How to Make Money in Stocks When Cash is King

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Dan Zanger

17 Aug, 2012

in Equities

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.

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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.

REIT Wrap-Up

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

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Re: How to Make Money in Stocks When Cash is King

Good piece

Predicting Dividend Yields is an interesting strategy .........wish I had the spare capital to do it

NVP

Sep 24, 2012

Member (16841 posts)

Re: How to Make Money in Stocks When Cash is King

hgh;1951338
how to find such a company in thounds stocks.


Run a stock screen such as Zacs & AAII in the US or Sharelockholmes & Stockopedia in the UK (there's are loads out there). There are plenty of standard filters including high yielders on all those sites but better still is to build your own filter around your prefered criteria. My preference is for divi stocks with ten years dividend growth and positive projected dividend growth plus some EPS growth with high beta. My personal filter (UK stocks) outperformed the index by 16% over the past year - excluding 3.3% divi. You get the best of high yield plus a bit of growth but it also give peace of mind in so far as all stocks have solid fundamentals. You can mess around with criteria to include things like 12 month positive relative strength or five tears consistant turnover growth or low debt to profit ratio etc. The options are endless, so have some fun and make some money.
btw, playing with stock screen filters really does make you focus on improving your fundamentals education.

Sep 24, 2012

Rookie Member (19 posts)

Re: How to Make Money in Stocks When Cash is King

how to find such a company in thounds stocks.

Aug 26, 2012

Senior Member (133 posts)

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