The Dow's 5 Most Expensive Stocks

It seems that lately, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) hits record high after record high. That has a lot of people wondering if we're entering bubble territory. While trying to time the market is always a bad idea, investors should be checking to see if the stocks they're buying are too expensive right now.

A great metric to help investors see whether a stock is expensive is its price-to-earnings ratio. This tells you how much a stock is worth, relative to how much money its company made over the past year. Right now, the average Dow stock trades for a P/E of 16.7. 

For comparison's sake, the Dow's five most expensive stocks -- all listed below -- have P/Es well above this average. But as you'll see, that doesn't necessarily mean they should be avoided at all costs.

5. Home Depot (NYSE: HD  ) , P/E of 26
After a painful Great Recession for Home Depot, people are finally starting to build and refurbish their own homes. That has been a huge boon for the company.

Even as late as mid-2011, Home Depot traded hands at a P/E of just 14. Since then, the stock has shot up 160%. Clearly, people are excited to see housing making a comeback. But there's a problem with where the stock's growth came from.

HD data by YCharts

Well over half of Home Depot's growth is from heightened expectations -- not actual results. Home Depot's certainly not a bad stock, but at today's prices, it may be better to wait for a pullback before buying in.

4. AT&T (NYSE: T  ) , P/E of 28
Telecom companies can have weird P/Es. That's because things like depreciation of the company's physical assets and amortization play a pretty large role in its earnings. The problem is, these calculations don't actually take real money exchanging hands into consideration. They are purely abstract.

A much better way to see whether AT&T is expensive is to look at its price-to-free-cash-flow ratio. This measures the price of the stock with how much money it actually kept from the previous year. Currently, AT&T has a P/FCF of just 9.9. That's much more reasonable.

When you consider this, along with the company's 4.8% dividend and the fact that wireless subscribers have increased by 39% since 2008, AT&T looks like a pretty solid bet for your money.

3. Alcoa, P/E of 37
Alcoa is America's biggest aluminum company. Its $8 stock hasn't gotten anywhere near its pre-recession high of over $45, and it's down 50% from where it was in April 2008.

The most important thing to understand about the company is that it's in a highly cyclical industry. It seems that during this business cycle, the downturn is understandably longer than normal. But it won't always be this way: Analysts generally see the company growing earnings markedly over the next four years. In fact, Alcoa is expected to grow earnings per share by 46% per year up to 2016.

If that turns out to be true, Alcoa might actually be cheap right now. But it will be important to monitor demand from China, where demand for aluminum has slumped and inventories are piling up.

2. Bank of America (NYSE: BAC  ) , P/E of 42
Bank of America's $13 stock is far from its 2006 highs in the mid-$50s, but shares are up 340% since bottoming out in 2009. Though the company might look expensive with a P/E of 42, analysts expect earnings to grow by 53% per year over the next four years. As with Alcoa, this would actually make the stock seem cheap today if things pan out as expected.

But that is a mighty huge if. Investing with banks, especially "too big to fail" banks, can be hazardous to your portfolio. Only invest in the bank for which you have a handle on all of the complicated ways in which it tries to make money. Keep in mind that the CEOs of some of these banks don't even have a firm grasp on what's going on all the time.

1. Verizon (NYSE: VZ  ) , P/E of 130
Remember how P/E wasn't the greatest measure to judge AT&T? Well, the same holds true with Verizon. Instead, we can look at the company's P/FCF, which is just 8.8. That makes the company look a whole lot cheaper.

Throw in the fact that Verizon offers a nice 3.9% dividend, and you can see why this telecom might be a much better buy than some people might initially think.

The best the Dow has to offer
If you're looking for some long-term investing ideas from the Dow, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Why Big Banks Should Fear GoBank

When prepaid debit card vendor Green Dot (NYSE: GDOT  ) announced early this year that it was trialing a new concept in banking, my interest was piqued. After all, the company had seen some hard times in 2012, and I wondered if this new offering would help bolster the company's sagging profile.

Now, Green Dot is ready to release its smartphone-based virtual bank to the world, marking July 4 as the official launch date. The four-month trial has apparently been a rousing success, and investors have graced the company with a share price boost of nearly 50% so far this year.

Not your ordinary bank
When Green Dot management discussed the GoBank concept back in January, CEO Steve Streit noted that fees charged for checking accounts at large banks like Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , and JPMorgan Chase (NYSE: JPM  ) can become problematic for the young and others with limited resources. Streit particularly noted overdraft fees -- which can be quite steep at the large banks, sometimes costing more than loans from payday lenders.

Online-only banks are not entirely new. The Bank of Internet (NASDAQ: BOFI  ) , for instance, is also completely virtual, having no physical bank locations while still offering a wide array of products and services. Fees do exist, though, and Bank of Internet charges an overdraft charge on its regular checking account, though not on Rewards Checking. 

In addition to the idea that GoBank is meant to be the only banking experience that is primarily based upon mobile devices, the costs associated with the account is the real difference between Green Dot's bank and the big guys. GoBank doesn't charge overdraft fees, and it has a network of 40,000 ATMs that customers can access for free, though a fee of $2.50 is charged for use of an out-of-network machine. As for a monthly maintenance fee, customers can choose their own -- on a sliding scale of $0 to $9 per month.

Treating customers right
Another way GoBank shines in comparison to the biggest banks is in its customer relations. Banks like Wells, B of A and JPMorgan are known for behavior like ordering debit card charges to maximize penalties for their customers -- something for which those banks, and many others, were cited by the Consumer Financial Protection Bureau, and for which they have been compensating consumers over the past couple of years.

