A six-pack with 'unusual promise'

Finding fresh stock selections is no easy task in a market that's been rallying for three months. Investors eventually tend to overbuy when stocks are rising — and oversell when the market heads down.

Today, the pickings have proved thin as we screen hundreds of stocks for superior growth potential at reasonable prices. That said, we've still found stocks with unusual promise. Here's an overview of 6 of our new buys.

Alexion Pharmaceutical (ALXN)

This is a comeback stock that was previously a big winner of of ours but tumbled from $115 to $90 last fall. Now it is breaking back above its 10-week moving average with 33% a year expect- ed earnings growth and Strong Buy ratings from 14 of the 19 analysts covering it.

Allegiant Travel (ALGT)

Serving small-city U.S. travel destinations with planes and travel services, ALGT shares have been on the rise from $40 to $90 over the past 18 months, yet trade at just 14 times earnings that are estimated to grow 22% a year. Its PEG ratio is 0.62.

CVS Caremark (CVS)

A giant pharmacy healthcare provider whose shares have doubled almost non-stop since August 2010, CVS trades at 12 times forward earnings that are growing at a moderate but steady 14% a year.

D.R. Horton (DHI) and Ryland Group (RYL)

Homebuilding stocks came back last fall and winter only to tumble anew in March. The nascent upturn in housing has not yet reached their bottom lines, but some analysts' five-year earnings projections run as high as 30% to 40% a year. Yet their P/E and PEG valuations are quite modest in view of their long-run potential.

Radian Group (RDN)

his small-cap provides mortgage insurance and financial guaranty services to mortgage lenders. The stock has run from 7 to 10-plus, but if it breaks upside resistance at 10.95 RDN could go to 14 or higher. At just 7 its P/E could be upgraded.

T-Mobile Throws MetroPCS Shareholders a Bone

With a vote on its acquisition of MetroPCS (NYSE: TMUS  ) imminent, T-Mobile parent Deutsche Telekom  (NYSE: DT  ) is trying to mollify angry shareholders by throwing them a bone. It's offered to reduce the debt the new company will carry, reduce the interest rate on the debt, and triple the amount of time it must hold onto the new stock before it can sell it. 

Despite having passed all the necessary regulatory hurdles, the merger is in danger of falling apart as major shareholders and institutional services alike say the deal is not favorable to MetroPCS stockholders.

While there's been a war of words going on between the major participants, T-Mobile's CEO certainly won himself no fans after calling hedge fund operator John Paulson "greedy." Particularly after Institutional Shareholder Services came out blasting the deal as well, backing the contention of Paulson and P. Schoenfeld Asset Management that because T-Mobile has so underwhelmed the markets, MetroPCS shareholders need to be better compensated for the risk of turning control over to Deutsche Telekom.

Under the original proposal, MetroPCS shareholders would be paid about $4.09 a share and receive a 26% stake in the new company.

With the merger unraveling, DT decided it needed to salve the wounds it created. It offered to reduce the debt burden of the combined company by $3.8 billion and said it would cut the interest rate it charged by half a percentage point. Additionally, it would increase from six months to 18 months the amount of time it would have to hang onto the new company's stock, but the rest of the terms apparently will remain unchanged.

While the original deal was scheduled to be voted on by MetroPCS shareholders tomorrow, that has now been pushed back to April 24 to give more time to review the deal. And while not giving any indication of which way it would fall on the new offer, at least the asset management firm has said it appreciated the olive branch.

Yet Deutsche Telekom needs this deal to go through if it ever wants to get out of the U.S. market. It previously tried by selling T-Mobile to AT&T for $39 billion, but regulators quashed it over anti-competitive concerns. Now with the proposed combined company being publicly traded, DT will finally get its exit strategy, even if it takes a year and a half to leave instead of the six months it previously envisioned.

A fresh idea for 2013
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

5 Stocks With Big Insider Buying

Delafield, Wis. (Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.

>>5 Unusual-Volume Stocks Triggering Breakout Trades

They might need the cash for a big personal purchase such as a new house or yacht, or they might need the cash to fund a charity. Sometimes they sell as part of a planned selling program that they have put in place for diversification purposes, which allows them to sell stock in stages instead of selling all at one price.

Other times they sell because they think their stock is overvalued and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge that a competitor is eating their lunch and stealing market share.

But insiders usually buy their own shares for one reason: They think the stock is a bargain and has tremendous upside.

>>5 Rocket Stocks to Buy for a Santa Claus Rally

The key word in that last statement is "think." Just because a corporate insider thinks his or her stock is going to trade higher, that doesn't mean it will play out that way. Insiders can have all the conviction in the world that their stock is a buy, but if the market doesn't agree with them, the stock could end up going nowhere. Also, I say "usually" because sometimes insiders are loaned money by the company to buy their own stock. Those loans are often sweetheart deals and shouldn't be viewed as organic insider buying.

