Firstly, OTC stocks are not for the faint of heart.  Just when you think a stock can’t go any lower—it can.  Often, without any logical or apparent reason, you’ve lost half your money in a day’s time.  The converse is also possible—a nice little double or triple.  It’s like Vegas from the comfort of your web browser.  Let’s be clear about this: most penny stocks are not “investments.”  There is generally a reason a company isn’t listed on a major exchange, but there are those rare companies that are simply overlooked and have the potential to be huge.  We’ve all heard wannabe millionaire stories, “If I had only bought <fill in the blank> when it was $0.05 I’d be rich!”  Those kinds of gains usually can’t be found investing in well-established companies.  While a company’s stock price may appreciate significantly, the potential has generally been built into the price. 

Speculative investing should not be your primary strategy, but should augment a well balanced portfolio and should only be considered if you are comfortable with the associated risks.  I will be diligently watching and researching various companies that I feel have potential, but I will disclaim actual endorsement for its purchase.  I encourage you to use your best judgment, personal research, and the information provided to build a case for your own investment.

Staying in the game 

Most of us lead busy lives that don’t always allow for adequate research and daily monitoring of our portfolios.  Most everyone wants to put the money they have to work for them, but are afraid to manage their funds themselves or are simply bored by it.  If you have an interest (that’s why you’re here, right?) in choosing your own path to prosperity, then you’ve got to keep it interesting. Here are a few rules for stocks with high risk profiles: 

Rule #1: Don’t invest more than you are willing or able to lose.
Rule #2: Don’t rely on anyone for a stock tip that promises to make you rich.
Rule #3: Don’t invest all at once or chase gains. 

I would suggest allocating 5% of your portfolio in to speculative stocks.  This is not limited to penny stocks, but any that you simply have a gut feeling will turn around for some serious appreciation.

If you’re like many Canadians, you’re already investing outside your Registered Retirement Savings Plan(RRSP). This is often a wise investment and tax strategy considering that RRSP contribution limits cap theamount you can contribute to an RRSP. As a result, your RRSP may not be sufficient to supply the total amount of money you need for the retirement lifestyle you want. A mix of non-registered investments can make up the shortfall— but only when fully integrated with your overall asset allocation and tax management plan. All investment income and realized capital gains earned outside an RRSP must be reported annually on your tax return. But, you can minimize or defer tax on that income through your choice of non-registered investments.

Interest income receives no preferential tax treatment and thus is fully taxable.  Dividend income receives tax preferred treatment in all provinces and territories, but the degree of tax relief varies greatly across the country.  Alternatively, just 50 cents of every dollar of realized net capital gains is taxable and, because capital gains are taxed usually only when you sell your investments, you can influence when you pay tax on those gains. You can potentially defer capital gains taxes for years by choosing to sell these investments at a time when it’s most advantageous for you (i.e. in a year when you expect your income will be lower than it is today)

 Investment income that is taxed as capital gains can provide a significant advantage to your returns on an aftertax basis as compared to interest income.  This is where the benefits of a tax-advantaged fund structure for your non-registered portfolio can provide big rewards.  Unlike mutual fund trusts, which trigger tax consequences any time you switch from one non-registered fund to another, Investors Group Corporate Class™ mutual funds are treated as a single entity for tax purposes.  This feature allows you to switch between share classes within the structure while deferring capital gains.  As a result, you can rebalance your portfolio without the need to worry about immediate tax consequences.  Over time, it’s this potential tax deferral feature that allows you to accumulate more wealth than if you had to pay tax on your gains each time you made a switch from one fund to another (assuming the same performance between the share class and an alternative investment).  Investing within a tax-advantaged structure such as Investors GroupCorporate Class™ mutual funds makes it easier than ever to access the right tools to help you build your wealth.

 Investors Group Corporate Class™ mutual funds feature eight premier investment managers and offersyou the flexibility to move freely among classes. Investors Group Corporate Class Inc.™ also featuresthe Investors Short Term Capital Yield Class and the Investors Capital Yield Class, which aim to providereturns similar to short and intermediate term Canadian fixed income funds, as well as the InvestorsManaged Yield Class, which aims to provide a stable current return approximating that of a money market fund.