GoBank has started out treating its customers well, and has informed those involved in the beta testing that the company has locked their monthly membership fee at $0. The way GoBank is onboarding customers has already won accolades from the Financial Brand, which notes that very few banks bother to welcome new customers, or help them navigate around their new accounts.

It seems that investors have been following the progress of GoBank, and are pleased by the results. Green Dot is planning a media blitz to introduce the product to the mainstream, which should ramp up its customer base very quickly. Time will tell, but it looks like Green Dot has tapped into a segment not often courted by banks -- and it just might be a big winner.

With so much of the financial industry getting bad press these days, it may be a greedy when others are fearful moment. Not surprisingly, some of Warren Buffett's biggest investments are in the space. In the Motley Fool's free report, "The Stocks Only the Smartest Investors Are Buying," you can learn about a small, under-the-radar bank that's too tiny for Buffett's billions. Too bad, because it has better operating metrics than his favorites. Just click here to keep reading.

Don't Let Shutdown, Default Anxiety Influence Investments

Getty Images The financial media loves a crisis, and we have no shortage of them. The government shutdown and the looming possibility of a default provide ample fodder for those whose livelihoods depend on readers, viewers and advertising revenue. The major advertisers in financial media are members of the securities industry. This industry depends on trading by investors to increase fees and commissions. It's the perfect storm for investors. Much of the media acts as a shill for its advertisers by increasing fear and anxiety, which, in turn, stimulates trading as investors flee to safety and wait on the sidelines until things settle down. Bouncing in and out of the market in response to market volatility is a recipe for poor returns. A University of Michigan study commissioned by Towneley Capital Management found that investors who missed less than 1 percent of the best trading days from 1963 through 2004 did not capture 96 percent of market returns. Another analysis of market-timing strategies over a 10-year period found that 80 percent of market timers failed over any reasonable period of time. Those are not encouraging odds. Terrible advice abounds in these times. Jim Cramer, a common source of hype and misinformation, warns that all stocks will "get clocked" as the prospect of default nears. He suggests buying dividend-paying stocks as "bounce back candidates." Cramer doesn't reference the extensive data indicating that using high-dividend stocks as a substitute for safe bonds is risky and a poor substitute for an intelligently implemented value strategy. A blog post from CNBC reports a prediction from investment bank Societe Generale that U.S. shares are "headed for a big drop in the first quarter of 2014, followed by a year-long period of stagnation." Another post from CNBC warns that a "debt freeze would throw the economy hard into reverse and another deep recession." You don't need to look far to understand how the securities industry benefits from stoking fear and anxiety. A Bloomberg article discusses the sad plight of more than 30,000 investors who succumbed to the pitch of Morgan Stanley (MS) and invested in a managed futures fund called Morgan Stanley Smith Barney Spectrum Technical LP. The fund was supposed to "potentially profit at times when traditional markets are experiencing losses." Here's the good news. The fund did make profits of more than $490 million for the decade ending in 2012. How did the investors do? They received no returns. More than $498 million was paid to Morgan Stanley in commissions, expenses and fees. This obscene result is not atypical. The article reports that 89 percent of the $11.51 billion of gains in 63 managed futures funds went to fees, commissions and expenses during the same decade. Once you understand that much of the financial media's goal is to assist its advertisers in transferring your wealth to them, you can view the information provided by them with a new perspective. Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His next book, The Smartest Sales Book You'll Ever Read, will be published March 3, 2014.

Tesla Motors: 3 Things to Watch

Electric-car start-up Tesla Motors (NASDAQ: TSLA  ) is on the verge of its first profit, a huge milestone for the audacious Silicon Valley start-up. But plenty of potential pitfalls remain. In this video, Fool contributor John Rosevear outlines three things that any Tesla investor should be watching carefully and that any potential Tesla investor should take into account before buying.

Is it too late to buy Tesla?
Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

Molycorp Gets a Helping Hand

Alcoa's (NYSE: AA  ) earnings release on Monday primed the materials sector to surge higher on Tuesday based on some bullish comments made by the company. One beneficiary of the remark was rare-earth element standard bearer Molycorp (NYSE: MCP  ) . The stock has struggled all year, but has been fighting off of recent all-time lows as it looks to regain investor confidence.

In the video below, Fool.com contributor Doug Ehrman discusses the importance of the Alcoa news on Molycorp, the outlook for the company for the rest of the year, and what positions you may wish to take as the stock moves ahead.

Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Controlling about 15% of global production in this highly consolidated industry, Alcoa is in prime position to take advantage of growth that some expect will lead to total industry revenue approaching $160 billion by 2017. Based on this prospect and several other company-specific factors, Alcoa is certainly worth a closer look. For a Foolish investment perspective on this global giant simply click here now to get started.

Retail Investors ‘Buy the Dip’ Too

Professional investors weren't the only ones buying the dip last week.

More than half of the individual "active investors" polled by Fidelity Investments said on Oct. 9 that they would buy stocks during a broader market decline of 5% or more. For any readers who have been on vacation without cell reception for the past two weeks, that's just what happened. The S&P 500 fell 7.4% from its Sept. 18 high to its Oct. 15 low.

The Wall Street Journal

It has proven profitable over the past year to step in and buy stocks during any market declines, analysts and strategists note. So during the latest declines, Wall Street was warily watching to see whether the "buy the dip" strategy would pay off yet again.

But Fidelity's active individual investors, who make several trades each month, sounded confident.

"This was definitely a bullish crowd," said Ram Subramaniam, head of the firm's brokerage division.

An average 2,239 active investors answered each question. When Fidelity did the poll, the S&P 500 had already dropped 4.1% from its high. So it wouldn't be a stretch to guess that the 57% of individuals who said they would buy stocks after a 5% decline were jumping into the market last week. The active investors were fans of technology and health-care stocks in particular, the firm said.