At the end of the day, its large institutional money managers running big mutual funds and hedge funds that drive stock prices, not insiders. That said, many of these savvy stock operators will follow insider buying activity when they agree with the insider that the stock is undervalued and has upside potential. This is why it's so important to always be monitoring insider activity, but it's twice as important to make sure the trend of the stock coincides with the insider buying.

>>5 Dividend Stocks Ready to Pay You More in 2014

Recently, a number of companies' corporate insiders have bought large amounts of stock. These insiders are finding some value in the market, which warrants a closer look at these stocks.

Here's a look at five stocks insiders have been doing some big buying in per SEC filings.

Restoration Hardware

One stock that insides are loading up on here is home furnishings retailer Restoration Hardware (RH). Insiders are buying this stock into big time strength, since shares are up sharply in 2013 by 94%.

>>4 Big Stocks on Traders' Radars

Restoration Hardware has a market cap of $2.5 billion and an enterprise value of $2.6 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 30.23. Its estimated growth rate for this year is 45.5%, and for next year it's pegged at 25.9%. This is not a cash-rich company, since the total cash position on its balance sheet is $8.20 million and its total debt is $134.49 million.

A director just bought 15,400 shares, or about $1 million worth of stock, at $64.97 per share. Another director also just bought 7,875 shares, or about $497,000 worth of stock, at $63.10 to $63.31 per share.

From a technical perspective, RH is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $60.15 to its recent high of $68.12 a share. During that move, shares of RH have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now started to push shares of RH within range of triggering a near-term breakout trade.

If you're bullish on RH, then I would look for long-biased trades as long as this stock is trending above some near-term support at $64 or at $62.37 and then once breaks out above some near-term overhead resistance levels at $68.12 a share to its 50-day moving average at $69.87 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1.05 million shares. If that breakout hits soon, then RH will set up to re-test or possibly take out its next major overhead resistance levels at $74 to $77 a share. Any high-volume move above those levels will then give RH a chance to re-test or possibly take out its 52-week high at $78.50 a share.

EV Energy Partners

Another stock that insiders are snapping up a large amount of stock in here is EV Energy Partners (EVEP), which is engaged in the development and production of oil and natural gas properties. Insiders are buying this stock into notable weakness, since shares are down by 38% in 2013.

>>5 Big Trades for Post-Taper Gains

EV Energy Partners has a market cap of $1.6 billion and an enterprise value of $2.7 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 26.06. Its estimated growth rate for this year is 5.3%, and for next year it's pegged at 466.70%. This is not a cash-rich company, since the total cash position on its balance sheet is $10.64 million and its total debt is $1.08 billion. This stock currently sports a dividend yield of 9%.

The chairman of the board just bought 150,000 shares, or about $4.81 million worth of stock, at $32.08 per share.

From a technical perspective, EVEP is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $30.53 to its recent high of $34.63 a share. During that move, shares of EVEP have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of EVEP within range of triggering a near-term breakout trade.

If you're in the bull camp on EVEP, then I would look for long-biased trades as long as this stock is trending above some near-term support levels at $33 or at $32, and then once it breaks out above its 50-day moving average of $34.64 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 336,170 shares. If that breakout hits soon, then EVEP will set up to re-test or possibly take out its next major overhead resistance levels at $39 to $41 a share.

EOG Resources

One energy player that insiders are in love with here is EOG Resources (EOG), which engages in the exploration, development, production and marketing of natural gas and crude oil. Insiders are buying this stock into strength, since shares jumped higher by 37% in 2013.

>>5 Stocks Poised for Breakouts

EOG Resources has a market cap of $45 billion and an enterprise value of $50 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 40.87 and a forward price-to-earnings of 18.44. Its estimated growth rate for this year is 44.1%, and for next year it's pegged at 10.8%. This is not a cash-rich company, since the total cash position on its balance sheet is $1.32 billion and its total debt is $6.32 billion

A director just bought 6,000 shares, or about $1.01 million worth of stock, at $168.61 per share.

From a technical perspective, EOG is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $156.01 to its recent high of $169.84 a share. During that uptrend, shares of EOG have been consistently making higher lows and higher highs, which is bullish technical price action. That move has started to push shares of EOG within range of triggering a big breakout trade.

If you're bullish on EOG, then I would look for long-biased trades as long as this stock is trending above some near-term support at $165, and then once it breaks out above some near-term overhead resistance levels at $169.84 to its 50-day at $171.07 and then above more resistance at $172.20 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 1.92 million shares. If that breakout hits soon, then EOG will set up to re-test or possibly take out its next major overhead resistance levels at $185 to its 52-week high at $188.30 a share.

