Weekend Edition – Today’s the Day

In this letter we’ve written a number of times about the very unique monetary environment we’ve found ourselves in since the financial crisis of 2008-2009. To recap, we know a couple things: 1) this is the longest the Federal Reserve has kept rates at these levels, well, since forever; and 2) we don’t know, nor does anyone else know, exactly how this plays out. Finally, we always default to our standard practices, which are mitigating our chances of losing money, as opposed to being blindly optimistic.

Today, I’m not here to dive into the “great debate” about how, when and what happens when the Fed starts to march rates up, but I do want to talk about a specific unintended consequence of rates being where they’ve been for so long, given the amount of capital sloshing around the economy. I also want to point out a key takeaway related to this unintended consequence of an abundance of capital and heightened valuations.

Let’s dive in.

Going Private

At Dividend.com, we talk, nearly exclusively, about the public markets. We take an “inch wide, mile deep” approach into the world of publicly traded, dividend paying securities. However, we also understand that our members follow an asset allocation strategy that almost certainly is not entirely comprised of publicly traded, dividend paying securities. Many portfolios likely include some element of privately held businesses.

Given the amount of capital in the economy–which is a difficult-to-decipher combination of sustained low lending rates, increased asset prices and fundamentally strong growth–the opportunity to invest in private business has likely come across your desk.

While opportunities in private business may be on the rise, partially due to low rates, a key takeaway, having analyzed both public and private companies as an investor and potential investor, is this: private company financials are not the same as publicly traded company financials.

No kidding, right?

Well, yes and no. While there have certainly been outright fraudsters at the helm of pubco financials in the past (Enron anyone?), the probability of additional layers of depth to private companies’ financials is high.

As we do with publicly traded entities, we always encourage thorough diligence. There are no shortcuts to thorough diligence. When and if you’re looking at private businesses as an investment opportunity, we underscore this even more; nothing can be taken for granted.

Public Vs. Private

There are a number of checks and balances and variables that can affect a private company’s financials when contrasted to a publicly traded company.

A few specifics to consider:

Always normalize owners’ salaries - Often times, private company owners take a salary above where the “market” would suggest they should for tax or other purposes. This can impair non-adjusted earnings, which a private investor needs to understand to aid the valuation picture. Balance sheet depth – Are there items on the balance sheet that might be impaired or reflect less than true value, based on a lack of enforcements of re-calculating as required by publicly traded companies? Perhaps there’s an asset that needs to be written off, but hasn’t, due to a lack of oversight or necessity in a private business. This needs to be understood by the private investor to get a true picture of balance sheet strength. Non-arm’s length relationships – Private business is often joined at the hip with “family business.” By definition, a family business includes family members working together – understanding those relationships and deals between family members is important for a potential private investor. By no means am I insinuating inherent shadiness in this type of arrangement, it simply needs to be understood, especially if not well documented or non adherent to what the market would dictate for a similar relationship given an arm’s length relationship.

4 Big Tech Stocks on Traders' Radars

BALTIMORE (Stockpickr) -- Put down the 10-K filings and the stock screeners. It's time to take a break from the traditional methods of generating investment ideas. Instead, let the crowd do it for you.

Must Read: 5 Stocks Insiders Love Right Now

From hedge funds to individual investors, scores of market participants are turning to social media to figure out which stocks are worth watching. It's a concept that's known as "crowdsourcing," and it uses the masses to identify emerging trends in the market.

Crowdsourcing has long been a popular tool for the advertising industry, but it also makes a lot of sense as an investment tool. After all, the market is completely driven by the supply and demand, so it can be valuable to see what names are trending among the crowd.

While some fund managers are already trying to leverage social media resources like Twitter to find algorithmic trading opportunities, for most investors, crowdsourcing works best as a starting point for investors who want a starting point in their analysis. Today, we'll leverage the power of the crowd to take a look at some of the most active stocks on the market today.

Without further ado, here's a look at today's stocks.