Of course, that group was entirely made up of active investors, who tend to pay closer attention to market moves, and sometimes have a stronger appetite for risk.

Across all of Fidelity's15 million brokerage accounts, individuals were buying stocks as well. But they weren't quite as sanguine about the pullback.

The broader customer base sent 1.24 buy orders for every sell order for stocks last week, meaning they were still more bullish than bearish. But that was down from 1.26 during the second quarter and 1.32 in the first quarter, the firm said.

And during the first eight trading sessions of October, individuals still sent cash into stocks, but bought 38% less than the same period the month before, according to a firm representative. Instead of piling into stocks, they crowded into the perceived safety of the bond market, as the money going into bonds doubled from the same period in September. They jumped into that market during a steep rise in Treasury prices, which briefly pushed the rate on the 10-year note below 2%.

Spending cuts to education and nutrition will hurt kids

As federal spending on the elderly and interest on the debt is set to grow, spending on children will decline in most areas, including for K-12 education and nutrition, a new report from the Urban Institute found. NEW YORK (CNNMoney) Kids may be the future of America, but you might not know it looking at how Washington spends its money.

A new report Thursday found that only 2% of the projected increase in federal spending over the next decade will be dedicated to programs benefiting children.

That works out to $26 billion out of $1.4 trillion.

And that $26 billion will go toward children's health spending, particularly in Medicaid, according to the report, published by the Urban Institute, a public policy think tank.

Meanwhile, spending on most other child-centric categories -- such as education and nutrition -- will fall.

Spending on K-12 education, for instance, will decline from $43 billion in 2013 to $38 billion in 2024. That's due in large part to the forced budget cuts known as the sequester.

Nutrition programs will also see a drop -- from $62 billion in 2013 to $56 billion in 2024.

If not kids, who? So where's the vast bulk of that $1.4 trillion spending increase going instead? Primarily to Medicare, Medicaid and Social Security as well as interest on the debt.

In fact, starting in 2017, Washington will spend more money on interest than on children, the report said.

"Without changes to current law ... we risk not only the well-being of our children, but the well-being of the nation," the report's authors said.

Over the past 50 years, federal money spent on the elderly has been considerably higher than that spent on children.

This despite the fact that the elderly have always made up a smaller share of the population than kids.

In 1960, for instance, Washington spent $4,000 per senior versus $270 per child. By 2011, it was $27,975 per senior versus $4,894 per child.

  Bill could take the 'happy' out of Happy Meals

One explanation might be that seniors need more health care, which is expensive.

But Julia Isaacs, a lead author for the Urban Institute report, said that when you exclude health spending for both elders and children, the gap in spending between the gene! rations is still large.

State funding narrows the gap: It does narrow considerably, though, when state and local spending are factored in since they skew more heavily to children, particularly through public school spending.

With federal, state and local spending combined, money spent per senior ($28,754) was only a little more than twice that spent per child ($12,770) in 2011, the report found.

The Value Case For Forest Oil - Aquitania Capital (From ValueX Vail 2014)

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Retirees suffer as 401(k) rollover boom enriches brokers

Kathleen Tarr says AT&T Inc. (T) employees looked to her as “their de facto 401(k) expert.” Visiting their homes and offices, she advised them on their retirement plans as they called up balances on computer screens.

Actually, Ms. Tarr worked for Royal Alliance Associates, a brokerage firm owned by insurer American International Group Inc. (AIG) She encouraged hundreds of departing AT&T employees to roll over their retirement money into the kind of risky high-commission investments that Wall Street's self-regulatory agency warns against on its website.

Ms. Tarr and her business partner reaped hundreds of thousands of dollars a year in commissions and trips to the Bahamas and Florida resorts. Not all of her clients fared as well, and 37 of them have filed complaints against her, according to Financial Industry Regulatory Authority records reviewed by Bloomberg News. Ms. Tarr and Royal Alliance say the investment choices were appropriate.

“It's scary,” said Maria Lew, a former AT&T administrative assistant and Tarr client whose account balance has fallen to $100,000 from $390,000. She fears she will lose her home, and her kitchen ceiling has a gaping hole because of a leak that will strain her budget to fix. “There are days when I go to sleep and I can't stop thinking about it.”

The complaints against Ms. Tarr and other brokers illustrate the underside of America's retirement rollover boom. Former employees shifted $321 billion from 401(k)-style plans to individual retirement accounts in 2012, up about 60% in a decade, according to Cerulli Associates, a Boston-based consulting and research firm. As a result, IRAs hold $6.5 trillion, more than the $5.9 trillion in 401(k)-style accounts.

A three-month Bloomberg investigation found that former employees at major companies such as Palo Alto, Calif.-based Hewlett-Packard (HPQ) Co. and United Parcel Service Inc., as well as AT&T, have complained that sales representatives lured them into rolling over their 401(k) nest eggs into unsuitable IRA investments. The investigation was based on interviews with retirees and brokers, confidential arbitration records and other documents.

COLD CALLS

While retirees can generally leave their savings in 401(k) plans, financial firms entice them with cold calls, Internet ads, storefront signs and cash incentives to switch to IRAs. They tout the advantage of the IRA's wide variety of investment choices over the typical 401(k) plan's limited menu.

Yet that appeal can also be a pitfall for retirees offered expensive and high-risk investments. IRAs often charge higher fees than those associated with 401(k) plans, giving brokers an incentive to promote rollovers.

“You're going into the wild, wild west when you take your money out of a 401(k) and put it into an IRA,” said Karen Friedman, executive vice president and policy director of the Pension Rights Center, a Washington-based group representing retirees.