Amtrust Financial Services

One insurance player that insiders are very active in here is Amtrust Financial Services (AFSI), a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. Insiders are buying this stock into decent strength, since shares are up 19% in 2013.

>>4 Stocks Spiking on Big Volume

Amtrust Financial Services has a market cap of $2.3 billion and an enterprise value of $2.7 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 8.73 and a forward price-to-earnings of 8.90. Its estimated growth rate for this year is 22.2%, and for next year it's pegged at 13.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $508.27 million and its total debt is $935.25 million. This stock currently sports a dividend yield of 1.8%.

A director just bought 300,000 shares, or about $8.69 million worth of stock, at $28.99 per share. A beneficial owner also just bought 500,000 shares, or about $15.12 million worth of stock, at $30.25 per share.

From a technical perspective, AFSI is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently plunged sharply lower from its high of $42.64 to its recent low of $27.90 a share. During that drop, shares of AFSI have been making mostly lower highs and lower lows, which is bearish technical price action. That drop for AFSI has now pushed the stock into oversold territory, since its current relative strength index reading is 33.19. Oversold can always get more oversold, but it's also an area where a stock can make a powerful bounce higher from.

If you're bullish on AFSI, then I would look for long-biased trades as long as this stock is trending above its recent low of $27.90 and then once it takes out Tuesday's intraday high of $31.40 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average volume of 867,166 shares. If we get that move soon, then AFSI could bounce sharply higher towards its next major overhead resistance levels at its 200-day moving average of $34.82 or its 50-day moving average at $38.40 a share.

GulfMark Offshore

One final name with some large insider buying is GulfMark Offshore (GLF), which provides offshore marine services to companies involved in offshore exploration and production of oil and natural gas. Insiders are buying this stock into solid strength, since shares are up 35% in 2013.

GulfMark Offshore has a market cap of $1.2 billion and an enterprise value of $1.6 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 30.40 and a forward price-to-earnings of 10.53. Its estimated growth rate for this year is 146.1%, and for next year it's pegged at 76.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $38.18 million and its total debt is $500.90 million. This stock currently sports a dividend yield of 2.2%.

A officer just bought 51,739 shares, or about $2.31 million worth of stock, at $44.19 per share.

From a technical perspective, GLF is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending badly for the last two months, with shares moving lower from its high of $53.59 to its recent low of $43.82 a share. During that downtrend, shares of GLF have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of GLF have now started to rebound off that $43.82 low and it's starting to trend back above its 200-day moving average at $46.12 a share.

If you're bullish on GLF, then look for long-biased trades as long as this stock is trending above its 200-day at $46.12 or above $45 and then once it takes out some near-term overhead resistance at $47 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 180,522 shares. If we get that move soon, then GLF will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $49.19 or at $52 a share. Any high-volume move above those levels will then give GLF a chance to re-test or possibly take out its 52-week high at $53.89 a share.

To see more stocks with notable insider buying, check out the Stocks With Big Insider Buying portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>4 Stocks Rising on Unusual Volume

>>3 Hot Stocks to Trade (or Not)

>>5 Cash-Rich Stocks for Triple the Gains in 2014

Follow Stockpickr on Twitter and become a fan on Facebook.

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.

Workers pay little attention to 401(k) fee disclosures

Employees are tossing their retirement plan fee disclosures in the circular file, keeping themselves in the dark on how much their 401(k)s cost.

Ever since Aug. 30, 2012, per the Labor Department, retirement plans have been required to distribute fee disclosure documents to 401(k) participants that depict the costs and services they get from record keepers and fund managers.

Employers, in turn, are also supposed to get disclosures from service providers, including financial advisers, also spelling out the fees and services, as well as whether the service provider is acting as a fiduciary.

According to advisers and recent data from Limra, a research and marketing organization, workers seem to be doing precisely what they would be expected to do with 20-page disclosure documents: Blowing them off.

“The documentation has been absolutely asinine: There's just too much of it,” said George Fraser, managing director and financial consultant at Retirement Benefits Group, which is affiliated with LPL Financial. “People don't understand it; it's like a credit card disclosure.”

Gerald Wernette, principal and director at Rehmann Retirement Builders, agreed. “I have a very small minority of the audience that is trying to wrap its arms around [the disclosure],” he said. “Even in our own plan — and we're a big firm — with our own fee disclosures, I only heard from one person.”

“When it comes to the participant end of things, the disclosures are a borderline waste of time,” Mr. Wernette added.

Indeed, data from the Limra Secure Retirement Institute shows that nearly 40% of working consumers currently contributing to a retirement plan believe they don't pay any expenses in their 401(k). The organization posed that question to 741 individuals who are contributing to a defined-contribution plan.

Limra also found that only one in three participants spends more than five minutes reading the disclosures, and only 12% were able to estimate just how much they pay in fees.