 If you would like to discuss how the Investors Group Corporate Class™ mutual funds and other taxefficient investment alternatives can help you build your wealth in the most tax-efficient manner possible, please feel free to contact me directly at barak.queija@investorsgroup.com. 

Barak Queija is a financial consultant with The Investors Group (www.investorsgroup.com). He has several years of experience in the financial industry and will be contributing articles related to financial planning.

Brandon Clark is an independant financial analyst. His area of expertise is in high risk stocks, including penny stocks. He will be contributing his research on various companies listed on all the american stock exchanges.

Please join me in welcoming Barak & Brandon to the team! Look forward to their biographies in the About Us section shortly.

If you would like to contribute to our Blog, please contact editors@buffettjr.com with your contact information, a summary of your financial experience and any articles you have written in the past. We offer a generous profit sharing program as well as real experience in the financial industry.

What many investors fail to realize is that the best-case scenario is already priced into the stock. As Yahoo!’s current pace, the stock price would be set to wither away like a dying leaf in autumn.

Let’s look at this logically - if the deal with Microsoft goes through, it will be at around the current stock price (~$28.00) or less. After all, the deal has to be good for both parties.

What happens in the deal doesn’t go through? What does that mean for Yahoo! (NASDAQ:YHOO)?

In all likelihood, a drop in share price! Many investors jumped on board at the end of January when Microsoft made the proposal - only to find that their “gem” has been stagnent ever since.

It appears that Yahoo! (NASDAQ:YHOO) is a stock with tremendous downside and a small upside.

Yahoo! Inc (NASDAQ:YHOO) is not a buy

*Disclosure: Author has no position in Yahoo! Inc.

And it’s no surprise, year after year they have been growing at 40%. Their products are revolutionary, their advertisements are comical in nature and best of all (at least for us investors), their stock has been performing wonderfully.

Now as a value investor, Iwouldn’t typically buy shares in a company that is trading at 35 times earnings. And even though AAPL most likely will see a lot of green in the future, I’m still not totally convinced.

This is not to say that Apple (NASDAQ:AAPL) won’t continue to grow, infact, I would bet my life savings on it. But does that mean that this will translate into an increasing stock price?

Not necessarily!

When you’re looking to buy a stock, the most important factor is of course the price! You would buy a green apple from your local supermarket for $200 each just because everyone else is, right?

You have to consider a whole slew of factors before making a stock purchase. For the beginning investor, some basic things to look for are:

• Book Value
• Earnings / Share (EPS)
• Price / Earnings (P/E)
• Beta

With a book value of $20 / share and a beta of over 2.5, AAPL is simply too risky of a stock for me to purchase. Its price is really inflated because investors are betting that AAPL will continue to grow and people will continue to buy their stock.

And they probably will continue to grow, and people will probably continue to buy their stock.

But you shouldn’t be making your investment decisions based on how the market is going to react. You should be investing based on how a company is going to perform, and how badly the market has priced the stock of this particular company.

That is why AAPL is NOT a buy (although, it’s a definite hold!)

Once the most successful computer company in the world, Dell has since slipped behind HP in global computer market share.

But this is old news, Michael Dell is back to change things around, right?

Well, he is back. But will he be able to change things around?

Dell’s original business model was a stroke of genius. It was one of the only computer companies to only sell direct. Not only that, they made it very easy for small business to partner with them, making it a dominant player in the small business industry. Additionally, their corporate partnerships division allowed major corporations to benefit from volume purchases while Dell was laughing all the way to the bank.

Dell computers were also once viewed as state-of-the-art, top line computers. Their brand allowed them to put big price tags on a cheap product, cut all the middle men out and have huge profit margins. What happened?

Several things. Most importantly, Michael Dell left the position of CEO and their whole business model changed. Instead of selling direct, they dumped resources into a retail division of the company. This is a space that other computer companies such as Toshiba, HP & Acer have been in for decades. Needless to say, they dumped their money into this division and saw that sales and profit margins were just not hitting their targets.

So what did they do? Lowered prices! That ought to boost sales, right?