Ms. ! Tarr's clients paid higher fees in their brokerage accounts than they would have in their AT&T plan. There's no way of knowing exactly how they would have fared if they had left their savings behind. Employees in 401(k) plans, including AT&T's, also faced losses during the 2008 financial crisis, though the market has since rebounded to reach new highs.

Ms. Tarr, who left Royal Alliance in 2010, stands by her advice, saying the investments held up well in a difficult market. She said she didn't even know about the commissions each investment paid and wanted to do what was best for her clients.

In a more than two-hour interview, Ms. Tarr said she often tried to talk customers out of rolling over their pensions, but that many were eager to have the lump sum to generate higher returns and leave money to their children. She always made clear that she worked for Royal Alliance, not AT&T, she said.

“I am forever besmirched, and that is really hard for me,” said Ms. Tarr, fighting back tears. “I am a minister's daughter and granddaughter. If anyone thinks I would do anything illegal, immoral or unethical, that hurts me where I live.”

Ms. Tarr's strategy of focusing on one big company isn't unusual. A broker for another AIG unit, FSC Securities Corp., cold-called employees of UPS (UPS), the world's largest package-delivery company, in the area around its headquarters in Atlanta, according to a June 2013 complaint. Nine customers, including six UPS employees, lost more than $1 million when broker Brian G. Brown rolled over their retirement money into high-risk investments, including oil and gas private placements, they said.

EXPERIENCED CUSTOMERS

AIG, based in New York, declined to comment on the complaint against FSC. In a filing responding to the allegations, FSC said most of the customers were multi-millionaires “with decades of investing experience” who understood the risks.

Mr. Brown left FSC in 2010 and works for another brokerage company in Atlanta.

The c! omplaint ! “hasn't been arbitrated, and all of it is not true,” he said in a telephone interview.

Federal regulators are targeting rollover abuse. Last year, the Government Accountability Office, Congress's investigative arm, found that a conflict of interest was fueling IRA growth. Financial companies that administer 401(k) plans misled GAO investigators posing as departing employees, telling them they would almost always be better off if they shifted to IRAs that the companies also managed.

The Labor Department has said it will propose rules in January that brokers and other advisers act in clients' best interests during rollovers, a so-called fiduciary standard. Brokers are generally held to the lower standard of selling products that are suitable for their customers, meaning that they don't have to put their clients' interests first as long as they select appropriate investments. In January, the Financial Industry Regulatory Authority Inc., the Wall Street self-policing group, warned members that it would heighten its scrutiny of IRA rollovers.

The Securities Industry and Financial Markets Association, which represents brokers, banks and money managers, opposes stricter regulation. It would hurt commission-based brokers, limiting consumer choice, according to the group. Disclosure rules are already sufficient to protect customers, said Ira Hammerman, the association's executive vice president and general counsel.

“Let the customer decide,” Mr. Hammerman said.

Bank of America Corp (BAC).s' Merrill Lynch and E*Trade (ETFC) Financial Corp. offer as much as $600 up front to anyone who rolls over a 401(k) into an IRA.

“If someone offers you $600 to roll over your IRA, you can be sure you are going to be paying a lot more additional expenses later,” said Mercer Bullard, an associate professor at the University of Mississippi Law School who heads Fund Democracy, an advocacy group for mutual-fund shareholders.

INCENTIVES 'COMMONPLACE'

Kristen Georgian, a Bank of Amer! ica spoke! swoman, said such incentives are “commonplace for many leading brokerage firms.” The company informs clients about their options, “including keeping their assets in place,” she said.

“We believe strongly in rollovers,” said Mike Loewengart, E*Trade's director of investment strategy. Clients benefit from more transparent fees and broader investment options in an IRA with E*Trade, he said.

In a 401(k), an employee sets aside money — often with a company match — in a menu of mutual funds, which aren't taxed until withdrawal and, in some cases, at all.

Once workers exit a company, they generally can leave the money behind, roll it over into an IRA, transfer it to another 401(k) or cash out and suffer a huge tax hit. In a rollover, customers set up IRAs with financial companies, preserving their tax deferral.

Though 401(k)s offer fewer choices than IRAs, large companies such as AT&T negotiate for institutional discounts on the funds they select. As a result, 401(k) participants paid less than half the average 1.4% annual expenses charged to all U.S. stock mutual-fund investors, according to a 2013 study from the Investment Company Institute, a Washington-based mutual-fund industry trade group.

Still, almost 18 million U.S. households hold IRAs that include rollover money, estimated a recent report from the Investment Company Institute.

After he lost his job in 2009, Manuel Gonzalez Martinez, a mechanical engineer for Hewlett-Packard in Puerto Rico, rolled over $150,000 from a 401(k) and a lump-sum pension payment to an IRA with UBS AG (UBS), the Swiss financial-services company.

His broker, Luis Roberto Fernandez Diaz, recommended Puerto Rico municipal bond funds with a 3% upfront sales fee and 1% annual expenses, according to his arbitration complaint with Finra, which lists 17 customer disputes against Mr. Fernandez from 2009 through 2014. Six of them have been settled.

Financial advisers generally frown on investing an IRA in municipal bonds ! because t! heir main advantage is tax avoidance, something that is already a feature of an IRA. Worse, the bonds plunged in value because of the deteriorating finances of Puerto Rico and are now worth only $90,000, Gonzalez said.

“I am stuck with the bonds,” said Mr. Gonzalez, 51. “They are a just a number on paper.”

UBS doesn't comment on individual arbitration cases, said spokesman Gregg Rosenberg. In a filing responding to the allegations, UBS said Mr. Gonzalez “invested very profitably in the funds” for years before the municipal bond market deteriorated.