Though workers fail to pay attention to the fee information coming their way, advisers and plan sponsors are taking notice of the disclosures — and they’re using them to shake up providers that offer funds and record keeping services.

In fact, for financial advisers working with employers, the disclosures have been great for business.

“The initial fee disclosure made people prospect plans more aggressively,” said Joe Connell, an adviser with Retirement Plan Partners Inc. “It could've turned off the plan sponsor, but it's als! o helpful in giving them the opportunity to learn more.”

Plan sponsors get wrapped up in the day-to-day work of running their business, and they have very little time to get up to speed on retirement plan details. The Labor Department's fee disclosure mandates, however, are forcing them to ask questions of their service providers and advisers, and to better understand what they're paying for — and whether the service is worth the expense.

“Plan sponsors are definitely looking for a lower cost in the relationship,” Mr. Connell said. “They value benchmarking and independent sources that can provide them with that information.”

Advisers examining those plan sponsor fee disclosures can also push fund managers and record keepers to the negotiation table and advocate for fees that more accurately reflect the service the clients get.

“Good advisers are regularly looking at [fee disclosures] and asking what's fair,” Mr. Fraser said. “With advisers, the plan sponsors get more bang for their buck. And I can tell you the providers aren't cutting fees just because.”

The fee disclosures also have been helpful in the continual slide in 401(k) fees on the asset management side as managers have broadened their share class offerings to accommodate cheaper institutional shares. For instance, this year, ING U.S. launched its R6 share class, and Fidelity Investments released its Z share class, which has no revenue sharing. Fidelity also slashed fees on its target date offering, the Fidelity Freedom Index Funds, to 16 basis points, from 19 basis points, undercutting the Vanguard Group Inc.'s target date fund offering by two basis points.

Eventually, those lower investment costs will creep down market.

“It's the right thing to do,” said Thomas Dennis, associate managing director of the Limra Secure Retirement Institute. “R shares have been around for years and are largely acceptable in the larger end of the market, due to larger asset! level re! quirements. But now these plans are moving down market because of demand.”

Nevertheless, advisers note that asset managers aren't cutting fees on their own. If anything, costs are down because 401(k) advisers have been pushing for cheaper offerings.

“Existing providers understand they need to be more competitive,” Mr. Connell said. “We see the more traditional direct providers become more responsive when the client hires a fiduciary adviser: Providers come to the table quickly with a fee reduction.”

7 Stocks to Buy for Gains in 2014

Air Lease

The dynamic duo who turned International Lease Finance Corp. into an airplane-leasing giant in the 1980s, Steven Udvar-Házy and John Plueger, came out of semi-retirement to launch Air Lease (AL) in 2010. Since then, the company has built a fleet of 174 jets, which are leased to more than 75 airlines. Air Lease also helps manage air fleets, so when customers lease its new planes, it also brokers the sale of their old ones. Analysts expect profits to increase 30% in 2014, but the stock sells for only 16 times estimated earnings. (All prices and related data are as of November.)

SLIDE SHOW: 24 Stocks for 2014

Cree Inc.

Cree Inc. (CREE) is a leader in the manufacture of light-emitting diodes, or LEDs. These energy-sipping bulbs, which require up to 85% less power than traditional bulbs and can last up to 25 times longer than traditional bulbs, are gaining popularity. Only about 3% of the U.S. population currently uses them, but government price subsidies are making them more popular and affordable. Cree is also stepping into the solar-power industry. That should help light up sales and profits for years to come and justifies the stock's rich price, which amounts to 34 times estimated earnings.

Eaton Corp.

An improving global economy is bullish for Eaton (ETN), which specializes in power management—from the manufacture of hydraulic systems for trucks and planes to the circuit breakers used in commercial construction. Eaton moved its headquarters from Ohio to Ireland in 2012 as part of its purchase of electronics giant Cooper Industries. The deal helped boost sales and profits in 2013. But the sluggish commercial-construction market is weighing on results. Morningstar analyst Daniel Holland thinks that business will rebound in 2014, allowing Eaton to fire on all cylinders.

General Electric

Global conglomerates such as (GE) tend to expand at the same pace as overall economic growth. So GE will benefit from an improving world economy—and then some. That's because, says Holland, GE is better than most conglomerates at creating synergies among its various operations—from aviation to health care—that help facilitate the creation of new products. Shareholders are benefiting from dividend hikes, as well as share buybacks, which will help profits grow at a 10% pace over the next few years. Plus, the stock yields an above-average 2.9%.

Honeywell Intl.

In 2010, when Honeywell International (HON) announced an ambitious five-year growth plan, analysts were skeptical. They acknowledged that the firm, which makes everything from thermostats to jet engines, was well run, but they thought it couldn't wring enough efficiencies from its operations to overcome a struggling economy. But Honeywell hit all of its goals and has turned skeptics into believers, says Stifel Nicolaus analyst Jeff Osborne. Now, Honeywell is set to put out a new five-year plan that he thinks will be even more ambitious—and will help boost the stock.