Must Read: Must-See Charts: 5 Big Stocks to Sidestep the Selloff

SunEdison

Nearest Resistance: $24

Nearest Support: $19

Catalyst: Acquisition Rumors

Shares of solar company SunEdison (SUNE) ended Wednesday's session up 5%, boosted higher following rumors that the firm is a potential acquisition target. Those rumors pegged General Electric (GE) as a potential suitor, but shares gave back some of their gains midday following comments from GE that it wasn't in talks to acquire SUNE. The denial didn't stop the firm from booking big gains on the day, however.

Some of that willingness to buy SunEdison comes from this stock's technical picture right now. SUNE has been bouncing its way higher in a well-defined uptrending channel since March, and shares are testing trend line support for a fourth time this week. For that reason, this looks like a good spot to start scaling into a SUNE position. Just keep a protective stop on the other side of the 200-day moving average.

Must Read: 10 Stocks Billionaire John Paulson Loves in 2014

Micron Technology

Nearest Resistance: $35

Nearest Support: $30

Catalyst: Technical Setup

Micron Technology (MU) saw a 3.5% pop for technical reasons on Wednesday, rebounding following a sector-wide tech selloff that's dragged this flash memory maker lower since the middle of the summer. But zoom out longer-term, and MU is still very much a "buy-the-dips stock." The good news for longs is that shares are showing traders another key dip this week.

Now looks like a good time to scale into a position in MU, but risk-averse traders should park a protective stop below $30 support.

Must Read: 4 Breakout Stocks Under $10 for Your Trading Radar

Marvell Technology Group

Nearest Resistance: $14.25

Nearest Support: $13.30

Catalyst: Analyst Upgrade

Marvell Technology Group (MRVL) is another semiconductor stock that's seeing high-volume upside this week, in this case thanks to an analyst upgrade on Wednesday. JMP Securities raised Marvell from market underperform to market perform in hopes that a bigger 4G LTE adoption market in China will drive sales growth in the year ahead.

Shares have been consolidating in between $14.25 resistance and support down at $13.30 for the last month and change now. MRVL is missing a compelling buy signal until that $14.25 level gets taken out by buyers.

Must Read: Warren Buffett's Top 10 Dividend Stocks

EMC

Nearest Resistance: $30

Nearest Support: $29.25

Catalyst: Strategic Alternatives

Tech name EMC (EMC) is seeing big volume this week after Tuesday's announcement that the firm was planning on pursuing "strategic alternatives," a buzzword that means the firm is exploring selling itself off or merging to unlock value for shareholders. Shares dipped Wednesday following news that protracted potential merger talks with Hewlett-Packard (HPQ) had ended.

But while that opportunity may be off the table, the technicals in EMC look stellar right now. Shares are forming a bullish ascending triangle setup with a breakout level up at $30 resistance. Put simply, if EMC can push above $30, it's a buy.

Must Read: 5 Hated Earnings Stocks You Should Love

To see these stocks in action, check out the at Most-Active Stocks portfolio on Stockpickr.



-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

>>4 M&A Stocks That Could Cut You a Paycheck This Fall

>>5 Stocks Spiking on Big Volume

>>5 Short-Squeeze Stocks Set to Soar on Bullish Earnings

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in the names mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji

Dow Industrials Jump 150 Points as Losses, Losses Go Away

The stock market broke its losing streak in a big way today.

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The S&P 500 gained 0.8% to 1,998.30, while the Dow Jones Industrial Average rose 154.19 points, or 0.9%, to 17,210.06. The Nasdaq Composite advanced 1% to 4,555.22 and the small-company Russell 2000 finished up 0.9% at 1,128.37.

Chalk up the gains to better-than-forecast new home sales and the desire of investors to, you know, buy the dips.

The folks at Birinyi Associates remain upbeat about the market and think the S&P 500 could hit 2,100 by the end of the year:

We will continue positive because history suggests higher prices and the negative case continues to be, as the kids say, "sketchy." While the market, we are told, is expensive we might first point out that its multiple is lower than it was five years ago. Some stocks – obviously not all – are actually cheaper than they were six months ago. Apple (AAPL), for example is trading at 16 times earnings vs 22x five years ago.

