The Three People to Ignore

Marc Lichtenfeld
by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
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It takes only five minutes of watching Fox News or MSNBC to recognize the biases in their reporting. It's obvious and in your face.

But for many sources of financial information, their agendas aren't quite so clear.

If you don't understand where people are coming from, you will end up getting excited about an investment that could be completely wrong for you or even a scam.

Let's look at a few examples of bad information I've come across in just the last week.

Recently, in my Lightning Trend Trader service, I mentioned a Seeking Alpha article in which the writer interviewed a very bullish Wall Street analyst about MannKind (Nasdaq: MNKD).

Unmentioned in the article is that every one of the 21 companies the analyst covers is an investment banking client. Also ignored in the article is that the analyst's firm led a recent offering of MannKind's stock.

Does knowing that information change your view of the analyst's opinion?

Say What?

Over the weekend, I listened to an awful financial radio show. I'm always listening to the competition since I host Get Rich With Dividends on 1290 WJNO in South Florida. You can also listen to the podcast for free online.

Apparently, the station that this clown was on does not have the same vetting process that mine does. He made two statements that had me ranting in my car like a lunatic.

First, he said investors should sell 20% of their stock holdings now because the market had run up more than was expected and since most investors had already exceeded their goals for the past few years, they should take some profits.

Nothing wrong with putting money in the bank, but don't sell just because you made more than the 6% to 8% you expected. An important part of making money in the stock market is letting your winners run.

If you have a stop loss in place that you raise as stocks go higher, you'll get out with a nice profit while giving yourself plenty of opportunity to participate in more upside. You can tighten the stop as the stock rises as well to ensure you capture a large part of the gains. Of course, you can always sell if the fundamentals of the company change.

He also said that the Fed's quantitative easing program "had absolutely no impact on the economy other than keeping long-term interest rates low." Come again?

Other than employment, interest rates are the most significant influence on the economy. Regardless of whether you agree with QE, it's hard to argue with the fact that the current economy would be in worse shape if interest rates were not as low as they have been over the past few years.

The low interest rates allowed businesses to expand, to acquire other businesses and to hire new employees. It also fueled the stock market, which helped replenish people's retirement accounts, making them feel wealthier and on the road to spending again.

Why was this guy such a Debbie Downer? Because he sold annuities.

He wants to scare investors into thinking that the market and economy are unhealthy. That way they'll buy his products, which will significantly underperform during a bull market.

There's plenty of room for diversity of opinion in discussing the markets, but this guy was an imbecile. It's scary that he's offering financial advice to people.

The Pump and Dump

Lastly, be very wary of anyone promoting penny stocks. These stocks are easily manipulated. Nearly every week, I receive a 12-page write-up in the mail about a penny stock, usually energy-related but sometimes biotech. The article talks about how much money investors will make if they invest in the featured stock.

If you look very carefully (and take out your magnifying glass), you'll see that the author or the publisher that sent the article was paid by the featured company to write and mail the article – often hundreds of thousands of dollars and millions of shares of the featured company's stock.

What typically happens is that a few thousand investors get excited about the stock based on what they read and buy the stock, driving it higher. As the stock climbs, company insiders and the promotional company that was paid in shares dump their stock at the higher prices.

And those are the ones who are doing it legally. As long as they disclose the relationship with the company, it's allowed.

There are plenty of companies that hire stock promoters to write articles and post things on message boards who never disclose their relationships with the company. You may think you're reading an unbiased opinion of a company, but in reality, the writer is on the company's payroll.

Where We Stand

Investment U and The Oxford Club accept no compensation for writing articles about companies or recommending their stocks. The only way we make money is from subscriptions, so if we don't keep our readers happy, we don't make money. And the way we keep our readers happy is by giving them good information and investment ideas.

Additionally, writers are not allowed to write about stocks that we own. That way there can be no "pumping" of stocks that could benefit the author.

There are some great analysts and journalists out there who provide excellent information. But unfortunately, there are many bad ones and those who have undisclosed conflicts of interest. Be careful who you listen to and take your time to find the ones you deem trustworthy.

Good investing,

Marc

P.S. If you haven't noticed, we recently "remodeled" our Investment U website. If you're looking for unbiased investment advice, tips and ideas, consider it your starting point. The site boasts more commentary than ever before... and we're adding new features daily. Check out the site and be sure to add it to your favorites.

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A Great Way to Play the Graying of America

Let's face it: Those scam artists peddling penny stocks and buffoons shilling annuities often target older folks, because they see them as marks. Expect to see more of that stuff in the years to come, because America is getting older.

And as the baby boomers age, America will continue to see its healthcare costs go up and more of its citizens living in nursing facilities.

There is a way for investors to take advantage of this trend.

For example, Marc Lichtenfeld recently recommended Omega Healthcare Investors (NYSE: OHI) to subscribers of his Oxford Income Letter. Omega invests in hundreds of nursing home facilities. But it doesn't run them; it just collects rent. This REIT pays a nice dividend, and it offers tax advantages, too.

Marc explained to his subscribers why he's bullish on Omega a few months ago:

"Today, one in four seniors can expect to spend time in a nursing home or skilled care facility at some point. As boomers get older, that figure is expected to increase to one in three.

"With 78 million boomers today, that's a lot of future demand for nursing homes.

"To cash in on this trend that should last for at least 25 to 30 years, I recommended subscribers following the Compound Income Portfolio buy Omega Healthcare Investors (NYSE: OHI) back in September.

"Omega is a landlord to nursing homes. It owns the buildings to 477 facilities in 33 states. It's important to note that Omega does not operate the nursing homes. It simply owns the buildings and collects the rent.

"That means it is somewhat immune to the variances of Medicare and other insurance reimbursement. Of course, if its tenants receive less revenue, their ability to pay the rent could be impaired. But for the most part, if the nursing home operator plans on keeping its doors open, it needs to write that check every month to Omega.

"Through the first three quarters of [last] year, Omega's business has been strong. Funds from operations (FFO), the measure of cash flow used by real estate investment trusts (REITs), grew 39% over last year to $222.9 million.

"That's more than enough to cover its ample dividend.

"On a per share basis, Omega expects FFO to be $2.23 per share in 2013. The company recently raised its dividend to $0.48 per quarter or $1.92 annually. So there is plenty of room for further dividend raises, especially if FFO continues to rise.

"Omega has raised its dividend every year for 11 years. Not only that, but the dividend has gone up for the past five consecutive quarters and seven of the last eight...

"[And] the stock is cheap compared to its peers.

"Omega trades at 11.9 times FFO, while the average healthcare REIT is at 13. The average for all REITs is 14.5.

"Omega is an excellent way to take advantage of a major demographic shift and receive a strong and reliable dividend yield in the process.

"The stock is a perfect fit for the Compound Income Portfolio. If dividends are reinvested and the company continues to raise the dividend by 9% annually (that's less than its five-year average), shareholders will earn a 13% yield in five years and a stellar 28% yield in 10."

- Bob Keaveney with Marc Lichtenfeld

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