JPMorgan Chase

Over the past two years, JPMorgan Chase (JPM) has been mired in controversies, ranging from billion-dollar losses in the London Whale trading debacle to a proposed $13-billion settlement with regulators over improprieties in the mortgage market. The sideshows, though, mask the bank's underlying strength, says Raymond James analyst Anthony Polini. JPMorgan is one of the best-run banks, with a strong balance sheet and a compelling international investment-banking operation. The legal woes have suppressed the stock, which trades for just 9 times earnings.

Occidental

A major energy producer, Occidental Petroleum (OXY) has an edge over many of its peers: It gets the bulk of its energy from politically stable North America, and most of that energy is in liquid form, which benefits from a favorable balance of supply and demand. Oxy also boasts a superb balance sheet, with plenty of cash for dividends and share buybacks. To boost Oxy's long-moribund stock price, the company has launched a restructuring plan, which initially involves selling assets to raise cash. Morningstar analyst Allen Good thinks Oxy's stock is a bargain.

5 Short-Squeeze Stocks Ready to Pop

BALTIMORE (Stockpickr) -- It's been a rough year to be a short seller. Since January, the S&P 500 has climbed a whopping 26.4% -- and with the new all-time highs that the big index hit this week, it's not showing any signs of slowing down.

>>5 Stocks With Big Insider Buying

All the way up, stocks that short sellers thought were too expensive to begin with have gotten more expensive. That doesn't exactly do wonders for your conviction in a trade. As the old saying goes, "I don't mind being wrong -- but I don't want to be wrong for long". So when shorts start to cover their bets, it could fuel a short squeeze in some of Wall Street's most hated names.

Historically, that's not out of the ordinary. In fact, buying the most hated and heavily shorted large and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten the S&P 500 by 9.28% each and every year. That's some material outperformance during a decade when decent returns were very hard to come by. >>5 Breakout Trades for the Final Stretch of 2013 When I say that investors "hate" a stock, I'm talking about its short interest. A stock with a high level of shorting indicates that there are a lot of people willing to bet on a decline in its share price - and not many willing to buy. Too much hate can spur a short squeeze, a buying frenzy that's triggered by shorts who need to cover their losing bets. And with the rally we've been since last November, you can probably guess that there are lots of losing open short bets. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed. It's worth noting, though, that market cap matters a lot. Short sellers tend to be right about smaller names, with micro-caps delivering negative returns when the same method was used.

>>5 Stocks Set to Soar on Bullish Earnings

Today, we'll replicate the most lucrative side of this strategy with a look at five big-name stocks that short sellers are piled into right now. These stocks could be prime candidates for a short squeeze in the months ahead.

Salesforce.com

Enterprise software maker Salesforce.com (CRM) has been a consistent short target this year, egged on by climbing share prices and plenty red ink at the bottom of its income statement. As I write, CRM sports a short interest ratio of 13.16. At that level, it would take almost three weeks of buying pressure for short sellers to cover their bets against Salesforce. >>5 Stocks Poised for Breakouts Salesforce is a must-have application for its 100,000 customers. The firm's Web application lets users run business applications that interact with their customer lists, handling everything from sending newsletters to tracking sales. The Salesforce.com platform has a direct, measurable correlation to sales -- and that mission-critical nature of CRM's offering digs a big economic moat for the firm. The subscription-oriented sales model provides attractive recurring revenues for CRM, and it's kept the firm's top line on a very nice trajectory. It's the bottom line -- marked in red ink -- that's gotten short sellers so excited. And while it's true that CRM has been investing hard in growth (and that management's long-run profitability guesses are a bit on the high side), the firm has the ability to cut costs relatively quickly without risking revenues. CRM is a prototypical short squeeze play. Earnings in February could be the next big catalyst. Cerner In a lot of ways, Cerner (CERN) has a lot in common with Salesforce. Both firms produce high-end, wide-moat enterprise software, and both stocks are hated right now. At last count, Cerner's short interest ratio weighed in at 11.29, indicating more than two full weeks of buying pressure at current volume levels for shorts to get out. With a 50% rally in CERN year-to-date, it's a safe bet that short sellers are starting to feel a bit fatigued. >>3 Stocks SPiking on Big Volume Cerner provides health care facilities with the hardware and software to implement electric medial records. Today, almost a third of U.S. hospitals use Cerner's Millennium platform to store everything from patient medical data to financial records. It's not just hospitals either; pharmacies and physician offices are using Cerner's platform to manage their records too. With government rules to implement electronic systems for patient records, going to a firm like Cerner isn't just cost-effective, it's mandated by law.