Barclays’ Jonathan Glionna and team don’t expect the S&P 500 to hit 2,100 until the end of 2015:

We are also somewhat critical about the quality of EPS growth from US corporates…as the benefits of margin expansion and share repurchases look priced in and a return of faster revenue growth becomes a prerequisite for another re-rating higher. However, sales growth is currently only at 3%. Therefore US equity markets may have entered a period of lower returns.

This is not to say we are bearish on the prospects of US stock markets. M&A activity remains robust, and the outperformance of acquirers…suggests that the cycle will last longer than usual. This should remain supportive of US stock markets. Our S&P 500 targets of 1975 for 2014 and 2100 for 2015 suggest modest upside.

And that’s what counts as bearish on Wall Street these days.

A Buyback Boost?

Who's buying equities these days? If trade volumes are any indication, not many folks—at least according to headlines.[i] Which means, by Fleet Street logic, if stock buybacks are surging, corporations must be the only buyers—and without them, the bull would be in trouble, lacking buying power to drive stocks forward. But this theory ignores some key things, like how markets work—and how buybacks really influence them. Stock buybacks are groovy, but they aren't the only thing driving this bull market.

[Related -Buffett's Market Indicator Flashes Red, Prepare To Sell]

Buybacks have been hot for this entire bull market, but 2014 has been especially gangbusters. US corporations bought back $338.3 billion of stock in the first half of 2014, the most of any six-month period since 2007. The number of companies with a repurchase program is the highest since 2008. At the same time, trading volumes are low, so headlines put two and two together (they think) and say if buybacks stop, the bull's out of gas because regular folks just aren't buying. 

[Related -PBoC joins other major central banks with unconventional monetary policy action]

This is sheer fallacy. Corporations aren't the only buyers. They may get the most headlines, but with 329 and 164 billion shares changing hands on the NASDAQ and NYSE, respectively, year to date,[ii] it's clear many, many others are trading too. The $338 billion in buybacks is a teensy share of the $6.5 trillion[iii] worth of shares that have traded hands in the NYSE this year alone—to say nothing of the many, many more that traded in the dozens of other trading venues in the US. Yes, volume has decreased in recent months—August had the smallest share volume in both the NASDAQ and NYSE for the year[iv]—but markets don't need lots of activity to generate big moves.

The stock market is an auction marketplace—the number of buyers isn't critical to price movement. A bidding war needs only two players—stocks can move big even if just a couple of buyers bid prices way up and nobody else trades. NYSE trading volume was light in 2009, and most of the second half was below the already-low full-year average—but the S&P 500 Price Index rose 21.3% from 6/30 through 12/31.[v] The lowest-volume months—July, November and December—saw the S&P rise 7.4%, 5.7% and 1.8%, respectively.[vi] While NYSE's measure is only a snapshot of volume given how fragmented trading has become, it shows you don't need big trade volume for big movement. 

Stock buybacks are one of this bull market's drivers, but in a different way than recent headlines suggest. They imply the transaction moves the market. Reality isn't so myopic—the benefits are much broader. When corporations buy back stock, it gives their earnings-per-share a boost (reducing the denominator, share count), raising the value for shareholders. Reducing supply also (all else equal) tends to boost share prices, making buybacks a way for companies to return cash to shareholders (an alternative to dividends with more favorable tax treatment in some situations). 

Buybacks also reduce the number of shares available in the broad market, keeping the overall supply of equities in check. Limited supply, coupled with strong and rising demand, generally means higher prices, and buybacks are far from the only source of demand. The global expansion continues, and leading economic indicators suggest many countries are gathering steam—that bodes well for earnings looking ahead. The most competitive developed economies also have gridlocked governments—markets are happiest when big laws altering property rights and the distribution of capital and resources can't pass. Plus, sentiment still remains on the fence, with many investors just starting to become optimistic about stocks—a sign demand has a ways to grow.

Buybacks are a fundamentally bullish feature, one way companies attempt to drive up shareholder value. But even if they slow down a bit, there are plenty other reasons for the bull to charge ahead.

