Remember Lehman Brothers? MF Global? Washington Mutual? Eastman Kodak? With the stock market trading near all-time highs, investors are complacent yet again. Retail investors are asleep at the wheel and are set up to take the fall for Wall Street yet again.

Ernest Hemingway famously wrote: Bankruptcy happens two ways, "gradually and then suddenly."

Often times it's more sudden than anyone ever imagined.

Lehman Brothers' stock price fell from $16.25 to $0.01 in under 10 days back in 2008.

Poof! $691 billion in market value gone in mere days.

And we thought... this couldn't possibly happen again, right?

The market has a short-term memory. In 2011, MF Global wiped out $41 billion in equity with its bankruptcy filing.

And then Eastman Kodak Co. filed Chapter 11 on January 19, 2012, proving that even massive multi-billion dollar companies over 100 years old aren't immune to bankruptcy.

The Rochester, NY-based company, started in 1880, has been bleeding money since consumers ditched film for digital photography. Eastman Kodak listed assets of $5.1 billion and debt reaching $6.8 billion in its U.S. Bankruptcy Court filing.

"They were a company stuck in time," Robert Burley, an associate professor at Toronto's Ryerson University, told Bloomberg News. "Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability."

Kodak stock had fallen more than 35% by 2:00 p.m. that Thursday, bringing its total slip for the past year to more than 93%.

Tech Developments Killed Eastman Kodak

As film cameras headed toward extinction, Eastman Kodak's revenue plunged without a substantial product line that could compete with the growing trend toward digital photography.

Kodak was actually the first to create the digital camera in 1975, but shelved the model fearing it would derail its profitable film business.

While Kodak was successful at securing patents and developing new technology, it was unable monetize it. Kodak tried to sell more than 1,100 digital-imaging patents to make enough money to shift to a digital-product focus, but failed to reach its goal.

"Basically, a new technology came along and it eliminated the need for their core product; people don't sell film for digital photography," Business Insider Editor Henry Blodget told American Public Media's "Marketplace" program. "People like to say it's that the companies were stupid or they missed something. I think the truth is, that the market changed and they just didn't change quickly enough."

Besides failing to advance, businesses also have to contend with this year's limited growth economic environment and mild consumer spending. These factors make it nearly impossible to pay down debt - meaning a growing number of companies headed for bankruptcy this year.

	Not all companies falling on rough times are heading for bankruptcy. But how do you tell which stocks to avoid and which stocks are primed for a rebound? Our turnaround specialist Bret Jensen has a knack for finding stocks that have been oversold on bad news or suffered poor management and are now just starting to rebound. His two newest turnaround picks are in the booming domestic energy sector. Click here for more on how Bret's turnaround strategy can have you pocketing a nice tidy profit when others are too afraid to get off their hands.

The 2015 Bankruptcy Watchlist

For investors that have fallen asleep at the wheel, 2015 will be a very painful year. Bankruptcies are a foreign concept to the market these days. That means individual investors will be left holding the bag again when the next round of bankruptcies start.

But retail investors don't have to be Wall Street's fall guy.

Granted many bankruptcies take the market by surprise, leaving investors with pennies of their initial investment.

But going back to Hemingway's quote, bankruptcy starts out gradual. There are many bankruptcies that savvy investors should have seen coming from a mile away.

The key is that bankruptcies come in all shapes and sizes. There's no prerequisite. A company doesn't have to have lost money for several years, or even be losing money, to be forced into bankruptcy.

While balance sheet weakness is always a strong sign of potential bankruptcy, many bankruptcies are intuitive and easy to spot. When's the last time you actually used a phone book to look up a phone number? Exactly! So it's no surprise Yellow Pages' parent company Dex One went bankrupt in 2013.

Some investors just don't want to see their beloved store or product become obsolete. Investors have to set emotions aside. Thankfully, we're here to help with providing clear thinking and due diligence.

Dendreon Corporation (NASDAQ: DNDN)

Shares of this biotech company have already been cut in half year-to-date. The company came out and said that it won't be able to repay its 2016 debt. While it's considering alternatives to the 2016 repayment, these alternatives will likely leave its shareholders with little to no ownership of the company.

The company quietly revealed this to shareholders via its quarterly result (10-Q) filing with the SEC. In this filing, under the liquidity risks and uncertainties section, Dendreon noted,

"We are currently considering alternatives to the repayment of the 2016 Notes in cash, including alternatives that could result in leaving our current stockholders with little or no financial owner-ship of Dendreon."

Dendreon's sole product is Provenge, which is a vaccine for prostate cancer. Sales continue to come in below expectations. This is a trend that's set to continue with s couple competing products already in the market, including Sanofis' Taxotere and Johnson & Johnson's Zytiga. This is especially a problem considering Dendreon has no drug pipeline to speak of.

The company has over $460 million in net debt (debt less cash), compared to its market cap of just $208 million. It continues to lose money, losing over $200 million over the last twelve months.

Its $620 million in notes due 2016 has a conversion price of $51.24, which is well above the company's current price. There's virtually no likelihood of debt-holders excising, ultimately pushing Dendreon into default.

Walter Energy, Inc. (NYSE: WLT)

The entire coal industry has taken a beating this year. Over the last few years we've already seen James River and Patriot Coal file for bankruptcy. Walter Energy could be up next. Both James River and Patriot Coal were swamped with debt at the time of their bankruptcies.

Restructuring will be tough given the company's long-term debt profile. Its debt-to-book value is 5 times. Basically, for ever $1 the company has in equity (assets less liabilities) it has $5 in debt. Walter Energy's debt exploded in 2010 when it bought Western Coal at the height of the coal market boom.

Meanwhile, two other major coal companies that are struggling, Arch Coal and Alpha Natural Resources, trade at 2.5 and 1 times, respectively. At the time of Patriot Coal's bankruptcy, it traded at a debt-to-book value ratio of 2.5.