Getting paid is another big incentive for medical facilities to embrace Cerner's Millennium platform. Cerner's offerings cut down the administrative steps needed to get practices and hospitals payments from either insurance companies or government programs. That helps lessen the blow of a costly medical IT package. While CERN isn't cheap at its current valuation, momentum is clearly in favor of shares right now -- and a short squeeze could help push this stock even further.

M&T Bank

There's no two ways about it: Investors hate M&T Bank (MTB) right now. With a short ratio of 10.06, M&T is the most heavily shorted big banking name out there, in fact. But that hate is misplaced.

>>4 Stocks Under $10 in Breakout Territory M&T is a $15 billion regional bank with a big presence in the mid-Atlantic and parts of the Northeast. Don't let the "regional" moniker fool you -- M&T ranks as one of the 20 biggest banks in the country, with more than $83 billion in assets under its belt. But being a regional bank has historically meant that M&T kept up stricter underwriting rules for its loan book than its bigger peers, and as a result, M&T was charging off less than a quarter of what big banks were still determining to be worthless as recently as last year. M&T currently sports a 2.4% dividend yield, a payout that puts it on the high end of publicly traded banking stocks. That's also a testament to regulators' opinion of MTB's financial wherewithal. Since dividends need to get approved by the Feds, the bank's payout has gone through some scrutiny. With a rise in interest rates all but inevitable eventually, the spread that M&T is able to earn should continue to widen in the years ahead. That increased earnings power looks discounted right now, in spite of short sellers' presence in this stock. Fastenal The nation's warming economic engine is providing some big growth prospects for industrial supply company Fastenal (FAST). Yes, you could certainly argue that Fastenal's business isn't particularly exciting -- it's not. But this stock's growth rates are exciting, with sales and profits expanding in each of the last four straight years.

>>5 Big Trades to Take for a Fed Taper

Fastenal's business is built on providing must-have supplies to other businesses. One of Fastenal's biggest benefits is its huge product catalog. The firm carries more than 410,000 types of fasteners and more than 585,000 maintenance and repair products, an inventory that makes each of Fastenal's 2,700 brick-and-mortar locations a one-stop shop for its customers. A high concentration of consumables provides recurring revenues for Fastenal -- customers go through products like air filters, paper towels and packaging products on an ongoing basis. Even if margins on those staple offerings are lower, they help attract bigger-dollar sales of power tools and furniture.

It's hard to argue with Fastenal's financials. The firm has been a shining example of internal growth, eschewing debt in favor of using cash flows to finance new store locations and inventories. Still short sellers hate this stock -- and that's propelled shares' to a short interest ratio of 14.88. With three weeks of buying just to cover sellers' bets, FAST is a prime short squeeze candidate.

Staples With shoppers eyeing big Black Friday sales this week, it'd be a mistake to ignore what's going on at Staples (SPLS). While the office supply superstore is probably best known for supplying offices around the world, the firm is also a huge seller of consumer products -- and it's the second-largest online retailer in the world. Right now, SPLS sports a short interest ratio of 10.37. >>5 Dividend Stocks That Want to Pay You More Almost half of Staples' business comes from its corporate delivery business -- the firm's acquisition of Corporate Express in 2008 gave Staples a foothold in the niche, replete with high switching costs and a hard-to-replicate delivery network. On the retail side, Staples' more than 2,000 stores worldwide give it a hard-to-match presence on the ground. A big factor in SPLS' segment-beating margins has been an abundance of private label offerings, from sticky notes to pens. With economies of scale that smaller rivals can't match, Staples can move more SKUs more cheaply than ever before. The missteps of the other big office supply chains have demonstrated that Staples' business is a tough one to remain competitive in. But the firm's attractive mix of corporate, online, and retail sales combined with deeper margins mean that SPLS currently has a margin of safety that its rivals don't have. With shares outperforming the S&P 500 by around 10% year-to-date, short sellers are a whole lot more sensitive to upside at this point - watch for the next catalyst.

To see these short squeezes in action, check out this week's Short Squeezes portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS: >>4 Stocks Under $10 Moving Higher >>4 Stocks Breakout Out on Unusual Volume >>5 Stocks Under $10 Set to Soar

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At the time of publication, author had no positions in stocks mentioned. Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji

The Trouble with Index Funds

Nowadays everybody loves index funds. What's not to love? On average, index funds outpace roughly two-thirds of actively managed funds. And because most major market indexes are way up since the nadir of the bear market on March 9, 2009, anyone who has been in an index fund since then has undoubtedly earned a lot of money.

