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I have received a few questions (which are always welcome – see my contact page) regarding the “expert” opinions that are offered on a stock. These experts suggest some information on the particular stock but many people struggle to understand the accuracy of this advice.

First, please understand that there are really smart people out there that do analysis on companies. These really smart people are constantly thinking about how to increase wealth for their clients. Also, understand that not all of these really smart people are on TV – most of them are locked in an office making really big money for very large portfolios. The biggest paycheck for these analysts is not on TV so don’t assume the best and brightest are looking at you via a camera.

Even the guys in the back rooms can be questioned regarding the logic of their suggestions.

For this conversation, lets just look at Target (TGT) [stckqut]TGT[/stckqut] and the information that is compiled by MSN Money (one of the best free financial portal sites). Go there in another window of your browser and type ‘TGT’ into the stock ticker search box (if you click on this link, I will do this for you). About halfway down the left side of that site you will see Earnings Estimates and on the resulting page you will see 4 tabs, with the 4th tab being Earnings Growth Rates (or just click on this link and go right there). As of this writing, you will see that for the last 5 years Target grew at 7.7%, the industry grew at 11.3%, and the S&P 500 grew at 3%. You will also see that the analysts are suggesting that in the next 5 years, Target will increase it’s earnings 12.4%, which is 61% higher than what it did the previous 5 years and nearly 10% better than the industry did in the previous 5 years.

The experts are also predicting that retailers in general are going to increase their growth in the next 5 years over the growth they experienced the last 5. That may be a bit logical if you assume that the economy is going to get better vs. the challenges of the immediate past. But, can you assume that Target’s share of that growth will increase as compared to its competitors, since that is the result of them achieving 12.4% growth.

If they can pull that AMAZING turnaround off, that is great. But, can you be confident that Target is going to do that much better than it was doing historically? I know that I can’t; therefore, I rarely give too much credence to what the “experts” are saying about a company’s growth prospects.

Please understand that there are a lot of good people that try to come up with these numbers, but let’s think about how they are doing it. They are going to trade shows, visiting with the company in question, and the company’s competitors. Everyone at these meetings has a significant vested interest to paint a rosy picture about the future.  They may not be wrong, but I doubt you can be confident that they are correct. As I state by the title of this site, I am a confident investor – I only do things that I am reasonably confident will play out in my favor.

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I spend a lot of time helping people figure out how to make money in the stock market.  Most people don’t truly make money:

  1. They put their money into mutual funds which pretty much follow the market or perhaps do a bit worse.
  2. They put their money into big companies that they have heard about and then leave that money in there for a long time. The stock moves up and down but really doesn’t increase their wealth.

Or, they follow my advice and find great companies to invest in (see the Watch List to the right) and then have automated indicators tell them when the stock is moving up or moving down. They react accordingly and build up a large equity position.

But how do you find the money to invest in the stock market? It is getting tougher and tougher to make ends meet and many people are living beyond their means.  If you are in that boat, I found a great article that you should read: How To Afford Anything.  Here are some highlights:

Cheap means buying something obvious crappy, and only stupid people do that since they usually cost themselves more in the long run. For instance, a cheap person hires the wrong person to do a job, and winds up paying more to have a competent person have to fix the damage done by the first workman. Cheap means giving your girlfriend flowers picked out of a funeral home dumpster, and leaving the wrong sympathy card attached to them, That’s going to cost you a lot more than you just saved!

Frugality is entirely different. Being frugal means using your money well and not wasting. Being frugal often involves spending large sums on the right things, like hiring competent professionals to do a job, or buying a more durable, quality product that lasts far longer than a regular one.

The people who want to sell you a new car do everything they can to make it easy to take your money. It takes a great deal of self control to resist. Let’s face it: everyone deserves a new car every couple of years, and if you can afford it, why not? Simple: because it costs you tens of thousands of dollars that you could spend on more fun, or even on better cars if you do your homework and buy used.

Let’s look at fast numbers. The shortest reasonable commute is 10 miles (16 km) each way. (Anything shorter is bad for your car, since it won’t heat up all the way and boil off the water that condenses from the exhaust in your cold engine. This water dilutes your oil and rusts your exhaust. Engine wear is far, far greater in the few miles during engine warm up, too.)

10 miles each way is 20 miles a day. There are 250 work days a year, or 5,000 miles a year for commuting. At 50¢ a mile, the latest averages for running a car, that’s $2,500 a year.

I’m really cheap. I always order the least expensive thing, and skip beverages and extras. This sounds silly, but if you eat out often, simply skipping these high-profit extras can buy you an expensive camera in a few years.

I eat off the dollar menu at fast food. I don’t get suckered into buying a drink or fries. I love the $1 double cheeseburger at McDonalds, but if I ordered a drink or fries, I just padded the bill up to triple what it might have been.

Only buy what you can afford. Don’t buy anything until you have the cash to pay for it.

Half of America doesn’t get that, and spends all its money barely making the minimum monthly interest payments on their credit cards each month. GAG!

Americans are the only people on the planet who walk into a store and pay the price on the sign.

My wife and I always ask for the deal. I’ve gotten price concessions even at Sears! I love my wife because she is such a deal-getter. I couldn’t afford not to have her, for instance, last week she haggled a mattress store down to half of their bottom-basement posted sales price on a floor sample! She paid about one-third the new sales price of the item. Few Americans have the mettle to haggle as well as she does.