Its interest burden is now huge. Cash interest expense is expected to be upwards of $285 million this year; roughly 17% of its annual revenues. There appears to be virtually no way Walter Energy to pay its $1 billion due in 2018. The weak demand for met and thermal coal will continue to put pressure on Walter Energy's revenues, making interest payments even more difficult and potentially forcing Walter Energy into default sooner than expected.

This a very similar story we've seen play out over the last three years. In 2012, Patriot Coal filed for bankruptcy, noting that the weak coal demand and low coal prices had made repaying debt virtually impossible. Then in 2014, James River again cited the weak demand for coal, noting that the shift from using coal to natural gas has changed the industry drastically. Weak coal demand and perpetually low coal prices show no signs of reversing as the natural gas boom in the U.S. continues.

The Bon-Ton Stores, Inc. (NASDAQ: BONT)

The Bon-Ton Stores operates in what has become the overly competitive retail industry. It sells various apparel products, home furnishings and accessories. But it's a second tier store in many of its major markets, competing with more well-known operators.

Structural problems are alive and well at the company. Shoppers aren't buying the inventory. Its days of inventory - the theoretical number of days its takes to sale inventory - is up to 151 days, well above the likes of J.C. Penney's 115 days and Sears Holdings' 97 days.

The retailer has upwards of $900 million in long-term debt and lease obligations, and a weak cash position of just $8 million, against a market cap that's just $216 million. It's managed to lose money in four of its last five fiscal years and its cash balance has declined in each of the last five years. The high interest debt will continue to lead to a further decline in cash, making debt repayment increasingly difficult and eventually impossible.

GameStop Corp. (NYSE: GME)

Electronic Arts could single handily lead to the demise of GameStop. EA is close to generating half of its revenues from digital downloads, but has big plans to get that closer to 100%. Helping drive that? Full game downloads.

EA is already starting to release games that can be downloaded the same day you can purchase them at GameStop. That's bad news for a company like GameStop, which generates nearly three-quarters of its profits from physical game discs.

But it's not just full-game downloads, EA is also working with the likes of Comcast to offer cable subscribers "on-demand video games." It's only a matter of time before the other major game-makers start to make a big push to digital, including Take-Two Interactive and Activation Blizzard.

About 10% of GameStop's annual vendor purchases are from EA. The three major game-makers together account for 30% of GameStop's vendor purchases annually. What's more is that the three console makers, Sony, Microsoft and Nintendo, account for 47% of GameStop's vendor purchases. A shift away from physical games and consoles will really put pressure on GameStop.

And GameStop's push into new markets appears rather futile. The company is opening mobile-phone focused stores, a part of the market that Best Buy has already ventured into. The margins on this business are much lower than the video game business. GameStop will become just another victim of the digital world.

Although GameStop's demise will be a surprise to many, it shouldn't be, given digital has been killing companies for a number of years. The bookstore giant, Borders Group, spiraled into bankruptcy in 2012 after digital e-books made its business model obsolete. Netflix's digital model ultimately crushed the nation's largest video rental company, forcing Blockbuster to file bankruptcy in 2010.

GameStop's industries are getting increasingly competitive. For GameStop, it really might be a slow death. But the slow rise and adoption of digitally downloaded games will push GameStop to the wayside - following the path of Circuit City and the soon to be defunct RadioShack.

Sirius XM Holdings Inc. (NASDAQ: SIRI)

When the auto industry took a hit during the financial crisis, so did Sirius. Sirius came close to bankruptcy back in 2009, ultimately being bailed out by John Malone's Liberty Media. Malone loaned Sirius around a half billion dollars, giving the company a lifeline until auto sales started to turn the corner.

Sirius is highly dependent on the automakers. The sale and lease of cars with satellite radios is the crux of Sirius' business model. And so, the recent success for Sirius has been the rise in auto sales.

Behind the rise in auto sales has been easy credit and a rebounding economy. During these initial years Sirius was just competing with traditional radio, which isn't too hard to beat. Now the competition is more robust and it includes deep pocket tech companies.

Google has snatched up Songza, and the everything store, Amazon, is in the market with Amazon Prime Music. Don't forget the behemoth, Apple, which bought Beats - adding a streaming service to the largest music retailer in the United State, iTunes.

The news gets even worse. One of the top car info system makers, Pioneer, is already offering a stereo that auto detects Pandora from iPhone and iPods. Pandora already has a large and growing user base. It's the number two most used app across nearly all demographics - behind Facebook of course.

There's a perfect storm brewing of peaking auto sales and increasing competition that could make Sirius the biggest bankruptcy since the financial crisis. Its synergies from the Sirius and XM merger are wearing off.

The ultimate rise in interest rates will curb the appetite for new cars. Then, we have the younger generation that's showing a decline in the willingness to buy cars.

Sirius barely escaped bankruptcy back in 2009, but the company won't be so lucky next time. It's not a small company either, with a $20 billion plus market. This one might take some time to play out, but the decline is inevitable.

U.S. Steel (NYSE: X)

As a bonus, here's one company that might take you by surprise. When it was founded over 100 years ago, this company was the largest business ever launched.

The key to remember is that just because a company has been around for over a century doesn't make it immune to bankruptcy. Eastman Kodak was a 131 year old company when it went bankrupt in 2012.

What will be one of the biggest bankruptcy surprises in the next year or so, although it won't be for savvy investors, will be U.S. Steel (NYSE: X).

Let's face it, the steel industry is in trouble. There's an oversupply in the industry that's crippled steel prices. U.S. Steel lost a cool $1.6 billion last year and it has $3.6 billion in debt - versus its market cap of $5.5 billion.

But that $3.6 billion in debt doesn't include the company's pension fund obligations. U.S. Steel's pension funds were underfunded by $1.1 billion at the end of last year, not to mention its $1.4 billion in underfunded retiree and medical life insurance plans. This is often overlooked, but its still a liability that's effectively debt.

