Table of Contents

1.  Market Outlook
2.  Foreign-Focused Closed-End Funds
3.  NGP Capital (NGPC)
4.  Additional Investing Ideas

Today's Top Stock Picks

Capture 10% Yields in Foreign Markets by Investing in Closed-End Funds
International investing can be easier than you ever thought possible, thanks to the emergence of international closed-end funds. Read More. . .

Lock in a 12.6% Yield with NGP Capital (NGPC)
NGP offers debt and equity financing to small and mid-sized energy companies and has increased its dividend over +100% in the last three years. Read More. . .

Market Outlook

Had it not been for Leap Day, the major averages would have escaped the month of February with roughly breakeven performances. The Dow, for example, had enjoyed gains in four of the previous five sessions and was sitting at 12,582 — just half a percentage point away from where it started the month. However, Friday's 315-point freefall changed all of that.

The week started off promisingly, with the Dow rallying nearly 200 points Monday on news that troubled bond insurer Ambac Financial (NYSE: ABK) was holding on to its coveted "AAA" credit rating. There was also some optimism surrounding a big announcement on the merger & acquisition front, as video game publisher Take-Two Interactive (Nasdaq: TTWO) received a $2 billion takeover offer from rival Electronic Arts (Nasdaq: ERTS).

The market continued to tack on additional gains later in the week, despite unsettling news that inflation at the wholesale level (as measured by PPI) spiked +7.4% over the past 12 months — the sharpest annual increase since 1981. And judging by the troubling recent uptick in the CPI, it's clear that rising costs are being passed along to the consumer.

Through it all, the major averages were showing solid gains until dismal quarterly earnings from insurer American International Group (NYSE: AIG) and a weak read on business activity in the Midwest stung the market on Friday — leading stocks to another down week and their fourth-straight monthly setback.

To snap that losing streak, it would help to start out on the right foot in March. And that task hinges largely on what we find in the pages of key upcoming economic reports. On this week's docket we have an ambitious release schedule, including the latest data from the service sector and February's non-farm payrolls report.

In the meantime, last week's sell-off has left plenty of stocks trading at discounted prices. Better still, many of the closed-end funds investing in them are also trading at discounts to their net asset value (NAV) — in essence giving investors an extra 10% or 15% off of what were already bargain-bin prices. Below, Nick Lanyi, editor of StreetAuthority's new High-Yield International newsletter, explains how these funds can put a charge in your portfolio once those discounts narrow.

Also on tap for today, High-Yield Investing editor Carla Pasternak drills down into NGP Capital Resources (Nasdaq: NGPC, $16.31). Would you like to get in on the ground floor of up-and-coming energy companies? That's all this business development firm does, and its shareholders have seen their distributions soar +118% over the past three years.

Good Investing!

— Nathan Slaughter
Co-Editor
TopStockAnalysts Digest

What is a Closed-End Fund?
A closed-end fund is basically a cross between a mutual fund and a common stock. The fund raises capital through an initial public offering, and it then uses the proceeds to invest in a basket of securities. This basket is hand-selected by professional managers, and it typically concentrates on a specific industry, country, region, or sector.

Unlike mutual funds, closed-end funds are listed on one of the major U.S. exchanges. You can buy shares in a closed-end fund directly from your broker, and when doing so, you can generally expect to pay the same commissions you'd pay to buy a normal stock. Better still, closed-end funds trade throughout the normal trading day, so you can buy and sell shares anytime you wish.

In addition, there are no minimum investment requirements. You can buy closed-end fund shares in any amount you desire. Many are highly liquid and trade hundreds of thousands of shares every day.

Closed-end fund managers also don't have to cope with a constant influx and redemption of cash investments. When a fund lists on the exchange, it raises a certain amount of capital just like a normal stock in an initial public offering (IPO). Investors in a closed-end fund can't ask for their investment back — they can only buy and sell their shares in the open market. This means closed-end fund managers essentially have a fixed pile of cash to work with. They don't have to cope with the daily inflows and outflows of cash that mutual fund managers do. As a result, their expenses and fees are typically much lower than for mutual funds — often as low as 0.75% of assets annually.

And, of course, closed-end funds offer many of the same advantages as mutual funds. These include instant diversification and professional management expertise.

Like mutual funds too, these funds offer investors a chance to invest in many different market segments — some funds focus on particular international markets, different industry groups, or specific strategies such as income investing. In fact, one of the big benefits of closed-end funds is that they can give investors access to high-yielding global stocks that would be very difficult for individual U.S. investors to buy directly. (More on this in a moment.)

A Profitable Quirk
There is one major feature of closed-end funds that all investors should be aware of. This feature, if fully understood, can offer an advantage to the astute investor. However, if not taken into consideration, it can be detrimental. Specifically, I'm speaking of the concept of premiums and discounts.