Mr. Fernandez now works as a broker for Popular Securities. Teruca Rullan, a spokeswoman for Popular Inc., the parent company, said he would not be available for comment.

VULNERABLE WORKERS

At the time of leaving a longtime employer, workers are often confused and vulnerable to unsound financial advice. In 2010, Albert Grathwol stopped by a hotel to attend a seminar organized by Raymond J. Lucia Sr., a radio personality who also ran an investment firm. Mr. Grathwol was about to retire as a structural engineer for Aecom Technology (ACM) Corp., a Los Angeles-based engineering design company.

Signing up with Mr. Lucia's firm, Mr. Grathwol and his wife, Sandra, a former schoolteacher, invested $300,000 of retirement savings into non-traded real estate investment trusts. These REITs, which invest in property such as apartments and shopping centers, aren't traded on a public exchange, which means they can't easily be sold.

An alert on the Finra website warns that non-traded REITs are hard to cash in, may not be a diversified real estate investment and that commissions and other expenses can be as much as 15%.

Mr. Grathwol said his REITs' value fell by $100,000. “We were depending on it as our life's savings,” said Mr. Grathwol, 69.

The couple has filed an arbitration claim against San Diego-based First Allied Securities Inc., which acted as broker for Lucia's firm.

In 2013, the Securities and Excha! nge Commi! ssion's enforcement division moved to bar Mr. Lucia from the industry for allegedly misleading investors about the historical performance of the strategy he was promoting. Mr. Lucia has appealed. Marc Fagel, an attorney for Lucia, declined to comment because Mr. Grathwol's complaint is still in arbitration.

Joseph Kuo, a First Allied spokesman, also said the company doesn't comment on pending arbitration cases, while noting Mr. Lucia is no longer affiliated with the brokerage. In a filing responding to the allegations, First Allied said they were “baseless,” because the REITs were “only one part of a layered investment strategy” and the Grathwols were fully informed of the risks.

Employees at AT&T faced similar quandaries about where to entrust their savings.

Based in Dallas, the telecommunications company, with 246,000 workers, is one of the largest private employers in the U.S. AT&T's 401(k) ranks among the best 15% of U.S. plans in terms of fees, according to BrightScope, a financial information company that rates retirement offerings. AT&T funds, which are available only to employees, charge expenses as low as .01%.

Typically, when employees retire or lose their jobs, they have the option of rolling over their 401(k)s or, in most cases, leaving them behind in the same low-cost investments. At AT&T, they often have another big decision. Along with their 401(k), they can take a pension — a monthly fixed payment for life — or an equivalent lump-sum payment that could amount to hundreds of thousands of dollars a year.

Sensing a business opportunity, broker Richard McCollam, a West Point graduate and former U.S. Army captain with who had worked for insurer MetLife (MET) Inc., began marketing to AT&T employees with 401(k) rollovers and lump-sum pension payments.

Starting in 1994, Mr. McCollam worked for Royal Alliance, part of AIG's Advisor Group, one of the largest networks of independent brokers in the U.S., with about 6,000 representatives. While Mr. McCo! llam hand! led the back office, Kathleen Tarr, who joined him as a broker in 2002, prospected for clients.

“If you are like most AT&T retirees, you probably feel that you are drowning in information that may be confusing and frustrating,” according to marketing material saved by a former customer.

Ms. Tarr had an unusual background for a financial adviser. She has a Ph.D. from the University of California at Berkeley, where she studied invertebrate physiology. She taught briefly at UC-Irvine before quitting to raise three boys. She then went back to work as a private-school teacher and then in finance after her husband lost his job as a biochemist.

Like many at Royal Alliance, Ms. Tarr and Mr. McCollam worked out of their homes, in Contra Costa County, near San Francisco. Ms. Tarr, who had just turned 50 when she teamed up with Mr. McCollam, had an easy manner with soon-to-be retirees. The daughter of an Army chaplain and granddaughter of a Congregational minister and missionary, she would invite clients to hear her sing at a local Episcopal church, where she led the soprano section.

Ms. Tarr won referrals by word-of-mouth, meeting clients both at their homes and, by appointment, at AT&T offices across the San Francisco area.

Mark Siegel, an AT&T spokesman, said the company provides information about benefits, but doesn't endorse specific financial advisers, which aren't affiliated with the company.

Mr. Siegel said the company periodically sends alerts to employees, such as an email from last October, which warned: “You should research the individuals contacting you and their organizations before doing business with them.”

NONTRADED REITS

Mr. McCollam said they recommended that clients put 60% to 70% of their money in variable annuities. The balance would end up in non-traded REITs, including Oak Brook, Ill.-based Inland American Real Estate (IARE) Inc. The REITs generated dividends of 6% to 8% a year, providing an alternative to the vagaries of the stock market, Ms. Tarr sa! id.

In ! variable annuities, customers invest in mutual funds within an insurance wrapper, which offers a death benefit, typically providing heirs a minimum payout. Earnings are tax-deferred.

Investing in a variable annuity within an IRA “may not be a good idea” because it provides no additional tax savings over an already tax-advantaged IRA, according to a FINRA alert on its website. The annuities will increase costs, “generating fees and commissions for the broker or salesperson,” FINRA says.

Customers often choose variable annuities because they offer a guaranteed minimum lifetime income, which is assured no matter how their investments perform, said Andrew Simonelli, a spokesman for the Washington-based Insured Retirement Institute, which represents companies that offer annuities.

“While tax deferral is certainly part of the value proposition of annuities, it's not the only reason,” Mr. Simonelli said.

