How to Make Money in Stocks When Cash is King
American Capital Mortgage Investment Corporation (MTGE) – MTGE invests and manages a leveraged portfolio of agency and non-agency mortgage and mortgage-related investments. It has 12-month forecasted earnings per share (EPS) of $3.80/share, a dividend of $3.60 for a dividend yield of 14.8%. However, earnings are not growing and the company has no sales growth which means investments presumably generate a fixed income and therefore fixed earnings. As a result, the company also has a very low GPE (0.01). It also has a higher Price/Sales ratio than its peers at 15.6.
Apollo Residential Mortgage Incorporated (AMTG) – Formed primarily to finance, manage and invest in U.S. mortgage-backed securities (MBSs), residential mortgages and residential mortgage assets AMTG also pays an attractive dividend of $3.00 for a dividend yield of 15.3%. However, like MTGE it has no forecasted earnings or sales growth and has a negligible GPE of 0.1. It has an even higher price/sales ratio than MTGE at 20.6 according to VectorVest.com.
The “Cash Is King” Caveat
With the resurgence in the residential rental and commercial real estate markets, REITs are again making money in the current low interest rate environment. But unless the economy continues to recover, this trend could be relatively short-lived. For this reason as well as the fact that they can be volatile, these stocks are not intended as ‘buy and forget’ investments. It pays to watch them closely because you never know when some event could cause them to drop unexpectedly.
Two more factors are very important. First, whenever entering or exiting a stock it’s essential to watch the chart patterns. If you see a bearish chart pattern setting up on any of these stocks it’s safer to exit first and ask questions later. Identifying chart patterns is simply a system for predicting stock market trends and turns. Hundreds of years of price charts have shown that prices tend to move in trends. (I'm sure we've all heard the saying, 'the trend is your friend'.) Well, a trend is merely an indicator of an imbalance in supply and demand. These changes can usually be seen by market action through changes in price. These price changes often form meaningful chart patterns that can act as signals in trying to determine possible future trend developments. Research has proven that some patterns have high forecasting probabilities. These patterns include: The Cup & Handle, Flat Base, Ascending and Descending Triangles, Parabolic Curves, Symmetrical Triangles, Wedges, Flags and Pennants, Channels and the Head and Shoulders Patterns. In my opinion, these are some of the best patterns to trade.
The second important factor is to have concrete written trading rules which you follow come what may. This includes employing specific stop-loss levels – the pre-determined price at which you exit your positions – no matter what.
Real estate remains a risky proposition and challenges remain, especially for new homebuilders who must compete against a huge inventory of foreclosures and unsold homes in many markets. But these challenges have created opportunities in other areas of the real estate business which includes residential rental and commercial markets.
Real estate investment trusts and companies in related businesses offer opportunities to make money even if U.S. stocks don’t rally significantly higher. By learning which REITs have the best potential to benefit and that pay the most attractive dividends, traders and investors can continue to make money by using the most powerful chart patterns and following a few simple rules.
This information contained in this article is for educational purposes only and is not intended as trading or investment advice. All information provided in this article is believed to be correct but readers are advised to check the latest fundamental data such as earnings, revenues and forecasts independently to insure accuracy.
Dan Zanger can be contacted at ChartPattern.com