If you save $5 a day by skipping a latte, you’ll feel better, make more money, have more fun and save almost $2,000 every year. I don’t know how much Starbucks actually charges for each dose, but give it up for a couple of years and you again just paid for a free new exotic camera.

When I bought my own health insurance, I had a plan that was inexpensive, but had a $5,000 annual deductible. If I had a serious problem, I could find $5,000. I saved about $3,600 in annual premium (I paid $300 a month less for this insurance) by not having a small deductible, and always came out ahead. Never ask an insurance company to pay something you could afford to pay for yourself. You pay heavily for that privilege, if they pay out at all.

Ken has more suggestions on his site, so take a look.  He is obviously talking about saving up to buy expensive photography gear but the principle still remains the same – just replace the expensive photography gear with great investments.

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According to USA Today, the average income tax refund is up 10% over last year. You can expect a few outcomes that may affect how you purchase stock. The most obvious example is that big ticket items that need a down payment may take a slight boost.  The people that have been saving for a new TV, car, or home get a windfall check, they may accelerate their purchase. The obvious benefactors here are Ford [stckqut]F[/stckqut], GM [stckqut]GM[/stckqut], and Toyota [stckqut]TM[/stckqut].

Similarly, vacations may be a bit better this year because of this extra cash and that could affect destination stocks such as Disney [stckqut]DIS[/stckqut] or Marriott [stckqut]MAR[/stckqut].

However, the smart money doesn’t spend the extra money on incidentals. A much better strategy is to take a look at one of the stocks on my Watch List to the right and buy one of these securities when the market triggers say that they stock is ready to move up.  That way you take your extra “free” money and multiply it into more free money! If the average increase is a bit over $3,000 as the article claims, that is 25-100 shares of most of these companies.

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Those that have known me and listened to my advice over the years know that I am not a big fan of Palm [stckqut]palm[/stckqut].  Now it looks like the Wall Street Journal is agreeing with me that this company may be on its death bed.

Aside from the fact that they cannot generate a profit (a sin in my opinion for a public company), their lack of growth over the years is atrocious. Only a speculator or a gambler should consider this a company to invest in. For those that want a company that you can CONFIDENTLY invest in – STAY AWAY FROM PALM!

You can click here to read more (may require a subscription) but below are a few highlights:

Some investors see a buying opportunity in the stock of the mobile-device maker, after a 55% plunge over the past six weeks amid weak sales of its new Pre smart-phone. Despite doubt about Palm’s ability to gain traction in the fast-growing and increasingly competitive smart-phone market, some are betting Palm will get acquired.

Even if such a deal materializes—far from a sure thing—it would have to do so quickly to justify the current stock price of around $6. The way the business is trending, six months from now, any buyer may only pay enough to cover Palm’s $388 million debt and the $376 million in preferred stock held by Elevation Partners. Common shareholders may get next to nothing.

Of course, it would depend on how many bidders show up. Palm’s most valuable asset, particularly for a new entrant to the smart-phone industry, is arguably the research and development sunk into the webOS operating system in the Pre. It is reasonable to assume that figure is around $600 million—what Palm has spent on R&D since 2007, when it last released a phone running on its old operating system. There also are carrier relationships, and Palm’s fading brand name. But absent a competing bidder, Palm may struggle to fetch more than one-time sales, which Morgan Joseph analyst Ilya Grozovsky estimates will be $1.2 billion this fiscal year, ending in May. That translates roughly to the current stock price.

What is more, Palm’s cash reserves will likely shrink in the coming months. Palm said last week it expected to finish February with $500 million in gross cash and equivalents, down from $590 million at the end of November. Assuming it continues to burn cash at this rate, it will exhaust its reserves in 18 months. Spending more on marketing could accelerate that.

Raising more cash from the public would be tough. After all, investors won’t soon forget that Palm sold shares at $16.25 last September, shortly after issuing the fiscal 2010 revenue projection that, it is now clear, was overly optimistic.

Palm may very well get acquired. But investors shouldn’t bank on a big payday.

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It seems that Netflix (NFLX) will be adding the number one game console, Nintendo’s Wii, to its list of streaming destinations this spring. This is good news as Netflix moves from a DVD delivery service to a content streaming service.  The ability to stream will be tied to the user’s membership.

Netflix will need to do more to make streaming a simple matter. They are competing with the cable stations (that typically only offer a small number of movies). The advantage that Netflix needs to offer is the ability to stream a large number of titles to a variety of devices so that they remain a force in the industry as others start to offer this service. Their DVD rental business had a very high cost of entry for competitors but streaming to a computer is not nearly as high cost. Their key is to control enough customers that the studios give them preferential pricing.

BloggingStocks.com also has some interesting analysis.  Here is part of what they think and you can click through to read more:

Nintendo fans and movie buffs, unite and rejoice! At long last, Netflix (NFLX) has said its streaming video service will be available for the Nintendo Wii this spring. Wii is bringing up the rear a bit here, as consumers with an Xbox 360 from Microsoft (MSFT) or a Sony (SNE) PlayStation 3 already enjoy access to Netflix films.

Here’s the fine print: Wii users have to have a broadband connection and a Netflix subsription that costs $9 per month or more. Upon receiving a special “instant-streaming” disc for the Wii, they will have access to their instant queue, essentially using the Wii as a portal through which to play the films (of course, a TV is still necesssary). Currently, there are about 17,000 titles (movies and TV shows) available for streaming, a far cry from the 100,000 names a Netflix subscriber can get in good old-fashioned disc format.