There's not much hope on the horizon either. The Chinese steel producers control prices. They produce nearly half of the world's steel. Their low costs of production in China allow producers to sell at prices well below U.S. producers. Margins at U.S. Steel will only to remain under pres-sure. With profits in decline, it's hard to see how one of the nation's most prestigious companies will be able to satisfy both its debt holders and former employees.

Some investors have become complacent about keeping bad stocks out portfolios, and have even added some. This is particularly true of income investors chasing high yields. Former F-16 fighter pilot and dividend investing expert Tim Plaehn has sounded the alarm about these stocks and recently released a new report called, 3 Dividend Stocks to Sell on the Verge of Bankruptcy warning investors to stay away from a certain class of dividend stocks. In this timely, in-depth report you'll discover not only the three popular high-yield stocks that could wipe out your portfolio, but also Tim's proven method of ferreting out the bad dividend stocks. CLICK HERE for more.
 

3 Dividend Stocks to Sell Before the Stock Market Drops 10%

After a June and July of regular record highs for the major U.S. stock indexes, the markets are starting to look shaky, and an overdue market correction may be closer than a lot of analysts realize (not counting the small drop we saw earlier in August). The higher, downside volatility shows that the market is getting shaky, and it would not take much to push it into a full, 10% to 15% correction.

The market corrected at least 10% in 2010, 2011 and 2012. Since April 2012, the worst short term drop has been 4.5% in August of 2013. Stock investors have become complacent and even an initial 5% down move in the indexes will, most likely trigger enough panic selling to produce a full-fledged 10% to 15% correction. However, there is not enough froth or over-valuation in the market to indicate any potential of a bear market, 20% or greater drop.

For income investors, the general recommendation is to hold onto your quality dividend paying stocks and pick up more shares on the cheap when the market and individual share prices move lower. However, there are a couple of categories of income investments that will suffer the most when the market corrects It is both emotionally tough to ride out a 25% to 30% drop and you are missing an opportunity for easy profits by not selling before the drop and picking up these investments on the double cheap.

I think the better closed-end funds (CEFs) provide unique and attractive income opportunities compared to other types of dividend focused funds. With exchange-traded shares, the market prices of CEFs often vary considerably from net asset values, trading at premiums or discounts to the actual portfolio values. Premiums and discounts can swing significantly, amplifying up or down moves in the NAV values. In a correction, premiums will shrink, or move all the way to discounts. Discounts will widen as the market drops. For example, a 10% drop in a CEF's NAV combined with a 10% negative change in the premium or discount equals a 20% drop, double the market decline. Here are four equity-focused closed-end funds trading at premiums to NAV that likely will see significant premium and share price declines in a market correction.

GAMCO Global Gold Natural Resources & Income Trust (NYSE: GGN) currently trades at a 2.7% premium to NAV and yields 9.9%.

DNP Select Income Fund Inc. (NYSE: DNP) is priced at a 1.6% premium to NAV and yields 7.6%.

Gabelli Equity Trust Inc (NYSE: GAB) carries a 1.4% premium and an 8.1% yield.

AllianzGI NFJ Dividend, Interest & Premium Strategy Fund (NYSE: NFJ) is trading 0.3% above NAV and sports a 9.5% yield.

These are quality funds that will be much cheaper, during a market correction. Sell now and buy back when you can pick up assets at 90 cents on the dollar, or even better.

The other category to strongly consider selling before a market correction hits are any small-cap, dividend paying stocks you own. Over the last several market corrections, the Russell 2000 index, which is the standard for small cap stocks, experienced declines about 50% greater than the total drop in the S&P 500 index value. When things get ugly, the small caps generally sell off harder than the better known large caps. In fact, nervous investors will move out of small caps into what are viewed as safer large caps, leaving small company share prices at deep discounts to their value based on dividend yields.

As a result, a 10% drop in the S&P 500 could translate into 20%, 25% or even greater declines in your small cap holdings. You can add some significant gains to your portfolio by selling your favorite small caps before a correction and buying back near the bottom of the downturn. As an example, aircraft leasing company Aircastle Limited (NYSE: AYR) is a financial stable company that declined in value by an average of 29% in each of the last three corrections. The share price has recovered to new highs each time, producing 40% plus returns on the rebound.

A declining market puts pressure on all stocks, but for some it exposes them for the truly bad stocks they are. During good times they can mask risky bets, high debt levels, and poor management, but when the market turns these stocks can go south quickly. Some even buckle under the pressure and are forced into bankruptcy, wiping out investors along the way.

Unfortunately with our seemingly ever-rising markets some investors have become complacent about keeping these bad stocks out and have even added them to their portfolios. This is particularly true of income investors chasing high yields. I've recently released a new report called, 3 Dividend Stocks to Sell on the Verge of Bankruptcy. In this timely, in-depth report you'll discover not only three quite popular high-yield stocks that could take out investors, but also my practiced method of ferreting out such stocks and how to apply that to your current portfolio or any stocks you're considering adding.

If you've got money in dividend stock you can't to pass this up. Normally the report is only for subscribers of The Dividend Hunter, but you can pick it up for next to nothing plus get a free 3 month subscription to The Dividend Hunter. For more, CLICK HERE.
 

5 Stocks Insiders are Selling

	Insider selling is your signal that it might be time to jump ship. But what about insider buying? Does that mean it's time to back up the truck? Our insider buying expert Bret Jensen has recently launched a new service where insider buying is one of the key indicators he uses to pick up stocks before they take off. Bret has a knack for knowing just when to buy with the insiders and ride the stock to profit. Find out how Bret can help you profit with the insiders, CLICK HERE.

How can insider activity be predictive? The thinking goes like this: Insiders have more knowledge than outsiders, and if insiders are buying their company's shares with their own money, it's likely that they think their company's stock price is going higher. On the other hand, if corporate insiders are selling their shares at a steady clip, it's likely that they think their company's stock is due to fall. This should make obvious sense: Insiders wouldn't want to accumulate shares at today's price if they thought tomorrow's price was likely to be lower; nor would they want to sell today if they thought tomorrow's price was likely to be higher.