Closed-end funds trade on the major exchanges just like stocks. Their price is determined not by the value of the investments they hold, but instead by the supply and demand for each fund's shares. Let's illustrate with a simple example: suppose you hold a closed-end fund that owns 100 shares of IBM trading at $100 per share. The value of that investment is $10,000. This figure is referred to as the fund's net asset value (NAV). Furthermore, let's assume that the closed-end fund in question has a total of 1,000 traded shares. In this particular example, the fund's NAV per share would be $10.

However, just because the fund's investments are worth $10 per share does not necessarily mean that the closed-end fund will trade at $10. If investors sell the fund's shares en masse, then the price of the fund on the market could well drop to $9 — in this case, the fund would be trading at a -10% discount to its NAV. On the flip side, if investors, caught in a bullish mood, decide to aggressively buy the shares, then the fund could trade up to $11 or $12 per share. In this type of situation, the fund would sell at a premium to its NAV.

Although it might seem as though closed-end funds should trade at or near their NAV at all times, in practice this is definitely not the case. In the past, I've seen funds trade at premiums or discounts of more than +/- 20% of NAV for short periods of time.

Over the long term, however, closed-end shares do tend to revert to their NAV. With this in mind, it's a good idea to buy funds that are trading either at discounts to their NAVs or at levels very close to their NAV. If you can buy a fund at a discount, then you're essentially buying that fund's assets — the stocks and bonds held by the fund — at a bargain price. In this case, you stand to profit if and when that discount window is ultimately closed.

Using Foreign Closed-End Funds to Capture High Yields
Over 93% of the world's highest-yielding stocks are located in foreign markets.  But taking advantage of those securities is no easy task — it's often difficult for U.S. investors to purchase foreign stocks directly.

However, the good news is that investors can gain easy access to high-yield stocks by investing in closed-end funds.  And right now, a select handful of foreign-focused funds are dishing out enormous double-digit dividend yields.

In a recent issue of my monthly newsletter, High-Yield International, my staff and I provided an in-depth profile of three high-yielding funds. Among them, a closed-end fund that's delivering an impressive 9.2% yield and is benefiting from one of the fastest growing economic regions in the world — Asia.  This fund is also selling at a bargain price, trading at a -13.9% discount to its NAV. 

I also found a Spanish fund that's delivering a mouth-watering 10% yield. At first glance, this Old World country may not seem like a terribly exciting place to invest. However, Spain is actually delivering some of the best returns on the planet.  The Spanish market has skyrocketed over the past five years, and this fund has followed suit, returning +32.8% per year.

If you'd like to learn the name of these securities — plus receive a steady stream of foreign stocks, funds and other investing ideas with abnormally high dividend yields each month — then I'd like to extend you a personal invitation to try my premium international investing newsletter . . . High-Yield International.  Please visit this link to learn more.

NGP Capital Resources (Nasdaq: NGPC, $16.31) is a business development company that provides financing for small and mid-sized energy companies.

NGPC is affiliated with privately held NGP Energy Capital Management, a Texas firm with more than $3.5 billion in capital. The company focuses on domestic oil and gas firms and midstream companies that process and transport oil and gas. It also invests in coal, power generation and distribution, and alternative energy companies. It offers debt financing of between $10 and $100 million and may take small equity stakes in the firms in which it invests.

Based on the latest quarterly dividend of $0.515 per share, the company carries a forward yield of 12.6%. Over the past four quarters, NGPC has distributed $1.44 per share, giving the stock a trailing yield of more than 8.8%.

NGPC's objective is to pay out the majority of its taxable income to shareholders. As earnings have increased, yearly payouts have risen sharply, shooting up from $0.66 per share in 2005 to $0.92 in 2006 to $1.44 in 2007. Over the three years, that amounts to an increase of +118%!

Of the $1.44 per share paid out for 2007, $1.13 came from investment income taxable at your ordinary income tax rate and $0.31 from capital gains taxable at the 15% rate. As such, the stock is suitable for a tax-deferred account.

As of the end of the third quarter of 2007, NGPC held interests of some $425 million in 16 companies. About half of the portfolio was in senior notes similar to preferred shares. The company also held nearly a third of the portfolio assets in Treasury bills awaiting investment opportunities. The weighted average yield of its investment portfolio was 12.2%, excluding Treasuries.

NGPC is growing rapidly, but investors should be aware that a sharp fall in oil and gas prices created by a deep recession could derail the ability of some of its portfolio companies to repay their debt. Still, oil and gas would have to drop significantly below current levels for that risk to be significant.

Action To Take —->  NGPC has a history of both rising earnings and distributions. It is a suitable stock for investors who are willing to assume the risk that oil and gas prices will remain robust, despite a possible U.S. economic slowdown.