[i] Thing is, trade volumes don't really measure how many buyers you have. They measure the number of shares buyers and sellers agreed to trade on a particular exchange. The number of trades won't even tell you how many actual buyers or sellers you have, as large blocks of stock are occasionally split into multiple executions on an exchange. Hence, "volume" is really just a murky metric. Despite what some suggest, there is no way to interpret this statistic as providing some notion of the markets' je ne sais quoi.

Here's Why General Electric Company Is Putting Billions into Aviation

General Electric's (NYSE: GE  ) aviation unit -- GE Aviation -- has been 'powering a century of flight' across the globe. During the First World War, the company designed America's first airplane engine "booster" or turbosupercharger, and in the 90-odd years that have passed, it's crossed several important milestones. GE built America's first jet engine and has emerged as one of the world's leading producers of commercial aircraft engines. The company plans to invest $3.5 billion in the aviation unit by 2017. Let's find out what's making the company do so, and whether it will take GE to new highs.

Focus on GE Aviation
It's not difficult to understand why GE is investing so heavily in aviation as the segment generates the lion's share of the company's industrial sales and profits. In the recently concluded second quarter, the segment was the second-highest revenue earner among all industrial businesses. It made up for 22.6% ($6.1 billion) of GE's industrial revenues, losing only to the Power business, which accounted for 23.4% ($6.3 billion). In terms of industrial segment profits, GE Aviation took the ace position, contributing 28.7%, ahead of the Power segment's 27.2%. But this may not be the only reason why GE is pumping $3.5 billion into aviation -- it has also to do with the segment's huge upside potential.

GE Aviation, Source: Flickr

Fuel-efficient engines are in high demand
The U.S. aircraft major Boeing has forecast that between 2013 and 2032, global passenger traffic will increase 5% annually, spurring demand for 35,280 new aircraft. One crucial element that helps traffic grow is attractive fares. But, keeping fares in check isn't easy for airlines as the soaring fuel costs make up one-third of their total operating expense bill. This has turned the tide toward fuel-efficient planes.

Oil-guzzling Boeing 747 or Airbus A380 are fast falling out of favor, prompting aero-majors to come up with new planes and reengineered versions of old planes that score high on fuel efficiency and cost savings.

There's a fuel-save promise attached to the entire new breed, whether it is Boeing's built-from-scratch 787 Dreamliner that boasts "10% lesser cash seat mile costs than peer planes," or reengineered 777X that touts "12% lower fuel consumption and 10% lower operating costs than the competition." The 737 Max aims to "reduce fuel use and CO2 emissions by an additional 14% over today's most fuel-efficient single-aisle airplanes." Airbus' all-new A350 XWB claims to be 25% more fuel-efficient than existing planes, and the reengineered A320neo and A330neo assert 14%-15% savings.

Aircraft makers can live up to their lofty claims with the help of advanced engineering and better engines. And this is where GE Aviation's opportunities lie. The company has an added advantage as its engines are used by all three major commercial aircraft segments -- regional, narrow body, and wide body. Rival Pratt & Whitney serves only regional and narrow-body airplanes, while Rolls Royce caters primarily to the wide-body segment.

GE Testing Next-Gen Jet Engine with 3D Printed Parts, Source: Flickr

A big LEAP
GE has been quick to spot the prospects and is busy building next generation engines for next generation aircraft. Its GEnx engines have already won plenty of accolades and have become the company's fastest-selling engine family, with an order backlog crossing the 1,300 mark. It offers 15% better fuel efficiency compared to the older CF6 engine, and at the same time reduces carbon-dioxide emissions. The GEnx engines power Boeing's 787 Dreamliners.

But GE's latest engineering marvel is the LEAP engine that goes a mile further in delivering performance. The engines will be manufactured in collaboration with Snecma (Safran) of France. GE is using 3D printing (also known as additive manufacturing) to make 19 fuel nozzles for the engine, which could lower fuel costs by 15% and help save up to $1 million annually, per airplane. The LEAP engines will power Boeing 737 Max, Airbus A320neo, and COMAC C919.