Studies examining the transactions of corporate officers and directors reveal a very clear historical correlation between their sentiment and their company's near-term stock-market performance. When insider bearishness reaches its apex, it's a foreboding sign: Insider selling peaked along with the stock market in 2007, just before the market crashed. Today's overall insider sentiment is even more bearish than it was in 2007 - in fact; it's the most bearish it's been in the past 25 years!

When insider sales outpace insider buys at a ratio of greater than 3-to-1, it's typically held as a bearish sign. Here are five stocks with much heavier insider selling that look like excellent short-sale candidates.

Throw the Book at Barnes & Noble

It's rumored that Amazon is considering a takeover bid for embattled brick-and-mortar retailer Sears. The thinking is that Amazon would use Sears' storefronts to allow customers to browse products in an offline environment. The problem: Barnes & Noble (NYSE:BKS) has been inadvertently providing this service for competitor Amazon for years, and B&N's share price has absolutely tanked.

Now, with the Nook-maker a doomed, slowly melting iceberg, its insiders are dumping shares hand-over fist: Excluding shares acquired at $0 per share, Barnes & Noble insiders purchased or otherwise acquired just 17,500 of their company's shares since November 15, while selling more than 342 times as many shares over that same period of time.

We can probably also add this one to our Bankruptcy Watchlist above. First, the mom-and-pop bookstores; then Borders; next Barnes & Noble - you could probably ride this short all the way down to $0 if you had sufficient patience.

From Leader to Laggard

Alexion Pharmaceuticals (Nasdaq: ALXN) is a $32.6 billion developer of therapeutics to treat hematological and neurological diseases, as well as metabolic and inflammatory disorders. In 2013, the firm reported net income of $253 million on sales of $1.55 billion. The stock has gained nearly 30% over the past six months, but during that same time, institutional investors have turned bearish on Alexion, selling more shares of the stock than they're buying, as reflected by its C- accumulation/distribution grade.

Alexion is also overvalued across the board. Its trailing P/E ratio of 100 is rich even by industry standards, in which the average is 73.5. Alexion's price-to-book ratio of 12 is nearly 40% higher than the industry average of 8.6; its price-to-sales ratio of 18.5 is almost double the industry average of 9.4; and its price-to-cash flow ratio of 78.1 is high, irrespective of the industry average (which is, in fact, negative).

A premium across-the-board valuation doesn't necessarily indicate a "bad" stock. Indeed, stocks with premium valuations tend to lead during bull markets, and Alexion has performed well over the past six months. But now, with the market itself heavily overbought, and with both volatility and volume at curiously weak levels, "hot" stocks like Alexion that already have heavy institutional selling are likely to lead the market's reversal.

Nobody Likes F5

As with Alexion Phamaceuticals, institutional investors have recently turned bearish on F5 Networks (Nasdaq: FFIV). The stock is also overvalued: Its price-to-earnings ratio is 30.9 (vs. an industry average of 17.4), its price-to-book ratio is 6 (compared to an industry average of 4), its price-to-sales ratio is 5.5 (compared to an industry average of 4.4), and its price-to-cash flow ratio is 16.9 (compared to negative industry average).

F5 provides network-traffic management products. This is a fragmented industry undergoing consolidation, and F5 doesn't really have a dance partner. The recent Cisco (Nasdaq: CSCO) partnership with Citrix (Nasdaq: CTXS) makes Citrix a more formidable competitor to F5, and the Riverbed Technology (Nasdaq: RVBD) acquisition of Zeus has turned up the competitive pressures even more. These factors combine to make F5 Networks a stock that should be avoided, if not sold short.

Discount This Discount Retailer Stock

Lennar Corp (NYSE: LEN) is a $7.9 billion homebuilder with operations in 16 states. Over the past three quarters, the firm has grown its earnings-per-share (EPS) by an average of more than 100% each quarter, but management has lowered guidance for the current quarter to just 18% growth - a steep deceleration. As a result, it's not surprising that insiders have sold a total of 534,996 of their company's shares since November 30, compared to purchases totaling just 34,050 shares - a ratio of 15.7 shares sold for every 1 share purchased!

What's more, over half of Lennar's insider share-buys came via sweetheart deals where insiders paid $0 per share. In all, Lennar insiders have invested just $272,850 in their company since November 30, paying an average of $8.01 per share; while cashing out more than $20 million worth of stock at a mean price of $37.53. The housing sector looks shaky, anyway - Lennar looks like a good short.

Costco Insiders Canceling Membership

Everyone knows and loves Costco Wholesale Corp (Nasdaq: COST), the amazing $50 billion growth story - everyone but the company's insiders, that is. Costco officers and directors have invested $3.2 million in their company over the past six months, but they've sold more than $50 million worth of stock in that same time, or $15.60 in sales for every $1 in insider buys. The average price paid by a Costco insider for a share of his company's stock was $21.98, an 80% discount to Costco's recent $112 per share. Meanwhile, insiders sold shares at non-discounted market prices averaging $110.57 apiece. Costco is no longer a growth story: its EPS have fallen by an average of 1% per quarter in each of the past three quarters, and the company's shares have already lost 5.6% thus far in 2014, compared to 2.1% gains for the S&P 500.

Bonus: One More for the Road

"As GM goes, so goes the American economy" - unfortunately, that statement continued to ring true in 2009, as the automaker collapsed under the weight of the financial crisis and needed to be "bailed out" by the federal government. Since then, General Motors (NYSE: GM) has gotten back on its feet - just like the U.S. economy! But now, with the stock market in "irrationally exuberant" territory, GM looks overvalued - and institutional investors are turning their back on the stock just like the Occupy crowd would argue they've turned their backs on the country.