Well, sure retails sales got a slight boost, but the damage to the brand is irrevocable, and profit margins suffered significantly. Now instead of a prestigious computer brand that you could only purchase through a partner or online, you have a cheap computer that is competing with the likes of small timers like Lenovo.

Now Dell is in a tough position. Last year they lost 2.5% of their market share, and in a 25 Billion dollar a year industry, that is a significant loss. Their business model is not as profitable, and competition is getting stiff, especially with an Apple revolution already in progress, things are looking grim for poor old Dell.

*Disclosure: Author has does not have any long or short positions in Dell (NASDAQ:DELL)

How is everyone loving the price at the pump?

For most people, it’s a dreadful feeling when your gas light comes on. You go to the pump and only fill half way, hoping the gas price will drop soon and you can fill up at that point.

Getting tired of it never coming true?

Instead of dreading the horrible gas prices, why not take advantage and buy yourself a piece of the pie, and our pick is Petro Canada.

Petro Canada is one of the best run gas companies in Canada. They have significant exploration initiatives underway around the world. Their actual stations are state-of-the-art, with partnerships with many companies such as Krispy Kreme, A&W, Tim Hortons & PC Financial.

They offer one of the best loyalty program for consumers with their “Petro Points” program.

YTD their stock is up 28%, which is higher than most oil companies despite the huge jump in the price of oil. This is due to their discoveries and their aggressive stance on increasing profitability.

Petro-Canada (TSE:PCA) is a buy

*Disclosure: Author has a long position in Petro-Canada (TSE:PCA)

What many students fail to see, either because they are too caught up in their studies or are just not in tune with their finances, is that the ~$30,000 student loan you took for university is going to have to be paid back - with interest, as soon as you finish school! (Give or take a year or so depending on who you got your loan from). You’ll have to be lucky to land a job that pays more than $50,000 / year as a student out of university, and even on that salary; How on earth are you going to pay off that ~$30,000?

There are ways!

I won’t get into scholarships and bursaries, only because I’ve never been a student and not an expert on the subject. However, I do recommend you apply for as many of such awards as possible. I have witnessed people pay off their entire student expenses with such awards. But onto the financial plan.

This plan does involve some working, even for minimum wage, so you can at least put $50 bi-weekly, starting right away. This doesn’t mean you need to take a “part-time” job, it just means you have to generate at least an additional $100 of income per month, and you have to store it away. It’s not difficult to make this extra capital. If you can put more away, all the better. If you can’t quite make this mark, well - just try to your best to put as much away as you can.

The reason you have to start doing this right away is that you have the power on compounding on your side. There are high interest savings accounts available to everyone from E*Trade (http://www.etrade.ca / http://www.etrade.com ), 4.10% for Canadians and 5.05% for Americans. Next year in 2009, you will be able to do this from the new Canadian Savings Account, allowing you to build this capital tax free. Let’s take this figure and see what it turns into after our 4 year program in university.

$50 x 4 years bi-weekly @ 4.10% compounded annually = $5,646.00

Now that $5,646.00 may not seem like a dent in your $30,000 loan (although that is 15% of it!), and this money won’t be used a lump-sum payment to your loan, either. This will be your “buffer” money while you continue your plan after university.

Now let’s say that you landed a modest job after university, paying you a salary of $40,000 / year (if you’re expecting more than this, you’re going to have to get lucky!) That $40,000 works out to about $1,100 bi-weekly pay cheques. 

Once this money starts to roll in, make the minimum payments on your student loans. Don’t try to pay it off as soon as possible! This debt is what we call “good debt” - meaning the interest can be written off which will land you a nice chunk of tax-return money that you can use to invest in your savings plan.

We are going to continue to contribute to our savings plan, just this time we are going to put $100 into an RRSP / 401(k) and $100 into the savings account we opened when we started school.

