Disney, but the monstrous movie dollars the company was raking in piqued my interest. Is the company a monstrous entity that’s going to plow its way forward no matter what, or is the stock another John Carter movie away from being a big mistake?

At the moment, shares of the company trade near record highs. Disney beat Wall Street expectations for the first quarter of 2013, showing growth across all five of its divisions.

Net income increased 32% to $1.51 billion from $1.14 billion a year ago. Earnings per share came in at $0.79. The Street expected $0.77.

Revenue was $10.6 billion – good for a 10% jump. That also beat the expected forecast of $10.5 billion.

Numbers are nice but it doesn’t tell the entire story. There are three parts of Disney that show us how the company will do going forward.

#1: Network Growth

ESPN is a cash cow. Some analysts had concerns about the costs of sports programming and lackluster ratings. However, the network remains the major driver of growth due to its high affiliate fees.

Overall, operating profit for all of Disney’s cable networks increased 15% to $1.72 billion – and ESPN was the catalyst for this growth with its ad revenue. Advertising sales were up 4% for the first quarter and are up 10% for the current period.

Recently, Disney CEO Bob Iger was asked how much more he believed ESPN could expand. Mr. Iger responded, “We think ESPN’s future, in terms of its growth trajectory, is actually quite good.”

#2: Walt Disney Resorts

Disney’s resort business was the star of the quarter – with operating income soaring 73% to $383 million.

The success comes thanks to recent expansion efforts. Under Iger’s command, Disney spent over $1 billion as it made improvements to its resorts in California and Florida, opened three properties and purchased two new cruise ships.

A fresh outlook on the global economy has also been beneficial for its vacation destinations. The better the economy, the more folks flock to a vacation resort. Overall revenue was up 14% to $3.3 billion because of new attendance records worldwide. Domestic attendance rose 8% and sales were up 10%.

#3: Movies

When it comes to Disney’s movie business, it’s no longer just about the Mouse. The company owns the rights to some of the most popular movies ever created. Through acquisition over the last seven years, it has brought Pixar (in 2006) and Marvel (in 2009) into the fold.

But here’s the part that should really excite you about the future. Disney has hit this segment out the park.

Let’s look at Iron Man 3. Released on May 3, the movie made $175.3 million on its opening weekend at the box office – the second-highest initial take in history. It’s expected the movie will eventually gross more than $1 billion.

Guess what was No. 1? Disney’s The Avengers took the prize just last year – and that was the culmination of four other Marvel movies.

In other words, Disney knows how to work an asset.

Studio Entertainment revenue jumped $1.34 billion in the first quarter – a 13% increase. This business also reported a $118 million profit. And that doesn’t include Iron Man 3, which was unveiled after the books were closed on the quarter.

With the $175.3 million that the movie produced in its opening weekend, investors should expect this business to do even greater things in the next couple of months.

And Then There Was Star Wars…

Disney has Pixar. It’s got Marvel. And now, with a $4.1 billion deal last October, it has Lucasfilm.

This means it owns the Star Wars franchise.

We just saw what Disney did with Marvel, now it will try to duplicate this success with Luke Skywalker, Han Solo and the rest of the Republic. Disney plans to grow and assertively market the saga by putting out a new Star Wars movie every year starting in 2015.

Related to this news, last week Disney and Electronic Arts (Nasdaq: EA) made the announcementthe companies agreed to a new multiyear licensing deal where EA will make Star Wars-based video games. Disney stated that it will keep the rights to create mobile, social and online games for the Star Wars franchise in-house.

Growing Stronger

Disney has done well utilizing its content and strong brands across as many business divisions as possible – like its resorts and toys. With the endless amount of Marvel and now Star Wars characters, expect Disney to use all of this content and intellectual property to increase profits across all segments.

Shares of Disney currently trade at 20.1 times the $3.29 a share that the company has earned over the last year. For this year, expect earnings of $3.46 a share – giving the shares a forward price-to-earnings ratio of 19.1.

Disney is strong and diversified… and we’re seeing growth across all its business segments. Best of all, shares are cheap, proving there’s still time to jump on the train.

Good investing,

Jason