Mr. McCollam said he, Ms. Tarr and Royal Alliance would generally receive a total commission of as much as 6% or 7% of the money that clients invested in variable annuities. The mutual funds they selected would charge customers 2% to 3% a year in fees. Those fees were no higher than those of many mutual funds sold by brokers, Ms. Tarr said.

The brokers and Royal Alliance also received commissions totaling 6% to 7% for selling non-traded REITs, Mr. McCollam said. Typically, Ms. Tarr and Mr. McCollum kept 90% of their commissions, giving 10% to Royal Alliance, Mr. McCollam said.

Over time, the pair signed up as many as 500 customers, most from AT&T, Mr. McCollam said. Overseeing about $90 million in investments, their business generated about $600,000 to $700,000 in annual commissions — and $1 million in its best year, he said. As the founder of the operation, he would keep 90% and Ms. Tarr, 10%, McCollum said. He said they won sales awards, with Royal Alliance sending one or both to resorts in the Bahamas; Boca Raton and Orlando, Florida; Arizona and Texas.Doug Be! al, a $32-an-hour mechanic specializing in air-conditioning and fire detection, heard about Ms. Tarr from his union steward. Ms. Tarr visited Mr. Beal in his shop, where he worked outside San Francisco.

“I wanted something where I wouldn't lose a whole bunch if the market went crazy,” said Mr. Beal, a disabled Vietnam veteran.

When he retired in 2009, Mr. Beal invested $320,000 in variable annuities and REITs, rolled over from his pension and 401(k). He has since lost $60,000 because of a decline in the REITs' value, said Frank Sommers of Sommers & Schwartz in San Francisco, who represents 17 of Ms. Tarr's former clients.

PAYING BILLS

Mr. Beal is deferring his dream of moving up to Spokane, Wash., where he hopes to set up a shop to tinker with motorcycles and old cars, including a 1926 Model T Ford in his garage.

“It's making it a little harder to pay bills,” said Mr. Beal, 67, who also receives disability payments related to military service. “Thank God for my VA pension.”

Ms. Tarr cultivated some employees for years, such as Mae Holloway, who started her 40-year career at AT&T as a telephone operator and ended up overseeing maintenance in Oakland. Ms. Tarr would stop by Ms. Holloway's desk, encouraging her to come up with a budget for her retirement.

In 2008, Ms. Holloway, then making $69,000 a year, decided it was time to leave. She was 62 and figured she needed her investments to generate $3,000 a month. So, hoping she could have money left for her children after she died, she turned down the guaranteed $2,500 a month pension and took a $600,000 lump sum payment from her pension and 401(k). She rolled it over into an IRA, invested in variable annuities and REITs.

“If I do this, can you guarantee I won't go broke before I leave this world?” ms. Holloway remembered asking Ms. Tarr. “And she said yes. I told her no high risk. I didn't want to be aggressive.”

Ms. Tarr said she would have never made that kind of statement.

&#! 8220;I us! ed to call it the G-word,” she said. “I could never guarantee anything. That is the first rule of investing.”

Ms. Holloway lost about $90,000 because of the reduced value of her REITs, according to Mr. Sommers, her attorney.

“I'm losing sleep over it,” Ms. Holloway said. “I should have just left it. I wanted to leave money for my kids.”

Ms. Lew, the former administrative assistant with the hole in her kitchen ceiling, has a more immediate worry: paying her mortgage. An immigrant from Central America, she retired from AT&T in 2003 with an IRA set up by Ms. Tarr. Afterwards, they often discussed investments over coffee at Ms. Lew's kitchen table, as her prized green parrot squawked in a cage with a sweeping view of the parched hills surrounding San Francisco.

Ms. Lew started her withdrawals at $2,000 a month, then bumped them to $2,500. Ms. Lew said Ms. Tarr blessed the move — something Ms. Tarr disputes, saying she had warned against it.

By 2010, Ms. Lew noticed losses in her account. Her REITs have plunged $145,000, according to Mr. Sommers. To make ends meet, she is caring for neighbors' children. She will run out of money in three or four years, which could force her to sell her house.

“I was old-fashioned like my mom about planning for the future,” said Ms. Lew, 61. “I never thought I'd end my years worrying about money.”

'GOOD ADVICE'

Mr. McCollam said that Ms. Lew, Mr. Beal and Ms. Holloway showed modest gain in their account, when the dividends from REITs are taken into account.

“We feel like we gave as good advice as we could have given,” Mr. McCollam said.

In 2010, Royal Alliance dismissed Ms. Tarr and Mr. McCollam, citing a failure to follow a policy for pre-approval of variable annuities, according to a Finra filing.

“No client was adversely impacted by any omission by either Mr. Mr. McCollam or Ms. Tarr — all transactions were ultimately reviewed and determined appropriate,! 221; Lind! a Malamut, a Royal Alliance spokeswoman, said in a statement. “Further, the termina

FTSE 100 clings to thin gain as miners sell off

LONDON (MarketWatch) — U.K.'s FTSE 100 index turned slightly higher Thursday, though its gain was limited by a selloff in the mining sector.

The FTSE 100 index (UK:UKX) rose 0.1% to 6,843.11. Shares of ITV PLC (UK:ITV) moved up 1.6%, perched nearly at the top of the benchmark ahead of start of the World Cup soccer tournament. ITV and the BBC will broadcast the monthlong series of matches from Brazil that start Thursday. New contracts announced this week give the broadcasters the rights to continue coverage for the 2018 and 2022 World Cup games.