Here are some rough assumptions we’ll use for simplicity. Note that your salary, tax bracket, loan rate & amount and savings interest rate may differ slightly from this example:

Your Salary: $40,000.00
Your Student Loan Balance: $30,000.00
Your Student Loan Interest Rate: 5.5%
Your Savings Interest Rate: 4.10%
Taxes Paid per year: $8,000.00 (20%)

Let’s Crunch! (all figures below are /year)

Interest Paid to student loan: $1650
Principle Paid down on Loan: $1,500.00
Interest Made on Savings Account: $259
Tax Savings (from retirement savings + write off interest on student loan): $1200
Total Contributions in RRSP/401(k): $1,300.00

Assuming you reinvest all your tax savings back into your savings account & retirement, this is what it will look like in 5 years (After you’ve finished school):

Year 1:

Savings Account: $7,215.00
Loan Balance: $28,900.00
Retirement: $1,300.00

Year 2

Savings Account: $10,084.00
Student Loan Balance: $27,400.00
Retirement: $3,200.00

Year 3:

Savings Account: $13,819.00
Student Loan Balance: $26,100.00
Retirement: $4,500.00

Year 4:

Savings Account: $16,000.00
Student Loan Balance: $24,800.00
Retirement: $5,700.00

Year 5

Savings Account: $18,100.00
Student Loan Balance: $22,000.00
Retirement: $7,000.00

Not too shabby. You can at this point, pay off your loan, or make bigger payments. You will have the financial freedom with your lump-sum too do fancial financial tricks, such as putting more into retirement, buying an asset and writing off your interest to increase your tax savings even more, and many other things.

I advise all students finishing school to seek a financial advisor before making any important investment decisions. This article is to serve simply as a guideline and an “eye-opener” to those of you who are overwhelmed by the burden of debt.

McDonald’s is the biggest fast-food restaurant chain the world. Despite bad publicity against the health risks associated with their products, and despite having some of the cheapest prices for food anywhere, McDonalds has proven to be an extremely profitable business, even in a slowing economy.

 We see that in the month of February, McDonald’s sales have risen about 12%. This is a great indicator for a defensive play for the upcoming months as more economic gloom hits the news. If people are losing their jobs, or have to cut back on their “fancy” meals, you can bet that McDonalds will see increasing sales in the upcoming quarters.

The one thing I’m not too happy with is the stock’s high P/E ratio right now, sitting high at about 26. As a long-term play (5 years +), I wouldn’t recommend as I wouldn’t be surprised if we see a correction once markets start stabalizing. However, because markets are in extreme turmoil right now, investors will be looking to companies like McDonalds who see sales & profits rise during a recession.

We have already seen a 4.57% jump in the price this morning. I expect to see at least another 7% in the next 6 weeks.

McDonald’s Corporation (NYSE:MCD) is a buy.

Disclosure: Author does not have a position in McDonald’s Corporation

Non-executive chairman Donald Layton (former J.P. Morgan supervisor of investment-banking & retail operations) has been named CEO of E*Trade Financial. Not surprising - considering E*Trade retail operation is extremely profitable and their investment-banking side is in need of serious help - Layton seems like a perfect fit to fix this company’s balance sheet.

Now, I can’t not mention that E*Trade currently has about $12B in home equity loans, which will hurt in the upcoming quarters. Further significant write-downs could put a lot of pressure on the company’s earnings and on it’s liquidity. Investors don’t like this, and it’s currently reflected in the stock price.

Because of this reflection, I’m very excited! Buying companies at roughly their book value in general gives you a good idea on how to justify your purchase, especially for a novice investor. As it stands right now, assuming E*Trade home equity loans hold up to $12B (which will probably drop in value), the book value is $6.12 / share. When the share price is at $4.15 (as of today) - this tells me that the price of further write downs are already priced into the stock, giving you some buffer room when that news hits the fan.

At the end of the day - E*Trade has one of the, if not the strongest brand in the online discount broker space. On top of their strong brand is one of the best trading platforms available online. Behind the brand and the platform, is an extremely profitable retail business model, where E*Trade makes money in both bull & bear markets. Once the investment side is all cleaned up, it’s smooth sailing for E*Trade. All aboard!

This article was featured on Seeking Alpha. For additional discussion topics, please click here to view the article.

Disclosure: Author has a long position in E*Trade Financial Corporation (NASDAQ:ETFC)