See Also: How to Pick the Best Index Funds

Consider just a few performance numbers: Standard & Poor's 500-stock index has returned an annualized 25.6% (192.2% on a cumulative basis). The Russell 2000 index of small companies has done even better, soaring an annualized 29.9% (242.2% cumulative). The MSCI EAFE index, which follows stocks in developed foreign markets, has risen an annualized 20.8% (143.2% cumulative). Even Barclays Aggregate U.S. Bond index, which tracks the high-quality part of the domestic bond market, has gained an annualized 5.1%, or a cumulative 26.5%. (All returns are through November 19.)

Any half-decently run index fund has matched the returns of those indexes, minus 0.1 or 0.2 percentage point to account for fund expenses. So why bother with any other kind of fund?

Here's the rub: Stock-index funds seek to reflect the overall stock market, and that means tracking the market's downs as well as its ups. Most investors want to be cushioned from the brunt of bear markets, and actively managed funds are a better place to look for that protection. That's why a mix of index funds and actively managed funds may be your best bet as an investor.

It's no coincidence that index funds have increased in popularity during the current bull market. The charm will likely fade for many during the next bear market. During the last bear market, when the S&P 500 plunged 55.3%, many investors flocked to actively managed funds that promised some relief from the pain—whether by holding cash or bonds or buying stocks that were less volatile than those that dominate the S&P 500, the most popular index for passive funds.

Don't get me wrong. There's a lot to like about broad-based index mutual funds and exchange-traded funds, most of which track indexes. (I'd avoid most of the narrow ETFs, which are proliferating like rabbits.) Index funds are cheap, especially if they come from a low-cost firm such as Vanguard. It's easy to pick index funds; you don't have to pore over newsletters, fund reports and magazine articles. Index funds are tax-friendly in that they don't pay out big capital gains the way actively managed funds do. Finally, broad index funds offer diversification—the one free lunch in investing.

But don't put all your money in index funds, especially if you're worried about the next vicious bear market. That's ample reason to favor funds that should produce solid returns in good markets but that also held up relatively well in the 2007-09 massacre. For example, FPA Crescent (FPACX) lost only 27.9% during the bloodbath, compared with a 55.3% plunge for the S&P 500. Others that held up reasonably well were Matthews Asian Growth & Income (MACSX), down 39.4%, Vanguard Dividend Growth (VDIGX), off 42.3%, and Yacktman Fund (YACKX), down 46.5%.

Index funds don't have those shock absorbers. "There are a lot of good defensive strategies in active management," says Russel Kinnel, director of fund research at Morningstar. Of course, the trick is to find good actively managed funds. Many actively run funds lost as much as or more than index funds during the last bear market.

When to use index funds? Start with large-company U.S. stocks. These companies are so widely followed and so carefully scrutinized by investors and analysts that it's difficult for active managers to add value through their stock-picking skills. Large foreign companies in the developed world are almost as thoroughly researched.

When to use actively managed funds? When you can find a relatively low-cost fund that has produced strong risk-adjusted results compared with its benchmark over a long period (at least five years) under the same manager.

In more normal times, index fund investors could sensibly reduce their portfolio's overall volatility simply by increasing their allocations to bonds and cash. But these are still not normal times, and the outlook for high-quality bonds, particularly bond index funds, many of which are filled with government debt, is dismal. Even John Bogle, the former Vanguard Group chief who was instrumental in bringing index funds to the masses, says to avoid generic bond index funds because they own too many government bonds, which are especially susceptible to rising interest rates (bond prices and rates move in opposite directions). And cash, of course, is earning almost nothing.

For most of my money, I'd rather have a manager such as FPA Crescent's Steve Romick decide how much to invest in stocks, bonds and cash—and have him change those allocations a bit as opportunities emerge. Or I'd like a fund such as Yacktman, which takes a low-risk approach to the markets by loading up on inexpensive, high-quality stocks.

Low-volatility funds, which are becoming more popular, are intriguing. They start with a regular index and remove its most-volatile stocks. But these funds are too new and untested for me to trust yet. The ones I've looked at have big exposures to some industry sectors and little to others. They're not truly index funds—at least they don't fully reflect the overall market.

To me, a mix of index and actively managed funds makes the most sense. That way you keep your costs low and keep your risks relatively low, too.

Steven T. Goldberg is an investment adviser in the Washington, D.C., area.

Will Endless Bank Charges and Settlements Kill the Economy?

Bankers are still not very well thought of after the financial meltdown, even if they might not have ben that well thought of before the meltdown. Still, at some point the public needs to understand that the endless fining, settlements, and then new attacks on the banks is not helping things along in the economy. A report was put out in recent days by SNL Financial showing that big banks have settled for over $65 billion in fines so far. The report is also calling for more big settlements to come and we have seen even worse figures elsewhere.