GM's accumulation/distribution grade is a woeful D-. Mutual funds in particular reduced their GM holdings by 3% last quarter. GM's P/E ratio of 21.5 doesn't sound extraordinarily rich, until it's compared to the auto industry average of 12.8. Don't let the weekend's fireworks and flag-waving fool you: GM is a stock to avoid this July.
 

3 Under-the-Radar Stocks Insiders are Buying

My regular readers know that I am not sanguine on the overall market in the near term. There are myriad reasons for this short term pessimism. Geopolitical concerns seem to be multiplying by the week, Europe is stuck in neutral again and the Federal Reserve is about to end its last easing program in October, in addition to continuing problems in Israel, Syria, Iraq, and Ukraine. The market suffered double digit declines the last two times the Federal Reserve tried to exit from extraordinary liquidity measures, and equities are selling at even higher multiples now than then.

Earnings in the second quarter did come in stronger than expected. However, little of this growth is due to increasing demand. Companies are boosting earnings by stock buybacks and cost cuts to a large extent. They are purchasing growth by increasingly making acquisitions as organic growth is hard to come by. Merger & Acquisition activity in 2014 is close to 2007 peak levels as is IPO activity as venture capital is increasingly heading to the exit. Both of these measures are worrying as they have signaled market tops in the past such as early 2000 and 2007.

Although I am cautious on the overall market and have than normal allocation to cash in my own portfolio I am still finding some stocks that are long term bargains. I find myself looking more and more at equities that insiders continue to buy even as the "smart money" seems to be taking profits. Here are a couple of under the radar stocks that insiders still seem to be optimistic on.

Avnet (NYSE: AVT) is a huge reseller of electronic components, enterprise computer and storage products. Despite being one of the largest global players in this space, the company stays out of the headlines. This is understandable given the mundane business Avnet operates in and the low margins that are part of the industry.

However, the stock is attractive to at least one insider who made a huge buy of almost $8 million of stock last week. The shares do look undervalued at current levels. The company is consistently growing earnings in the 8% to 10% annual range on back of a yearly 3% to 4% increase in sales. Despite this consistency, the market is only awarding Avnet a valuation of around nine times forward earnings; an approximate 40% discount to the overall market. The stock also yields 1.4% after recently bumping up its payout.

There are few stocks that could be more opposite to Avnet than Inovio Pharmaceuticals (NYSE: INO). This is a small, speculative biotech concern with little in the way of current sales. What it does share with Avnet is recent insider buying. Two company officers stepped up and purchased over $2 million worth of shares last week.

The company recently initiated a reverse four to one stock split. Inovio has developed a technology platform to facilitate the discovery, development and delivery of synthetic DNA vaccines. These highly optimized synthetic vaccines, if successful, will be able to induce strong antibody and T-cell responses. The company believes these vaccines could eventually be used to treat various cancers, HIV, hepatitis C, and other chronic infectious diseases.

Inovio has several compounds in early stage trials and several more under development. Like all small biotechs, the stock's direction will depend on the success or failure of these new treatments. Inovio does have over $100 million in net cash to develop these products and the median price target by the five analysts that cover the stock is more than twice the current price of the stock. I have found historically that insider buying often signals significant positive news within the small biotech space. I have recently initiated a small, speculative long position in this biotech concern.

Finally, we have Walter Investment Management (NYSE: WAC), a mortgage servicer whose stock has been under pressure recently. Ever since Dodd-Frank pushed the banks to divest their mortgage servicing rights due to the changes on how much capital these banks had to hold against these rights, state attorney generals have targeted these mortgage service plays where these rights have migrated towards.

Walter has been less of a target for state attorney generals than competitor Ocwen Financial (NYSE: OCN) but its stock has taken a hit in the overall negative sentiment in the space right now. I have been accumulating shares in Walter during its recent decline as I believe it will richly reward long term value investors once the sentiment in the space starts to improve.

I am not the only one finding value in the stock at these levels. Two insiders just bought over $400,000 worth of new stock in their first outright purchases of shares since late last year. This equity is cheap at approximately five times this year's expected earnings and less than three times the profits Walter booked last year. Finally, the stock seems to be trying to form a technical bottom at current levels (see chart below).

With the near term direction of the market fairly unclear, there are worse strategies than looking at equities that insiders are still heavily buying for new investing ideas. I offer up these three selections for consideration.

In addition to watching insider buying patterns for potentially big gains the near term one of my other strategies is finding companies with strong organic growth and cash fueled acquisition growth. One such company that I've recently uncovered and taken a position in is gobbling up smaller competitors in one of the last few highly fragmented sectors. The company comes in and buys out smaller competitors, turns around the business and uses the profits to buy the next. I have to be frank and tell you it's truly one of my favorite companies and I've recently put a conservative price target on it that should have my Small Cap Gems readers realizing returns of more than 100%. For more on this company and how they operate and can bring big gains to your portfolio, CLICK HERE.
 

5 Potential Turnaround Stocks for Record Returns

This active investment approach - when done right - has powered record returns for many successful investors. Private equity funds have generated massive returns this way.

In spite of this, it remains underutilized by most individual investors.

The typical turnaround stock has stumbled badly, with the share price punished severely for overblown media mishaps or trouble in the sector.

	Differentiating bad companies on a steady decline vs. strong stocks that are experiencing a temporary rough patch but are primed for a rebound can be difficult. Let Investors Alley's turnaround specialist Bret Jensen do the work for you. Bret has a knack for finding stocks that have been oversold on bad news or suffered poor management and are now just starting to rebound. Click here for more on how Bret's turnaround strategy can have you pocketing a nice tidy profit when others are too afraid to get off their hands.

That's why finding turnaround stocks to buy is not for everybody. There are some reasons people tend to shy away from it...

First, finding the best turnaround investments requires more patience than trading or flipping stocks over the short term. A turnaround stock usually takes a year or longer to show results.