Miners suffered during the session, with Anglo American PLC (UK:AAL)  dropping 3.2% after Morgan Stanley cut the iron ore producer to an underweight rating from equal weight. Rio Tinto PLC (UK:RIO) (RIO) fell 3.1% and BHP Billiton PLC (UK:BLT)   (BHP)  lost 1.3%, with Morgan also cutting its price targets on Anglo American, Rio Tinto and BHP as it reduced its price assumptions for iron ore for 2014 through 2019, according to Dow Jones Newswires.

Bloomberg Enlarge Image

In the wake of the World Bank's lowered 2014 economic growth forecast, investors have "taken as a cue to sell FTSE mining stocks once again," said David Madden, market analyst at IG, in a note Thursday.

The World Bank on Wednesday cut its global economic growth projection to 2.8% for the year, from its 3.2% forecast in January, though it said growth in the U.S. and Europe will accelerate this year.

Also finishing lower Thursday, shares of copper producer Antofagasta PLC (UK:ANTO)  fell 2.6%.

On the broader economic front, U.K. prices for housing rose in May, but demand shows signs of slowing, according to figures from the Royal Institution of Chartered Surveyors.

Late Thursday, U.K. Chancellor of the Exchequer George Osborne was expected to outline plans aimed at cleaning up Britain's financial markets, and new measures would make it a criminal offense to manipulate benchmarks used in foreign exchange, fixed income and commodities markets. It's already a crime to manipulate interest-rate benchmarks such as the London interbank offered rate, or Libor. The U.K.'s Financial Conduct Authority started investigating alleged manipulation of foreign-exchange benchmarks last year.

The foreign-exchange benchmark—the daily London 4 p.m. fix—is made by taking the average of trades 30 seconds before and after 4 p.m., said Warwick Business School Dean Mark Taylor in a note Thursday. He proposed a change that would take the average of trades over a period of an hour—or at about 30 minutes before and after 4 p.m.

Making that change "would be a lot harder, if not impossible, to move a market as big as the FX market for an hour. Removing the incentive is much better than regulation because of the global, decentralized nature of the foreign exchange market," said Taylor, a former Bank of England and IMF senior economist, as well as a former currency trader.

Outside of the FTSE 100, Mulberry Group PLC shares (UK:MUL)  rose 3.1% as the luxury-goods retailer said it would expand lower-priced offerings following the successful launch of less-expensive handbags. Mulberry's annual profit fell 46%, while sales dipped to 163.5 million pounds ($275.16 million).

More must-reads from MarketWatch:

Uber's $18 billion valuation reflects froth but not a bubble

Militants overrun Tikrit, advance on Baghdad

The backroom deal that took bazooka out of ECB's hands

GM recalling 56,000 Saturns

In some Saturn Auras, a gear shift cable can break causing the gear selector not to work.

NEW YORK (CNNMoney) General Motors said Tuesday that is recalling 56,000 Saturn Aura sedans in the United States.

The automaker said the cars could roll away when drivers think the vehicle is in Park because of a flaw that sometimes incorrectly displays the gear in the gear selector.

The problem can occur in cars equipped with a four-speed automatic transmission. A gear shift cable can break even while the vehicle is being driven. If that happens, the driver would be able to move the gear selector, but unbeknownst to him, the car would not have shifted into another gear, such as Reverse of Park.

If, after stopping the car, the driver is unable to shift into Park, the vehicle could roll away if the parking brake has not been applied.

  Alfa Romeo is back with new 4C

GM is currently aware of 28 crashes and four injuries resulting from this problem but no deaths.

Gallery - Cool cars from the Beijing Auto Show

The vehicles being recalled are all from model years 2007 and 2008. Owners will be asked to take their vehicles to a dealership to have the gear shift cable assembly replaced.

Since its recall of 2.6 million compact and sports cars over a problem with ignition switches, a problem the automaker had known about for 10 years, GM has been facing increased scrutiny over its response to safety issues. The automaker has pledged to respond more quickly in the future when recalls are needed. GM has announced a number of recalls since then including a recent one of 52,000 SUVs for a fuel gauge issue. Still, GM was accused of being slow to respond to a power steering issue in Saturn Ions.

Gurus Dropped This Stock, Should You Pick It Up?

To explore and produce, a great investment is required in tools, and one of the leading equipment suppliers is Schlumberger (SLB). A key to remaining on top of the industry is innovation, and of that the company has a whole load. Throughout 2014 alone, the firm has introduced a microseismic surface acquisition system, a new fracturing technique for unconventional reserves, launched a degradable alloy technology to improve well productivity, a multilayer bed boundary detection service for clastic and carbonate fields, and a rotary steerable system that increases directional control and drilling efficiency. These product introductions have been done during the first quarter of 2014, making a strong statement about the company's research and development pipeline. Gurus, however, mostly dropped the stock during the end of 2013. Let us see whether you can take advantage of the dumping and take a large position with long-term prospects.

Unequal growth

Schlumberger reported for 2013 an increase of over $4 billion in revenue year-over-over, with diluted earnings-per-share of $4.75 versus $4.01 in 2012. The growth has been pushed by onshore production in the Middle East and Asia, Europe and Asia, and Latin America area. The North America area, however, saw small decline in onshore production offset by a greater increase in offshore activities.

Management explained that land businesses in North America continued to experience pricing weakness in drilling, stimulation and wireline services, although the effect of this was partially offset by increased service intensity, improved efficiency, market share gains and new technology penetration.

Another important note concerning Schlumberger's overall performance is the write-offs issued related to activities in Brazil. These have generated an unequal opportunity to secure profits in the short-term. In short, the company has understated its profits. The upside to this is the fast increase of earnings per share the firm is experiencing. However, given the 13.25% annual returns since 2004 shareholders received, the question that remains is whether such figures will last long enough to take a strong position.