Bank of America Corp. (NYSE: BAC) was in 2012 where J.P. Morgan Chase & Co. (NYSE: JPM) finds itself now. BofA took on endless liabilities with Countrywide and Jamie Dimon did not get the preferential post-meltdown treatment he expected for scooping up Bear Stearns to keep the system running. The largest banks have paid this amount in the last three and a half years and these settlements have involved the likes of Wells Fargo & Co. (NYSE: WFC) and Citigroup Inc. (NYSE: C) as well.

What gets hard to imagine is where the charges and the settlements end, as well as how long the fines have to keep coming. SNL predicted that these huge charges, fines, and settlements would continue. We agree and think that the government agencies are in domino-attack mode. One major charge and settlement only begets another, likely from another rival agency or group. A settlement with the Department of Justice triggers the Securities and Exchange Commission to go after the banks from a securities and investor angle. A federal settlement triggers similar moves by states. It can be endless.

Now there is something else to consider. There were reports even back in August that the six largest banks in America have paid out a whopping $103 billion just in legal costs since the meltdown. Bloomberg said that this applied to charges from lawyers and litigation, and from settling mortgage and foreclosure claims.

We do not expect America to become fond of bankers any time soon. Those “Have You Hugged Your Banker Today?” tee-shirts have not started appearing in stores just quite yet. What the public (and regulators) need to understand is that these claims have risen and risen, and still seem to keep rising. This is at the same time that capital reserves have been forced significantly higher as well.

When banks settle with any branch of the government and when they have to put more and more cash aside just to be held in reserves, take a guess what it does for their desire to make new loans. Now consider how eager you would be to take on the risk of a loan when the Federal Reserve is artificially keeping interest rates lower than they should be.

Now go one step further. If your credit score is bad, or if you have a blemish from your past, what are your chances of ever getting a bank loan over a solid credit profile when reserves are going up and when settlement payments are eating at that cash?

The end game is that loan demand is low on its own, but banks are frequently accused of only lending money to people or companies that do not really need the money. That may be more and more true by the day if these settlements and legal bills keep piling up.

These banks paid back the TARP bailout, for a net profit to the taxpayer. We would also like to remind readers that most of the mergers that banks are still getting to pay fines from were in mergers that were often mandated by regulators at the peak of the meltdown.

It is hard to know when normal a normalized business climate will be allowed to return. What is known is simply “Not Yet.” Even if the endless attack on banks does not manage to kill the economic recovery it should be easy enough to see that extending the same charges and settlements endlessly will start to do more harm than good.

Here is the chart from SNL showing the major settlements:

Source: snl.com

Bond manager in 'big short' misled CDO investors, SEC claims

Wing F. Chau, the bond manager who sued Michael Lewis over his depiction in the 2010 book “The Big Short,” was accused by regulators of violating his fiduciary duty by accommodating requests from Magnetar Capital LLC in managing financial products linked to subprime mortgages.

Mr. Chau, 46, and his firm Harding Advisory LLC didn't disclose giving Magnetar veto rights over selection and acquisition of mortgage-backed assets for a 2006 collateralized debt obligation known as Octans I, the SEC said in an administrative order filed Friday. Magnetar bet against the CDO, which cost outside investors $1.1 billion when it collapsed in April 2008, the SEC said. Harding got $4.5 million for its role in the transaction.

“A collateral manager's independent selection of assets is an important selling point to potential CDO investors,” George Canellos, co-director of the SEC's enforcement division, said in a statement. “Investors had a right to know that Harding and Chau had chosen to accommodate the interests of others and abandon their own obligations to act in the best interests of the CDO they advised.”

Managers such as Mr. Chau were integral to the proliferation of mortgage-linked CDOs in 2006 and 2007 as defaults on subprime loans increased. Collateral managers picked the securities that went into CDOs and held themselves out as independent agents.

The SEC has focused on those financial products' role in helping fuel financial market turmoil in 2008, reaching record settlements with the banks that underwrote them. In 2010, Goldman Sachs Group Inc. agreed to pay $550 million to resolve claims it misled investors about a hedge fund's role in selecting assets for such an investment.

The SEC last year dropped a lawsuit against former GSC Capital Corp. executive Edward Steffelin related to his work as a collateral manager for a CDO involving Magnetar. JPMorgan Chase & Co. agreed to pay $153.6 million over claims it misled investors in underwriting the deal.

Mr. Chau understood that Magnetar was interested in investing as an equity buyer in CDO transactions, and that the firm's strategy also included hedging that position by betting against the debt issued by the same instrument, the SEC said. Because Magnetar stood to profit if the CDO failed to perform, Mr. Chau knew that Magnetar's interests were not necessarily aligned with other Octans I investors, whose investments depended solely on the CDO performing well, according to the order.

Magnetar's Influence

Magnetar's influence over the portfolio was omitted from materials used to solicit investors for the CDO, and Mr. Chau and Harding misrepresented the standard of care t