Second, you have to be prepared to live with price volatility. There's often high volatility during the turnaround period.

Also, it's highly unlikely you will time things so perfectly that the stock doesn't slip more before it climbs higher.

However, if you have the patience and money to play with, turnarounds can be some of the best investments you'll ever make - and provide the type of returns most short-term investors will never realize.

But there's more to it than a rebound in profits and revenue - the best turnaround stocks to buy also have undervalued share prices.

For example, investors wouldn't want to buy stocks like Tesla Motors Inc. (Nasdaq: TSLA) and Delta Air Lines Inc. (NYSE: DAL), even though they indeed have analysts' blessing and are likely about to see their bottom line substantially improve.

But these are not ideal stocks to buy for individual investors for two reasons: 1) They have both seen share prices skyrocket this year, with their stock up 444% and 102%, respectively, and 2) are already heavily owned by institutional investors.

Plus, Tesla-type stocks are far more likely to suffer an earnings shock than an earnings pop at this point because everyone expects them to turn profitable and enter a growth phase. If their earnings disappoint even slightly, investors' exit will be abrupt as large funds withdraw.

So, investing in rags-to-riches stocks means choosing those that are not mainstream.

That means look for stocks that are braced to enter a strong growth period but are under-owned by the large institutions. Then, when the larger institutions do recognize their financial strengths, your portfolio will be well positioned to enjoy the surge in stock prices.

Having said all of that, here are five smaller-cap stocks that could rebound nicely on any sort of good news. It takes less investment dollars to move a stock with a $5 billion market value than a $50 billion one.

Rite Aid Corporation (NYSE: RAD) is the largest company by market cap on our list, coming in at right at $6 billion. This drugstore operator is the number three player by market share, behind CVS (NYSE: CVS) and Walgreen, in the U.S. pharmacy retail industry.

After making a new 52-week high in early June, shares were down 20% for the summer. This comes as the company lowered its guidance for fiscal 2014. But it has some things in the works that could make 2015 a pivotal year.

Thanks to the selloff, Rite Aid trades as the cheapest of the three major drugstore companies. Its forward P/E ratio (price-to-earnings ratio based on next year's earnings estimates) is a 14, while Walgreen trades at 17.4 and CVS at 16.1.

But what's more exciting is that when you factor in Wall Street's earnings growth expectations, Rite Aid is the best “growth at a reasonable price” opportunity in the space. Its P/E-to-expected earnings growth rate (PEG) ratio is just under 1. Anything under 1 suggests the company is very attractively priced.

Granted the competition is fierce, part of Rite Aid's differentiation is to continue remodeling its stores to include more wellness options - this includes a Diabetic center, vision center, nail bar and men's grooming section. It also has a long-standing partnership with GNC Holdings (NYSE: GNC) that lasts through 2019. It plans on opening another 300 GNC store-in-a-stores over the next five years. These should help turnaround earnings growth for next year and beyond.

Conns Inc. (NASDAQ: CONN) is down the most of our turnaround plays. Shares were down 36% over the summer. But for all of 2014, the stock is now down 63%.

Many investors will see investing in Conn's as trying to catch a falling knife. A large portion of the market is rooting against the company, with nearly 44% of its shares shorted. Compare that to the 30% short interest in the highly debated Herbalife (NYSE: HLF).

Conn's missed fiscal second-quarter revenue and earnings consensus. It also lowered its fiscal 2015 earnings expectations, driving the stock down last month. But investors were more displeased with questions about its in-house financing. The company seems to have an increasing amount of delinquent loans that has led to higher bad debt provisions. Even still, only around 8.6% of its $1.18 billion due from customers is 60-days or more overdue.

The other beauty of Conn's is that margins on its products are very high. On just the retail side of its business, its gross margins are 40%. Best Buy (NYSE: BBY) has a gross margin of 23% and GameStop (NYSE: GME) has a 28% gross margin. Conn's company-wide earnings before interest taxes depreciation and amortization (EBITDA) margin is 13%, more than double Best Buy's.

The stock is just too cheap to ignore, trading at a forward P/E of 9. Couple that with Wall Street's growth expectations and its P/E-to-expected earnings growth rate (PEG) is just 0.5. Of the rent-to-own consortium, which includes Aaron's (NYSE: AAN), Rent-A-Center (NASDAQ: RCII) and hhgregg (NYSE: HGG), Conn's is the cheapest on a P/E basis. Wall Street also expects it grow earnings at a rate that's more than double any of the other three rent-to-own operators.

Shares are so cheap that Billionaire David Einhorn and his Greenlight Capital hedge fund have taken notice. Einhorn's fund is the largest owner of Conn's, owning just under 10% of outstanding shares. But retail investors can get a better deal than Einhorn. His fund owns share of Conn's at a cost basis of $35.50 per share, but retail investors can get in for less than $30.

Ocwen Financial (NYSE: OCN), a mortgage servicer, was down 16% this summer. This is just the latest in an eight-month slide, which has forced the stock down nearly 50% year-to-date. At the start of the year, New York's Department of Financial Services put a hold on Ocwen's plans to buy service mortgage rights worth $39 billion from Wells Fargo (NYSE: WFC). This comes as questions were raised over dealings with related parties.

The latest meltdown came in late July after the company posted very weak second-quarter results due to the ban on buying additional mortgage servicing rights given the pending investigations.

Billionaire and hedge fund manager Leon Cooperman has called the regulators into question, specifically calling out the head of the Department of Financial Services, noting that he “should be ashamed of himself” by questioning Ocwen and saying that they are acting more as politicians than regulators.

In mid-2013, Cooperman pitched Ocwen as a buy at the SALT investment conference. This was just days after Emrys Partners pitched it as a long at the Ira Sohn Conference. But Cooperman had sold all of his Ocwen stock by the end of 2013. Yet, with the selloff in the stock, he started buying up shares in early 2014. Then during the second-quarter he increased his position by ten-fold. With that, Cooperman now owns more Ocwen shares than he has in two years.