The $3.5 billion investment will go into upgrading facilities and equipment around the globe, with a major thrust on the U.S. The plan includes building a LEAP engine manufacturing plant in West Lafayette, Indiana for $100 million. GE will also make LEAP engines at its existing factory in Durham, North Carolina. David Joyce, GE Aviation president and CEO, has said, "Beginning in 2015, the LEAP engine will experience a dramatic production ramp-up for the remainder of the decade." The company wants to ramp up total engine production by 30% to 3,300 engines by 2020 from 2,600 engines in 2013.

Last thoughts
GE is grabbing the opportunity thrown by the booming commercial aircraft market with both hands. The company knows it has a critical role to play in aircraft makers' and airlines' pursuit of fuel-efficient next-generation planes. By establishing new standards of efficiency and fuel savings in engine technology, GE has set its sight on the future of aviation, and newer highs for itself.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Is Twitter a tech company or a news service?

  How ISIS forced Twitter to grow up NEW YORK (CNNMoney) Twitter CEO Dick Costolo finds himself facing the same questions that news executives do: Where do you draw the line?

Twitter was founded on the idea of democratizing information and has famously been used to organize protests against dictatorships and break news in real time.

But this week, Twitter (TWTR, Tech30) was the main platform used by terrorist group ISIS to broadcast the gruesome beheading of journalist James Foley.

And for Costolo, that was the line in the sand. He condemned the actions in a tweet and vowed to suspend any accounts spreading those images.

It's a departure for Twitter -- the company rarely comments on specific cases of accounts.

But its Silicon Valley ethos is forced to evolve as its users do.

That's also meant purging Twitter accounts used by ISIS members over the last ten days, according to analyst Max Abrahm, who said the company is becoming more aggressive in choosing what its members see and whether a particular message can spread.

ISIS has become notoriously social media savvy. They attach popular hashtags to their tweets, so users searching those hashtags often stumble on ISIS tweets containing recruitment messages (for instance #WorldCup on tweets completely unrelated to the sporting event).

At one point, the group created an app that gave them the ability to tweet their message through the accounts of users who sign up. Isis recruitment videos are well produced and shot with HD cameras for the sole purpose of spreading their message and gaining a following on social networks, particularly Twitter.

"Terrorists use the media to help spread terror," analyst Max Abrahm said. "And there's been this link between terrorism and the media going back to the anarchists of the late nineteenth century. But ISIS is particularly savvy, especially [with] social media -- namely Twitter."

Now the question for the ever-evolving company is what is Twitter's responsibility? Is it to the users, the freedom of information, or a moral obligation? The lines between Twitter as a tech company and Twitter as a media company are increasingly blurred, which makes the question more relevant. Many would say Twitter made the right decision by purging the service of graphic imagery. Others! would ask whether this stance against ISIS extends to other groups, trolls, or graphic imagery.

In an age where freedom of information is celebrated and social networks have exploded, there's a balancing act between disseminating information and an overarching respect for humanity. Twitter has taken a front seat in this debate.

RadioShack: Still Going to $0

After RadioShack (RSH) released earnings yesterday, the folks at Wedbush have reiterated their belief that the beaten-down retailer’s stock is heading to $0. Analyst Michael Pachter and team explain:

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It appears to us that RadioShack will quickly running out of liquidity options and must raise capital in order to survive this holiday season. The company proposed several alternatives, including a sale, a partnership through a recapitalization and investment agreement, and in or out-of-court restructuring. RadioShack anticipates announcing a recapitalization alternative in the near term. We believe the most expedient and likely solution is a prepackaged bankruptcy.

Reiterating our UNDERPERFORM rating and 12-month price target of $0 as declining CE sales and continued margin erosion will likely compel the company to enter bankruptcy in order to pursue its turnaround. Our price target reflects our expectation that creditors will force a reorganization and wipe out RadioShack's equity.

Shares of RadioShack have dropped 10% to 92 cents at 2:34 p.m. today.