Long-Term Growth

The advantage gurus hold over regular investors is cash leverage. That alone allows gurus to make a profit in the short-term, even if the change in stock price is minimum. Hence, a regular investor has to think more when looking for an appropriate investment. And if dedication is part-time, then a long-term investment is all the more intelligent as it will allow her to be comfortable. A tip is given by the increasing positions during all of 2013 by the two largest gurus holding a position in Schlumberger.

The company is expected to benefit from current trends in oilfield services in North America, as drilling moves from onshore to offshore. Also, the outlook for 2014 remains largely bullish on an improved global economic scenario. Hence, higher demand for its products is expected to come primarily from the Mexican Gulf. An additional and greater push is expected by the remaining geographies as demand for oil continues to rise worldwide.

The greatest downside to Schlumberger is its exposure to the North America region. Here, activities have lagged while the production at other geographies continue to rise. So, the steady purchases by gurus are looking again for short-term profits. The reasoning behind the statement is that as long as the company does not reduce exposure to North America, profits in the long run will be scarce to none.

Moreover, Schlumberger cannot expect to reverse the trend through the introduction of new products that improve current techniques. Those products must revolutionize the industry if the trend wants to be reversed. Hence, the risk associated with the stock is evidenced on the carried 18% discount to the industry average, while trading at 18.7 times its trailing earnings.

Disclosure: Vanina Egea holds no position in any of the mentioned stocks.

About the author:Vanina EgeaA fundamental analyst at Lone Tree Analytics

Visit Vanina Egea's Website

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3 Tech Stocks Under $10 Making Big Moves

DELAFIELD, Wis. (Stockpickr) -- At Stockpickr, we track daily portfolios of stocks that are the biggest percentage gainers and the biggest percentage losers.

>>5 Stocks Set to Soar on Bullish Earnings

Stocks that are making large moves like these are favorites among short-term traders because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst such as a recent earnings release. Sometimes stocks making big moves have been hit with an analyst upgrade or an analyst downgrade.

Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend -- a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success.

>>Buy the Dips: This Bull Market's Not Over

With that in mind, let's take a closer look at a several stocks under $10 that are making large moves to the upside today.

Alaska Communications Systems

Alaska Communications Systems (ALSK) provides an integrated communications services to consumer and business customers in and out of Alaska. This stock closed up 8.2% to $2.24 in Tuesday's trading session.

Tuesday's Range: $2.06-$2.38

52-Week Range: $1.55-$3.90

Thursday's Volume: 974,000

Three-Month Average Volume: 523,059

From a technical perspective, ALSK spiked sharply higher here right off some near-term support at $2.05 and back above its 200-day moving average of $2.19 with strong upside volume. This move is quickly pushing shares of ALSK within range of triggering a major breakout trade. That trade will hit if ALSK manages to take out some near-term overhead resistance at $2.35 to Tuesday's high of $2.38 with high volume.

Traders should now look for long-biased trades in ALSK as long as it's trending above some key near-term support at $2.05 and then once it sustains a move or close above those breakout levels with volume that hits near or above 523,059 shares. If that breakout hits soon, then ALSK will set up to re-test or possibly take out its next major overhead resistance levels at $2.82 to $2.83. Any high-volume move above those levels will then give ALSK a chance to tag $3.20 to $3.50.

Shanda Games

Shanda Games (GAME) develops, sources, and operates online games in the Peoples Republic of China. This stock closed up 5.7% to $4.20 in Tuesday's trading session.

Tuesday's Range: $3.96-$4.24

52-Week Range: $2.68-$6.42

Tuesday's Volume: 1.84 million

Three-Month Average Volume: 1.34 million

From a technical perspective, GAME spiked sharply higher here right above its 200-day moving average of $3.86 with above-average volume. This stock recently formed a double bottom chart pattern at $3.87 to $3.88. Following that bottom, shares of GAME are now starting to trend within range of triggering a near-term breakout trade. That trade will hit if GAME manages to take out its 50-day moving average of $4.26 to some more near-term overhead resistance levels at $4.45 to $4.51 with high volume.

Traders should now look for long-biased trades in GAME as long as it's trending above its 200-day at $3.86 and then once it sustains a move or close above those breakout levels with volume that hits near or above 1.34 million shares. If that breakout triggers soon, then GAME will set up to re-test or possibly take out its next major overhead resistance levels at $4.89 to $4.98. Any high-volume move above those levels will then give GAME a chance to tag $6.

Aehr Test Systems

Aehr Test Systems (AEHR) develops, manufactures and sells systems designed to reduce the cost of testing and to perform reliability screening, or burn-in, of complex logic and memory devices. This stock closed up 9.1% to $3.33 in Tuesday's trading session.

Tuesday's Range: $2.99-$3.48

52-Week Range: $0.72-$3.59

Tuesday's Volume: 183,000

Three-Month Average Volume: 50,542

From a technical perspective, AEHR exploded higher here with above-average volume. This stock has been uptrending strong for the last month, with shares moving higher from its low of $2.22 to its intraday high of $3.48. During that uptrend, shares of AEHR have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AEHR within range of triggering a big breakout trade. That trade will hit if AEHR manages to take out Tuesday's high of $3.48 to its 52-week high at $3.59 with high volume.

Traders should now look for long-biased trades in AEHR as long as it's trending above support at $2.80 or above its 50-day at $2.65, and then once it sustains a move or close above those breakout levels with volume that hits near or above 50,542 shares. If that breakout hits soon, then AEHR will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $4.50 to $5.

To see more stocks that are making notable moves higher today, check out the Stocks Under $10 Moving Higher portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

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

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.