Assuming the recent investigations are just interim issues that Ocwen has to work out with regulators, longer-term, Ocwen should get a boost from large banks that are dumping their subprime mortgages. The specialty servicers like Ocwen have proven to be more effective at working with borrowers. There's also a void in the subprime market that Ocwen is uniquely positioned to fill. Before the real estate bubble burst, about 60% of households could get a prime mortgage, now only about 30% can.

Beacon Roofing Supply (NASDAQ: BECN) saw its stock fall 20% over the summer. Shares started to melt from their $34 a share in early July and have continued their downward trend. This comes after a string of downward earnings revisions. Weak earnings from one of Beacon's chief suppliers, Owens Corning (NYSE: OC), also helped push Beacon lower. It announced that roofing volumes in the first half of the year were down 20% year-over-year due to weakness in the homebuilding industry.

The market continued to sell off Beacon on fears that the housing market is weakening. And while that might be the case, does it really matter for Beacon? Not necessarily, where close to 80% of roofing expenditures are for replacement work, rather than new builds.

Beacon has noted that close to 90% of spending on roof repairs is non-discretionary (read: mandatory). You also have to be encouraged by the fact that the average age of homes is steadily increasing, which promotes more home improvement spending. Thanks to this, Beacon held up very well during the financial crisis.

It remains a leader in a fragmented market and is strategically located in areas of the U.S. that are prone to severe weather, hence more replacement projects. If you believe that people will still want a roof over their head then Beacon is definitely worth a closer look.

Bloomin' Brands (NASDAQ: BLMN) stock fell off a cliff in August - tumbling from $20 a share down to $15 in just a day. It was down 20% for the summer, driven by a weak earnings report for the second-quarter. Poor reception of menu changes and a greater shift toward lower-check amounts - more lunches as opposed to dinners - were the biggest overhangs.

But its key performer is the new concept brand, Fleming's Prime Steakhouse and Wine Bar. Outback Steakhouse has also performed fairly well, but Carrabba's Italian Grill has been the laggard. Bonefish Grill has also failed to live up to expectations.

Bloomin' Brands could look to unlock shareholder by spinning out its underperforming brands. Darden Restaurants (NYSE: DRI) has already done this, keeping its Olive Garden brand and getting rid of Red Lobster.

When you stack Bloomin' up against some of the other conglomerate restaurants, the valuation is attractive from a number of perspectives. Bloomin' is cheaper than both DineEquity (NYSE: DIN) - which owns Applebee's and IHOP - and Brinker International (NYSE: EAT) - owner of Chili's and Maggiano's - on a P/E, P/S (price-to-sale) and P/B (price-to-book) basis.

To help get its brands back on track, Bloomin' Brands is looking to offer new steaks and plate presentations at Outback. Bonefish will see a new menu for the first time since 2008. And there's expansion plans in Brazil for Cabbarra, as well as a shift toward lower calorie foods.
 

Buy These 4 Dividend Stocks for Rising Interest Rates

Sometimes you can just hear the tick, tick, tick... of the bomb that the eventual return of higher interest rates will drop on the financial markets. When I made two presentations at the Las Vegas MoneyShow in May, the number one question I received was "What will happen to REITs, MLPs and other income stocks when interest rates start to move up?"

	With its near zero interest rate environment going almost 6 years now it seems like the Fed has declared war on savers and investors looking for yield. However our dividend and income investing expert Tim Plaehn has developed a solid portfolio of stable, consistent dividend payers rewarding investors with yields up to 11%. His secret: buying only stocks from companies with a history of raising dividends. If you're looking to juice your portfolio with high yielding dividend stocks you'll want Tim's plan to fight the War on Your Income. CLICK HERE to get started.

The Fed has stated that it plans to continue the zero interest rate policy (ZIRP) through at least the end of 2014. Recent statements indicated that the unemployment and inflation numbers will determine when the Fed will start to lift short term rates off the zero percent floor. Although the financial world has been living with the ZIRP for almost six years, it seems that at some point the economic data points will force a move to higher rates.

My concern is that six years of an unchanging policy has left parts of the financial community unaware and clueless to the possible effects of higher rates; and with many investors becoming a bit complacent. The good news is that the interest rate "bomb" will be selective in its targets. Our special report on dividend stocks poised for bankruptcy points out and gives examples of the types of income stocks that could be severely hurt with rising rates.

Most likely unfazed and unaffected by higher rates will be the REITs, MLPs and other income stocks that have set up their operations to be not dependent on short term interest rates, have stuck with moderate use of debt, and employ business practices to produce growing dividend streams. With these stocks, market and share price corrections will be opportunities to buy into those growing dividend streams.

The stocks outlined here today are ones with business models that will actually generate higher income levels if interest rates move up. These financial REITs should all be able to increase dividends at a faster rate when the Fed starts to raise short term target interest rates.

Blackstone Mortgage Trust Inc. (NYSE: BXMT) and Starwood Property Trust, Inc. (NYSE: STWD) both originate commercial real estate mortgages and other real estate backed loans. Both focus on larger, $100 million to $500 million financing packages, where there is not competition from smaller lenders. Both have sponsor companies that manage multi-billion dollar portfolios of commercial property and have global real estate connections.

Of final and most importance, both currently only originate adjustable rate loans, with borrowing rates tied to LIBOR. Financing costs for the two companies is either fixed rate or also tied to LIBOR. As a result of these financial structures, higher rates will result in higher free cash flow for each. BXMT moved into commercial mortgage lending in mid-2013 when manager The Blackstone Group (NYSE: BX) changed the company's charter. BXMT currently yields 6.6%. STWD has been in the commercial lending business since 2009 and currently yields 8.2%.

The REITs that own leveraged portfolios of residential mortgages or mortgage backed securities (MBS) are most at risk from rising interest rates. With higher rates, MBS values act like all bonds and prices fall. Mortgage securities are also hit with maturity extension as home owners become less likely to refinance their mortgages.

