The S&P 500 is in a rising trend. The S&P 500 as traded as SPY is above its 50-day moving average. Late last week the SPY crossed above its 150-day moving average. A trading rule is that when the price is above its own 50-day moving average, the stock is in an intermediate (two to four months) rising trend. Once the stock price crosses above its 150-day and/or 200-day moving average, the stock price is in a long term rising trend. The SPY with Fridays close is above both its 150-day and 200-day moving average. See the chart below.

Trade alert: Piper Jaffray (PJC) $21.23

Financial companies have been out of favor but are now beginning to show positive chart patterns. PJC is an example of companies in the financial services industry.

Technical View:

PJC looks very attractive from a technical perspective. Our two accumulation/distribution indicators CMF and OBV are rising. The stock price has risen above its own 50-day moving average suggesting an intermediate term rally has begun. Our two to four month price target would be the bottom of the 150-day moving average, currently at $26.47. PJC has stock options so one could use a buy stock / sell call strategy.

Fundamentals:

PJC currently trades at 17.4 times trailing earnings, and 9.56 forward earnings (from Yahoo Finance). PJC is estimated to earn about $1.28 per share in 2011, and $2.22 in 2012.

Book value is stated at $53.07 per share.

Cash is $1.39 billion with debt stated at $712.9 million. This is probably not as simple as it seems as brokers and banks can have leverage (risk) on their books that is not readily seen.

Valuation:

PJC has a market capitalization of $336.8 million, but has an Enterprise Value (EV) of minus $340.4 million. This means PJC trades at $340.4 million lower than its Market Cap + debt. That is a cheap price and an unusual number. PJC also trades at a PEG ratio of -2.64. A number below 1.00 is considered attractive, so a number this far below 1.00 is highly unusual.

Institutional ownership is 17%, which is low for a company of this quality. I suspect the debt crisis of the past few years (and this summer) has driven many institutions away from ownership of brokers as it has of banks. This suggests that as /when the debit crisis subsides, the institutional ownership in PJC shares will increase and thereby driving the share price higher.

Risk Factor: A large percent of Piper’s new business is municipal bond originations. There is uncertainty on the health of this industry with the poor fiscal shape of many municipalities. The Jefferson County bankruptcy in Alabama last week was the largest municipal bankruptcy in history.

Obviously, there is fear of the unknown priced into shares of PJC. Psychologically, we think it is a positive that PJC is rising in price so close after the announcement of the bankruptcy of MF Global. MF Global is a financial services firm with 1060 employees.

Generally, financial institutions trade close to, or around book value. With a book value of $53.00 per share, PJC has significant rebound potential.

Brokerage firms are also one of the fastest recovering industries from a stock market sell off – so if you believe we are emerging from the Euro debt crisis – then this might also be a contributing reason to buy shares of PJC.

Shares outstanding and floating are modest at 15.9 million and 14.6 million. This suggests it will not take much buying to push PJC shares higher.

This idea is based on the technical look of the chart pattern. Keep a stop loss on the trade if you decide to get involved. An eight percent to ten percent trailing stop loss is suggested.

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LOTM Under $10 Idea List year to date Performance:

The focus at LOTM is on stocks priced under $10.00 per share. However, we will share short term trading ideas priced at any level if we think there is an opportunity to make money. PJC above is one such idea.

The year to date performance of our LOTM Under $10 Idea list is down 10% for the year after closed out trades and dividends are factored in. We would not be surprised at all to be positive on this account by year-end- but we are optimists. We believe in both the market system and in ourselves.

Making a Million – $5,000 to $1,000,000 Challenge:

After a slow start, we are in the black (or should I say green) with the account value at $5,100. We have not traded the account. We are still holding the original company we started with on July 18.

Consider a monthly subscription LOTM priced at $39.95! The $5,000 to $1,000,000 challenge is included in the subscription!

Areas of interest in the LOTM Newsletter include:

• High dividend paying stocks

• Stock ideas in healthy niche leading companies priced Under $10.00

• Trading Ideas as we see them

• $5,000 to $1,000,000 Making a Million Challenge.

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Greece – Democracy at Work

Greece’s Prime Minister George Papandreou is in the doghouse with world leaders only because he dared to offer voters a choice. Link to full story.

Greece is the headline story whether we like it or not. It has trapped our stock market simply because we do not have a clue on what happens to the global financial system should Greece default in an unstructured way.

The USA seems to have achieved a modest sense of financial stability. Certainly, the unemployment numbers are not acceptable. There is plenty of structural work to do in addressing the tax code, looming deficits and divisive politics. What we do have are companies mostly surprising with their positive earnings results. We have a stock market that has broken out of the trading range it was trapped in for what seemed like forever, but in reality was only three months.

If it were not for the referendum news from Greece and Europe, we might be well on our way to the year-end rally most of us have been expecting. LOTM does not want to minimize the Greek situation. We do not know the final outcome. On the other hand, we want to go about our business as much as possible. Technically, we might still be on track for a strong year-end rally. The market so far is pulling back to support – the top of the former trading range. Another week will tell us more. Will support hold or are we breaking down again? So far, this is still in the area of a normal pull back after a channel breakout. Support is 120.50 plus or minus. The 50-day moving average will be a second support level. On the S&P 500 (SPY), the 50-day is at 119.04.

Our strategy at LOTM is to accumulate shares in a portfolio of healthy small and micro cap companies while also looking for high dividend opportunities. Our LOTM Under $10 Idea List is down about 13% year to date after dividends and closed out trades. We still feel a positive return on our portfolio of Under $10 Ideas for 2011 is within reach. Remember, our LOTM Under $10 approach returned 69% in 2009 and 26.5% in 2010. We are not done with 2011 yet! November and December are historically two of the best stock market months of the year.

Where are we finding dividend opportunities? The Business Development Companies (BDC) sector is paying dividends between 7% and 13%. BDC’s are not taxed at the corporate level as long as they pay out 90% of their earnings as dividends. BDC’s lend money to businesses, usually in amounts between $5 million and $50 million. They also take equity positions in private companies but usually as part of a lending package. The risk for investors in BDC’s is that you own a loan package. If the economy worsens, or the loan committee reaches to make risky loans, the BDC itself could go out of business quickly. Not all BDC’s are equal. Many suspended dividends during the 2008 and 2009 financial crisis. A Google search under Business Development companies will produce names of many of the companies. Seeking Alpha also has many articles on Business Development companies.

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MAKIN’ a MILLION Challenge Update

Our quest to turn $5,000 into $1 Million was derailed by the Euro Debt Crisis. Our starting amount of $5,000 in mid-July dropped to as low as $3,449 at the end of September but is now on the comeback trail. The Makin’ a Million account closed at $4,165 at the end of October. This account owns one company. We do not expect to own more than three companies over the course of turning $5,000 into $1 million. I did this once before, I would like to think it was ability more than luck. That is why I doing it again.

I am very comfortable with the one company currently in the account. It has high growth in revenue and earnings with a low valuation and a very strong balance sheet.

If you’d like to join the Makin’ a Million journey subscribe to our newsletter. We will share with you our LOTM Under $10 Idea List of thirty stocks trading Under $10 that we profiled using 20 plus criteria, Our Makin’ a Million trades as we make them and share our High Dividend Ideas we find of particular interest.

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