In stark contrast to the traditional mortgage REITs, MBS maturity extension is good news and boosts the return on companies owning mortgage servicing rights (MSR). New Residential Investment Corp (NYSE: NRZ) and Home Loan Servicing Solutions Ltd (NASDAQ: HLSS) generate the majority of their revenues from MSR ownership. These two financial REITs already list attractive yields at 10.9% and 8.4%, respectively. Also, for monthly dividend lovers, HLSS pays every month. These unique companies will thrive in a higher interest rate environment.

Many investors get caught in the trap of searching for ever higher yields without taking into account the risks associated with big payers. My inbox is stuffed with investors asking about various dividend stocks that I can clearly see send up red flags. So, I've just recently completed a new report on three of the most dangerous dividend stocks out there. It's called 3 Dividend Stocks to Sell on the Verge of Bankruptcy. It's normally reserved only for readers of my new service, The Dividend Hunter, but for short time you can get your hands on it, too. Click here for instant access.
 

Swing Trading Strategy for Double Digit Dividend Stock Profits

Income investors who have discovered the small sector of Business Development Companies (BDC) know that many of these stocks pay steady dividends with very attractive yields. I have found that the combination of a higher yield plus stable and predictable dividends often produces short term share price swings that are also quite predictable.

The dividend swing strategy is one of several strategies used to find the low risk trade opportunities recommended in our 30 Day Dividends newsletter. Trading the dividend related swings of a BDC can produce returns of 5% to 10% quarterly (sometimes sooner) compared to the same returns earned in a full year with a buy-and-hold approach to the very same stocks, and you don't need to risk your money nearly as long holding them.

Here's my strategy for trading on dividend swings and picking up quick profits.

To start, you need to set up a tracking system to include the BDCs that have stable dividend policies and pay quarterly. This trade does not work well with the monthly dividend payers. Here is the list of BDCs which have the basic requirements to employ the strategy:

Apollo Investment Corp. (Nasdaq: AINV)
Ares Capital Corporation (Nasdaq: ARCC)
Blackrock Kelso Capital Corp. (Nasdaq: BKCC)
Fidus Investment Corp (Nasdaq: FDUS)
Golub Capital BDC Inc (Nasdaq: GBDC)
Hercules Technology Growth Capital Inc(NYSE:HTGC)
Medley Capital Corp (NYSE: MCC)
New Mountain Finance Corp. (NYSE: NMFC)
PennantPark Investment Corp. (Nasdaq: PNNT)
TICC Capital Corp. (Nasdaq: TICC)
Triangle Capital Corporation (NYSE: TCAP)

The fundamentals behind the strategy depend on how traders treat high-yield dividend stocks. Group psychology and some trading strategies increase buying interest as a dividend payment approaches and that reverses to selling pressure after the stock goes ex-dividend and the dividend earnings are locked in for share owners.

As a result of these mass buying and selling decisions, the share price will often drop in the first few weeks after a stock goes ex-dividend and then start recovering in value to reach a peak in the week or so before the next dividend date. These are the date ranges you need to pay most attention to.

For example, over the four quarterly periods ending with the 2014 first quarter dividend payment, PNNT had price swings ranging from 4% to 12% with an average low to high price gain of 8.8%.

Trade Entry: For the BDCs you have selected, watch the share price after the stock goes ex-dividend. You are looking for a further share price decline of 1% to 2% below the closing price on the ex-dividend date. This low will usually occur within the first three weeks after the ex-dividend date. The entry is flexible and you need to develop a feel for when the share price has bottomed, but the best day to buy is often the one when the share price makes a relatively big drop during a single trading session.

Trade Exit: Depending on the previous price swing magnitude of the stock, set a take profit level at 7% to 9% above your entry price. Sell when the target price is reached, or, as an alternative, if the share price runs up through your target early, set the target as a stop-loss to lock in the gain and give the stock time to add to the gain as the ex-dividend date approaches. In all cases - unless you want to change to a buy-and-hold position for the BDC - sell no later than the day before the next ex-dividend date. Required Research: To be successful with this strategy, you need to review and make notes on the dates and values of the share price lows and highs between the latest year's worth of ex-dividend dates. This data will help you fine tune your entry timing and where to set your profit target. Since the set-up does not appear every quarter with every BDC, you need to watch a handful - we currently track a half dozen BDC stocks, plus others, for 30 Day Dividends - to provide yourself with one or two good entries every quarter.

This strategy has a very high probability of not losing money. Historically worst case results produced break-even or 1% loss if the entry rules were followed. Which brings up the most important detail of this strategy: The entry drives the profit. You need to buy when the share price drops after the ex-dividend date. No price drop, no entry. Don't fall in love with the stock and buy it anyhow hoping things will work out.

Once you have a trade, set a stop-loss 5% below your entry to protect against a market or individual company melt down. Move up the stop-loss after you have a gain in the share price and then watch for your profit goal or the next ex-dividend date.

The final point to remember is that the BDC share prices can stagnate for a significant portion of the 3 months between dividend dates. You may end up waiting for two months after an entry before the rest of the market gets the clue that a dividend payment is pending and drive up the share price. This means that if you do not get an entry price soon after the ex-dividend date, keep an eye on your list of trading BDCs and a late entry opportunity may present itself.

This dividend swing strategy is a core strategy, but one of several we employ at 30 Day Dividends to find dividend related trading opportunities with the goal of 25% or greater annualized returns from stable dividend stocks and very low probability of loss. In July, one trade from the first of June newsletter hit the profit target in just 31 days for a 13% gain. That was a great feeling to have a double digit winner in such a short time without having to risk it in small caps, emerging markets, options or other places usually the reserve for quick gains.

If you're interested in checking out Tim Plaehn's 30 Day Dividends service and the strategies we use for trade set-ups with dividend stocks click here.